What Are Disadvantages of Capitalism?

disadvantages-capitalism Credit: Florian Hiltmair/N/A/Getty Images

One of the major drawbacks of capitalism is that it allows one or a few companies to develop dominance in particular industries by achieving significant advantages. Capitalism also creates inequality of wealth as individual pursuits are encouraged, which then contributes to social inequality. Economic cycles also tend to have a significant impact in capitalist markets.

Monopolies are companies that achieve dominance in an industry, and barriers to entry minimize opportunities for other players. Governments in some capitalist markets use regulations to control monopolistic behavior, but concentration of capital is ultimately hard to control.

Unlike socialism, which promotes shared wealth, capitalism encourages individuals and groups to pursue wealth through innovative and entrepreneurial activities. While some achieve success in finding wealth, other struggle to gain employment and resources. Governments don't guarantee employment in a capitalist economy like they typically do in a socialist economy. Capitalist countries often see a portion of their population struggling with poverty. Income differential also contributes to social-status ramifications. People with great wealth may feel a sense of privilege or superiority relative to low-income earners.

Economic cycles are ebbs and flows in industries that cause businesses to perform better or worse for extended periods. Since capitalism is unplanned and market-driven, it is difficult to stem the tide of macroeconomic and industry-specific struggles.