Capitalism is defined in the dictionary as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” Touted as one of the greatest things about the United States, many people have also belabored its shortcomings. As with everything, both sides could be argued.
But, what does the head chairman of the conglomerate corporation Berkshire Hathaway, Warren Buffett, have to say about capitalism? Without capitalism, it’s unclear whether Buffett would enjoy the same immense success as he currently has. However, his thoughts on the successes and shortcomings of capitalism might surprise you.
Successes of Capitalism
Warren Buffett is, unsurprisingly, a fan of capitalism. Buffett fielded Q&A segment at the Tuck School of Business in 2005 where he lauded the successes of capitalism as contributing to the growth of the country.
“Consider this: in 1790, the first global census was conducted; there were 290 million people in China, 100 million in Europe, and 4 million in what is now the U.S.,” Buffett said. “Now the U.S. holds 4.5% of the world’s population but is responsible for 30% of global GDP…. When we think about such growth… it must be the system. The smartest people in Guam are as smart as the smartest people in Iceland are as smart as the smartest people in the United States. Being born in the United States is more important to my success than anything that has happened since.” That growth, he said, is directly the result of capitalism.
Buffett went on to speak about more specific things that capitalism does well, including providing a greater abundance of goods, allocating resources better, helping people find careers and paths they are suited to, and, most importantly, improving the standard of living.
“The standard of living in the U.S. has increased almost seven fold in the last century,” Buffett said. “One century is a speck on the greater timeline, and such an increase in productivity in the standard of living is surely unprecedented.”
Shortcomings of Capitalism
Buffett, of course, is not totally unaware of the shortcomings of capitalism, although unlike some he maintains a mostly positive outlook.
“Capitalism, like any system, is imperfect, but it’s getting better and we’re getting closer to goals such as equality of opportunity and learning how to deal with those that are hurt by the system,” Buffett said.
According to Buffett, the biggest shortcoming of capitalism is that it is a dog-eat-dog marketplace, which by its very nature, always has losers and people who will fall short. Casualties are always a problem with capitalism, and it’s important that ethics are maintained to minimize casualties.
“…The real challenge with capitalism is that you can’t throw sand in the gears of greater output, but you also want to care for the casualties.”