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Human beings are social animals. Long ago, earlier in their evolution, they learned to cooperate for mutual benefits. Ironically, most examples of cooperation in human lives, do not provide equal benefits. Still, all these examples of cooperation mostly result into net benefits for all the participants. Take the example of parents and their kids. At first glance, it seems like parents are just giving and giving, and kids are just taking and taking. If the relationship is based on equal benefits for all members of a family, an infant would never be able to survive. The basic ingredient in a parent-child relationship is love.
Take the example of husband and wife. Both partners, hardly ever generate equal income. Their spending habits and needs are also very different. But, a successful marriage is always based on the idea of using combined incomes for the overall best benefits for both partners, and family as a whole. Their responsibilities inside and outside the home are almost never equally distributed. This very unequal distribution of responsibilities, incomes and spending has survived the test of time since forever. Healthy and stable families are still considered as the most important and effective creed for future generations.
It is also worth to mention the example of a nation and country. The responsibilities, incomes and spending of citizens in almost every nation in human history have largely been unequal. Still, it doesn’t matter, if it is a small clan or the most prosperous nation in world. This totally unequal distribution helps everyone. The overall success of any nation deeply and strongly depends on, how well its citizens are being able and allowed to play their roles in the growth and prosperity of their nation. More integrated and free the citizens are, more and better would be the national success. This is how it has worked since ancient history.
If you look at the bigger picture, the incentives are extremely important, too. Parents spend their hard earn incomes over their kids out of love and desire to see their kids healthy, happy and successful. Husband and wife mostly join together under the incentives of love, sex, commitment, faithfulness, dedication and dependably living lives together. Without incentives and inequality, neither family, nor nations or any other institution, for that matter, would survive or even exist. Equality in certain other aspects of life would be rather desirable and helpful in strengthening any institution. For example, equal rights and mutual respect between spouses.
What differentiates Capitalism from other economic systems, and the virtues which made it the most successful economic system, ever, are the full recognition of two very basic traits in human nature. Incentives and inequality for the overall benefits of everyone involved. It is the profit motive which provides the basic incentive for creativity, innovation, invention and hard work, and it is the inequality of results which keeps it going. More creative, innovative, inventive and hardworking you are, more likely are you to end up at the higher end of results, and your hard work does not benefit you only. Everyone involved in the cooperative effort, ends up better than otherwise.
Intelligence, capital, creativity, knowledge, skills, hard work and other qualities can produce better results. Nevertheless, everyone involved in cooperative effort benefits, at least, to some extent. The only deciding factor between different nations, in this regard is which nation provides more and equal opportunities to its citizens to show and use their potential, and move ahead and up. This is the only major difference which you will notice between developed and less developed economies. Both of these types of countries may have inequality. But, inequality of results in less developed countries and the countries with less equal opportunities would be more, bigger and pronounced.
There are several factors which distort the open and free markets. Unfortunately, almost all of those stem from big government and it’s over extended authority. First of all, the government regulations suppress creativity, innovation and invention by trying to fit in everyone into one and same box. Second of all, the government regulations distort the capital and financial markets, making it very difficult for startup and early stage businesses to secure financing. Third of all, government regulations increase the day to day operational cost, creating another disadvantage for startups, early stage and small ones.
Taxation also favors the big enough who are able to pay taxes. As government grows, and laws, regulations and taxes are overextended and complicated, bureaucrats and politicians enjoy more authority and power. This authority and power corrupts them and rich and powerful start to seek favors through lobbying and other methods. You must have heard a lot about lobbying. But, do you really know what lobbying is? It is basically a special interest, convincing government and politicians to legislate and regulate a specific sector of economy in a way which serves that special interest really well.
Now, if a special interest group wants to convince government and politicians to legislate and regulate in a way they like and want, it has many different ways to do that. Original idea was that the lobbies would draw attention of legislators and bureaucrats to a specific issue and convince them to legislate and regulate in a certain manner by providing them essential information and studies on that issue. The legislators and bureaucrats, in these cases are assumed to be ignorant of the issue or too busy to research it, and lobbies are supposed to be helping hands. This is what got lobbies legalized.
Of course, in real word, it doesn’t work that way. Billions of dollars are rolling into rich and powerful lobbies every year. Most of those lobbies are owned by big corporations. Lobbies are not just helping hands anymore. Those are basically performing give and take deals in Washington, and state, county and city capitals. In commonly used terms, these deals can be simply called as bribery. Most lobbyists are ex-government officials with access to many legislators and bureaucrats. They are making offers. For example, you vote in our favor and we will donate million dollars to your next campaign. They also host and pay for parties, dinners, seminars, tours, public meetings and media appearances, in return for favors.