Advantages and Disadvantages of Capitalism

By | May 15, 2017

Advantages and disadvantage of capitalism: essay sample

Capitalism is a complex ideology that is difficult to define and conceptualize. From the Marxist perspective, it is defined as a specific relationship between classes of owners and workers in which the latter are continuously deprived or resources and wealth (Jomo & Reinert, 2005). Neoclassical economists view this concept as the private ownership of assets and maintain that capitalist economic relations are characterized by the free market. They do not agree that capitalism is based on inequality because workers take their jobs voluntarily and are not limited in pursuing their goals (Madra, 2016). The term is often used as a synonym of the market economy and free competition and contrasted to the ideology of socialism. The fact that there is no unanimity regarding the definition of capitalism shows that it is a rather ambiguous concept. This essay aims to explore its pros and cons in more detail.

Capitalism has many advantages, which is why it is established in the most economically successful states. It allows for private ownerships, which means that private companies and individual citizens can own land, investments, and goods. It not only creates economic opportunities but also reduces government ownership and interference. Furthermore, one of the main advantages of capitalism is that it contributes to a more vibrant, decentralized economy. In this setting, people have more business opportunities and are motivated to improve their performance to compete in the market. When businesses face incentives to work harder and be innovative, this creates a favorable climate for economic growth and improved living standards (Sheshinski, Strom, & Baumol, 2007). In theory, everyone can benefit from the capitalist system because the wealth gradually “trickles down” from rich to poor (Donlan, 2008, p. xx).

However, one needs to stress that capitalism has some disadvantages as well. First, the freedom this system provides may be abused by the most powerful individuals and companies. As a result, they can build monopolies, control wages, prohibit unions, etc. (Weir, 2007). Second, capitalism can negatively affect small businesses because it allows large companies to grow and win the market. Third, scholars argue that capitalism leads to the unequal distribution of resources and increasing wealth inequality (Clarke, 2012). Despite all these disadvantages, capitalism still works, and it is the best option for many states to sustain strong and stable economies.


Clarke, L. (2012). Building capitalism (Routledge revivals): Historical change and the labour process in the production of built environment. London, the UK: Routledge.

Donlan, T. G. (2008). A world of wealth: How capitalism turns profits into progress. Upper Saddle River, NJ: FT Press.

Jomo, K. S., & Reinert, E. S. (2005). Origins of development economics: How schools of economic thought addressed development. New York, NY: Zed Books.

Madra, Y. M. (2016). Late neoclassical economics: The restoration of theoretical humanism in contemporary economic theory. London, the UK: Routledge.

Sheshinski, E., Strom, R. J., & Baumol, W. J. (2007). Entrepreneurship, innovation, and the growth mechanism of the free-enterprise economies. Princeton, NJ: Princeton University Press.

Weir, R. E. (2007). Class in America: H-P. Westport, CT: Greenwood Publishing Group.

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