What is meant by the term Capitalism and how has the global capitalist system evolved over the last two centuries? Identify and describe the main phases in this process.
3Main Phases of Global Capitalist System Developed Over Last Two Centuries3
3.2Neoliberalism and Keynesianism5
The world economy has stimulated unprecedented economic growth and social change since 1850. It has been spread of industrial society from northwestern Europe, to the rest of Europe and North America and in recent decades to large area of East Asia and Latin America. People are now commonly used the word capitalism in order to describe living social system presently. ‘It is often assumed that it has existed, if not forever, then for most of human history.’ (What is Capitalism, 2006) It has been developed from 16th century in Europe, provided the major method of industrialization throughout of the world and become the most dominant means of economic model in the modern world. (Jeffry Frieden, 2006) When people are talking about global capitalist system, it is usually related to globalization. However, there are other main stages of development of global capitalist system including Mercantilism appeared between sixteenth and eighteenth centuries, Industrialism in 18th century, Keynesianism and Neoliberalism in 19th century, and globalization in 20th century. (Jeffry Frieden, 2006) The following words introduce the definition of capitalism and relevant terms as well as provide a brief history of main phases of development of global capitalist system over last two centuries.
2 Defining Terms
Capitalism refers to an economic system in which the means of production are privately owned and operated for a private profit; decisions regarding supply, demand, price, distribution, and investments are made by private actors in the market; profit is distributed to owners who invest in businesses, and wages are paid to workers employed by businesses and companies. (Jeffry Frieden, 2006) That is to say, the means, such as land, factories, technology, transportations, for manufacturing and distribution products and services are possessed by a small amount of people who are called capitalist class. The rest majority of people have to use their capability to work for capitalist class in order to earn a return of wage or salary that is called working class. (Tormey Simon, 2004) Capitalism is a hot topic during last decades that economists and political economists have different opinions on it when analyzing. The degree that government does not set down restrictions in markets and on the rights of property,(Irvin B., 1997) while in most political economists perspectives, they concentrate private property, power relations, wage labor and class. (Stilwell Frank, 2002) A popular conciousness regards capitalism accelerate economic growth as the different markets are under free-trade, and free-rules in controlling over private property. It is generally termed by people as mixed economies. (Stilwell Frank, 2002)
There are several types of capitalism in existence. The major forms of capitalism contain Anarcho-capitalism, Mercantilism, Free-market capitalism, Social market economy, State Capitalism, Corporate Capitalism and mixed economy. (Jeffry Frieden, 2006) In Anarcho-capitalism, it refers to the policy of liberalism and individualism which advocates reducing the sovereign of the state and increasing individual status in a free market. Mercantilism is a form of early capitalism which emphasis the national benefits in which it uses the state to help the national interests during international trading. Free-market capitalism includes a system of free-price in which it determined by the supply and demand in market rather than intervened by the government. Social market economy is related to free market system in which government is involved in fixing price formation but still supply essential social security, unemployment benefits and labor rights. In mixed economy, it concerns both publish ownership and private ownership. (Jeffry Frieden, 2006)
3 Main Phases of Global Capitalist System Developed Over Last Two Centuries
In the early days between the sixteenth and eighteenth centuries, the global capitalist system commonly called mercantilism.(Burnham Peter, 2003) The overseas traders from England and some of European countries geographically explored related to the Age of Discovery. The abroad trade grew rapidly with a purpose of profit, though goods did not all produced by capitalist manufacturing methods. (Jeffry Frieden, 2006) At the period from the eighteenth century, there are dominate three phases that capitalist system developed all over the world. The following will list the three main stages and analyze the progress of economic over last two centuries.
In 18th century, the industrialist acted as a dominant role in capitalist system insteaded of merchant after Industrial Revolution. Industrial Revolution created changes in agriculture, manufacturing, transportation, mining and technology and have effect on culture conditions and socioeconomic. It started in Britain and spread throughout Europe and North America, finally the whole world. Industrial Revolution played an important role in the modernization progress, in which it realized innovating technology, and developing large-scale of energy as well as productions of metallurgy. There are several positive outcomes that industrial revolution contributed contains a favorable political-legal environment for industry and trade, natural resources all over the world, plenty of supplies but relatively low-price as well as skilled and adaptable workforce. (Lewis F. Abbott, 2003) However, the introducing of machinery caused a decline of traditional handicraft skills and works employment.
In addition, The United Kingdom abandoned trade protected policy which was supported by mercantilism period. Richard Cobden and John Bright came up with a movement to lower tariffs in order to accelerate the international trade in 19th century.( Jeffry Frieden, 2006) Finally in 1840s, the government of United Kingdom adopted a policy with less protection acted as a laws and regulations, in which the country decreased tariffs and quotas in order to support the free trade around the world. (Burnham Peter, 2003)
The Japanese government abolished the feudal system and initially issued military reforms to make Japanese army modernized which had been a basic construction for realizing Japanese industrialization. The government, in the 1870s, promoted the development of technology and industry which finally contributed Japan to be a strong country in the modern world. (Jeffry Frieden, 2006) However, apart from Japan, other Asia countries started industrialization in the late 19th century. However, the rush time for industrialization in Asia happened in late 20th century, especially in Hong Kong, Taiwan and South Korea. The advantage of these coutries including the stable government, well structured societies, large foreign investment, low cost of labor, skilled, adaptable and motivated workers, competitive exchange rates and well tariffs, contributed the fast developed in Asian industrialization. (Jeffry Frieden, 2006)
“Industrial capitalism marked the development of the factory system of manufacturing, characterized by a complex division of labor between and within work process and the routine of work tasks; and finally established the global domination of the capitalist mode of production”.(Burnham Peter, 2003)
3.2 Neoliberalism and Keynesianism
Capitalism in 20th century changed a lot from the origins to the end but established the world most prevalent economic mode. The Russian Revolution formed the first communist state in 1917. (Burnham Peter, 2003) After that, the existing capitalist system was criticized because of the Great Depression. Government rejects to let capitalism altogether and support state-influenced capitalism.
After World War P, it arise a group of new analytical tools of social science to explain the social trends and economic trends at that period, which contains the principle of post-industry society and the welfare state.(Burnham Peter, 2003) Two of most popular theories are Neoliberalism and Keynesianism. The former refers that market could drive the economic and social policy as the efficiency of private enterprise, liberalized trade and relatively open market, and thus find the optimized role of determining the political and economic priorities of the state.(Ong Aihwa, 2006) The latter one also called Keynesian economics which is a macroeconomic theory argued that private sector decisions sometimes lead to inefficient macroeconomic outcomes and thus it supports active policy responses by public sector such as monetary policy which conducted by central bank and fiscal policy operated by government to stabilize output over the business cycle. (Arthur, S. & Sheffrin, S. M., 2003)
Most of government accepted the Keynesian economics theory and the United Kingdom started to try to be mixed economies in which states owned and operated some main industries. (Burnham Peter, 2003) In the 1930s, the state played a rising dominant role in capitalist system in most part of the world. The war was ended in late 1960s and early 1979s, which brought a global economic depression and worsened by the rise of inflation. Under the high inflation rate and slow production growth, it led to increasing unemployment rate and finally recession which resulted in a loss of credibility of the Keynesian welfare-statist mean of rules. (Burnham Peter, 2003) In the later 20 century, it arises financial markets, market trends calculated by quantitative analysis and rising globalization of production and consumption in capitalist system.
Globalization refers to the process in which it integrates the regional economies, cultures and societies into a international network under the communicating, transporting and trading. (Bhagwati Jagdish, 2004) However, some people may analyzed that globalization is driven by a combination of several factors including, economics, technology, social culture, politics and biology. There are some unions emerged to maximize globalization. For example, The European Union added new members south and north during 1980s and 1990s, including Greece, Spain, Portugal, Austria, Sweden and Finland. It also conducted acts and laws to deepen economic integration. Apart from EU, the United States and Canada signed a free-trade agreement. After five year, Mexico participated the agreement which started to have effect in 1994. (Burnham Peter, 2003) In addition, NAFTA brought developing counties into a free trade zone.
Globalization has effects on various aspects of the world from financial, economical, and political, to informational, language, competition, and cultural. In the industrial aspect, it has a broader access to bring a large amount of foreign produces, such as materials and goods for consumers and firms. Also, it increases output of manufactured goods and sell them overseas. In the financial factor, it provides more external financing for borrowers for financial markets. However, as the high-speed growth in globalization, it caused the instability in global financial environment and thus led to financial crisis. Furthermore, in economic, globalization brings freedom of exchange goods and capital. The companies can produce goods and services in the lower cost country however, leading to lower wages, less employee protection and lower well-fare and health benefits firms have to pay. In addition, in the aspect of political, government have to build relationships among governments from different nations and guarantees the rights arising from social and economic globalization.( Francesco Stipo) Moreover, globalization increases the information spread by high-tech such as telephone and internet. Additionally, English has been the most popular language in the world trade. However, the most popular language is Mandarin. In the competition aspect, globalization brings more competition due to the market becoming worldwide and companies have to update their products and technologies in order to satisfy different regions of consumers and facing increased competitions.
On the other hand, globalization brought financial crisis like the Asian Financial Crisis in 1997 and Global Financial Crisis in recent years. As the regionalization, the exchange rate of one country started to be unstable led to the whole Asian areas suffered from the financial recession. Most of Asian countries in that period faced high inflation rate and high unemployment rate. It took nearly five years from recovery. South Korea, Thailand, Japan and Hong Kong encountered economic downturn. In 2007, the global financial crisis firstly occurred in the United States. Following that, it spread to Mexico, Canada, Europe, Asia and eventually the whole world. Few countries were not attacked. Therefore, globalization provides the free-trade, the larger output, the higher profit but more risks.
There are several phases witness the development of global capitalist system over last two centuries, including industrialization, Neoliberalism and Keynesianism and globalization. Since 1800s, the world economy has stimulated unprecedented economic growth and social change. The international trade was transformed companies, countries and eventually the whole world. The international economy accelerate development of countries, alleviate poverty, improve social conditions lengthen life spans and carry out social and political reform. However, the high degree of globalization brings the risk of international trade and political relationships.
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