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Conflict Theory

Never-ending competition for resources

What is conflict theory?

Conflict Theory, developed by Karl Marx, purports that due to society’s never-ending competition for finite resources it will always be in a state of conflict.  The implication of this theory is that those in possession of wealth and resources will protect and hoard those resources, while those without will do whatever they can to obtain them. This dynamic means there is a constant struggle between the rich and the poor.

 

conflict theory in action

 

What does conflict theory attempt to explain?

Conflict theory examines any social phenomenon through the lens that there is a natural human instinct towards conflict.  Marx is not saying that conflict is good or bad, but instead that it is an unavoidable aspect of human nature and helps explain why things are.

For example, conflict theory can be used to look at wars, violence, revolutions, and other forms of injustice and discrimination by explaining that there is a natural disparity in a society that causes these problems.

 

Applications of conflict theory in finance

In terms of financial resources, governments seek to manage conflict by reallocating resources between the rich and the poor.  Governments have several mechanisms for influencing the distribution of resources including taxes, minimum wages, incentives, special programs, social assistance, and regulations.

The theory is that if the wealth gap becomes too wide, social unrest will ensue. If the government doesn’t help reduce the degree of inequality, conflict will run out of control and protests, movement, or even civil wars will break out.

 

Bailouts, government, and politics

A proponent of conflict theory would argue that the 2008 financial crisis, government bailouts, and Occupy Wall Street movement were all inevitable.  The argument would be that the wealth gap had grown too wide and competition over resources had grown so great that some type of a redistribution was required,

Approximately a decade later now it appears the wealth gap has widened and social discontent is on the rise as populist politics becomes front and center. Consistent with conflict theory, as the divide between the rich and poor grows, tensions rise, politics become divisive and the stage is set for conflict.

 

Additional resources

Thank you for reading CFI’s guide to conflict theory and how it pertains to corporate finance.  To keep learning and advancing your career as a financial analyst these additional resources will help you along your path:

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