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Despite troubles, capitalism works

It seems that so many of the things that I read or watch on TV lately assert that capitalism is broken and just does not work anymore. According to the dictionary, capitalism is defined as “an economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than publicly or state-owned and controlled.”

Basically, capitalism allows the market or free enterprise to determine the allocation of resources. With capitalism, resources go to those entities that are willing to pay the highest price for them. If one firm is willing to pay higher prices for a pound of steel than its competitor, then it will – and should – get the steel.

Ever since the founding of our country, capitalism has enabled it to grow and prosper. By far, it is the best economic system out there, and our country has succeeded and flourished because of it.

Our economic system allows anyone who wants to start a business to do so with limited government regulation. Our government does not determine who is allowed to start a business, rather capitalism determines winners and losers in the market place. Businesses come and go — lately more are going than coming — and the market determines the ones that will remain viable and those that will fail.

Now does this mean that it is a perfect system? Of course not. Like any other system, capitalism has its warts and its flaws. It is not a perfect system, but there is not a perfect economic system. Lately we have witnessed numerous problems in our economy, from the home bubble to the Madoff Ponzi scheme. Many people point to these as evidence of capitalism’s failure. However, from my perspective, it shows that capitalism did not fail completely; rather it was in a large part a failure of government.

The housing bubble came about because regulators allowed and encouraged financial institutions to continue making bad loans in which borrowers would be unable to pay them off if a small hiccup should occur.

Government also failed to regulate adequately the trading of these sub-prime loans.

With the Madoff Ponzi debacle, the SEC audited the books of his companies approximately 15 times and found no major issues.

Obviously, the SEC failed to ensure that the information given to existing and potential investors was truthful so that good economic decisions could be made.

Part of capitalism is business cycles in our economy, we have ups and then downs. We are going through a recession now, but we have had many years of a growing economy and we will recover from this recession.

Capitalism is the vehicle by which our country has grown and prospered. We need to tell the story of how good our system is so that folks can appreciate how well capitalism works rather than dwelling on the negative.

Jerry Osteryoung, the director of outreach of the Jim Moran Institute for Global Entrepreneurship in the College of Business at Florida State University, the Jim Moran Professor of Entrepreneurship; and professor of finance, can be reached by e-mail at jerry.osteryoung@gmail.com or by phone at (850) 644-3372.

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