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Capitalism is having an identity crisis – but it is still the best system

Capitalism has been blamed for the bad behaviour of the banks – which is akin to blaming democracy for voter fraud

Capitalism is clearly having an identity crisis, when it becomes a punching bag for even Fox news conservatives in the United States. But it is still the best economic system we have for alleviating global poverty and improving living standards.

Contrary to what Bernie Sanders, Jeremy Corbyn or John Quiggin might have you believe, capitalism is not about consumerism, exploitation or worship of big corporates. It is simply the freedom for individuals to engage in enterprise and voluntary trade.

Indeed, capitalism – in the form of enterprise and trade – has been the driving force behind the most remarkable decline in global poverty ever witnessed in human history. In the past 200 years, extreme poverty has collapsed from a whopping 94% of the entire world population to less than 10% today.

This is even more remarkable when you remember the global population has ballooned from one billion to over seven billion in that time, largely due to better life expectancy. Even now, more than 60,000 people on average are escaping extreme poverty every single day.

Of course, there are still pockets of the world where the benefits of capitalism remain tragically out of reach. But the abject poverty is not caused by capitalism, it is caused by a lack of capitalism. Conflict, war, corruption and political instability prevent the operation of economic markets and capital inflows for investment. If it is given a real chance to work, capitalism will always prove the best path out of extreme poverty.

Another key benefit of capitalism is it acts as a driving force behind continual improvements to our quality of life. Capitalism is necessary to generate new ideas through innovation and technology, and bring them to market. We will always need start-ups and entrepreneurs to invest capital in new ideas like clean energy technology, 3D printing or the leading-edge communications that are opening up third-world countries’ access to the world.

But new ideas don’t always work. So the profit incentive is essential to attracting investors, especially where there is a high risk that a new idea will fail. This is particularly true in pharmaceuticals, where developing a new life-saving drug can follow years of failed research and cost well in excess of $1bn.

Capitalism has given us such easy access to life-changing products, that it becomes common to take them for granted – our mobile phones, the internet, vaccines, and antibiotics, for a start. And while it is difficult to predict the new ideas of the future, they will no doubt further improve our lives in ways we couldn’t have imagined. The scope to advance our quality of life is limitless.

However, despite its proven benefits, capitalism has become the predictable scapegoat for almost every social and economic problem that befalls Australia. We’ve even seen capitalism blamed for the bad behaviour of the banks – which is akin to blaming democracy for voter fraud.

Those who state that capitalism has “failed” us speak fondly of state socialism, but their arguments should be rejected for two simple reasons.

First, socialism does not protect against human greed any more than capitalism encourages it, nor does it guarantee “fairness”. In fact, a state-controlled economy has always been a recipe for more corruption, greed and human misery – not less. Venezuela is the latest tragic example of this.

There, the state’s control of industries and economic mismanagement has been disastrous. The results have been mass unemployment, widespread hunger, and hyperinflation predicted to reach an incredible 10,000,000% this year. Around three million Venezuelans have already fled the country with millions more predicted to follow.

Clearly, the only fairness achieved in Venezuela has been the “equal sharing of miseries”, to quote Winston Churchill.

And secondly, there are no examples of where state socialism has proven successful. Contrary to popular claims, the Nordic countries do not represent some utopian ideal of socialism. As the Prime Minister of Denmark stated, his country is “far from a socialist planned economy”, despite what Bernie Sanders thinks.

In fact, the Nordic countries are successful market economies with lower corporate tax rates than Australia and the birthplace of some of the most globally recognised corporations including Ikea, Maersk, Lego, and Ericsson.

And while the Nordic countries tend to have generous social welfare systems, they also rely on capitalism to generate the tax revenue – from wages, investment income and corporate profits – to fund their welfare systems. Clearly, full-scale socialism is an experiment that even the most progressive democracies are unwilling to try.

None of this is to suggest that capitalism is a perfect system, but we should remember how much we rely on the market economy to provide for our needs, and make our lives longer, healthier, easier, more comfortable and more enjoyable.

But most importantly, capitalism has proven to be the best weapon against extreme poverty and deprivation around the world. For that reason alone, it is still the best system.