Discuss about the The Capitalist World Economy.
The purpose of this report is to identify and quantify two issues associated with free market system. A free market system refers to a market economy based on market forces with little or no government interventions. This system is as a result of adoption of a a capitalist system where economic players privately own properties and the only legitimate way of transferring ownership rights is through trade, inheritance, wagers or gifts. Capitalism has been widely adopted in the modern economy despite its spectacular drawbacks (Brockman et al. 2011).
As a result of free market, several issues have been created and it requires efforts from both the business players and the governments to remedy the situation .These issues are poverty, gender inequalities, ageing societies, youth unemployment and skills shortages. These issues act to the disadvantage of the country’s current and future situation. This report will start by discussing the Capitalist system followed by in-depth quantifying of youth unemployment and poverty. And finally discussing measures that business and Government need to take to improve levels of youth unemployment and poverty.
Capitalist system is an economic system based on private ownership of factors of production and whose operations are profit motivated. Zimbalist et al. (1988) defined pure capitalism system as the one in which means of production (physical capital) are owned and run by private entities (capitalist class) for profits. Most of other people in the economy work for salaries and wages. According to Gregory and Stuart (2013), decisions within the capitalism economy are decentralized by the government and rest with the owners of factors of production who are material motivated to participate.
Aspects of Capitalist System
Capitalist system is characterized by capital accumulation, private property, wage labor, voluntary exchange, competitive markets and price system (Louis Hyman and Edward E. Baptist (2014). These aspects are discussed below
This refers to profit maximization to increase self-worth. Capitalists are devoted to increase their capital in order to increase profits which act as incentives to innovate, work harder and be efficient in production processes (Heilbroner et al. 2008).
This aspect refers to the right of citizens to own and accumulate capital. These rights can be transferred to other private citizens at a price jointly agreed upon. A price of owned or transferred properties is determined by the market forces (Louis et al.2014).
Capitalist system is characterized with competition where businesses compete to provide better, cheaper and faster goods or services to the customers. This leads to businesses operating in the most efficient way possible to minimize production and operations costs in order to best offer attractive prices in the market. Louis et al. (2014) stated that completion forces businesses to maximize efficiency for them to offer lowest prices in the market to avoid being kicked out by more efficient business.
- Private control of Factors of Production
In Capitalism, Private entities are in control of factors of production. These include land, capital and labor. Private enterprises set prices of factors of production to levels that maximize profits as shaped by the free market forces. According to Louis et al. (2014), Surplus benefits from the factors of production are held to individual producers.
Advantages of Capitalist System
Capitalism has proved to be the most productive, efficient and effective economic system that has revolutionized businesses and peoples’ wants in the world. Generally, capitalism has raised standards of livings for many people by enabling accessibility, quality and affordable prices. Capitalism has been successful and it has benefited the few individuals who can afford to pay and take up the opportunities in a competitive arena.
Disadvantages of Capitalist System
Though capitalism is widely used, it operations has led to most of the current problems in the current world. These problems are as a result of expansion to increase supply in order to increase profits which is individual gains at the expense of common good i.e. private sector strives to maximize profits with little or no consideration of the other parties.
Key Issues in Free Market System
According to United Nations Youth Report 2012, Youth unemployment is referred to as unemployment of individuals aged between 14-28 years. The age bracket may differ from one region to another. For instance in Africa, the age extends to mid-thirties (Gough et al., 2013). It entails young persons who are willing and able to work, actively looking for a job but cannot find one. Therefore youth unemployment incorporates conglomerate of youths with will and ability to work but cannot find any or cannot find jobs that match the skills they possess or jobs that they can be proud of as their major expertise (Echebiri and Onah,2011) .
Factors leading to Unemployment of youth in a free market
Most of young population lack skills required to work in the current labor market. Most of them lack good education and end up lacking skills required by employers. Due to the competitive nature of the free market systems, employers set high qualifications in order to maximize labor. According to the International Labor Organization report on Employment Trends for Youth (2010), skills deficit was contributing to a worse youth economic employments trends.
Youths’ in the economy are the most affected in times of financial crisis in the economy. When recession occurs in the business cycles, the existing problems in education systems and labour market do worsen. Recession affects the quality and security of jobs. It leads to retrenchment, and when it occurs in organization the less experienced and qualified are the first to be fired. For instance in the United Kingdom recession in 2009 rendered many youth unemployed.
- Lack of capital and credit facilities
Youth lack capital to start businesses in free markets especially when they come from financially instable families. It becomes inaccessible due to lack of a collateral and high interest chargeable to loans. Most of youth lack financial history and the lending institutions do decline to risk offering them loans to start businesses. Lending institutions focus to the few individuals in the economy who are able to take opportunities.
Lack of entrepreneurship skills .Most of young individuals lack entrepreneurial skills to start and run businesses. They are lack the basic skills required to identify an opportunity, gather required resources and run a business. Opportunities are identified by the old individuals in the field who are experienced and able to run the start-ups effectively.
Lack of access to technologies. In most countries, youth cannot afford internet connection. They lack access to information in the digital era. This is mostly experienced in low income countries where even learning institution lack access to technology and internet. When young people graduate, they are at a disadvantage in the job market. Employers will seek for few exposed and knowledgeable candidates leaving the rest unemployed.
Consequences of Youth unemployment
When youth people lack opportunities to put their skills into practice, they get lost .Young people end up losing their talents that would otherwise bring new methods of production or products to the economy. The economy suffers in the long run because the knowledge and capabilities of a young people are not utilized in producing innovations that contribute to economic growth. The economy lacks new creativity and diverse thinking that is naturally present amongst the young people.
When youth are idle as a result of unemployment, they engage in riots and protests against the government of their country. Increased levels of youth unemployment lead to political unrest in the country and they threaten the internal security of a nation. For example in the year 2008 to 2011 ,when there was raise in youth unemployment in Europe ,there were riots and protects witnessed in a number of countries e.g. Spain, France and United Kingdom.
Young people are viewed to be the next social and economic generation. When they are not employed to utilize their skills and improve them, it consequently implies that a country will be losing the next generation. Unemployed young people end up living in poverty since they will lack money for basic needs. When young people are unemployed, they become socially excluded generation ( Morsy, 2012).
Young people have a lot of energy and when they are not employed, they end up shifting attention to crime. Uddin et al (2008) stated that when young people who have skills lack jobs, they shift attention and use their skills to commit crime to earn a living .For example the cybercrime is rampant among learned young people.
Poverty is defined as the general scarce of one’s necessities (Merriam, 2013). Sabates (2008), outlines that poverty is diverse concept that includes economic, social and political elements of an individual or country. Poverty is a temporal situation that can last for a short period of time or long period of time. It can either be absolute or relative. Absolute poverty refers to lack of basic needs while relative poverty takes into consideration of a person’s economic and social status in relation to others in the society.
Causes of Poverty in Free Market
The have-nots in free market are faced with heavy completion from the haves in business. When poor people try to start up businesses, they face stiff competition from the rich who have access to adequate capital and are able to operate in large scale that enable them benefit from economies of scale. As a result, poor people are in most instances kicked out of businesses and are left with nothing to do. This scenario increase the inequality in the economy with rich getting richer and poor getting poorer.
Individual who lack skills are not qualified to take job opportunities in a competitive free market. Employers in free markets go for most qualified individual who are well trained from the best institutions of preferences. When individual lack decent good rewarding jobs they get demoralized to work and opt for informal sector where they are able to access basic facilities.
When individual lack capital, they end up unable to start enterprises that would earn them incomes. Lack of capital by individuals makes them losers as they will have to watch those who have capital take their opportunities to invest and earn money.
Access to credit in free market requires collateral and financial history. When an individual is not from a financially stable background, then it becomes hard for them to start accessing credit services in a free market. The financial institutions are competitive and prefer working with the haves because it easy to recovery loans. This makes it difficult for individual from poor background to start or run businesses that are competitive in the economy.
- Lack of Protection from the Government
It is hard for infant industries to develop in a free market unless they are offered protection by the government. When start-ups are not protected from the established businesses, they fail due to market failure. Established businesses have the first mover advantage and their producing average cost is minimum which not the case with infant firms. This phenomenon is rampant in free market making it impossible for new businesses to enter the industry.
Consequences of poverty
Poverty leads to increased criminal offences, low standards of living, increased epidemics and inequitable economy.
Ways of reducing Youth Unemployment and Poverty
Recommendations to Businesses
Businesses need to do the following to reduce youth unemployment in a free market economy;
- Partnership with the education institutions .Businesses can help reduce youth unemployment by partnering with learning institutions to enhance matching of skills trained and the job requirements.
- Offering attachments and internships to youths. It recommendable that businesses offer working experience to learning young people to develop their skills for future careers while they are still students.
- Offering assistance to students about the transition from being a learner to the world of work. Businesses can host career talk around the learning institutions to advice young people .This will enable youths to be prepared on what to expect in the job market and how to conduct themselves till they are absorbed in the job market.
Businesses can help reduce poverty in a free market economy in the following ways;
- Designing products for the poor individuals in the society. Businesses can help reduce poverty by producing products that are designed for bottom pyramid in the society. By doing this, poor individuals will be able to access products that can help raise their standards of living.
- Attracting the best employees to the business. Businesses can find out the talented people around the locality and absorb them. As a result businesses can help reduce poverty levels in the society.
- Offering entrepreneurial skills to the society. Businesses can help reduce poverty by empowering the locals with entrepreneurial skills that will enable then start up small or medium business that can act as a source of income.
Governments need to do the following to reduce the levels of youth unemployment;
- Fostering an education system that teaches 21st century skills .The government should update the education system to fit the requirements of the current century. For instance, use of technology should be incorporated in the school curriculum.
- Providing youth funds for capital to start businesses and offer credit facilities. The government should set financial institutions that will enable young people to access capital and credit at relatively lower interest rates and friendly terms.
- Training youth on entrepreneurship .The government need to empower young generation with startup skills of a business to enable creation of jobs among youths. This will reduce the level of youth unemployed in the economy.
- Vocational training in the learning. Governments need to train it young people on other skills not necessary academic knowledge. These skills reduce the level of unemployed youths.
Governments need to do the following to reduce poverty in a free market economy;
- Protectionism of the infant industries to enable their establishment in the economy untill they mature and can stand for themselves. Governments need to offer protection to the new businesses that are facing stiff completion until they develop to avoid unfair competition. Methods that can be used to protect infant businesses are subsidies, incentives, tax exempt and reduced registration fees.
- Provision of financial services to underserved poor people through micro loans. Governments can offer micro loans through micro finances to poor people to enable them acquire capital and credit for starting and running their start up business.
According to the study, it evident that though capitalism is the economic system widely used the 21st century it has loopholes that are causing more harm in the society. And unless certain measures are put in place, the harsh drawbacks of free market economy will cause more problems to the nation and the world at large. Due to it nature, capitalism has made winners to win while and losers have lost more. Capitalism leads to economic oppression of the have-not.
From this study, youth unemployment can be reduced by equipping young people with more vocational, life-skills, entrepreneurial and current 21st century job skills. Also, it is possible to reduce poverty level by protecting infant businesses, training citizens, and offering capital at affordable interests and considerable terms by the government. Businesses have a role to play also in order to reduce youth unemployment and poverty in a free market economy. Businesses partnership with educational institutions, offering attachment and internship programs can help reduce youth unemployment in the economy. Businesses can also reduce poverty by creating more jobs for the citizens, designing products for the bottom pyramid and promoting entrepreneurship to the people through social responsibility programs.
In summary, capitalist system is not sustainable and causes harm to other players in an economy if no further remedy actions are taken. It of great importance that businesses and governments come together to ensure that the benefits of capitalism overweighs the negative aspects.
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