PUBLIC FINANCE - Walyben

August 30 2020

Capitalism | Definition & Characteristics

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Capitalism is one of the most dominant ideologies in the modern times, which now gives birth to the new concept of globalization. Capitalism is an economic cum political system and social organization of political societies in which the major instruments of production that is capital, land and labour are in the hands of private individuals.

Capitalism propagates values and belief system which encourages minimal roles for state functionaries and maximal roles for individuals and pluralistic groups. Examples of capitalist countries are Nigeria, America, Britain, Japan, France etc.

Characteristics of Capitalism

Some of the characteristics of capitalism are:

Capitalism encourages private ownership of the means of production, distribution and exchange.

It lays emphasis on the domination of labour by capital. This means that in the production process, capital I rated higher than human labour.

Another characteristic of capitalism is that, it is a market economy or free enterprise economy; which means that there is no room for centralized economy for the state.

In capitalism, there is the gap between the have and have not. That is the gap between the rich and the poor.

Capitalism encourages the right of inheritance.

ADVANTAGES OF CAPITALISM

Free movement of capitals

Individual ownership of property

It encourages competition

It lessen government interference in individual affairs

Capitalism advocates for equality of opportunity

DISADVANTAGES OF CAPITALISM

Unemployment- since capitalism does not encourage centralized economy; there is the tendency of unemployment in a state.

Capitalism allows competition and as such, there is the need to be conflicts among the people.

Exploitation of workers exists in capitalist economy.

There is a wide gap between the rich and the poor in capitalist economy.

As capitalism emphasizes on continuous accumulation of wealth for the capitalists, individuals can be sacrificed often in order to accumulate wealth or to make profit.

CLASSIFICATIONS OF CAPITALISM

Bourgeoisie or bourgeois: this is the wealthiest or the poorest set of people in the capitalist society. This group of people includes; the top government officials like the president, Governors, Ministers and some of the business barons or moguls in the society. In capitalism, there are two categories of bourgeoisie, namely:

The National Bourgeoisie:this category of bourgeoisie comprises of the wealthy people who got their wealth through hard work and honest investment in industries. This is the type of bourgeoisie we have in countries like America, Britain, Japan, Germany and France.

The Comprador Bourgeoisie: this category emphasizes on those wealthy people, who got their wealth through dishonest and corrupt means, like the embezzlement of public fund, illegal trading and drug trafficking. This type of bourgeoisie exists mostly in the third world countries of Africa and Asia, more especially in a country like Nigeria.

Petit Bourgeois: These classes of people are rich and wealthy, but they are not rich or wealthy like the National or Comprador Bourgeoisie. Petit bourgeois comprises mainly of the relatives or children of the National or Comprador Bourgeois. This group is the second class of people in the society.

Proletariat: thiscategory comprises of the working class people or the workers which through the sale of their labour forces, get the means of their livelihood. People in this category are rewarded through their efforts and abilities to work.

The peasants: this is the poorest class of people in the capitalist classifications. This is because this group comprises mostly of farmers, the down trodden as well as those who wallow in abject poverty. Their mean of livelihood is mainly from farming and other petty trading.

Canons of Taxation

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These are the necessary principles or attributes which a good tax system should adhere to as to achieve its objectives.

Canon of Equality: The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities. This implies in absolute term, the richer should pay more taxes because without the protection of the government they could not have earned or enjoyed that extra income.

Two possibilities follow from this: a) it could mean that both the poor and the rich should be subjected to proportional taxation, each person paying percentage of his income as tax; b) if it is assumed that income is subject to diminishing marginal utility, it could mean that the richer should pay a larger proportion of their income as tax.

Canon of Certainty: The tax which each tax payer is to pay, should be certain and not arbitrarily. The time of payment, the amount to be paid and the manner of payment should be clear to the payer. None of the above should be subject to arbitrariness and discretion of the tax officials. Otherwise, there would be a scope for corrupt tax administration.

Canon of Convenience: The mode and timing of tax payment should as far as possible be convenient to the payer. This is to avoid all sorts of ill-effects that may result from tax payment.

Canon of Economy: The cost of collecting tax should little as possible. Otherwise unnecessary and additional burden would be imposed on the society in the form of administrative expenses. Moreover, if it is realized that tax collections are being wasted, tax payers are likely to evade tax.

Canon of Productivity: This is also referred to as Canon of Fiscal Adequacy. It demands that the tax system should be able to yield enough revenue for the treasury so that government will not be forced to resort to deficit financing.

Canon of Buoyancy: Tax revenue should have an inherent tendency to increase along with an increase in national income even if the rates and coverage of taxes remained unchanged.

Canon of Flexibility: It should be possible for the authorities to revise without undue delay the tax structure with respect to the coverage and rates to suit the changing requirement of the treasury and the economy.

Canon of Diversity: This demands that the sources of tax revenue should be as diverse as possible so that any shortfall in revenue on account of any one source would not be very large. However, too much multiplicity of taxes is also to be avoided since it may lead to unnecessary cost of collection and thus violate the principle of economy.

Canon of Simplicity: The tax system should be simple, plain and intelligible to the common tax payer. It should be simple to understand; how it is calculated or determined, the amount to be paid.

Canon of Elasticity: These cannon require that the government be able to raise the rates of taxes when it is in need of more revenue. In other word, taxes should be elastic. However caution must be exercised when raising the rates so as not to give rise to undesirable economic situation.

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