Let’s say you are a farmer who needs new clothes. You approach a seamstress and trade your fresh produce for clothes that she has sewn.
This exchange of goods and services makes up the economy.
Of course, the economy today – free-market capitalism – is more complex than that. It began with the Industrial Revolution and operates based on the theories of Adam Smith.
He thought that if people were free to own property and make their own decisions, the economy would be most efficient.
Free-market capitalism had a rival in the early 1900s.
Known as communism, it advocates for the economy to be planned and property owned by a central authority.
From the 1930s, communism was adopted by the Soviet Union. It was a success economically, which influenced other countries to experiment with it. However, the Soviet Union’s collapse in 1991 eventually discredited communism.
Free-market capitalism then spread across the world. Even communist countries like China reshaped their economy in the image of free-market capitalism. Between 1990 and 2012, more than 850 million Chinese people were lifted out of poverty.
For a brief moment, free-market capitalism looked like a cure for the world’s ills. It created immense wealth and connected people to each other. In 2019, the global economy was worth US$88 trillion, and involved virtually all the countries in the world.
But too much of a good thing can be a disaster.
When motivated by self-interest, people tend to exploit others for their own benefit. Today, the richest 1 per cent own 43 per cent of wealth. Our environment, too, bears the cost of unrestrained greed.
Our economy is now in crisis and desperately needs reforming. For example, the “Green New Deal”, a proposal that prioritises society and the environment over profits, is taking root.
Proponents claim that it is time for us to stop supporting an economic system that obsesses over wealth. Instead, we need to start seeing value in things like equality, conservation and kindness.