Part 1: Capitalism, Socialism or a hybrid?

Rayy Global
Nov 28, 2018 · 9 min read

A new approach to bring about balance in the global economic system

Image via Kailasha Foundation

Sharing is a concept that is as old as time itself, one that started as a result of altruistic social behaviour. We, humans, are social animals. From the beginning of time, human beings have sought the companionship of other humans as part of their own well-being. To put it simply, we are always happier around other people. As humans evolved, so too did the concept of a social circle. And as a result of the social circle, humans developed something called social behaviour.

A human’s social behaviour is how the presence of others influences the actions, thoughts, feelings and behaviour of people. And as the social behaviour in humans developed, humans discovered altruism, as a result of which they learned to share. The pre-historic humans started with food sharing and over time as communities evolved, people have learned to share their other possessions too. And the main reason that this altruistic behaviour flourished is trust.

People trusted the ones who they were going to share their possessions with. Moreover, the fact that communities were smaller back then helped too. These small communities relied on a role model system to foster trust among each. Each person in the community was expected live up to the example set by others. This sort of trust system relied on a heart-based leadership, wherein an individual inspires loyalty and builds powerful relationships through a strong value system based on kindness, integrity, ethics and courage.

But with time, the communities became larger, and with larger population came trust issues. The people started placing more value in things rather than human connections, so, the monetary value of items also played a vital role in establishing trust. Meaning, trust diminishes when the value of an item is higher. As a result, cracks started appearing in the way they connected, and sharing was restricted to close and trusted members of their social circle. The role model system was not a viable solution to establish trust anymore.

This unregulated market, which the humans participated in earlier, without any formalized policies would’ve led to others exploiting it. So, regulations and policies, which the members of the society could abide by was a necessity. These rules acted as a guide to better behaviour in society and also helped in resolving any dispute, which might arise. However, with time, the humans formed governments, which established policies and regulations and monitored them. Then they came up with economic systems, chiefly the capitalist economic system and the socialist economic system.

Capitalist Economic System

Image via Teen Vogue

Near the beginning of the 16th century, an increase in foreign trade led to a steady decline of the now-frowned-upon feudal system. The last few years of the agricultural age saw a drastic improvement in the development of tools and transportation. This allowed merchants to travel overseas and buy goods and services at very low prices. These merchants then, sold the goods elsewhere at very high prices, thus, reaping great profits. This led to the birth of a new economic system called, capitalism.

Capitalism has been around for several centuries, albeit on a smaller scale. It existed in the form of trading, lending and renting activities as well as some small-scale industry with wage labour. Along with the traders, the development of tools, machines and more efficient production systems aided the people to produce whatever they needed, thus, raising more capital. The capitalists, individuals who own businesses, companies, industries etc. owned the entire production process. The capitalist employed other people and these people involved in the production process were paid wages to produce the goods and services.

The dawn of the industrial age allowed the capitalists to gain more power and freedom. However, this led to an economic divide between the capitalists and the poorer, weaker sections of society. As the capitalists gained more power and freedom, the working class and the poor people found themselves losing their power and freedom.

Image via Foundation for Economic Education

When they found their ability to create and accumulate wealth curtailed, they organized themselves into labour unions and revolted against the capitalists. Subsequently, they managed to gain most of what they had lost. The new capitalism, which emerged as a result of the industrial revolution, is a system characterized by dynamism and continuous economic and social transformation.

It provides the consumer with a choice of goods and services for their consumption. Moreover, it improves the efficiency of economics because the capitalists will use more efficient means of production to meet the demand for goods and services. This further leads to better economic growth and expansion, which further improves living standards.

Socialist Economic System

At the dawn of the 19th century, the working conditions in industrialized Europe was inhumane. While the capitalists and landowners got wealthier, the working class was wallowing in extreme poverty. This led to a rise in labour unions and around mid-century the writings of the German philosopher, Karl Marx and the labour unions spurred the rise of socialism.

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The socialistic economic system aims to dispel class distinctions by turning over control of all means of production and distribution of goods to the state. The main goal is to put everyone in the society on a level playing field by eliminating competition among each other. While capitalism allows people to own businesses and private property, socialism is characterized by the absence of private property. It is based on the idea that everyone in society can reap the same benefits and prosper equally by working. This, according to socialists, results in a harmonious society without any oppression and financial instability.

In a socialist economic system, a central planning authority plans and ensures that all economic activities have an underlying motive of social benefit. While people don’t have any economic freedom in this economic system, it provides them with equal opportunities. Hence, none of the individuals in the society will indulge in any sort of anti-social activities like smuggling, hoarding etc.

Moreover, since a central planning authority controls and regulates market forces, it will also conduct an exhaustive survey of resources and utilizes them to ensure greater economic efficiency. One of the major advantages, which the socialist economic system offers is that it eliminates monopolistic practices. Since all the means of production is state-owned, no one can exploit another person for profit. But the most important benefit of a socialist economic system is the lack of fluctuations in business. The central planning authority co-ordinates the action of various producing units. This ensures that the available resources are used efficiently and further prevents discrimination between saving and investment. The control over production could help avoid a general deflationary trend.

The Hybrid: Regenerative Economy

However, while the capitalistic and socialistic systems have their unique advantages, they also have their fair share of drawbacks.

One of the major drawbacks of capitalism is that it could lead to a concentration of wealth among the capitalists. In a capitalistic society, the wealth gets passed down the generations, from father to son etc. This could lead to inequality, social division and even increases the chance of monopoly of power. Imagine a situation where there is only one supplier for fuel and you have no choice but to buy it from him. There’s nothing to stop the fuel supplier from abusing this monopoly to earn more profit by jacking up the price!

The lack of economic freedom is one of the major drawbacks in a socialistic economic system. Moreover, socialism eliminates any sort of individualism. For example, workers in the socialist economic system are assigned specific jobs by a central planning authority. These workers cannot change their jobs according to their interests without the approval of the planning authority. If the government controls all the means of production, it could lead to an increase in bureaucratic procedures and red-tape. But, the most important drawback of socialism is that it curtails essential freedoms for an economy to prosper, like the freedom to choose your own occupation.

So, it’s obvious that we need to think beyond the standard choices of capitalism and socialism. Even if a society manages to flawlessly execute either capitalism or socialism, they’re still unsustainable economic systems. The Capital Institute’s report states that we need a new approach based on holism. When you look at capitalism from a holistic perspective, the fundamental flaws in the system becomes apparent. Especially its inclination to isolate the antecedents and its effects from the economic process.

The world economic system is not only closely related to the environment but dependant on it too. But the flaws in the system has led to a host of challenges including inequality, climate change and even political instability. A report by the US-based think tank, The Capital Institute explains that the current economic worldview has far-reaching consequences. And we need an alternative soon, or we could be heading straight towards social, environmental and economic collapse.

To counter these ill effects, we’ll need to develop and nurture a robust, long-lived and an efficient economy. The current capitalist system faces an existential threat and is in dire need of a radical change. The Capital Institute’s report emphasizes the need for us to approach global economics from a holistic sense and come up with a new systems-based mindset, which is based on the Regenerative economy.

Image via James Meldrum

The power of regeneration is what has helped living beings and the natural ecosystem sustain for so long. So, when an economic system is defined by the same regenerative process that defines thriving, living systems, it’ll lead to a sustainable economic system. A regenerative economy will provide a different perspective on how we view the world. It’ll provide an ecological worldview, where nature is the model. One of the most important aspects of a regenerative economy is its ability to encourage entrepreneurialism in humans.

Additionally, a regenerative economy views wealth holistically, where true wealth is defined and managed in terms of the well-being of the ‘whole.’ And to achieve this true wealth, multiple kinds of wealth or capital, including social, cultural, living, and experiential is harmonized. This true wealth, while it may not necessarily be distributed equally is distributed equitably among all those who are involved, thus making way for shared prosperity.

But the most important aspect of a regenerative economy is a robust economy circularity.

Image via bsigroup.com

An economy that is powered by renewable energy will continually strive to minimize energy, material, and resource usage throughout the entire production process. Efficient use and reuse of materials and a proper circulatory flow of money and information will help individuals, businesses, and economies reach their respective regenerative potential easily. And this will help build a sustainable system, which can adapt and learn from shocks in the long run and nurture healthy, stable communities and bioregions.

Several actors in the economic world have awakened to the advantages of a Regenerative economy. There are several entrepreneurs working on a multitude of scalable projects and enterprises based on the Regenerative economy, across the world. These include projects based on renewable energy, the sharing economy, collaborative consumption etc.

Proper and effective utilization of resources, saving money and reducing the burden on our planet are all great things. However, the question that remains mostly unasked is if it offers a fair share to everyone involved?

Moreover, these platforms come with several potential risks like compliance with quality standards, insurance, licensing, taxes, employee protection etc.

And if it doesn’t give a fair share to everyone, how can we change it so that it’s fair to all who are involved?

References

https://link.springer.com/chapter/10.1057/9781137321312_4

https://www.schooleconomicscience.org/em_post/the-origins-of-capitalism/

https://study.com/academy/lesson/capitalism-vs-socialism-differences-advantages-disadvantages-the-underground-economy.html

https://money.howstuffworks.com/socialism1.htm

http://www.studylecturenotes.com/management-sciences/economics/243-what-is-socialism-mba-economics-notes

http://www.politicalsciencenotes.com/socialism/socialism-origin-development-components-and-divisions/811

https://www.fastcompany.com/3020653/creating-a-regenerative-economy-to-transform-global-finance-into-a-force-for-good

http://jamesmeldrum.com/towards-a-regenerative-economy

Rayy Global

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