Embedded Files
Note to teachers and students: This section is longer than most other sections of the textbook, and will take students longer to read.
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.1.3 Degenerative economies, which explain the problems for people and planet with the way our current economies operate.
Section 1.2.1 Human-nature relationship, which explains the need to return to a worldview that sees humans as part of nature rather than separate from it.
Section 1.3.3 Human needs, which explains the distinction between needs and need satisfiers.
Section 3.1.1 The market as a system, which describes market parts and their relationships, and the connection between the household and the rest of the economy.
Section 3.2.1 Capitalism: definition and development, which explains what capitalism is and how it developed.
Section 3.1.2 Demand and supply, which explains the factors affecting supply and demand and the dynamic relationships and feedback between supply, demand and prices.
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems.
Learning objectives:
discuss the positive and negative consequences of capitalism
outline the role of economic narratives in supporting capitalism
Artificial intelligence (AI) promises huge economic, social and ecological progress. From transforming healthcare to tackling climate change, AI could serve both people and the planet very well.
One of AI’s top innovators, OpenAI initially had this vision for the common good. Founded as a non-profit in 2015, its mission was to ensure AI’s benefits were widely shared. But in 2019, the organisation shifted to a capped-profit model, creating a profit-making arm while the non-profit supervised the business. This structure limited investor profits, with any excess directed back to the non-profit “for the benefit of humanity.”
In September 2024, OpenAI announced another change: transitioning to a for-profit public benefit corporation. While still committed to public good, this model removes limits on profits for investors and shifts control away from its non-profit board. This change raises questions about whether OpenAI can continue to prioritise the public good when exposed to the pressure to maximise profits.
Figure 1. OpenAI is a leading firm in artificial intelligence
(Credit: Ishmael Daro, CC BY 2.0)
The change in OpenAI’s business structure highlights a tension in capitalism itself. On the one hand, capitalism can bring about important innovations. On the other, it may not prioritise social and ecological goals when faced with the possibility of huge profits. The shift in OpenAI to a for-profit business comes at a time when the public is becoming more concerned about the risks of the technology. Will there be pressure to maximise profits at the expense of safety and social and ecological goals?
Figure 2. Is it possible to maximise profits for owners of capital and meet human needs within planetary boundaries?
(Credit: miftakhudin, CC BY 3.0 and Kate Raworth and Christian Guthier CC-BY-SA 4.0)
What are the benefits of capitalism as an economic system?
What are the benefits of capitalism as an economic system?
The AI story illustrates how businesses in a capitalist system are motivated to meet people's needs and wants. That’s how they can sell products to make money. Capitalism prioritises profit and involves competition between firms. The profit motive and competition bring rapid innovations in consumer goods and services, and the new technologies needed to produce them. In the past two hundred years, we have seen incredible advancements in healthcare, food production, transportation, housing, energy and many other areas from capitalist systems.
Expanding businesses have created millions of new jobs, offering people more choices in work. Competition between businesses can also make them more efficient when using resources, which can lead to lower prices so that people can buy more goods and services. Many people’s lives and economic security have significantly improved, suggesting capitalism has met many human material needs.
How can capitalism weaken social and ecological wellbeing and resilience?
How can capitalism weaken social and ecological wellbeing and resilience?
Critics agree that capitalism’s profit motive is powerful for innovation and that competition can lower prices. They also recognise that the lives of millions of people are better now than they might have been 200 years ago.
Meeting human needs is one way that businesses seek to maximise profit, but it is not the only way. Unfortunately, many (particularly large and powerful) firms use other strategies to maximise profit that can weaken social and ecological wellbeing and resilience.
Human needs
In capitalism, businesses may target high-income consumers, producing luxury goods for those who can pay more to increase profits. As a result, investors may neglect the interests of lower-income groups, because essentials like affordable healthcare, nutritious food, and education for these groups earn less profit. As a result, the wealthy get more choices, while others struggle to meet basic needs, increasing economic inequality.
You can see this in medical research. Large pharmaceutical companies, focused on profit, invest in treatments for diseases affecting wealthier populations, such as lifestyle-related conditions like heart disease and diabetes. These patients can afford costly medications, increasing the companies’ profits. Meanwhile, diseases like malaria that affect poorer populations receive little commercial research funding, leaving millions without the medicines they need. This profit-driven focus on high-income groups deepens health inequalities.
Figure 3. Building unnecessary cruise ships is more profitable than building necessary hospitals and schools
(Credit: Jörg Fuhrmann, CC BY-SA 4.0)
Figure 4. Mosquitoes, carriers of malaria and other diseases, are the most deadly animal on the planet
(Credit: Egor Kamelev, Pexels licence)
Raising prices
Profit-driven businesses often use their market power to raise prices. While this boosts shareholder profits, higher prices can harm social resilience.
To increase revenue, businesses may try to limit competition and raise prices (Section 3.2.3). For example, pharmaceutical companies might patent essential medicines, driving up prices and limiting access, especially for lower-income people. This worsens public health and inequality. Higher prices also leave people with less disposable income to meet other needs, making households less stable (Section 2.2.1)
To boost demand (Section 3.1.2), businesses often use promotions that encourage aspirational consumption, like big cars or luxury brands, taking advantage of human concerns about social status. Some businesses, like social media companies, make products addictive to ensure that their advertisers have people’s attention, often at the expense of human relationships. Constant advertising promotes a consumer culture where people believe success is measured in material possessions.
These practices lower disposable income, increase economic inequality, and weaken social resilience and social cohesion (Figure 5).
Figure 5. Profit maximisation extracts value from households, causing economic insecurity inequality, undermining social resilience and cohesion
Lowering costs of production
To maximise profits, businesses also cut costs by using their market power to:
keep wages low: some industries, like fast fashion, seek out places with weak labour laws to reduce their costs. On the plus-side, they provide jobs and incomes to people who need them. However, these businesses also take advantage of their power relative to people desperate for jobs, often paying less than living wages, providing poor or dangerous working conditions. There are social consequences too, as families are often split apart to take the work, weakening social structures in low-income regions.
pressure suppliers to lower prices: Powerful firms may force suppliers to reduce prices (Section 3.2.4). Cost-cutting in supply chains harms product quality and worker conditions, creating a ‘race to the bottom’ in industry standards.
avoid taxes: Many firms shift headquarters or profits to low-tax countries. This reduces tax revenues for states, hurting public services like education and healthcare, and infrastructure. Ironically, businesses need stable societies, so avoiding taxes harm business in the long run.
Figure 5. Profit maximisation extracts value from workers, suppliers, the state and ecosystems, undermining social and ecological resilience
influence laws and regulations: firms use their profits and power to lobby for laws that benefit them. This political capture can prevent politicians from passing laws and policies that help the public, like minimum wage laws, because politically-connected businesses oppose policies that increase their production costs.
exploit ecosystems: businesses may take resources and dump waste into ecosystems at little or no cost. This practice is covered in more detail in Section 3.1.5.
extract resources from the Global South: multinational companies in the Global North extract resources like fossil fuels and minerals from the Global South, transferring $10 trillion annually to wealthier countries, while poorer countries suffer ecological damage. This continues colonial exploitation under the label of globalisation and development (Topic 7).
Together, these activities weaken social and ecological resilience as shown in Figure 6.
What role do economic narratives play in supporting capitalism?
What role do economic narratives play in supporting capitalism?
A narrative is a story that frames the way we think about a situation and impacts the way we behave. Economic narratives support capitalist economic systems by shaping how we view the economy and our role in it, our worldviews. These stories are an important part of power relationships in societies.
One important narrative is related to the concept of scarcity. Through education and media, people come to believe (incorrectly) that human needs and wants are unlimited, making Earth’s limited resources scarce, or not enough to satisfy everyone. This implies that people need to compete to get what they need. This competition drives individuals and companies to be selfish and maximise personal utility and profits. Section 1.3.3 discusses human needs and wants if you want to learn more about them, and why they are not unlimited as many economists suggest.
The belief that humans are naturally self-interested (Section 1.3.1 and Figure 7) reinforces the focus on economic growth as the main economic goal, with the idea that more growth will eventually benefit everyone. The scarcity story also gives businesses more power by making people’s demand more inelastic, or less price sensitive, because they believe there is ‘not enough’ (Section 3.1.3).
Figure 7. Mainstream economic narratives about scarcity and selfish human nature support capitalism
(Credit: Kate Raworth, Jonny Lawrence CC BY-SA 4.0)
In schools and universities, students are taught to see themselves primarily as consumers who make decisions based on personal benefit, rather than as carers who consider the wellbeing of other humans or the planet. This emphasis on individualism ignores how people are connected to their communities and wider ecosystems. When educated economists then reach positions of political and business power, these views have negative, real consequences for our societies.
Economic narratives often ignore the social and ecological context of economic activity, treating the economy as separate from society and nature, called human-nature dualism (Section 1.2.1). Economists even use the term ‘externalities’ to refer to social and ecological impacts of economic activity, framing the economy as separate from society and Earth systems rather than being embedded in them (Figure 9 vs. Figure 10). This narrative leads to harmful business activities and state policies that weaken social relationships and ecological systems.
Figure 8. Capitalist economic narratives encourage us to think of ourselves as consumers first
(Credit: Max Fischer, Pexels licence)
Figure 9. Economic narratives narrow our understanding of the economy to focus on markets, treating everything else as external, and using very limited assumptions to create models.
(Credit: Max Fischer, Pexels licence)
Figure 10. Markets are just one part of a complex economy embedded in social and ecological systems. Many of the assumptions in economic models and narratives break down when you expand the system boundary.
(Credit: Kate Raworth and Marcia Mihotich CC-BY-SA 4.0)
Another way narratives protect capitalism is by equating markets with capitalism. As discussed in Section 3.2.1, markets are systems where goods and services are exchanged and have existed in different forms for thousands of years. Capitalism is more than markets, being focused on profit maximisation for owners of capital. Equating markets and capitalism makes it harder to criticise capitalism without being labelled anti-market, or even anti-economy since many people consider markets and the economy as the same thing. This confusion makes it harder to have discussions about how to address the problems of capitalism and design regenerative economies.
In sum, common economic narratives support capitalism by promoting ideas of scarcity, self-interest, human-nature dualism, and clouding the distinction between markets and capitalism. Shifting these narratives, which this textbook is attempting to do, is important for developing new social norms for regenerative economies.
Activity 3.2.2
Activity 3.2.2
Concept: Systems, power
Skills: Thinking skills (transfer)
Time: varies, depending on the option
Type: Individual, pairs, group
Option 1: Capitalism in the news
Time: 30 minutes
Read the following news article (July 2024) about a famous fashion brand caught exploiting workers and violating labour laws by Italian prosecutors.
Now we know how much it costs to make a $2,800 Dior bag
Consider the following question either individually, in writing or as a verbal reflection, or discuss with a partner or in a small group.
How does this story capture points made in this section about capitalism?
Option 2: Capitalism and cocoa
Time: podcast = 55 minutes + time for discussion/debrief
Listen to Scene on Radio Season 7 Capitalism, Episode 10: The Extracted. The episode is about the cocoa industry, focusing on Côte d’Ivoire.
How does this story capture points made in this section about capitalism?
Option 3: Considering a common metaphor for capitalism
Time: 20-25 minutes
Many commentators have compared the way our (capitalist) economies work to cancer. Cancer is a disease where cells grow endlessly, often invading other parts of the body, and can kill an organism.
Why have people chosen this metaphor to describe capitalism?
Do you think this is a good metaphor? Why or why not?
Option 4: Poverty, progress and capitalism
Time: 2 x 40 minutes (depending how the information is used)
Many economists claim that poverty has declined significantly over the last 200 years (Figure 11) and that capitalism and economic growth has been the primary driver of lower poverty. It is a key claim supporting capitalism, but is disputed.
Given what you have learned so far, what would economists say about capitalism’s role in reducing poverty? Make sure you are clear about that before proceeding.
There are at least two lines of dispute related to the claim that capitalism is responsible for progress on poverty, captured in these two articles:
Historical poverty reductions: more than a story about 'free-market capitalism' - This article by Esteban Ortiz-Ospina from Our World in Data explains the multiple factors that contributed to the data showing a decline in poverty in the last 200 years.
Progress and its discontents - An article by economic anthropologist Jason Hickel that questions the way we measure poverty. By doing so Hickel also questions the claim that poverty has declined over time, which also undermines the claim that capitalism is responsible for poverty reduction.
Figure 11. World population living in extreme poverty, World 1820-2015
(Credit: Our World in Data, CC BY 4.0)
Read one or both of the articles and capture the main ideas in some notes. You could also divide up the work and then share what you found with the other students and discuss. Progress and its discontents is a much longer article, but a teacher could cut it into smaller, logical chunks if they wanted to divide up the reading.
Share what you learned with other students in a small group, or share and discuss as a whole class.
Ideas for longer activities and projects are listed in Subtopic 3.5 Taking action
Checking for understanding
Checking for understanding
Further exploration
Further exploration
Why is OpenAI planning to become a for-profit business and does it matter? - an article from the Guardian explaining OpenAI’s change to a for-profit business and why it matters. Difficulty level: medium
Capitalism: Scene on Radio, Season 7 - A fascinating podcast series tracing the origins and history of capitalism, its impacts and alternatives. All the episodes are well worth listening to and making space for in your course, but the ones most relevant to this text section are (Difficulty level: medium):
Nurture Human Nature - A short animation from the Doughnut Economics Action Lab, explaining the dominant narrative of human nature that helps support capitalist economic systems. Difficulty level: easy
Save the Planet? In THIS Economy? Pffft - A Public Broadcasting Services (PBS, USA) video about the socially and ecologically damaging impacts of current growth and profit maximising business behaviour. It makes the case that the economy was designed this way and we can redesign it. Difficulty level: easy
Rethinking My Economics - an article by Nobel Memorial Prize winner Angus Deaton in the IMF monthly magazine where he openly questions many of the things he believed (narratives) about economics. A particularly interesting quote: “when efficiency comes with upward redistribution [economists’] recommendations become little more than a license for plunder .” (see Figure 5). Difficulty level: medium/high
23 Things They Don’t Tell You About Capitalism - a popular, accessible book by economist Ha-Joon Chang explaining some popular misunderstandings about the way our economies work. Difficulty level: medium. Sample chapters:
Thing 1: There is no such thing as a free market
Thing 2: Companies should not be run in the interest of their owners
Thing 13: Making rich people richer doesn’t make the rest of us richer
Progress and its discontents - An article by economic anthropologist Jason Hickel that questions the dominant economic narrative that capitalism is responsible for much of our human progress. Difficulty level: high
World Bank Poverty and Inequality Platform - World Bank data on poverty and inequality, updated regularly and with interesting articles. Difficulty level: medium/high
Sources
Sources
Biewen, J. and McGirt, E. (Hosts). (2024). Capitalism. Scene on Radio, Season 7. Kenan Institute for Ethics, Duke University. https://sceneonradio.org/capitalism/.
Boese, Marie-Kristin. Mexico’s Deadly Addiction to Soft Drinks, Deutsche Welle, 12 Feb. 2023, www.dw.com/en/mexicos-deadly-addiction-to-soft-drinks/video-64668416#:~:text=In%20Chiapas%2C%20one%20of%20Mexico’s,manufacturers%20have%20denied%20any%20responsibility
Bouhlel, Z., Köpke, J., Mina, M., and Smakhtin, V., 2023. Global Bottled Water Industry: A Review of Impacts and Trends United Nations, University Institute for Water, Environment and Health, Hamilton, Canada. https://collections.unu.edu/eserv/UNU:9106/BottledWater_Report_Final_-compressed.pdf
Chang, H. (2010). 23 Things They Don’t Tell You About Capitalism. London: London: Allen Lane.
Chayne, K. (Host). (2022, March 1). Emma Dowling: Understanding the care crisis (ep346) [Audio podcast episode]. In Green Dreamer. https://www.greendreamer.com/podcast/emma-dowling-the-care-crisis
Ortiz-Ospina, E. (2017). “Historical poverty reductions: more than a story about 'free-market capitalism'” OurWorldInData.org. https://ourworldindata.org/historical-poverty-reductions-more-than-a-story-about-free-market-capitalism.
Hickel, J. (2019). “Progress and its discontents”. New Internationalist. https://newint.org/features/2019/07/01/long-read-progress-and-its-discontents.
Hickel, J. (2020). Less is More. London: William Heinemann.
Hickel, J. et al (2022). “Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015”. Global Environmental Change, Vol. 73. https://www.sciencedirect.com/science/article/pii/S095937802200005X
Macrodose. (July 31, 2024). “The Future of Global Capitalism – Macrodose – Podcast.” Podtail. podtail.com/en/podcast/macrodose/-live-the-future-of-global-capitalism/
Milmo, D. (2024, Sept 26). “Why is OpenAI planning to become a for profit business and does it matter?” The Guardian. https://www.theguardian.com/technology/2024/sep/26/why-is-openai-planning-to-become-a-for-profit-business-and-does-it-matter
Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House
Streeck, W. (2012). How to Study Contemporary Capitalism?. European Journal of Sociology, 53, pp 128 doi:10.1017/S000397561200001X
van Bavel, B. (2016). The Invisible Hand. Oxford: Oxford University Press.
Terminology
Terminology
Link to Quizlet interactive flashcards and terminology games for Section 3.2.2 Capitalism: an evaluation - in order of appearance
climate change: a change in the temperature and precipitation patterns in an area, in recent times due to human economic activities
non-profit: an organisation operated for a collective, public or social benefit where surpluses must be used to increase impact
capped-profit: placing a cap on the amount of profit that can be generated by a company to prevent any one individual or group from profiting excessively
investor: an individual that puts money into an entity such as a business for a financial return
profit: total revenue minus total cost
for-profit: an organisation that exists to earn a profit
public benefit corporation: a for profit corporation that is created produce public benefits
capitalism: an economic system where capital is privately owned, markets dominate, there is competition between businesses and the function is to earn maximum profits for owners of capital
efficiency: the ratio of resource inputs compared to outputs
resilient: able to recover after a disturbance
economic inequality: unequal distribution of income and opportunity between different groups in society
market power: the ability of a firm to influence the price of their product in a market, as well as other market conditions
revenue: the money earned from selling a product
patent: the sole right for an inventor to sell and profit from an innovation for a limited time
disposable income: the amount of money that a person or household has left after paying taxes
demand: the quantity of a product that consumers are willing and able to purchase at various prices
aspirational consumption: buying products in order to increase self-esteem and social status
culture: the beliefs, values, attitudes, behaviours and traditions shared by a group of people and transmitted from one generation to the next
social cohesion: the extent to which people in society feel connected to one another and share common values
labour: work to achieve some goal
living wage: a wage that is high enough for a person to cover their living expenses
supply chain: the sequence of processes involved in the production and distribution of a product
tax: payment from individuals or organisations to the government, used to provide public infrastructure and services
tax revenue: money collected by a government from individuals and organisations used for public spending and investment
state: a system that provides essential public services, and also governs and regulates other economic institutions
infrastructure: large scale physical systems that a society needs to function (roads, railways, electricity networks, etc)
lobby: seeking to influence a politician on an issue
political capture: when the government prioritises the interests of economically powerful groups over the general interests of the public
minimum wage: the lowest wage permitted by law or other agreement
ecosystem: the interaction of groups of organisms with each other and their physical environment
multinational company: a company that operates in its home country and at least one other country
Global North: a group of countries with high incomes and more industrialisation and service-based economies; these countries bear most responsibility for exceeding planetary boundaries
fossil fuel: a non renewable energy source including coal, oil, and natural gas, formed over millions of years in the Earth's crust from decomposed plants and animals
colonisation: a process of establishing foreign control over a land area and/or peoples for the purpose of resource use and extraction
globalisation: the increased movement and influence of humans, products, money, technologies and culture across borders
resilient: able to recover after a disturbance
narrative: a story that frames the way we think about a situation and impacts the way we behave
economic narrative: the stories we tell about how the economy works, how we should study the economy and participate in it
worldview: an all-inclusive outlook on the world held by an individual or group, and through which they make sense of reality and gain knowledge
scarcity: when there is not enough of something
utility: personal satisfaction or benefit
economic growth: an increase in the total value of goods and services produced in a period of time
inelastic (demand or supply): when consumers or producers do not react strongly to some factor that affects them
consumer: someone who buys and uses resources and products ot meet needs
individualism: a social theory favouring freedom of action for individuals over collective or state control
human-nature dualism: the worldview that human society is fundamentally separate from and superior to the rest of the living world
externality: the impact of production and consumption of a good or service on unrelated third parties
embedded: to be contained inside something else
regenerate: the process of restoring and revitalising something
norm: a social rule for accepted and expected behaviour, can be stated or unstated
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