Capitalism, Socialism, and Democracy

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Capitalism, Socialism, and Democracy

• Coherencies and Contradictions

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Capitalism Democracy

• Inherently linked?
• No!
• Capitalism also linked to non-democratic regimes
  (e.g. China).

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Socialism Democracy

• Mutually exclusive?
• No!
• Most European Countries are social democracies
  not to mention that the United States has many
  elements of social democracy.

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1) Democratic Capitalism

• Capitalism Economic system based on private
  property and free markets.

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Traditional Capitalism

• Also known as Free Market or laissez-faire
  Capitalism and has five components
• Private ownership of property
• No legal limit on accumulation of property.
• Free Market-no government intervention in the
  economy
• Profit motive as driving force.
• Profit as measure of efficiency

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Adam Smith (1723-1790)

• Intellectual Father of Capitalism who said
• Humans motivated by self interest.
• Should be free to pursue profits.
• Result The Invisible Hand.
• Efficient economic system all will benefit
  because goods will be produced and sold cheaply.

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Capitalism Vs. Feudalism

• Capitalist entrepreneurs had to organize to fight
  against the system of their time, Feudalism.
• Feudalism was the economic system derived from
  Monarchical and Aristocratic society.
• Serfs or Peasants were allowed to work the land
  but a percentage of their labor went to the king,
  noble, or lord who owned the land.

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Capitalists as Radicals

• Feudalism was inefficient, did not promote
  economic growth because there was no private
  property.
• Capitalists organized, started social movements
  based upon the ideas of Adam Smith Private
  property, government non-intervention.

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Late 19th and Early 20th Century

• Changes to capitalism as a result of criticism.
• Some regulation of the economy

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Mixed Economy Rise of the Welfare State

• Main Catalyst The Great Depression (1929-1941)
• Key Presidents FDR, LBJ, and Nixon.
• Specific areas retirement, health, unemployment,
  education.

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Arguments for Mixed Economy

• John Maynard Keynes (1883-1946) argued that
  depressions can be avoided if government pumps
  money into the economy to eliminate unemployment.
  Also argued for government role in building a
  social security system and regulate business.

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Who Else uses Mixed Economy?

• Japan, most European countries built welfare
  states.
• Why?
• Eliminate antagonistic relationship between
  business and labor through government mediation
  corporatism.

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Welfare System

• Two types of assistance
• Need-based Food stamps, aid to families with
  dependent children, unemployment.
• Non-need based pensions, social security.

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Response to criticism

• Welfare system does give away money.
• But, they are supposed to ease tension and
  inequality.

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Perpetuates Dependence

• May be true to some extent, but what is the
  alternative?
• Minimum wage jobs?
• Supposed to help people subsist at a minimum
  level.

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1980s 1990s

• Return to free market principles (Reagan).
• Dismantling of Welfare state.
• Cut taxes.
• Massive Government Debt.

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Capitalists Democracy

• Capitalists argue that democracy requires
  capitalism because of freedom to accumulate.
• Private property is highest value (economic
  freedom).
• Economic freedom exists when government and
  monopolies are checked.

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Monopolies

• Give too much power to business (J.P. Morgan).
• Reduce competition (Bill Gates).
• Eisenhowers warning Military Industrial
  Complex creation of a power elite (military,
  corporate, government).
• Result Collusion of Interest

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Economic Freedom

• Problem for small businesses?
• Many hurdles.
• Working hard often not enough.
• Problem of equality of opportunity (race and
  gender barriers).

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Critics of Democratic Capitalism

• Focus on extremes of poverty and wealth
• And, Influence of wealth on political process
• And, Power differentials between employers and
  employees.
• They say capitalism produces inequality of
  wealth and power.

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The answer

• Private property must be checked.
• What are the effects on the community if not?
• Outsourcing, factory closures
• Must be accountability of economic power to the
  people (political power)

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Too much Capitalism

• Results
• Profit motive strengthens selfishness
• Loss of community values of cooperation
• Free Market allows rich to accumulate without
  responsibility to community (Multinational
  Corporations).

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Democratic Socialism(Social Democracy)

• Characterized as follows
• much property held by the public through
  democratically elected government, including
  major industries, utilities, and transportation
  systems
• a limit on the accumulation of private property
• government regulation of the economy
• extensive publicly financed assistance and
  pension programs
• social costs added to financial considerations as
  measure of efficiency.

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History of Socialism

• Response to the Industrial Revolution
• Working conditions, living conditions, pay.
• Christianity sharing, community, cooperation.

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Revolution or Evolution?

• Marx argued for revolutionary transition to
  socialism (communism) through workers
  revolution.
• Later, others argued for reform through elections.

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Assumptions

• Citizens ought to control political and economic
  life.
• Should be democratic accountability.
• If people control economic system then more
  equality and less poverty will follow.
• Limited Private Property. Socialists are not
  against private property, but are in favor of
  government regulation.

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Government and Economy

• Monarchy (one) ? Dictatorship
• Aristocracy (few) ? Oligarchy
• Democracy (many) ? Tyranny
• Free Market (Pure form Market rules)
• Democratic Capitalism (hybrid)
• Democratic Socialism (hybrid)
• Command Economy (pure form State rules)

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Socialism and Democracy

• Politics and economics are connected.
• People should decide the direction of the
  economy.
• Community should benefit, not just a few
  individuals.

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Continued

• Profit motive (self-interest) goes against the
  interests of the community.
• Liberty requires economic security (remember
  positive liberty).

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Continued

• Welfare/Social Security (high taxes on rich)
• Typical democratic socialist welfare system
  (Sweden) includes extensive medical care system
  (free or minimal costs), prenatal care for
  expectant mothers, sabbatical leave for mothers
  (full pay)
• unemployment benefits and retraining programs,
  free public education
• workers representation on boards of
  corporations rent subsidies.

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Criticisms

• Problem of bureaucracy, accountability.
• High cost
• Corruption

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Response

• Ombudsman hears complaints about bureaucracy?
• tries to correct inefficiencies, corruption etc
  (like an independent commission).

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More Criticisms

• Free market of competitive capitalism is
  essential for efficient production and
  distribution of goods.
• Interference with free market through government
  ownership and control puts too much power in the
  hands of government? destruction of freedom and
  democracy? but the electoral process is still
  there.
• Human Nature acts against socialist idealism.

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Current Trends

• Supply-side economics argues that government
  should only control the supply of money in the
  economy to keep inflation low? government
  borrowing main source of inflation (monetarism).

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More Trends

• Welfare policies drain money from private
  investments (taxes) that would otherwise create
  more jobs? reduction of government spending.
• Problem unemployment, social inequality.
• Socialists argue that social costs must be
  included in cost of doing business.
• Problem profits.

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Other Socialist Ideas

• Market Socialism or Third Way
• Developmental Socialism
• Economic Democracy
• Communal Living
• Cooperatives

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Recent Policy Issues

• Deregulation Enron, Anderson
• Relinquishing government oversight of the
  economy. Core idea over regulation has forced
  inefficiencies on the economy? correction is
  needed.
• Problems 1) lowering of health and safety
  standards for workers 2) Savings and Loan
  disaster 3) product quality