Epidemics of American Capitalism

8/9/2019 Epidemics of American Capitalism

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Epidemics of American 1

Running head: EPIDEMICS AMERICAN CAPITALISM

Epidemics of American Capitalism

Parish M. Kaleiwahea

Wayland Baptist University

MGMT 5326

Dr. Tod Outlaw

June 16, 2010


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Abstract

Capitalism and Globalization have been mixed with activists

arguing that it has led to enhance economic standards of living.

China, India, and East Asian countries are considered as having

financial growth because of their willingness embrace American

free enterprise economic practices and culture. However, critics

claim that American variance of capitalism has raised income

disparities, poverty, drugs, crimes and destabilized local

economies. They point to examples of Latin America and Africa

where the adoption of our free enterprise economic systems has

spread havoc and chaos. The paper advocates how Globalization

was a by-product of American Capitalism. The first section

summarizes the background of capitalism and globalization. The

second portion introduces the three epidemics that cultivated

the American version of the free market. The third section will

focus on the benefits and the criticism of American Capitalism.

The lastly the final section will try to refute the critics'

arguments that free enterprise is the only system that can

produce worldwide prosperity.


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Epidemics of American Capitalism

The Berlin Wall: 1961-1989. Rest in pieces! (Eugene

Elander, 2009) The author recaptures the historic day back in

1989 in his article And Berlin wall came tumbling down!

Elander recounts emotions to a package with pieces of the wall

received from a friend who watched the demolition and at the

same, time, witnessed the fall of communist strangle hold that

had suppressed one country and its people for over 20 years. The

fall of the Iron Curtain represented a gigantic move towards the

spread of Democracy and the free market. Today, Capitalism has

quickly emerged as the leading economic system around the world.

This system is based on the premise that private

individuals or companies own the manufacture and production of

goods and services. This contrasts with the Communist control of

the economy, which guides the industry, agriculture, trade, and

commerce. An entrepreneur system is the theory that competition,

privatization, and income will bring wealth and success to the

entire population. There are different forms of capitalism,

which advocate minimum or reduced involvement of the state in

the economy. The most well liked type of capitalism that is

being advocated is the neo liberal economic system that has been

championed by the Western countries. However, regardless of

whether it is a dictatorship or commonwealth, any large-scale

political unit is a complex system. In this case, countries


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under Marxist rule loss control of their system since it did not

promote the stability it needed to manage and cultivate its

economy. Most countries have an organized central authority

either a family sovereign member, elected president or appointed

official; however, the authority of any head of state is always

embedded within economic, social, and political relations over

which he or she is selected to be responsible. Even so, the

nation show signs of many of the characteristics that the leader

or government body puts in place.

Nevertheless, the context of our history is rarely

acknowledged when looking for patterns or clues to find out what

was the root cause of trend. One could look back at the demise

of the Communist regime and try to understand their fall from

grace. What was the tipping point for Union of Soviet Socialist

Republics and Eastern European communist countries? What turning

point signs did they have to replace their radical socialist

rule that provided for their livelihood for decades? More

importantly, was it American arrogance to capitalism that

enticed other countries to embrace Democracy and United States

citizens way of life? This paper will examine what influences

Globalization had on capitalism and try to understand the

relationship between the two. It concludes by acknowledging the

benefits the world had because of American capitalism. Its

relationship on Capitalism; in addition, it will provide an


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overview of the arguments used by both sides. It concludes that

American Capitalism has been beneficial for the world. Is it a

merely a mirage that will lead to an implosion on the world

economy or is it the answer to the world's population for the

pursuit of contentment?

To understand the global shift in the paradigm, we must

expose some of the changes that brought us to this point.

Malcolms Gladwells book the Tipping Point is about change and

offers a fascinating and insightful way to understand why change

so often happens as quickly and as unexpectedly as it does. The

author claims that ideas, behavior, messages and products

sometimes behave just like outbreaks of infectious disease. The

Tipping point deals with social epidemics that surround us and

looks at history to pin point outcomes of todays attitude

generation after generation everything from culture, music,

dress, and politics changes frequently in a very unusual way

"look at the subtle, the hidden, and the unspoken." (Gladwell

2002) What events caused the widespread of American Capitalism

throughout the world? The signs were understated, events were

overlooked, but in the end, Globalization was the root cause for

the new face American Capitalism, and that the tipping point was

slight, slow, and unwanted way of denying that people of the

world had accepted Democracy and have chosen that to be the only

way for prosperity?


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Development of American capitalist beliefs

Context Background

Capitalism as a concept has existed in one form or the

other in society. These concepts and theories have evolved with

the gradual transformation of societies. The Industrial

Revolution of the nineteenth century is considered the period,

which is marked, by the growth and expansion of free enterprise

as an economic ideology. Perhaps the earliest concept of modern

capitalism was formulated by Adam Smith. He believed that the

drive for profit could have benefits for society. Karl Marx and

Max Weber also contributed important ideas for the development

of capitalism. Marx was an opponent of capitalism because he

believed that it exploited the workers treating them as

commodities. The exploitation is unethicalin that it places

limits on the productivity and satisfaction of the workers by

taking away the fruits of their labor (Quigley). He believed

that an international revolution led by the workers would

eventually topple the capitalist system. He also believed that

the capitalist system is inherently exploitive and breeds

injustice. Webers Thesis as the view that the rise of

industrial capitalism was facilitated in Protestant regions.

(Becker 2007) Weber identified the principles of capitalism that

created efficiency and effectiveness inside the economic system.

He believed that Protestants were instrumental in the


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development of capitalism because of their belief in working

hard to earn a living.

The United States emerged as a major superpower after the

First World War and even consolidated its strength as the Second

World War ended. It exercised its muscle by establishing many

organizations to introduce the new form of Capitalism with an

American look. Institutions such as the United Nations,

International Monetary Fund and the World Bank were created with

the goal to protect American business among other trading

nations. Additionally, it gave the United States an upper hand

when dealing with developing countries especially if the country

required capital to invest in their countys economic growth.

Robert Skidelsky article: New Face of American Capitalism and

its impact of the world explain the new world leaders role for

the United States.

It is globalization, rather than IT, which most

distinctively displays the new face of American capitalism.

Globalization is an American process driven by

distinctively American ideas, pressures, and policies. It

is routinely and placidly defined as economic integration

across frontiers But its central concrete feature has been

the massive transfer of manufacturing capacity from high

wage to low wage countries. A new global division of labor

is emerging in which developed countries concentrate on


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increasingly on services, and developing countries like

China act as manufacturing assembly plants at fraction of

western wages. (Skidelsky 2007)

The Global economy wears the mask of American capitalism. For

many it could lead to their country catapulting out of pervert

and into the wealth and prosperity.

The arrival of globalization has accepted the free

enterprise concept. Whereas, trading of good services are no

longer contained in the sandbox but can be available twenty

fours a day 365 days of the year. The technology boom in the

early 90s, continue to flourish in the new millennium. Business

expansion is almost limitless because it allows real time data

to exchange hands in millisecond instead of months for a

transaction to get approved from one country to the next can now

be mitigated in some case less than two hours. The globalization

of today needs to be visualized in much broader conceptual

framework, emphasizing the interaction between diverse economic,

ecological, political, socio-cultural, and technological

factors. In short, we can say that it is an overarching

international system shaping the domestic politics, culture,

economy and foreign relations of virtually every country

(Friedman, 2004).

American Capitalism Three Tipping Points

Closing the door, breaking the wall, and the invitation


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American Capitalism is way we conduct our Global business

today, but it continues to intrigue as it was at its time of

inception. However, can one point to its origin? Examining its

impact with the world today it can be argued that the success of

the spread of democracy can be attributed to three social and

political epidemics throughout worlds history.

In the early 1500s China had the largest Navy fleet in the

world. Chinese Admiral named Zheng He commanded a fleet of over

300 vessels and 28,000 men compared to Spains famous explorer

Christopher Columbus. The Chinese ships were far superior to any

nation during that era. Between 1405 and 1433, Zheng traveled

wildly throughout world and exchanged commodities and ideas

among neighboring nations. However, by 1430 the new emperor

abruptly ended all of the trade and exploration. One of the

first indicators of the new Chinese ruler was what Kennedy calls

China's decision under the weak emperors who followed Yung

Lo "to turn its back on the world" (Kennedy 7). Kennedy

when on to say In the 15th century, China was

technologically superior to Europe in many fields. In 1436,

an imperial edict was issued forbidding the construction of

ocean going vessels. Foreign missions and voyages were

banned. Trade and even contact with foreigners were

officially discouraged overall; China remained isolated

from the rest of the world between the mid 15th and the mid


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19th century.

Fairbank says that "Ming China . . . missed the boat of modern

technological and economic development" (Fairbank 138). Kennedy

says "a key element in China's retreat was the sheer

conservatism of the Confucian bureaucracy" . . . [which] wished

to "preserve and recapture the past, not to create a brighter

future based upon . . . overseas commerce" (Kennedy 7-8). If

China continued it dominate the sea-lanes and trade some can

argue that the exploration history would be different from

todays textbooks. Chinas emperor to cut all ties with the West

edified other nations to take advantage of Navy expeditionary,

trade, and capitalistic opportunity in the world market.

The end of the Cold War brought the obliteration of the

Communist empire; more importantly, it provided a new and

hopeful beginning for the entire world. After continued silent

war propaganda among the super powers the United States and the

Soviet Union had reach a tipping point of despair. After

countless attempts to maintain social, political, and economic

prowess the Soviet Union could no longer live in mediocrity. It

decided to pursue Americas style of Governing privatization and

slowly transition towards democracy through

internationalization, globalization, and Americanization that

demanded the use of American Capitalism for industrial and

economic growth for the former Soviet regime.


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Chinas appointment to the World Trade Organization in 2001

was regarded at the time to be a significant economic

achievement for China. It signified a hybrid epidemic since two

countries would benefit the most from its induction into the

WTO. Chinas struggle as non-trading member since 1978 when it

first opens its doors for Global business ventures. By not

allowing China into the WTO, their growth rate crawled almost to

a standstill. Chinas WTO accession has huge impact in the

domestic, regional and world economies. China accession to WTO

stood out since it was the only nation in the bloc that followed

communist ideology. The country joined a body that embodies free

trade and liberalization, which was clearly in conflict with

communist ideologies. Since its induction of the WTO, the

Chinese government continues to embrace and practice a market

economy, and it has become very competitive. In addition, China

was also granted a grace period over which it would carry out

reforms in its financial sector. A timetable was put in place

indicating the liberalization program across the regions, which

would eventually see the sector opened to foreign institution by

2006.


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(Hansakul, Syetam, 2004)

The government also opened up insurance industry to foreign

firms. Foreign insurance firms were allowed greater geographical

coverage and 50 percent joint ownership by June 2003, there were

about 11 foreign insurance firms. The table below shows the

number of foreign owned financial institutions in the country by

June 2003.

(Hansakul, Syetam, 2004)

Chinese decision to shut out the world, the fall of Communism,

and WTO invitation for China carved the sculpture of American

Capitalism these events, which seem subtle, unrelated, and

without incident encapsulate our continued dominance of the

Global economy. However, have citizens of the United States

considered the impact to the spread of American Capitalism

pandemic.


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American Capitalism Benefits

Decentralization & Developing Country miracles

One of the key features of the capitalist system is that

decentralization allows the use of many innovative solutions for

problems. Competition leads to companies finding superior

solutions that can satisfy the aspirations of the world economy.

Socialism or communism creates flaws because it retards

creativity and innovation. Any individual that has a brilliant

solution cannot experiment with in inside a centrally planned

economy. The government sets the targets for the achievement of

production that breeds corruption, stagnancy, and static growth

for industries. Limited intervention of the economy has been

criticized by some schools of capitalism. They argue that this

brings recessions and collapse of the economy. Some researchers

insist that the Great Depression was caused by the flawed

policies of the Federal government. Latin America during the

1980s and 1990s witnessed a wave of free market systems being

implemented. The result was that state owned enterprises that

had been heavily subsidized and protected by the government now

had to open themselves to competition and profit. They were

inclined to provide superior services and goods for the

citizens. Empirical studies conducted of Latin American nations

found that private organizations increased their efficiency and

effectiveness due to privatization. Unproductive workers were


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laid off which reduced the costs of these organizations. It also

created a new group of consumers because of income increases and

new job opportunities. The GDP of individual nations began to

increase while inflation was curbed due to the market reforms

(Federal Reserve Bank of Dallas, 2002). The volume of sales

intensified because of the creation of a huge consumer market.

The governments also witnessed benefit in the form of reduced

expenditure after the closing of subsidies.

The Chinese economic miracle has been due to the adoption

of free market system. The Chinese government initiated a

massive program of economic liberalization and opening its

markets in the late 1970s by abandoning the socialist planning

(Parsad, 2007). The economy has grown annually with a rate of

ten percent. Poverty has been reduced with income generated for

a large section of the population. Agriculture was liberalized

and privatized by the government as it moved from the communist

system. State industries were given considerable degrees of

autonomy and freedom to make decisions. Private industry was

encouraged in the services, retail, and manufacturing sectors

(Parsad, 2007). Banking system was implemented while foreign

direct investment was invited inside the country. Exports and

trade comprise the bulk of the Chinese economic performance.

Investments in agriculture and industry have led to the country

acquiring tremendous resources in exporting and catering to its


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huge consumer market. Another nation that has become one of the

largest economies in the world is India. During the early 1990s,

the government abandoned its years of socialist and centralized

planning that had created inefficient and static industries.

Economy was on the verge of bankruptcy when the markets were

opened. Foreign investment was invited while the banking and

services sectors were organized along the lines of modern

nations. Industrial productivity increased with the rise of an

Indian middle class. India and China have been the leading

examples of how capitalism can breed efficiency and productivity

in the economic system. Poverty rates have been significantly

declined because of the economic reforms implemented in China

and India (Srinivasan, 2006). Moreover, a study by The European

Journal of Comparative Economics illustrates a side-by-side

comparison of China and India successfully integrated into the

world economy.

Balance of payments statistics show that a large part of

Chinas payments for services are linked to merchandise

trade (transport, insurance, royalties, Table 4). In

2006, China accounted for 5% of the international payments

for transport services and for 8% of payments for insurance

services. India has taken a very strong position in

computer and information services exports, with almost one

fifth of world exports. Its payments for transport services


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also increased (to 3.7% of world total in 2006).

(Bensidoun, Lemoine, nal 2009)

Table 3 - China and India: degreeof economic openness

In percent

China India

1995 2006 1995 2006Exports of goods and services/GDP 23 40 11 23Exports of goods/GDP 18 37 9 14Exports of services/GDP 5 3 3 9Manufactured exports/manufacturing 51 93 39 60Services exports/services value 8 9 5 17FDI inflows/GDP 5 3 1 2FDI outflows/GDP 0 1 0 1

Source: World Bank (2007b).

Criticism of American Capitalism

Promote exploitation and unfairness

Capitalism has been criticized because it is considered to

breed exploitation and injustice according to socialists and

communists (Nozick, 1998). Others believe that some form of

government regulation and interference is vital to prevent

recessions and depressions. Marxism was a leading critique of

capitalism that advocated the use of violent revolutions by

workers to overthrow these systems. Some sects of religions have

also spoken out against capitalism because it promotes interest

and materialism. One criticism leveled against capitalism is

that it leads to the creation of income disparities. It also

tends to favor some segments of society at the expense of

marginalized communities. Crime, drugs, unemployment, social


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dislocations, and other social problems also increase under a

capitalist system. The free market system leads to the creation

of monopoly by the private organizations (Rea, 2007). The market

becomes dominated a group of organizations which concentrate

wealth and power in their hands. Imperialism and neo colonialism

are termed as being promoted under the pretext of the capitalist

system by anti globalization groups. This has led to the

generation of conflicts and repression of workers. There are

also concerns that capitalist drive for growth and productivity

could come at the cost of the destruction or deterioration of

the environment. Critics of capitalism argue that the opening of

domestic markets with the global system leads to the destruction

of local industries, which are unable to compete with

international companies. They argue that developing countries

have become dumping areas for the goods that are manufactured by

multinational organizations. There have also been concerns that

capitalist economic policies have caused extensive social

disruptions in Latin American and African societies.

Empirical research conducted of Latin American neo liberal

reforms found that they had retarded the industrial growth of

local organizations (Zettelmeyer, 2006). Colombia experienced

stable and sufficient economic growth before embracing market

reforms. Critics say that the opening of markets made the

Colombian economy vulnerable to the volatilities and


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fluctuations of the world market. Latin American states also

witnessed unequal distribution of resources after embracing

market reforms (Zettelmeyer, 2006). The drive for profit has

been criticized because it comes at the expense of marginalized

communities. Russia and Eastern European states faced numerous

problems as they began the transition towards market-oriented

economies. Unemployment rates increased while crime began to

soar in the cities. Social upheavals were also witnessed as

thousands of educated engineers, doctors, and scientists did not

have jobs. Inside countries like Georgia and Uzbekistan, living

standards have fallen while industrial production has been

sluggish due to the inadequate reforms. Soft budget controls and

administrative controls were blamed for the economic collapse in

the post communist period (Gaidar, 1998). The number of

scientists in Armenia declined dramatically because of the rapid

unemployment inside the country. Perhaps the greatest decline

was witnessed in Russia during the 1990s as its economy began to

collapse. The rise of the Russian mafia and corruption spread

havoc and chaos in the economic system. Poverty, homelessness,

unemployment, crime, and violence increased in the cities of

Russia. Market reforms were disastrous for Russia because it led

to the creation of criminals who took advantage and began to

purchase the vital strategic assets of the country (Cooper,


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2008). Most of the money was stolen and shipped to offshore

banks in the West.

Refuting the critics

Addressing the glass half full

Despite the inherent flaws in capitalism, the opening of

economic markets and trade liberalization has proven to be

beneficial for countries. The economic indicators of countries

with economic freedom show an increase in productivity and

efficiency as opposed to closed economies. The integration of

the global economy has created many benefits because this has

led to the transfer of technology and investments inside

developing countries. Since the mid-2000s, both countries have

rapidly expanded their investment abroad. One of the goals of

the large Chinese and Indian firms, which have pursued this

strategy, is to acquire advanced technology (through mergers and

acquisitions).(Bensidoun, Lemoine, nal 2009)

Figure 3 - Direct investment abroad byChina andIndia (billion US$)

25

22 China

20

14 India

10

5


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0

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 0607

Source: UNCTAD

(2007).

It has also led to the efficiency and productivity of economies.

The private ownership of the means of production leads to

efficiency and effectiveness as people have diverse choices to

choose their career paths. Foreign investment for any developing

country can be beneficial as it allows the creation of new jobs

and improved working conditions as compared with local

companies. It also eventually leads to the path of freedom

despite the fact that it has flourished under authoritarian

regimes. Countries like South Korea, Taiwan, Chile, etc had

authoritarian governments that presided over economic miracles.

Once they had developed their economies, the political system

became more open as it allowed multi parties and democracy to

firmly root itself. The intellectual growth and progress of the

West in the nineteenth century was mainly due to the principles

of the free market. One of the greatest strengths of capitalism

has been decentralization as it allows companies and

organizations to strive hard in order to maintain their

competitive edge. The examples of India and China, which had


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state planned systems, previously are sufficient to demonstrate

the benefits of capitalism as a viable economic system.

Conclusion

Capitalism is an economic system where private individuals

or organizations control the means of production. This system

has been in one form or the other but it was the nineteenth

century when the ideas of free markets were developed. Adam

Smith is considered one of the pioneers of the ideas of free

markets who believed that the drive for profit could benefit

society. Marx was a bitter critique of capitalism who believed

that it exploited the workers as another commodity. The neo

liberal economic school of thought is the most prevalent in the

economic system of the West. It advocates minimum government

interference or regulation inside economics.

American Capitalism has many benefits despite the extensive

criticism leveled towards it. It creates the most efficient and

productive economic system. It is based on profit, competition,

privatization and recently globalization. It also eventually

leads to the political freedom. It stands for economic freedom

because it allows individuals to shape their own destinies by

choosing different career paths. This is difficult to achieve in

traditional or socialist societies. Empirical studies conducted

of Latin American nations found that private organizations

increased their efficiency and effectiveness due to


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Epidemics of American Capitalism

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