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11 Problems with Capitalism

Capitalism is an economic system based on economic rights and freedoms whereby governments allow markets to develop and run on their own without too much interference. This is the dominant economic system that prevails in all but a handful of countries such as North Korea. As such, capitalism has a great many strengths, particularly the ability to produce goods efficiently. The following are common problems with capitalism.


Capitalism is based on free and open competition. As such, those who produce and capture the most value can end up with a large share of the world's resources. In practice, most capitalist societies are social market economies that use taxation to redistribute some of this wealth with public services such as education, healthcare and basic income. However, it is common for the wealthy to use aggressive tax structures and strategy to avoid taxes resulting in a high tax burden for the middle class and less resources for those in need.


As capitalism efficiently produces products and services that people want, it is often blamed for social ills related to greed, materialism and consumerism. For example, some feel that capitalism convinces people to be greedy and materialistic with mechanisms such as advertising. It could be argued that as an economic system capitalism fulfills its role of producing goods and it is culture that shapes behavior.


Commoditization is the process by which things that were once viewed as unique become viewed as indistinguishable parts. For example, the commoditization of labor is the process by which firms begin to view workers as interchangeable. This begins with an education system that produces standard skills as opposed to unique humans with special talents.


Under capitalism, firms compete to grow market share. With time these firms can control markets such that competition ceases to exist. When this occurs, customers have no alternatives such that prices rise, quality declines and the firm may impose unfair terms on customers. In order to preserve capitalism, governments may break up firms that control markets. Otherwise, capitalism would begin to resemble socialism whereby a single entity controls all capital.


A monopsony is a large firm that is the only customer for a product or service. This also applies to firms that are the only employer in a particular geographical area or profession. For example, a town that only has a single employer such that the employer can drive down wages and impose poor working conditions as workers have no alternatives. Socialism makes this problem worse by imposing state control of all employment.

Anti-Competitive Practices

Many of the problems with capitalism have to do with anti-competitive practices whereby firms prevent fair competition. For example, a firm that controls what software may be installed on a large number of mobile devices thus preventing open competition for games and other apps†.

Undermining Democracy

Capitalist interests that work to undermine the power of people to shape their own societies. For example, global agreements and backroom deals that have governments ban traditional farming practices in order to push the interests of large agrochemical and biotechnology firms††.

Rent Seeking

Rent seeking is a behavior that seeks to capture value without creating value. For example, an individual who buys medical supplies in the midst of a shortage to resell them at a higher price online.

Crony Capitalism

Crony capitalism is undue influence over a government exercised by firms. Capitalism works when the government serves as a balance to the excesses of firms by regulating and taxing them. Crony capitalism subverts this and allows firms to profit at the expense of the public. For example, a government that conducts spending programs not aimed at improving anything for the people but rather aimed at assigning contracts to friends of the government.

Economic Bads

Economic bads are negative results of the production of economic goods. In many cases, nobody pays the costs of economic bads such as air pollution that damages quality of life. For example, a factory may produce widgets worth $8 that each create $42 in environmental damage. This could be addressed with markets for economic bads whereby producers and consumers pay to damage the environment with total damage capped at a sustainable level. However, these markets are currently missing.

Capitalist Realism

Capitalist realism is the reality that capitalism is an extremely dominant and successful system that produces almost all world GDP†††. The quality of life of the current world population of 7.6 billion people depends on capitalism. Capitalism has been extraordinarily successful at improving this quality of life. For example, world life expectancy has risen from 31 years in 1900 to 72.6 years in 2020. It can be argued that this success has led the capitalist elite into a smug complacency whereby they feel they can continue to push out economic bads, inequality, aggressive tax strategy, anti-competitive practices and crony capitalism.


†,†† Examples are illustrative and hypothetical.
††† Social market economies such as Sweden are often incorrectly identified as socialist when they are in fact based on capitalism with limited redistribution of wealth based on taxation that funds public services. Most developed countries can be considered social market economies. Socialist countries with no features of capitalism are extraordinarily few with North Korea serving as a rare example.


This is the complete list of articles we have written about economics.
Added Value
Advanced Economy
Adverse Selection
Animal Spirits
Attention Economics
Bank Reserves
Bargaining Power
Barriers To Entry
Behavioral Economics
Behavioral Finance
Bounded Growth
Bounded Rationality
Business Cluster
Business Value
Capital Flight
Capital Goods
Category Killer
Circular Economy
Club Theory
Comparative Advantage
Competitive Parity
Cost Competition
Critical Mass
Customary Pricing
Deadweight Loss
Division Of Labor
Economic Activity
Economic Advantage
Economic Bad
Economic Conditions
Economic Context
Economic Development
Economic Growth
Economic Infrastructure
Economic Problems
Economic Sector
Economic Systems
Economic Theories
Economies Of Density
Economies Of Scale
Excess Burden
Experience Economy
Extreme Value Theory
Factors Of Production
Failure Demand
Fiscal Dominance
Food Sovereignty
Free Market
Gains From Trade
Giffen Good
Happiness Economics
Income Distribution
Industrial Complex
Industrial Economy
Inferior Good
Information Asymmetry
Intangible Goods
Intangible Value
Invisible Hand
Knowledge Economy
Labor Productivity
Long Tail
Marginal Utility
Market Conditions
Market Economy
Market Failure
Market Forces
Market Power
Marketing Economics
Mean Regression
Media Economics
Merit Good
Middle Class
Monetary Policy
Plateau Effect
Predatory Pricing
Price Economics
Price Umbrella
Price War
Pricing Strategy
Profit Motive
Rational Choice Theory
Rent Seeking
Rule Of Three
Search Good
Service Economy
State Capitalism
Sticky Prices
Superior Good
Superior Goods
Supply Shock
Sustainable Economics
Switching Barriers
Threat Of Substitutes
Trade War
Traditional Economy
Uneconomic Growth
Unsought Goods
Value Creation
Veblen Goods
Zero-sum Game
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Riley, James C. "Estimates of regional and global life expectancy, 1800–2001." Population and development review 31.3 (2005): 537-543.
World Health Organization, Life expectancy, 2020.


A list of common types of capital.

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The definition of fixed asset with lists of examples.

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The basic types of capital with examples of each.

Public Capital

The definition of public capital with examples.

World Economy

A list of countries by GDP.

Global Economy

A list of countries by GDP.


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Central Planning

The definition of central planning with examples.

Individual Capital

The definition of individual capital with examples.

Financial Sector

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The definition of macroeconomics with examples.

Economic Activity

The definition of economic activity with examples.

Imperfect Competition

The definition of imperfect competition with examples.

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Industrial Revolution

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Industrial Economy

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Financial System

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