Introduction
Capitalism is a political and economic structure in which a nation’s trade and industry are controlled by private proprietors for profit, rather than by the nation and socially it is based on the principle of individual rights (Bowles 2007). Capitalism is characterized by accumulation of capital, competitive markets, limited government and wage labor (Ingham 2008). Politically, capitalism employs laissez-faire (freedom) system. Legally a system of objective laws (opposed to rule of man) and economically, when such is applied it results in free-markets (Paul 2013). It is therefore true to say that capitalism results in unequal distribution of wealth, waste due to uneven distribution of resources, dangerous working conditions ,lack of democracy as the wealth have the greatest influence, pollution of the planet due to excessive production of goods and dictatorship whereby the managers get massive salaries while the workers get minimum wage (Merino 2010). True to the words of Winston Churchill who stated that ” the natural capitalism vice is sharing of blessings unequally, and the natural socialism virtue is the sharing of miseries unequally.” (Hancher & Moran 1989).
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The term PESTEL stands for Political, Economic, Sociological, Technological, Environmental and Legal (Clapham & Pestel 2008). The essay will analyze how capitalism has produced negative results from business organizations and how it effects’ can be regulated. Politically, capitalism has impacted political decisions such as, contributing massively to political campaigns, the health of the nation, education of the labor force and the economy’s infrastructure quality. These capitalists have also influenced tax policies, employment rules, environmental protocols, trade margins and reform tariffs to their favor. Political factors in a country can be applied in regulating capitalism by government.
economically, capitalism has also influenced what happens within the economy by determining economic growth and decline, exchange rates, interest rates, price increases, revenue system changes, wage tariffs, working hours and unemployment levels (Silk & Silk 1996). Socially it has influenced the rapid changing social trends in the markets, decreased health consciousness, safety issues and global warming (Friedman 2012). Capitalism also influences technology Change in technology can impact the work and dealings of an organization by resulting to unemployment (Jessop 2001). These economic factors can also be applied by governments to assist in regulating capitalism.
Environmental factors refer to what is taking place with regard to ecological and environmental matters. Capitalism has also contributed to pollution that as a result has contributed to impacting many industries including agriculture, insurance and leisure industry. With major changes in climate occurring due to global warming (Vasapollo 2011), they have influenced legislation changes that might have an impact on employment, resources, imports and taxation legally.
How capitalism can be better regulated
John Maynard Keynes came up with a program called the New Deal. Keyne’s theory, which is accepted widely is adopted in most modern countries where they combine some government control and capitalism. (Rosenof 1997). theories of regulated capitalism developed at the start until the of the 20th century, when the problem of regulating market conditions gained status, due to the exacerbation of the conflicts of capitalism in particular; the increase in the negative force of predicaments of overproduction (Bottomore 1985). These theories of regulated capitalism, which state cyclic development of the capitalist economy is directly proportional to the investment process which is uneven and the consumer demand’s fluctuations, becomes prevalent under state-monopoly regulation of the economy. Elsner & Hanappi. (2008) indicated that the alleviations and the prevention of the economic crises that are cyclical requires regulation of consumer demand and all capital investments.
Friedman (2012) pointed out that Keynesian theories that regulate capitalism is the most reliable means of economic activity stimulation and increases the spending of the government by a sum exceeding tax revenues increase and in meeting deficits in budgets by national debt increase. Because the capitalist economy is a complex economic system made up of diverse elements, it must be regulated freely through the competition .Additionally; it should also be regulated by means of exceptional government economic measures. The result “market economy” will completely disappear, giving rise to “crisis-free,” and “planned” capitalism (Dunn 2014).
World governments must get involved in the economy in all ways possible and leaders must take part in economic decision making a government must ensure there is optimum competition to keep the prices acceptable and the products quality high. In the 1950’s business organizations in USA became bigger as they bought off the smaller companies; with this there should also be laws to protect small businesses (Clift 2014). Peet (1991) stated that business owners often do not care about what their decisions may impact the environment; a factory may pollute a river by releasing dirty water into it, production of radioactive gases, huge concentration of garbage, over illumination, soil contamination by release of heavy chemicals, thermal pollution and high intensity sonars from industries. The government should form policies that the companies and industries should abide by in concern to the pollutants they produce for instance by reducing the percentage of toxic gases, recycling the products ,mitigating their effects ,reusing their materials, waste minimization or giving back to the society in proportion of what they pollute naturally and environmentally (Jessop 2001).
The state of an economy is not constant because there are always ups and downs. Bowles (2007) pointed out that in such occurrences the government practices social market economy by lowering rates of interest and taxes so that individuals can easily borrow money as a result preventing the capitalists from taking over. In European countries there are established systems where government assists poor people and the rich people pay more taxes.
According to Ingham (2008), in order to regulate capitalism the government should establish laws to protect employees rights in business organization, there should be formation of trade unions whose responsibilities should be to advocate for increased minimum wage, better, safe and adequate working conditions and free from undue dangers, improved quality of education provided to the workers. In addition the state may own businesses and industries essential to the economy of the nation, like fuel mines, banks, Sacco and airlines.
Limited Liability Laws should be provided by the government to investors to encourage them to invest in businesses. Without the limited liability laws, Merino (2010) indicated that the economy of a country would not have the needed capital access to prosper and grow.
Hancher & Moran (1989) asserted that corporate property rights are the main legal mechanisms that deter the government from exercising control over business establishments, these laws to obtain corporate property rights should be modified such that they can be created and maintained only by government .Property rights should only be issued to citizens and the business organizations under certain conditions. The government should also put measures to maintain law and order so as to have an almost perfect functioning criminal justice system. This is to prevent organized crime, extortion, bribery, kidnapping, and murder that might be practiced by business organizations.
The government should also formulate laws for protection from bankruptcy. Businesses are risky and one of the largest risks is failure, mainly during recessions and depressions. This will assist in protecting healthy businesses that are momentarily short of funds. Furthermore, these laws will allow entrepreneurs to be ultimately freed from overwhelming debts. Besides limited liability, bankruptcy rules form a crucial financial safety net for entrepreneurs. It important to note that the bankruptcy laws should be passed out of concern, sympathy for challenged entrepreneurs, and as a method decrease economic risk and thus encourage more economic and investment growth (Clapham & Pestel 2008).
According to Silk & Silk (1996), the government should also ensure stable money supply, this will assist in maintaining price stability, ease the process of production and consumption and give one the ability to save then spend it later. Without this, markets will be based primarily on barter and thus be extremely limited thus unreliable ,this might cause adverse effects like; eroding the value of money and assets, deterioration of balance of payments, uncertainty and falling of investments, high unemployment rates, delayed consumption of goods, high interest rates, recession and changing indices(Jessop 2001). For instance in the United States, before the Civil War, all paper money was issued by private banks and not the government. This resulted in an incredibly chaotic system hence showing that there was no control over the money supply; which has a crucial impact on inflation and economic growth. Widespread business operations and a stable economy both require a stable and dependable money system, one in which consumers and entrepreneurs believe in. This can only be delivered and sustained by the world governments (Friedman 2012).
Vasapollo (2011) indicated that the government should have the major decision- making ability business organizations hence Corporate Charters. The corporation itself should be a creation of government. Corporations can emanate into existence only through charters such as the legal mechanisms by which national governments consent businesses to integrate. These agreements and state business laws describe what a corporation is, how it is structured, how it is administrated, how long it may be existent, who has a say in ruling, the rights of shareholders and the scope of its liability(Leigh & Michael 1989 ). Most nations should also retain the right to annul the agreements of corporations that disrupt the law or detriment public interest.
The world governments should formulate Commercial Transaction Laws. Businesses can operate effectively only if there are laws governing commercial transactions. This would provide a way some way of making and enforcing contracts therefore remedies for fraud and default. These laws should cover every facet of business in detail, including laws leading the transactions of goods, payment procedures, revenues, warrantees, titles, shipment of goods, storing of goods, how sales are maintained, and the rental of goods. The legal infrastructure is that which should allow business to be conducted efficiently and consistently (Rosenof 1997).
According to Dunn (2014), world governments should come up with International Trade Laws that will be applicable universally. Governments should generate the legal frames that assist and make this trade possible. “Free trade” is a misleading term because it implies that it is international trade operates without political framework. Trade contracts should cover things such as tariffs, levies, pollution, commercial and stakeholder rights, intellectual property rights, economic services, government procurement and dispute resolution procedures. There should be secretariats, commissions, dispute panels, scientific evaluation boards, industrial sector commissions and working groups to supervise the implementation of the agreements (Clift 2014). Therefore Free trade involves a lot of bylaws and enforcements. The points above serve to clarify that, markets and capitalism are quasi-public units which should be regulated by a countless government rules. Ingham (2008) asserted that no capitalism should have minimal regulations as possible because it is what protects the people.
Similarly, Peet (1991) asserted that crony capitalism should be prevented at all costs. this is a term relating an economy in which success in business hangs on on close relationships amid business people and government officers. This may be demonstrated by favoritism in the allocation of legal permits, special tax breaks, government grants or when egotistical friendships and family ties amid businesspeople and the government influence the society and the economy to the extent that it degrades public-serving political and economic ideals.
The contrivances of crony capitalism are many; Bailouts, special credits, political arrangements, tax disruptions, campaign contributions, connections, grants, exemptions, and government subsidized enterprises, political insider transactions and legal bribery (Bottomore 1985). However, there is a risk that crony capitalism might be used to protect the officials. With regard to this, the remedy is to increase government regulation and allow control by the people whereby a piece of legislation is deliberated by the public (Elsner & Hanappi 2008).
Conclusion
To see how government regulation in capitalism is important is to imagine a situation without regulation or if the laws and regulation wouldn’t be employed, there would be fraud, inflations , recessions, disasters, increased crime rates ,exploitation, severe gaps in social class and economic growth would be hampered. It is impossible to have a well-functioning economy without the governments regulating capitalism through enforced legislation. The above discussion shows that for the global political economy to be maintained and developed there should be government regulation.
Reference list
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Silk, L. S., & Silk, M. (1996). Making capitalism work. New York, New York University Press.
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Vasapollo, L. (2011). Crisis of capitalism compendium of applied economics (global capitalism). Leiden, Brill. Retrieved from http://lib.myilibrary.com?id=332687.
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