Capitalism is an economic system that embraces the private ownership of the means of production and exchange of goods and services on an open marketplace.
It is generally seen as a model that allows for freedom and the pursuit of profit. It also has the benefit of rewarding efficiency and productivity, and allows individuals to ‘vote’ for the best companies by choosing where to spend your money.
This allows the best businesses to thrive and weeds out the low-quality and inefficient companies.
It allows for innovation, entrepreneurship, and investment, as well as personal freedom.
However, the model is criticized for creating ever-increasing economic inequality as the wealthy can use their wealth to further secure more wealth, privilege and power. At the same time, the poor and disadvantaged have minimal power, meaning they’re often exploited, find it hard to find opportunities, and are kept in poverty.
Real-Life Capitalism Examples
1. The Stock Exchange
The stock exchange is fundamentally capitalistic. Capitalism refers to a system where people can own, trade, and exploit capital; and the stock exchange is the vehicle for trading ownership of capital.
A stock exchange is a platform upon which companies can raise capital (get an influx of money) by issuing stocks and bonds, which is essentially selling part-ownership of the company.
Investors also use the stock exchange to purchase stock in businesses that they believe will be profitable and grow over time.
Under communism, stock exchanges are generally illegal because ownership of capital (e.g. owning businesses) is banned. For example, under Vietnam’s strongly communist system, there was no stock exchange. However, after the Doi Moi reforms in the 1990s, the Vietnam Ho Chi Minh Stock Index was opened.
2. Real Estate Investment
Two major types of capital are private ownership of businesses and private ownership of land. Real estate reflects the latter.
Pure communist societies ban private land ownership and instead rely on the government to distribute land and housing stock to the people.
By contrast, capitalist systems allow people to buy and sell their own land so they can own their own family home.
However, capitalism also generally allows people to buy as much real estate as they want, such as a commercial or residential investment property that they will rent out for profit.
This tends to increase housing stock for renters and helps establish a balance between supply and demand, but it also can lead to ever-rising speculative house prices and transfer of wealth from the poorer renters to the wealthier capitalist class.
3. The Military Industrial Complex
The Military Industrial Complex refers to the vast private industries that have been established to uphold capitalist militaries.
The term was first used by US President Dwight D. Eisenhower in his farewell address in 1961, in which he warned about the potential dangers of this complex, stating that it could lead to a disproportionate influence of the defense industry in the government’s decision-making process, the development of a permanent war economy, and the loss of control over military spending.
Generally, in order to sustain the private industries feeding the military, the government needs to keep putting in orders for more and more stock. Meanwhile, lobbyists approach government trying to establish more investment contracts from the government.
4. Private Education
While government-funded public education is an example of socialism in America, private education reflects how education would take place under a capitalist system.
Most societies have set up free public education for all in order to ensure a productive, industrious, and well-educated society. It is also embraced because it allows for social mobility and gives even the poor a chance to educate themselves and achieve economic advancement.
But under a purely capitalistic system, everyone would have to pay for their education. This means that the poor would be unlikely to obtain an education, while the rich could purchase higher-quality education for their children. This would mean that if you’re born into a wealthy family, you already have a leg-up in life.
Of course, this already happens in many societies – either through sending your child to an elite private school, or spending your own money to buy extracurricular tutoring for your children.
5. For-Profit Healthcare
Universal healthcare is another example of socialism that has been integrated even into most developed capitalistic societies, with the stark exception of the United States.
But under a more capitalistic system, such as that which we see in the USA, people have to buy their own healthcare from the marketplace.
People who argue for a private healthcare model note that competition should theoretically help to lower prices (because companies have to compete for lower prices, leading to efficiency and productivity). It encourages innovation and private medical research. It also ensures that people can pay for speed and quality in services rather than waiting your turn for care.
However, people who argue against this model argue that healthcare monopolies held by people who own medical patents increase price. Furthermore, the patchwork bureaucracy of healthcare networks can cause higher costs and unwanted anxiety for patients.
Read Next: Strengths and Weaknesses of Socialism
6. Fast Food Chains
Large fast-food chains like McDonald’s emerged thanks to the efficiency of a capitalist system.
McDonald’s is a great case-in-point. The owners discovered innovative ways to improve the speed of production, standardize their products, and produce burgers beloved by the American population at a lower price.
In fact, the four features of McDonald’s success (efficiency, productivity, calculability, control) have a name: McDonaldization.
As a result of McDonaldization, the stores got more and more customers, made more and more money, and the brand was able to open more and more branches.
The restaurants who could produce low-cost products that customers love grew, while the inefficient ones or the ones with food that people didn’t like failed. This is the great benefit of capitalism.
7. Commercialized Sports
Of course, sports didn’t start out commercialized. People would play sports on weekends as a social activity or for exercise.
But under capitalism, elite sports become commercialized. Stadiums open and charge money for people to watch the elite sports stars. Advertising is plastered over the walls. The best athletes get corporate sponsorships to be on television ads, and so on.
This can help to stimulate interest in the sports and bring funding that can help raise future athletes or encourage more people to start participating.
8. The Travel Industry
The travel industry operates within a market-driven economic system, making it another example of capitalism.
Travel-related businesses such as airlines, hotels, and tour operators compete to provide high-quality services and low costs in order to secure customers.
One sure sign that the travel industry is capitalist-oriented is that it is driven by consumer demand. Storms, floods, and bad weather can decimate the industry because consumers are driven away, while a great summer can be a huge boon for the industry.
Another sign that this industry is capitalistic is the sheer amount of advertising invested in order to get people with money to buy a travel adventure.
9. Tech Startups and Venture Capital
Silicon Valley, a tech startup region of California, stands as a key example of the power of capitalism.
It is a region where young entrepreneurs flock in order to start the next tech startup. Startups that have emerged out of Silicon Valley include Facebook, Hewlett-Packard, Adobe, Apple, PayPal, and Zoom.
Venture capitalists – rich people who invest in business ideas – have ample money to give to promising young entrepreneurs in order to encourage them to start the next big tech company. In exchange, they get a proportion of the profits.
10. The Gig Economy
The gig economy refers to the freelance-based culture that rose in the 2010s and 2020s thanks to platforms like Upwork, Fiverr, and Grab.
Thie gig economy benefited may companies because they didn’t have to hire full-time employees anymore. Instead, they could hire people for one-off jobs. This saved on payroll taxes and traditional employee benefits.
Many freelancers also felt liberated by this economy because they could set their own prices, start their own businesses, and select which jobs they wanted to do. It gave them flexibility to structure the life they wanted.
But the gig economy is also criticized for having minimal protections for freelance workers who often work for below minimum wage.
11. The Automobile Production Line
12. Private Equity Firms
14. For-Profit Prisons
15. Multinational corporations
16. Public-Private Partnerships
17. Family and Small Businesses
1. Private Ownership of Capital – Capitalist theory holds that people should be allowed to personally own businesses, factories, and intellectual property.
2. Competition – Capitalism encourages people to compete against each other to produce the goods and services that are most desirable to consumers.
3. Market Forces – Market forces refer to all of the economic factors that affect supply and demand. This can include availability of labor, level of competition in the market, economic conditions, supply chain problems, and many other factors.
4. Profit Motive (Reward for Effort) – People are encouraged to try their hand at selling goods and services. If they succeed, they will be handsomely rewarded for their efforts.
5. Consumer Sovereignty – The consumer gets to choose where and how to spend their money. This means that people with goods and services in high demand will succeed, and people without good products will fail. This creates market efficiency and equilibrium.
6. Limited Government – Under communism, the government has a hand in controlling everything in the economy (see: command economy). By contrast, the government keeps out of the economic activity as much as possible under capitalism with recognition that government intervention is usually inefficient, expensive, and distorts the market.
7. Deregulation – Deregulation refers to the removal of rules and government bureaucracies that can get in the way of efficient business activities. However, detractors argue that it can decrease protections for workers and consumers.
8. Privatization – Privatization refers to the selling-off of government assets such as railway lines and telecommunications infrastructure to private industries. It was common during the era of neoliberalism. It was argued that private companies would manage it more efficiency (however, these infrastructure are often natural monopolies that lack competition to keep down prices).
9. Intellectual Property Rights – A core principle of capitalism is that people who created something have the rights to profit from it. For example, if you invented a new medicine, you should make money from it and others have to pay you if they want to use or sell it themselves.
10. Advertising and Consumerism – Advertising is everywhere in capitalist societies. It’s a way to let people know what products are no the market and encourage people to purchase products.
1. Exploitation of Labor – Almost by definition, employees are paid less than their worth to the company. The company must pay for workers and then make profit on top of that.
2. Exploitation of Resources – People are incentivized to exploit natural resources such as fossil fuels because they dig them up and make a profit from them.
3. Immorality – Where money is the key incentive and source of power, people are incentivized to do whatever they can to get it. So long as a profit can be generated, there will be people engaging in business.
4. Social Inequality – Capitalist societies tend to experience higher social inequality because there is minimal redistribution of wealth and power. Exterme capitalism can also be accused of embracing elements of social Darwinism.
6. Collectivism is Disincentivized – Getting together to form unions or start cooperatives is generally disincentivized within capitalist culture. This can be a downside because of the various benefits of unions for workers.
7. Emergence of Oligopolies – Often, the companies with most money, efficiency, or brand recognition consolidate power by buying up potential competitors, and oligopolies emerge.
8, Product Quality May Decrease – While capitalists argue that product quality will rise to the top due to consumers voting with their feet, often product quality can also go down because companies seek efficiency.
9. Lack of Solidarity – A pure capitalist society would lack universal healthcare or universal education, meaning people end up living in a society where the sickness and demise of their neigbors doesn’t matter to them.
Most Capitalist Counties in the World
Different indices have different rankings, but the Heritage index (which measures the most free market economies in the world) holds that these are the most capitalist countries:
- New Zealand
- United Kingdom
Least Capitalist Countries in the World
There are five remaining countries that claim to be communist, but beside North Korea, most have gradually increased capitalist elements due to poor economic performance under a communist model.
The five nations are:
- North Korea
Read Next: The Different Types of Capitalism
Capitalism is an economic model that has brought about incredible economic prosperity. Its focus on efficiency, competition, and freedom has unleashed innovation and led to highly productive economies. This alone has lifted many people out of poverty and even delivered great wealth to many.
But it’s also accompanied by inequalities and hasn’t been able to eradicate poverty. In fact, unlike socialism, capitalism has no intention to eradicate poverty – its whole focus is on freedom. In this sense, it is highly individualistic and lacks any direct framework or imperative for people to care for the poor and downtrodden.
Dr. Chris Drew is the founder of the Helpful Professor. He holds a PhD in education and has published over 20 articles in scholarly journals. He is the former editor of the Journal of Learning Development in Higher Education. [Image Descriptor: Photo of Chris]