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Is there a correlation between capitalism and income inequality? Show more Show less
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The political debate around whether capitalism and the tenets of free market socioeconomic modeling are beneficial for society has been raging for hundreds of years. Within a modern context, the topic of income inequality (especially within largely capitalistic countries like the United States and, to an extent, the UK) has emerged alongside the effects of the free market on the world economy. So, a big question within both the economic and political realm asks: Is there a correlation between capitalism and income inequality?

No, capitalism does not cause inequality Show more Show less

Income inequality is a byproduct of every society, no matter what economic system under which that society functions. Capitalism, by nature, does not encourage or catalyze the inequality already in place.
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Cronyism and social programs are causes of inequality, not capitalism

Modern detractors of capitalism fail to understand the nuances behind income inequality, and corruption and crowding out as a result of social programs are key causes for the unequal wealth distribution in many countries.

The Argument

The levels of income inequality around the globe can be measured through standards of living and overall human quality of life. The United State is relatively high in terms of income inequality, but not because of a system fundamentally against the wishes of social mobility for the poor. Technological innovation and entrepreneurship are at the heart of the American economy, and some of the most wealthy people provide the most resources for the poor. When looking across the income inequality within individual countries, the most unequal are usually associated with corruption and cronyism, along with governmental programs that de-incentivize entrepreneurship and investment. Though China's income inequality has risen, "general living standards have soared: since 1990, China’s real GDP per capita has expanded 10‐​fold and the share of its population living in severe poverty has plunged from 47 percent to just 1 percent."[1] When examining wealth inequality, the detractors of capitalism need to look to other countries and figure out the real causes of unequal distribution.

Counter arguments

Income inequality is a natural byproduct of capitalism. Even removing all corruption and "crowding out" from the economic equation, there is still a significantly higher rate of inequality when operating under capitalism than a free market-government hybrid. Yes, there are many factors that contribute to economic hardship among the poor, but pretending that capitalism is simply based off of individual entrepreneurship is simply not true. Capitalism is derived from a market system in which wealth cannot trickle down to a select group of people with no economic opportunities. Cronyism and social programs are not solely to blame for income inequality.

Proponents

Premises

[P1] Cronyism and social programs exacerbate income inequality, which has been proven throughout the index of inequality in individual countries plagued by these issues. [P2] Capitalism should not be treated as an evil to be conquered and the driving force for these problems. [P3] Capitalism itself does not cause widespread income inequality.

Rejecting the premises

[Rejecting P2] Capitalism itself, without cronyism and social programs, has been proven to cause income inequality.

References

  1. https://www.cato.org/publications/commentary/what-warren-sanders-get-wrong-about-wealth-inequality-capitalism

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This page was last edited on Wednesday, 12 Aug 2020 at 02:39 UTC

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