Capitalism and Unfair advantage

What people call “crony-capitalism” is a private party gaining an unfair advantage in the marketplace over his competitors by the means of governmental intervention in trade. This happens by lobbying the Government to pass trade regulations in their favour, creating state sponsored monopolies. But when the Government is accorded such power to intervene in the market, by the citizens, the market is no longer free, and the political-economic system is not Capitalism.

Allowing governmental interference in trade activity will incentivise the private parties to lobby, and makes the bribery of governmental officials possible. Absent governmental interference, there is no way an individual can have an unfair advantage in the market.

Observe that “fairness“ doesn’t mean “equality”. Fairness is a concept to be understood in the context of economic freedom. A free trade is fair trade. It means that the consumer is choosing by his free and voluntary will, with his complete knowledge, the best product in the market he can afford, from the producer he wishes to buy from. The choice is not unfair, if it is not forced upon him.

Competence makes wealth possible, not the other way around. In a capitalist system, wealth is produced through competence, and lost through incompetence. How the individual spends his wealth is completely his choice. If a poor producer is not able to compete with a rich producer in creating and selling a better product at a lower price, it is not unfairness. It is unfairness if you are forced to buy from the poor producer, by the government, because he needs money, though he is incompetent. It is unfairness if any producer, poor or rich, is not allowed to sell his product in the marketplace through governmental interference. It is unfair because then, your choice to trade is no longer free.

In a Capitalist society, the institution that protects the individuals against the abuse by a producer who sells his goods to his customers by cheating or stealing, or by physically forcing his customers to buy from him, or by forcing his competitors out of the market by physical violence, is Government.

Individual rights are the means of preserving an individual’s morality in the society. They are the principles that protect an individual from the immoral choices of his neighbours. The only proper purpose of Government is to protect the individual rights: Life, Liberty and Property, whose meaning is in essence, to safeguard the freedom of action of the individual.

Capitalism is the only morally proper system of economy, because it is the only system that is made possible by, and works on the principle of individual rights.

– Avinash Kumar.

Note: This article is originally my answer to the question on Quora: How can capitalism be a success in India if there are too many people in India who lack proper morals & ethics and thus misuse capitalism to promote crony capitalism in order to cheat and abuse people for their own benefits?