• economics perspective

Bernie Sanders, a self proclaimed “democratic socialist,” is running for President. The “S” word will be used like a club to pillory him and his supporters. Even if he fails to be nominated, Hillary Clinton will be branded a socialist as well. The partisan attack dogs and the media pundits will spread the usual fear, falsehood, and misinformation which the public will swallow without question.

Words like “socialism,” “freedom,” “democracy,” ”welfare state,” and “free enterprise” are often thrown around rather loosely with little regard to their actual meanings. These terms are given social and moral characteristics that are not accurate or appropriate. In the coming election season we need some perspective.

One common falsehood is associating “freedom” with capitalism. But our civil liberties are not the result of any economic system. Even though capitalism is often called “free enterprise” it is not inherently “free.” Nor are socialism and communism inherently not free. Civil liberties are established and maintained through social, moral, and political action and the rule of law. We do not have a free press, freedom to worship, trial by jury, or voting rights because of capitalism.

Capitalism, socialism, and communism are ways to organize economic activity. They are alternative economic systems. Democracy, monarchy, dictatorship, and tribal chieftains are ways to organize power sharing and decision making in a society. They are alternative political systems. It is not accurate to equate political systems with economic systems. Capitalism and democracy are not synonymous. Many dictatorships have been capitalistic. Many democracies and some monarchies are socialistic. It is quite possible to have a democratic political system and a communist economic system.

The repressive communism of the Soviet Union lacked civil liberties because it was a totalitarian dictatorship not because it was communistic. Our own history shows that a democratic, capitalist society could also foster human slavery, exploit immigrants, exterminate native ethnic groups, repress women, and deny basic civil liberties to its own citizens. Even well-functioning democracies can exhibit tyranny and deny civil liberties to minorities. So “freedom” is not the result of any economic system.

Simply defined capitalism is one way of organizing an economy based on private ownership of productive activities. The primary goal is personal profit and is characterized by individual control and decision making. Modern capitalism is linked with corporate business organization and is dominated by speculative stock, commodities, and currency trading “markets.” However, corporations and stock markets are not necessary to a capitalist economy. About 80% of businesses are small. Organized as sole proprietors, partnerships, and corporations these businesses are the entrepreneurial capitalists of the Adam Smith tradition. Even when technically corporations, these small businesses often are not publicly traded and have nothing to do with the stock market. Even large corporations can be “privately held” and not traded in traded on the stock markets.

Free enterprise is simply the ability to engage in economic activities without excessive government restrictions or interference. People are free to choose occupations, start businesses, or engage in commerce based on personal preferences and not societal mandates. This is in contrast to government imposed monopolies or class imposed restrictions of the past. Again free enterprise does not have any direct connection to other civil liberties.

Socialism involves “social” ownership of the primary means of production and democratic control of the economy. Socialism has many forms and degrees of social control. It can take the form of publicly owned enterprises or privately owned cooperatives. These operate to provide needed goods and services rather than create profits for the owners. Under socialism the public good replaces profits as the guiding principle. European democratic socialism often includes direct public ownership of the major industries with free enterprise allowed for small business. Sometimes public ownership involves the government being a stockholder in major corporations. Government planning can play a larger role or ”market” forces can also be used.

Democratic socialism involves the combination of greater public ownership with democratic public control typical of the European countries. It is contrasted with Marxist-Leninist socialism which involves extensive central planning and government ownership of production.

Communism takes socialism one step farther to produce a system dominated by government ownership and control with extensive central planning of the economy. This is sometimes called “state capitalism” because the public good is often subordinated to the needs of the state. This is similar to capitalism promoting profit over the public good.

The total picture is complicated by the fact that no societies have pure economic systems. The U.S economy is not purely capitalistic. We are an amalgam of capitalist, free enterprise, non-profit and cooperative arrangements. Non-profits are a large part of our economy. Cooperatives are represented in so many industries and forms that it is not possible to put a number on the extent of cooperative efforts in our economy. Mutual insurance companies, credit unions, agricultural coops, rural electric and telephone co-ops are everywhere. Employee-owned companies and worker co-ops also exist. Huge organizations like Ocean Spray, Land of Lakes, and Sunkist Orange juice are co-ops. Cooperatives produce 85% of our milk.

Similarly most European countries do not have purely “socialist” economies. In fact most of them have capitalist economies but with greater public control and more robust social safety nets. They have large segments of their economy that are privately owned. Ikea, BMW, Siemens, Royal Dutch Shell, Michelin, Bayer, and Nestles are just a few of the many examples of European capitalist multinational corporations.

Another common misconception is that capitalism is responsible for the increases in the standard of living. Most people’s material well-being has increased dramatically over the last several centuries. Free enterprise, by fostering innovation and individual gain (or greed), certainly contributed to the overall increase in material goods. But capitalism was only one factor. During the same period of history the industrial revolution was creating a huge shift from human to machine labor. Factories, assembly lines, and the use of interchangeable parts had a huge impact on production. Developments in finance, banking, education, transportation, science and technology all had impacts. There were whole new worlds of resources and opportunities created in Africa and the Americas. To attribute all the gains to the development of capitalism would certainly be inaccurate.

People also incorrectly equate socialism with social programs. Although many of our current social safety net programs (unemployment, workers compensation, Social Security, and medical insurance) were advocated by early socialists, they are not incompatible with a capitalist economy. Social programs may have been essential to the survival of capitalism. By its very nature capitalism is self-destructive. It tends to boom and bust cycles, inequality, environmental and worker exploitation that are not sustainable. Social insurance programs are necessary to smooth these rough edges and keep the system working.

Socialism is not a scary foreign concept. John Nichols in his book The “S” Word, A Short History of An American Tradition: Socialism discusses how socialists and communists not only worked for advancing liberal pluralistic democracy and social reforms but were successful in having some of these ideas eventually adopted by main stream politicians. Socialism and social democracy have been a part of our political life since Thomas Paine. The socialist mayors of Milwaukee (1910-1960) were examples of clean, efficient government that advanced the common good. Rather than being a threat to our American way of life, socialism has been one of the positive forces that created what we now enjoy.

The simplistic socialism-is-bad-capitalism-is-good narrative does not serve us well. We have discovered through centuries of trial and error that regulated mixed economies work best for most people most of the time. All of us are better off because of the mix of socialism in our economy. What is important is what WORKS for the majority of the people.

Better understanding of the real meaning of words fosters intelligent debate of the issues. Name calling and fear mongering only divide and conquer us. We should reject demagogues who use the “S” word to attack candidates.