Problems inherent to capitalism?
If thinkers like Schumpeter are correct that companies that stop innovating will quickly become uncompetitive and will soon find themselves out of business, if capitalist economies in other words do require constant growth and expansion (due to the nature of competitive markets), then are planned obsolescence, high rates of waste, and competitive-consumption and high levels of personal debt (Schor reading) inevitable consequences of capitalism? Why or why not?
If they are inherent to capitalism, then how can these problems be resolved? Do you believe that these are problems at all? How might market-based approaches help to prevent these controversial consequences? On the other hand, if they are not inevitable upshots of competition and the drive for profit, then what might explain these consequences? Can the virtues of capitalism be harnessed to help prevent these controversial consequences?
12 responses to “Prompt 2 (Gov’t./Capitalism 2015)”
Problems Misattributed to Capitalism
While the consequences of planned obsolescence, high rates of waste, competitive consumption, and high levels of personal debt seem to be inevitable consequences of capitalism, it is not clear that all of them are inherent to capitalism alone, nor that all of the consequences are objectively bad. It also seems that capitalism is the best equipped system to deal with the ones that are actually problems.
Planned Obsolescence seems to be found far more in capitalist economic systems than others. While it does have some short-term negative effects, such as more money per capita spent on goods and higher rates of waste, it also has tremendous positive effects for society as a whole. More revenue and profit equals more money in the economy equals more jobs equals a higher standard of living. The macro positive effects outweigh the annoyance of the negative effects.
High rates of waste, which are clearly experienced in the United States, are also present in any society that has high rates of industry, regardless of economic system. China, with its communist economic system, has higher rates of waste (and growing) than the United States in many regards such as carbon emission. This rate of waste does not have to do with the economic systems in the respective countries, but instead the growth of industry in China and the tapering off of growth of industry in the United States. Capitalism can possibly deal with the problem of high rates of waste through incentivizing companies to waste less (possibly higher profits), consumer choice (consumers opting to buy from companies that cause less waste), or by creating new arenas for companies to rise who offer a profitable solution to the problem. Other economic systems, such as socialism or communism, cannot include competition and innovation in the same way, instead limited to government control of resources. It is possible that the market alone can not solve the problem, but even if some government regulation is required, it is probable that regulation plus the market can solve the problem more aptly than a centrally commanded economic system.
Competitive-consumption has been prevalent among the aristocracy and well to do of most cultures, irrelevant of what type of economic system a society employed.Yes, it’s true that capitalism systems may witness more of this, but it seems to be because more people have access or the wealth available to acquire goods than in other systems. Either way, competitive consumption encourages technological innovation of a plethora of goods, a higher standard of living, and jobs. I do not see that as a bad thing.
High rates of personal debt are also not something inherent to capitalism. From 1975-2007, the rate of personal debt grew at an increasing rate in the United States. (Ruben, 2009) This growth in personal debt has occurred during a time where economic regulations have grown substantially, moving away from free-market capitalism. More importantly, it occurred during a time where new laws and regulations encouraged consumers to recklessly take on higher amounts of personal debt. Without this encouragement from the government and protection of risk on banks, credit agencies, and consumers, the inherent sink or swim aspect of capitalism would have prevented such a high increase of personal debt. While short-term debt is sometimes a good thing (business expansion, buying a car to get to work, etc), it is incredibly bad in the long run. Capitalism rewards long-term thinking, and punishes recklessness.
Ruben, Matthew. “Forgive Us Our Trespasses? The Rise of Consumer Debt in America”. http://Www.csa.com/discoveryguides/discoveryguides-main.php
Schor, Juliet. The Overspent American. 1999
United States Environmental Protection Agency. “Global Greenhouse Emissions by Source” http://www.epa.gov/climatechange/ghgemissions/global.html
Capitalism: The Root of All Evils?
Response to Jon
If we are to agree with Schumpeter’s theory that innovation leads to competition and its necessity to remain competitive within the respective market, constant growth and expansion is fundamental to survival. With this practice, however, comes the negative implications of planned obsolescence, high rates of waste, and competitive-consumption, though not inherent to capitalism alone, they serve as externalities associated with the capitalist system according to Schor. Though present throughout capitalism, these so called “consequences” are not inherently bad.
Schor mentions throughout her article the notion of “keeping up with the Joneses.” In doing so, she is solidifying that competitive-consumption and racking up high levels of debt are completely socially constructed actions. The whole “monkey-see, monkey-do” consumer mindset has become the norm for consumerism, and the notion of keeping up with the guy down the street shows greater implications of ones character, and much less of the capitalist system. With that being said, there is no question that capitalism can foster an environment where excess spending and material wealth are seen as desirable and obtainable, but to generalize and place blame completely on the system is ludicrous.
Looking deeper and analyzing planned obsolescence and high rates of waste, we can see that although seemingly bad, the benefits indeed outweigh the costs associated with these criticisms. The quote, “This imperfect system has created the greatest superpower ever, but one uniquely dedicated to expansion of peace, democracy, and human rights throughout the world” (Odland. Forbes, 2012), shows the minute costs or consequences that exist within capitalism, but these are merely drops in the bucket in the name of economic prosperity and National wealth. Again, Schumpeter is correct in stating that technology and innovation drive competition and the economy, and as long as there are competitive markets, there will be obsolescence and waste. The point being, yes, these can be seen as consequences and inherently bad in the short-run, but when look at this through a macro-economic lens, it is completely justifiable. By continually coming out with more advanced and desirable products, consumers are stimulating the economy and are encouraging growth.
As some have pushed for more government regulation regarding the markets and their operations, the most efficient way of regulation is by not interfering at all. By allowing for firms to fail and businesses to go bankrupt, we are allowing for a more competitive system, and in turn building a stronger global economy. Peter Schiff, a self-made millionaire and entrepreneur raises an interesting point in the following quote. “The United States reached its economic preeminence on the strength of its free markets. So far, the economic disaster exacerbated by government policies is creating opportunities for further government interference, which will lead to bigger catastrophes” (Schiff, Washington Post; 2008). Although controversial among many, by simplifying the market structure and removing safety nets and the notion of being “too big to fail,” the economy will naturally become stronger and more prosperous.
Capitalism thrives on competition, and although consequences are present within any situation, the benefits of the free-market system greatly outweigh the costs capitalism inflicts.
Odland, Steve. “Capitalism Under Fire.” Forbes Magazine, 17 Jan. 2012. Web. 12 Feb. 2015.
Schiff, Peter. “Peter Schiff – Don’t Blame Capitalism.” The Washington Post, 16 Oct. 2008. Web. 11 Feb. 2015.
Response to Jon
Schumpeter was correct in his assumption that planned obsolescence, high rates of waste, and competitive consumption, and high levels of personal debt are problems inherent to capitalism.
Because companies must survive, planned obsolesce happens as a way for companies to ensure consumers are always buying. As a result of planned obsolesce and products being designed to be replaced, waste occurs. The author of the previous post argued that because of the increased revenue and job creation, the macroeconomic effects of planned obsolesce outweighed the “short-term” negative effects of increased spending on goods, and higher rates of waste. While the increased spending per capita on a certain good may be a short-term effect, the increased waste created by planned obsolesce is not. High rates of waste negate any positive economics effect planned obsolesce might have, In the technology sector, planned obsolescence is both commonplace and toxic. Cell phones for instance seem to have a two year life span due to their contracts, rapidly improving technology, and general fashion. However, this biannual replacement is a little different from buying a new pair of shoes to replace an old pair. E-waste contains things like lead, cadmium, mercury, and barium. While the author of the previous post also claims that waste is a result of growth, not capitalism and states that China has just as much waste. I believe this misleading. Capitalist nations in the west, such as the US, send the majority of their e-waste to countries like Pakistan, India, and China (China Water Risk). In 2009, numbers as high as 70% of the world’s e-waste were reportedly sent to China and with 20-50 million metric tons of e-waste created each year, the environmental consequences have been dire. While up to 95% of the waste is recyclable, producers would be forced to raise the price of their product to account for the cost of its environmental impact, and because companies are not being forces to take environmental responsibility for the waste creation, it is easier and better for their bottom line if they do not raise the price of their product. This places the financial burden of the environment on the consumer, either with health effects and bills associated with the pollution or costs undertaken by the consumer to recycle waste themselves.
One of capitalism’s most defining features is competition, both among producers and consumers. Competitive consumerism is inherent to capitalism because consumers feel the need to outdo each other by owning goods that set them apart from the crowd and then feel the need to compete with the items those around them bought. This desire to buy and compete drives the market forward when people spend within their means. However, the author of the previous post stated that this competitive consumerism happens more in capitalism because people have more access to wealth in the capitalist system. If this was true, then the large amounts of personal debt would not be a problem, but they are. In 2012, the average American household had nearly $15,950 in credit-card debt (CNN), while in China less than 1% of citizen use consumer loans to purchase goods. So, either the US citizens’ wages need to go up to meet their standard of living, or the American consumer needs to realize that spending beyond your means only makes you poorer in the long run.
“Controlling Your Personal Debt.” CNN Money. Cable News Network, n.d. Web. 15 Feb. 2015.
“Electronic Waste-Moving Mountains.” China Water Risk. China Water Risk, 11 June 2013. Web. 15 Feb. 2015.
Weagley, Robert O. “One Big Difference Between Chinese and American Households: Debt.” Forbes Magazine. 24 June 2010. Web. 14 Feb. 2015.
Wong, Clement. “Planned Obsolescence: Buying into Consumerism.” Economics Student Society of Australia. N.p., 07 Oct. 2012. Web. 15 Feb. 2015.
The Nature of Competitive Markets and Inherent Consequences of Capitalism
If Schumpeter is correct in stating that companies that stop innovation will become noncompetitive, and a capitalist society requires constant growth, then high levels of waste, over consumption, and high levels of personal debt are consequences of the capitalist economy. Juliet Schor stated in the Overspent American “the new consumerism is built on a relentless ratcheting up of the standards,.”(Schor, 6) With this, Schor is referring to planned obsolescence, or a company deciding to make consumer products in such a way that they become out-of-date or useless within a certain time, such as in the example of new technology. This also creates a huge amount of wasted materials, most of which will sit in a landfill.The market is dominated by a rational model of consumer behavior. This approach is based on human response, with market techniques of conditioning in order to influence consumer behavior (Carmia, Consumerism,2014; 3) As a market expands, firms tend to become more competitive, and monopolies and the media are closely paired. Media and markets drive people to compete with others so they can succeed in terms of wealth, or status, according to Tammy Schmidt ( Schmidt;2014, 1). The media and competitive markets do an overly efficient job of promoting products, and consumers must have the newest product in such a competitive market.
These consequences are inherent to capitalism, as a market expands. Government intervention would be necessary in order to resolve these consequences. This could be done by product development being held to a higher standard, as well as less advertising towards products intentionally built to be lower in quality. Markets could use traditional regulatory approaches that set specific standards for consumers or producers, according to Richard Belzer in Economic Incentives. (Belzer; 2014). However, holding products to a higher standard and regulatory approaches could fail to overcome the consequences of a capitalist society because a) it might not be successful at eliminating certain preferences or needs, b) a capitalist society thrives of off consumerism, and if demand for consumer products dropped it might affect market prices.
Belzer, Richard. “Economic Incentives” Web. 15 Feb 2015.
Caramia, Nicola. “Consumerism” Thesis. 1 Feb 2015. Web. 10 Feb 2015.
Schor, Juliet. The Overspent American. Web. 10, February 2015.
Incentive to Produce
Response to Audrey
Both Schumpeter and Audrey F. are correct in stating that high levels of waste, high levels of personal debt and over-consumption are results of a capitalist economy and society. Whether these failures are direct or inherent results of capitalism is unclear but what is clear is that producers must be regulated in order to promote equity. Government intervention is necessary in combatting the negative consequences of capitalism in our society. Large firms, monopolies and oligopolies have no incentive to stunt production in favor of social welfare without government intervention. Firms are motivated by self interest and therefore will continually produce as much as possible in order to maximize profit and revenue.
Economist Amartya Kumar Sen argued that humans are not entirely self-interested and that they are predominantly motivated by a set of “ethical values” (Bowles, 71). While this may be true of humans, perhaps those not in the capitalist class with control over the surplus product, it is untrue of firms that impose negative externalities on our society. Those in-control of the surplus product have the opportunity to greatly influence the media and consequently the consumers that bare witness to it. Systematic high levels of personal debt in our economy could be attributed to the American culture of capitalist consumerism. Americans are highly impressionable and the over the top advertising of consumer products can be often difficult to ignore. Humans may be driven by ethical values but advertising is what drives our consumer based economy. According to classical economic theory “low savings leads to less investment” and eventually to “industrial weakness” (Lewis, 2). When consumers excessively spend their income on luxury products they endanger society through production externalities and they endanger their own personal wealth through improper savings. It is important that we promote necessary government intervention and provide firms and consumers incentive to produce wisely and spend wisely.
Bowles, Samuel. Understanding Capitalism: Competition, Command, and Change, 2015.
Lewis, Paul. “In Buying We Trust; The Foundation of U.S. Consumerism Was Laid in the 18th Century.” The New York Times, 29 May 1998. Web. 12 Feb. 2015.
Competition: Stagnation Kills
Assuming Schumpeter et al are correct in the claim that companies slow to adapt are likely to go out of business thanks to customers flocking to the competition, phenomena such as planned obsolescence and high rates of waste will usually follow. High rates of waste, however, are not a phenomenon exclusive to capitalism. Planned obsolescence has both positive and negative features.
Planned obsolescence usually involves a company ceasing production or support of a product in order to sell its replacement. One example would be the Apple iPhone. Apple has released a new major model on a yearly basis since its introduction in 2007. The Times reports the average American replaces her phone every 22 months. When upgrade time comes around, most consumers will be comparing phones based on features, price point, and performance. To not lose more customers (idc.com) to Samsung or LG, Apple must continually research and implement new technologies in their phones. This is why planned obsolescence is necessary in many sectors of capitalist competition. Certainly, a negative of planned obsolescence is the arguably criminal high waste rate it produces. You’re out buying your new phone and what do you do with the old one? You probably toss it in the trash, or if you’re feeling extra green that day, you toss it into a cell phone recycling bin in the UMC. Chances are, your phone is going to cause some health problems somewhere in the world. The Times article suggests that those phones that stay on US soil to be broken down are handled by prison inmates, while those that are exported for dismantling are handled by young impoverished children.
High waste rates, while a product of capitalist economies, are not exclusive to capitalism. Russia, which claims to be a form of capitalism, is actually “a partially reformed, statist economy with a high concentration of wealth in officials’ hands” according to the CIA World Factbook. A well-documented case of their high waste rates was as journalists and athletes started arriving at their hotels in Sochi ahead of the 2014 Olympics. Having been given years to prepare, many construction firms wasted labor hours and material hoping to receive additional supplies from the state. This resulted in the media circus surrounding the condition of the town and the hotels within. NBC News compiled many of the Twitter posts decrying the situation under the hashtag #sochiproblems, finding 26,000 posts with this term in a 24 hour period.
Can we reduce these negatives? Certainly, in the case of high waste rate. A recurring theme in this class has been that the long-term trend is toward automation. It will not be difficult to implement a robotic sorter that can separate electronics from compostables from metals from common refuse. Use of this will save us money in the long run by giving us healthier kids, and better reclamation of the scarce metals required in the manufacture of consumer electronics.
Life From the Ashes
Response to Matt
With regard to Competition: Stagnation Kills, Matt produces a valid argument about how planned obsolescence is an inherent facet of capitalism. However, the argument can be made that these issues are not a serious issue. There can be industries that are created in response to this influx of planned obsolescence, high rates of waste, and competitive-consumption. Personal debt is gravely more significant than the waste being produced with a competitive capitalist economic system.
The first response I have to Matt’s post is that I would be hesitant to mention about the criminally high rates of waste that are being produced. By no means am I commending the levels of waste, which are being produced. It would be seen as a cost of the economic system. In other words, is it beneficial for the world as a whole? Most likely not; however the levels of waste can and have been seen to produce another market for junk disposal. A prime example of this is in the IT realm where new technology is replacing old ones at an astonishing rate. Thusly, what is to be done with the seemingly outdated electronics? They need to be recycled. A recycling firm of the name, Blue Star Recyclers is recycling these sensitive electronic components (Leon). These recyclers are creating jobs for individuals with disabilities, effectively creating jobs from the planned obsolescence.
Shifting to high levels of personal debt, unfortunately this is where the real issue of planned obsolescence and high levels of competition is. Matt does a fine job mentioning the planned obsolescence with regard to purchasing new phones, however I would argue that the point of personal debt should be focused on more. To explain, personal debt is the real issue. With the recession in place, one would believe that it would cause Americans to pay off personal “debt and get their finances in order – whether they wanted to or not” (Schrager). However, this is not the case. As this article discuss, “Americans are taking on debt…we’re borrowing to finance new cards, college tuition, and other consumer goods” (Schrager). The need for someone to have the newest or the fastest products does produce waste, yet the personal debt reaped from these purchases is a significant issue with the system.
A counterargument to all this would suggest that these facets are not a part of capitalism and stem from the wasteful nature of the current American populous. Quantitative data would be needed to effectively suggest this. It would be simple to say that these issues are present, yet more difficult to suggest solutions. Perhaps a possible solution to the debt would be to allow consumers to sell back old products to firms. This would decrease the cost of the product, and limit the waste as firms can recycle the materials, in turn creating more jobs. I would argue that market-based approaches to prevent these would have to be deployed from the government in office, not from the private firms as they need to stay competitive and innovative.
Leon, Kristyn. “Don’t Get Your Data Stolen! Recycle Your Hard Drives through the BBB.” FOX21. N.p., 10 Feb. 2015. Web. 12 Feb. 2015.
Schrager, Allison. “Consumer Debt Hits an All-Time High.” Bloomberg, 30 Sept. 2014. Web. 11 Feb. 2015.
The Sharing Economy: New Consumers and New Markets
Schumpeter argued that due to the competitive nature of capitalist economies, those economies require perpetual growth and expansion. In particular, Schumpeter argued that firms that stop innovating will quickly become uncompetitive and be run out of business (Bowles 2005). Juliet Schor built upon the nature of capitalist economies to argue that the American culture of competitive acquisition, in conjunction with unrealistic reference sets, has led to high levels of personal debt. Planned obsolescence and high rates of waste are problematic, for these trends are not environmentally sustainable. Competitive consumption and high levels of personal debt may have less of a far-reaching impact, but the economic health of individual citizens is important to personal happiness and related to economic health for the country.
I argue that planned obsolescence and high rates of waste are inherent results of a capitalist economy that is driven by competition for profit. However, competitive consumption and high levels of debt seem to be problems that follow from the culture of consumerism– which arises from capitalism– but those problems are not necessarily inherent to it. Thus it is possible to imagine a capitalist economy that is neither driven by competitive consumption (or less so) nor characterized by high levels of personal debt. Therefore I would argue that any solution to these problems must stem from both market-based approaches and from a cultural shift.
Although capitalism has encouraged a culture of overconsumption, wastefulness and excess, other defining features of capitalism are that it is innovative, dynamic and responsive. It follows, that those virtues of capitalism can be harnessed to help mitigate controversial consequences such as overconsumption and waste. One modern day market-based approach is arising in the form of “sharing economies.” Companies such as Airbnb and Uber are prime examples of sharing companies that are shaping new sharing economies. As Time Magazine writes, “these companies are more successful than investors ever thought possible… Airbnb… is valued at $13 billion, almost half as much as 96-year-old Hilton Worldwide. Uber is valued at $41.2 billion” placing it in the ranks of the top 150 companies in the world (TIME Staff 2015).
As consumers engage more with sharing companies, the sharing market will become more successful, and as Schumpeter argues, other firms will change to increase profitability as well (Bowles 2005). As the UK Telegraph puts it, “the corporate answer to ‘why change’ is therefore always the same; if you don’t, someone else will do it instead…we… see the likes of BMW dipping their toe into the market for shared cars… BMW thus puts itself on a path of transition from manufacturer to service-based company” (Warner 2014). Furthermore, the explosion of sharing companies can be understood to reflect a cultural shift on consumption. Harvard Business Review found that sharing companies lessen the relationship between particular brands and personal identity, and that consumption in sharing economies “shows that consumers simply want to make savvy purchases, and access economy companies allow them to achieve this, by offering more convenience at a lower price” (Bardhi, Eckhardt 2015). It must also be acknowledged that the success of a new market is not guaranteed, nor is the effect that this new sharing market will have on firms within the economy at large certain.
Bowles, Samuel, Richard Edwards, and Frank Roosevelt. “Political Economy, Past and Present.” Understanding Capitalism: Competition, Command, and Change. 3rd ed. New York: Oxford UP, 2005. 79. Print.
Eckhardt, Giana, and Fleura Bardhi. “The Sharing Economy Isn’t About Sharing at All.” Harvard Business Review. Harvard Business Publishing, 28 Jan. 2015. Web.
Schor, Juliet B. “The Overspent American.” The New York Times, 1 Jan. 1998. Web. 11 Feb. 2015.
TIME Staff. “5 Things You Never Knew About the Sharing Economy.” Time. 29 Jan. 2015. Web. .
Warner, Jeremy. “Another Industrial Revolution Is Coming; It’s Circular.” The Telegraph. Media Group, 20 Dec. 2014. Web. .
Innovating Sustainability In Restaurants Could Save The Industry
It’s no secret that people are demanding a push towards sustainability in all facets of consumer goods but often times the focus lays within technological advances and the cost of innovation is somewhat justified. While the technology field faces issues on competitive-consumption there is a field that is often forgotten about. The restaurant industry is one that deals with substantial amounts of waste each year and because of this problem, innovation is indeed required in order for these businesses to remain relevant. Restaurants make up nearly 15 percent of all the food waste that ends up in landfills which essentially equates to 10 percent of all food purchases ending up in the trash (Barclay, 2012). Many restaurants are finding that in creating sustainability within their walls, they can actually save money and avoid waste.
Arthur Potts Dawson is a Green Chef who has devoted his life’s work to creating sustainable and renewable methods for keeping his restaurant from spending substantial amounts of money on things that will end up in a landfill regardless. Dawson has developed methods of composting the items thrown away in his restaurant, and using them in a garden outside to grow fresh vegetables (Dawson, 2010; 3:29). In doing this, there is a reduction of produce boxes and packaging coming in to the restaurant, as well as cheaper and better quality ingredients becoming more readily available. In an industry that is so focused on cutting costs while dealing with a growing population that is demanding higher quality food, innovation is key to remaining competitive. From research conducted by the National Restaurant Association, it is estimated that consumers are willing to spend around 10 percent more in a restaurant that recognized sustainability and recycling practices (“Industry Impact”, 2015).
Since there are so many options for consumers to choose from when deciding on restaurants, many owners and CEO’s are focusing their energy on rebranding. Much of this rebranding is done with the use of technology, better food options, and portion control (Dawson, 2010: 2:49). These rebranding’s are clear indicators of Shumpeter’s idea that without innovation, businesses will become uncompetitive are correct. Taking that into account, it does not seem plausible to say that high levels of waste, and planned obsolescence are inevitable consequences of capitalism because the evolution of the restaurant industry is a prime example of the antithesis.
The transformation to sustainability and increased profits for a restaurant aren’t easy though. As in relation to Schors example of “keeping up with the Jones’s” the risky start up costs for opening a restaurant increase the upfront costs when adding more sustainable measures. This will result in higher loans and seed money being required making the risk of failure even greater however, with greater innovation, perhaps the cost for sustainability will decrease.
Barklay, Eliza. “For Restaurants, Food Waste Is Seen As Low Priority” NPR. 27 November, 2012. http://www.npr.org/blogs/thesalt/2012/11/27/165907972/for-restaurants-food-waste-is-seen-as-low-priority
Dawson, Arthur Potts. “A Vision for Sustainable Restaurants” Ted. July, 2010. https://www.ted.com/talks/arthur_potts_dawson_a_vision_for_sustainable_restaurants/transcript?language=en#t-66000
“Industry Impact.” National Restaurant Association. Retrieved 11 February, 2015 http://www.restaurant.org/Industry-Impact/Conservation/Recycling
Constant Capital Change
Planned obsolescence, high rates of waste, and competitive-consumption and high levels of personal debt are inevitable consequences of capitalism. Schumpeter’s notion of “creative destruction” speaks well to the idea of competition driving changes in the economic system. The competition for profits requires investment and innovation; innovation is inherently change and so the old ways are quickly dismissed for new, different ways. New means of production and new technologies lead to new markets and new social structures. The problem of planned obsolescence as described in the article says, “consumers are being asked to discard their technology devices long before their useful life has ended” (Basulto, 2012). discusses directly the effects of companies essentially innovating too quickly, so to speak. But the idea that the old products being thrown out for new ones is a bad thing is a sort of environmental, humanistic approach; from a capitalist perspective, the more expediently innovation can happen the better because that leads to profits, expansion, and growth. This cycle has formed consumers’ perspectives into ‘always wanting the next thing.’ Thus, consumers are not only buying the innovative product, but they are paying for the idea of innovation, the feeling of progression, the social status of the advanced. The economy is so interrelated that changes are felt by a wide range of people. For example, “even people who don’t buy iPhones and don’t own Apple shares have a stake in the company. I don’t own any Apple stock, for example, but I do have a stake indirectly through my 401(k) account. That’s because mutual funds in my portfolio own Apple shares as their biggest holdings” (Sommer, 2014).
Sommer, Jeff. “When iPhones Ring, the Economy Listens.” 2014. New York Times.
Basulto, Dominic. “Welcome to the new planned obsolescence.” 2012.
Got a Societal Problem? Blame it on Capitalism: The Misinterpretation of America’s Economic System
Response to Jon
In the American capitalist system businesses survive and thrive by a means of innovation, change and adaptation to their respective market, as Schumpeter argued decades earlier (Bowles 2005:78). Constantly innovating and producing products can have negative and positive effects, as I will go over later. Planned obsolescence, high rates of waste, and personal debt, are all issues that capitalism tends to create, however to call these issues inevitable is an overstep. Furthermore, Capitalism can be arguably the most efficient means to solving these issues.
As Jon has stated earlier, planned obsolescence can be considered a prevailing business practice in Capitalist countries but it is not necessarily inherent to the system. The worldwide car industry for example has and will continue to be of a planned obsolescence nature. Car companies regardless of their country’s overhanging economic structure will at the very least tweak existing models for the next model year (Landes/forbes 2012). This practice is good for the economy and if your not a moron with your money, will not throw you down a hole of personal debt.
Jon’s point on rates of waste having little to do with economic system is an important one. Countries who produce more will have more waste, while waste whether in the form of pollution or landfills or anything is obviously not a good thing it has little to do with economic system. Based off waste data given from the World Health Organization I was able to infer that the most wasteful and polluted countries are condensed among the middle-eastern countries and China. The very well developed countries like Qatar and the UAE, which operate under monarchies, with a relatively small population, are among the worst offenders (WHO). Furthermore, a capitalist country is undeniably the most well equipped to take on the challenge of cleaner waste management. Capitalism is responsive and innovative. The waste management industry is in need of a disruptive innovation, as Schumpeter would put it (Bowles 2005:78). This is more likely to occur in a free market opposed to a highly government monitored market. I doubt North Korea is going to make the big innovation the world has been waiting for.
I agree with Jon’s point as well on personal debt. With respect to America, whether it is personal household debt or debt per capita of the government, our country has seen a spike in debt with policies aimed at regulating the private sector (OECD). This is in direct correlation to America continuing to stray away from free market capitalism ideals. Furthermore, countries with very similar capitalistic systems such as the UK or Canada have lower per capita debts than we do (OECD). While we certainly seem to have a love affair with taking on debt here in America, it is not rooted in capitalism.
“Creative Destruction”, a concept published in Joseph Schumpeter’s book “Capitalism, Socialism, and Democracy” in 1942, underlines the fact that due to competitive incentive in capitalist economies, businesses are forced to innovate and grow in order to stay successful. (2) And from the time of Schumpeters initial publication till now we see several examples of how the capitalist economy has changed. Globalization for example is a modern economic aspect that allows businesses to operate and earn profits through other countries’ domestic economies. As a result, the economic world becomes more unified, and successful products developed become readily available to individuals living in different countries around the globe. More profit can be made by creating operations in foreign countries. The car company Toyota for example, a company headquartered in Tokyo, Japan has operations in 13 American states and employs over 350,000 people. Creative Destruction allows for positive externalities to be formed.
But it also causes negative externalities, generally undesirable outcomes that many believe are inevitable to the nature of Capitalism. Such as planned obsolesce, high rates of waste and high rates of personal debt. Some of these aspects define capitalism in a sense. Planned obsolesce is inevitable since capitalisms inherent profit incentive will force companies to constantly develop newer and more expensive products to increase their annual revenue. College textbooks for instance, are constantly being re-written and re-sold through newer editions. Apple computers is another example where planned obsolesce is seems to be a main marketing. New Apple products are released annually, providing newer additions of the same product so the company wont lose money from products eventually losing their initial value after a couple of years (1). High rates of personal debt is also a result of capitalism that seems inevitable due to creative destruction and the natural presence of competition. These negative externalities seem to be an inevitable to capitalisms existence.
But I also think that some externalities can be solved but only through the involvement of the government. Especially the issue with high rates of waste being created through industrial production. With companies having a natural incentive to make profit, it would be difficult to make companies invest in something so costly as sustainable methods of waste disposal. However newly created environmental policies may be the first step in solving for this externality.
Mahajan, Sanjoy. “Planned Obsolescence: A Lament for Quality Amid a World of Junk.” Freaknomics. N.p., 25 Aug. 2011. Web.
Bowles, Samuel, Richard Edwards, and Frank Roosevelt. Understanding Capitalism: Competition, Command, and Change. New York: Oxford UP, 2005. 78-80. Print.
Shuman, Micheal. “Are Sovereign Debt Crises Inevitable?” Time. N.p., 17 Mar. 2010. Web.