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What is capitalism?

Capitalism is a political ideology in which individuals and businesses are free to make money with little or no interference from the government.

This lack of regulation is often referred to as ‘free market economics’ and is a key principle of right wing political theory.

Profit is of huge importance in a capitalist society, which operates on the economic principle that the more there is of something, the cheaper it becomes to buy.

Profit comes from selling something for more than it costs to make or provide. In capitalist theory, the bigger a company’s profits are, the more goods it will be able to produce, meaning prices will fall and things will become more affordable. As a result, this is supposed to improve living standards.

Privatisation, which is where private companies run services or industries that were once controlled by the government, is a key part of capitalism. An example of privatisation in the UK is the telecommunications company, British Telecom (BT), which was privatised by a Conservative government in 1984 to make it more efficient.

In a capitalist society, the only real role of the government, or state, is to keep peace and order so the economy can work without interference. When the state plays a minimal role in society this is sometimes referred to as ‘small government’.

There is a strong emphasis on competition in a capitalist society. The idea is that it motivates people to work harder and make bigger profits that will ultimately benefit everyone. This is unlike socialism, which claims co-operation is more beneficial to society.

Critics of capitalism say it creates inequality and is unfair on people from disadvantaged backgrounds.

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