The Capitalist System in a Democracy

By George Marks

How Capitalism Works (or supposed to)

Capitalism to some is an ugly word.

To others it is simply a system where goods and services are produced sold and distributed to the consumer and those that are involved in the production make a profit from their efforts.

There are three main parts to capitalism.

First comes the idea for a product or service. The entrepreneur uses the idea to produce the goods or services using the second and third parts which are capital and labor.

There is a fourth aspect to capitalism which is the most unpopular but without it there would be no incentive to turn ideas into products,and that is the desire to be wealthy or at least financially independent. I call it greed.

Greed is sometimes frowned upon as a negative trait but I see it as a driving force that creates the incentive to make money. Therefore it is the backbone of Capitalism. The duty of all capitalists and entrepreneurs is to use all possible means available to them to make money and increase profits. Whether it is the genius of inventiveness or simply to take someone else's idea or business and apply their own abilities to make it turn a profit, they have every right to do so.

As mentioned earlier, it is totally impossible to be a successful entrepreneur without the input of capital and labor. Therefore the fruits of the enterprise must also be shared. Capital is rewarded with interest payments while labor is paid salaries and wages in relation to there value to the enterprise.

Each has to be protected so that the entrepreneur pays a fair piece of the earnings to labor and capital is rewarded by a previously arranged rate of interest. Labor therefore, needs to have its own protector so as to ensure he gets a fair deal. Each part has an interest in the success of the enterprise and each is entitled to a reward for their efforts. To ensure this there has to be a set of rules that govern the behavior of all parties involved. The protector of the worker is organized labor in the form of a trade organization such as a workers association or trade union. In the same way that capital has an agreement as to the interest they are paid on loans or lines of credit, so too should workers in the form of a labor agreement or contract to cover such things as working conditions, rates of pay, and health related issues such as paid sick days or health care coverage. And finally pension provisions to protect them after their productive years are over.

All three parties need to know the rules under which they operate in order to focus on the production and sale of the goods and services they offer. This lends itself to stability and growth which in turn leads to the highest possible productivity and profit. The more stable the organization is, the more productive it is and makes for a peaceful and happy work environment.

To make all this work there has to be a 'referee' that set the rules under which all enterprises operate regardless of the contractual agreement between the three parties. Government is required to set the social contract under which business is conducted within the wider society as it is responsible for providing vital infrastructure that makes it possible to do business. These include, but are not restricted to, security, education that provides the workforce with the expertise to contribute to the organization, a health system that is readily available, fire, water, roads and other vital services that the society needs. This is the role of government.

In return for all that it provides, there is that little matter of taxes. The government taxation policies should be designed in such a way as not to be punitive, should be fair, should always be transparent and should encourage expansion of the economy. In this way by promoting expansion it actually enlarges the tax base which provides more revenue that is necessary for greater expansion of opportunity in which case, all sectors of the society can enjoy a higher standard of living, reduced poverty, increasing its capacity to
provide for the most vulnerable members of society.

All of the above can be realized in a capitalist system within a democracy that respects the rights and responsibilities of all members of society. If government understands its role of protecting the weak from the strong while keeping the strong, strong there is enough room for respectful disagreement as to which set of policies support the idea of the common good as outlined in the constitution.

If Capitalism works within the parameters set by government in a democratic system more new ideas are created and applied, everybody who wants a job could have one, the rich would become richer, the middle class would thrive and prosperity would be within reach of all who strive for it.