Capitalism

In preindustrial societies, land functioned as the source of virtually all wealth. The industrial revolution changed all that. It required that certain individuals and institutions be willing to take substantial risks in order to finance new inventions, machinery, and business enterprises. Eventually, bankers, industrialists, and other holders of large sums of money replaced landowners as the most powerful economic force. These people invested their funds in the hope of realizing even greater profits, and thereby became owners of property and business firms.

The transition to private ownership of business was accompanied by the emergence of the capitalist economic system. Capitalism is an economic sys-

tem in which the means of production are held largely in private hands, and the

main incentive for economic activity is the accumulation of profits. In practice, capitalist systems vary in the degree to which the government regulates private ownership and economic activity.

Immediately following the industrial revolution, the prevailing form of capitalism was what is termed laissez-faire ("let them do"). Under the principle of laissez-faire, as expounded and endorsed by British economist Adam Smith,

people could compete freely, with minimal government intervention in the economy. Business retained the right to regulate itself and operated essentially without fear of government interference.

Two centuries later, capitalism has taken on a somewhat different form. Private ownership and maximization of profits still remain the most significant characteristics of capitalist economic systems. However, in contrast to the era of laissez-faire, capitalism today features government regulation of economic relations. Without restrictions, business firms can mislead consumers, endanger workers' safety, and even defraud the companies' investors - all in the pursuit of greater profits. That is why the government of a capitalist nation often monitors prices, sets safety and environmental standards for industries, protects the rights of consumers, and regulates collective bargaining between labor unions and management. Yet under capitalism as an ideal type, government rarely takes over ownership of an entire industry.

Contemporary capitalism also differs from laissez-faire in another important respect: capitalism tolerates monopolistic practices. A monopoly exists when a single business firm controls the market. Domination of an industry allows the firm to effectively control a commodity by dictating pricing, quality standards, and availability. Buyers have little choice but to yield to the firm's decisions; there is no other place to purchase the product or service. Monopolistic practices violate the ideal of free competition cherished by Adam Smith and other supporters of laissez-faire capitalism.

Conflict theorists point out that although pure monopolies are not a basic element of the economy of the United States, competition is much more restricted than one might expect in what is called a. free enterprise system. In numerous industries, a few companies largely dominate the field and keep new enterprises from entering the marketplace.

As we have seen in earlier chapters, globalization and the rise of multinational corporations have spread the capitalistic pursuit of profits around the world. Especially in developing countries, governments are not always prepared to deal with the sudden influx of foreign capital and its effects on their economies. One particularly striking example of how unfettered capitalism can harm developing nations is found in the Democratic Republic of Congo (formerly Zaire). The Congo has significant deposits of the metal columbite-tantalite - coltan, for short - which is used in the production of electronic circuit boards. Until the market for cell phones, pagers, and laptop computers heated up recently, U.S. manufacturers got most of their coltan from Australia. But at the height of consumer demand, they turned to miners in the Congo to increase their supply.

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