Friday, 20 February 2015

The coexistence of economic systems

In capitalist countries not all activities are conducted in the capitalist sector. There is usually a mix of economic systems that complement and compete against each other and also a competition among various forms of capitalism. This is normal and a permanent feature of capitalism. Nevertheless, the capitalist sector needs to be the leading sector for a country to be considered as capitalist.

Capitalism is probably the only economic system that does not rejects other modes of organization. In fact, it recognizes that some activities are not based on the profit motive while others cannot be carried out through markets. The first constitute the so-called voluntary sector and the second the state sector.

The voluntary sector, also called third sector or social sector, includes both purely altruistic activities and others that are or could be organized through markets but are conducted without a profit motive. Focusing only on self-interest activities let me show how these can contribute to human welfare through clubs and many other forms of associations that do not seek to incorporate.

For instance, consider the case of a choir or a similar activity. Most of us get utility from listening to songs, but only a few can or enjoy singing. The first usually pay to buy records or go to concerts but those in the second group have three options – pay to sing in a choir, sing voluntarily in a choir or be paid to sing in a choir. We may find examples for the three cases. However, there are very few, if any, profit-seeking entrepreneurs offering the first option to willing singers. Likewise, the last option is only available for the top singers. So, most eager singers choose the voluntary option as a hobby.

Now the satisfaction obtained through this hobby derives from three sources – the pleasure of listening and singing in a choir and the pleasure of having an audience. But to get a good audience they usually have to give free or low cost concerts, often at a personal cost in time and money. Even, when they manage to make a little money out their hobby its weight in their utility function is very small when compared with the pleasure of singing, the recognition of an audience and the comradeship of a choir. So, the profit making objective, if any, is negligible and this activity is certainly included in the voluntary sector.

Note, however, that the frontier between the voluntary and the for-profit sector is often fuzzy and shifting. For instance, a conductor in search of paid employment may create a choir to give him a job paid by the singers. Likewise an impresario may contract the singers to profit from their performances. But, an activity may be undertaken by some on a for-profit basis while others do it on a voluntary basis and yet all are pursuing their self-interest.

A similar situation arises in those cases where people join together to fulfil a common need, for example through consumer, housing and workers cooperatives or credit mutuals to provide goods and services that could also be procured from for-profit corporations. Some of these institutions even have corporations among its promoters and sponsors.

This said, the coexistence of economic systems and their fuzzy borders do not prevent us from distinguishing a capitalist from a non-capitalist country on the basis of the relative importance of the capitalist sector.

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