Since the development of civilization, more than 5000 years ago, some type of economic system has always been applied. Resources have been scarce and people always have had to decide how to allocate their resources in the best manner. To this day, people have tried many different systems. However, systems as feudalism and mercantilism belong to the past. During more recent times there have been two competing systems, the capitalist system of the west and the communist system of the east. But with the collapse of the communist regimes in Eastern Europe in the late 1980’s and early 1990’s there now is only one system still standing.
Today there is no argument that capitalism, even if it is not perfect, still is the best economic system to allocate resources, promote economic growth and grant individual liberties. Also, if we look back in the history, the result of capitalism in the west is remarkable. In 250 years we have gone from a society where most people lived on, or just below subsistence level, to the present day where we live in nice homes, drive cars, go for vacations and have a vast array of different goods to choose from. In this perspective, the economic growth of the Western economies is nothing less than astonishing.
However, if we turn our eyes to the developing countries the reality is completely different. Two thirds of the world’s population is economically under-developed. More than a billion (1.1 billion 2004) people live in extreme poverty, meaning that they have less than a dollar to live on per day and almost three billion (2.7 billion 2004) live on two dollars a day (Global Issues, poverty facts and stats). One may argue that a dollar has a greater buying power in those countries, but still, for these people their daily situation is more a struggle for survival than a fulfilling of life.
The governments in many of these countries realize as well as anybody else that there are no alternative to capitalism, and they are trying to embrace free enterprise. They are abolishing trade restrictions, trying to balance their budgets and attract foreign investments as well as through judicial means promote free enterprise. They are getting advice from experts from Western capitalist countries and are getting aid and loans from the IMF. One would expect that with all their effort, and the advice and help they are getting from the Western countries the economic development would be significant. That the third world and the developing countries would take part in sharing the fruits of free enterprise and narrow the gap between the rich countries and the poor. However, the reality is very depressing. Since the 1960’s, for almost every period and every region, the OECD countries have had the greatest growth of all. A few exceptions are China in the recent years and South East Asia some years earlier (Weeks, John 2001).
In some parts there has even been a decline. After the collapse and split of the Soviet Union, many of the new countries embraced free enterprise with open arms and applied something that later would be described as “shock therapy”, to mould their countries into the form of capitalist ones. However, a decade later in 2000, four of five former soviet countries had declined their output since 1989, an output which from the beginning was fairly modest (Berggren, Niclas 2003).
The contrast is remarkable. It is evident that the capitalistic system has generated considerable wealth in Western Europe and the U.S. but at the same time it is very difficult for the capitalistic system to succeed in the rest of the world. Why? Is it so that entrepreneurship solely exists in the Western culture, and that it is completely strange for the rest of the world? Obviously not, capitalism has succeeded in different cultures such as the Japanese and the American as well as it struggles in completely different countries in Eastern Europe, South...