I have an ongoing conversation going on with a couple of people about Capitalism versus Socialism. I feel compelled to discuss this a bit in this venue. I always think it is important to define terms when discussing a topic that is controversial, especially in the Portland/Vancouver area where small business is greatly appreciated but big business is not. As Robert D. Johnston discusses in his book “The Radical Middle Class: Populist Democracy and the Question of Capitalism in Progressive Era Portland, OR” there is a difference between Petit Bourgeois and the Haut Bourgeois, but that will be a discussion for a later date. First, let’s define terms.
Investopedia defines Capitalism as “an economic system in which capital goods are owned by private individuals or business partners. The purest form of capitalism is free market or laissez-faire capitalism, in which private individuals are free to determine where to invest, what to produce or sell, and which prices to exchange goods and services.” Seems like a good definition to me, but I’d like to review a couple of other perspectives.
The World Socialist Movement (WSM) gives an expanded definition of Capitalism describing it as a social system. “Capitalism is the social system which now exists in all countries of the world. Under this system, the means of production and distributing goods are owned by a small minority of people. We refer to this group of people as the capitalist class.” WSM argues the motive for producing goods and services is to sell them for a profit, not to satisfy people’s needs.
Whether we see Capitalism as an economic system or a social system, or both, the fact is that the strength of Capitalism is its focus on private ownership of the means of production, and its weakness is the inability to distribute the profit in an equitable manner.
The second term to define is Communism. I would equate Communism as the extreme opposite of Capitalism. According to the Britannica Communism is “the political and economic doctrine that says to replace private property and a profit-based economy with public ownership and communal control of at least the major means of production and the natural resources of a society.” According to the Britannica Communism is a higher and more advanced form of Socialism. Marx tended to use the terms synonymously.
The Library of Economics and Liberty states, “Before the Russian Revolution of 1917, socialism and communism were synonyms. Both referred to economic systems in which the government owned the means of production.
According to the Catholic American Thinker, “Communism is the strictly theoretical system imagined by Karl Marx in which all of society, all of economics and all politics are combined into one, perfect, classless, automatic, government-less system based on common ownership of all economic means of production, and social sameness.” The authors go on to say that Marxist theory proposes that the only way this can happen is through a violent revolutionary defeat of the Bourgeoisie. This will occur, according to Marx, after a “preparatory stage of Socialism alternatively called the Dictatorship of the Proletariat.” Some would argue that true Communism has never existed, and all previous Communist expressions are just Socialism in practice.
The final term to be defined is Socialism. According to Britannica Socialism is a “social and economic doctrine that calls for public rather than private ownership or control of property and natural resources.” Because none of us live/work in isolation, according to its proponents, Socialism is the right social system to adhere to. “Furthermore everything that people produce is in some sense a social product, and everyone who contributes to the production of a good is entitled to share in it. Society as a whole, therefore, should own or at least control property for the benefits of all of its members.”
Ok, I think we now have our terms defined. I recognize there are many variations in between these examples. Now we come to the part where I talk about me. What do I think about these things? Knowing that my grand parents escaped from Russia during the Bolshevik Revolution tells me that they recognized the Dictatorship of the Proletariat was not something they wanted to partake in, so knowing how hard my grandfather worked to become a successful businessman I have to question the validity of what was to become Communism is Russia.
Also, the usual examples of Denmark and Sweden are given as exemplars of a successful socialist economy. However, when one looks at the economy of these countries they are actually a middle road between Socialism and Capitalism. In fact, none of the Scandinavian countries have created centrally planned economies where the people, or government, own the means of production. But, Denmark and Sweden, and the others, consider equality an important part of the economic puzzle.
Denmark has a population of 5.614 million, and the United States has a population of 320 million. The GDP of the United States is $17.9 Trillion and Denmark’s is $342 Billion. GDP growth is 2.43% for the US and 1.18% for Denmark.
Denmark is known as the happiest country on earth, and recognized by Bernie Sanders and Joseph Stiglitz, an Economist, as a “model of equality and social welfare that the U.S. should follow.” Denmark taxes all of its citizens much higher than what we are taxed; The total tax revenues in Denmark represents 49% of its GDP, with the United States at 25.4%, with a top tax rate of 56% compared to 39.6% in the United States; which is how the Denmark government pays for its wonderful social safety nets.
However, things are changing in the Scandinavian countries. The Social Democrats were kicked out of office in June of 2105, there is growing inequality, and people are not feeling as connected as they once were. Even the NY Times, in 2015, raised the question can the United States be more like Denmark? The conclusion, we could but it would take all of us paying more taxes, not just the wealthy. Also, if we wanted to go in this direction we would need raise our sales tax to be similar to the 25% value added tax charged in Denmark.
Here in the US we talk about affordable housing, but in Denmark housing is more expensive. Education in Denmark is free, but there is no choice between public and private institutions. Nor are Denmark students free to study what they want. Peter Baldwin states, “and how hard it is for high school graduates to study the subject of their choice depends on whether the Ministry of Education thinks the country needs more graduates in that field.” There is not freedom of choice within your education, but government controlled.
So the well-meaning Facebook posts that compare Denmark to the United States don’t quite tell the whole story. However, the question now is what do I think? I think we can do better than Scandinavian countries.
First, instead of using labels like Socialism and Capitalism, let’s figure out a meaningful middle way. I am not too sure the progressives or conservatives are able to accomplish that. Second, instead of denigrating our market system, create educational opportunities for people to better compete within the market. I am positive that business would pay a tax to provide vocational training for future workers. Millions of jobs go unfilled each year because there are no skilled workers available. Third, quit equating the free market with large corporate excesses; many small businesses suffer due to regulations focused on big business. Fourth, reform the tax system. Instead of trying to piecemeal change, do a complete redesign. Fifth, create citizen watchdog groups to monitor and control inefficient government spending. On and on I could go. However, business also needs to do something to change the public’s mind about it.
Harvard Business Review published an article in 2011 titled “Capitalism For the Long Term” in which the author, Dominic Barton, argued for three changes to Capitalism in the United States that must occur. First, don’t give in to the tyranny of short-termism. A recent survey has indicated the 55% of people do not trust business. In fact, in the latest rendition of The Magnificent Seven an evil businessman is the antagonist. Business must focus its action on the long-term rather than short-term profits. This assumes better care for the workforce, better stewardship of the planet, etc.
Second, serve stakeholders, enrich shareholders, in other words, by serving stakeholders, anyone who has a stake in the company (including employees, the community, customers) there will be a return to the business owners. Third, act like you own the place. In other words, business ownership must be focused on running a long-term business, not just getting what we can get and moving on.
The United States has its problems, and instead of looking at Europe or Scandinavia for solutions, let’s work together and figure out our own middle road. Instead of inefficient bickering it is time to stop wasting time and money spending to cover up our problems, it is time to create new solutions, and if we need to pay more taxes so be it, but time is awasting.
And that is my thought for the day!