Capitalism and Socialism ~ Both Evil Extremes of Economic Theory?

opaI watched with jaw agape Sunday morning, February 15, 2009, as one of the most conservative legislators still serving in the U.S. Senate, Senator Lindsey Graham of South Carolina, said that he is open to discussing the nationalization of large U.S. banks. He said this on This Week with George Stephanopoulos!

Who would have thought such a thing could be possible as little as just a year ago? This is socialism! Right… or is it?

Things must really be bad because this isn’t just some hare-brained idea coming from a single wacky politician who doesn’t know his right from his left (pun indented), it was the subject of debate in Business Week’s February 2d publication, Nationalize Broken U.S. Banks.

Having grown-up during the Cold War, I was taught by all those around me, my grandparents, my teachers and other adults, that socialism is bad and that capitalism is good. Our great enemy of the time, the Soviet Union, they told me, was a godless nation led by ruthless ideologues bent on spreading their radial beliefs throughout the world, by force if necessary. Their economic system was the most extreme manifestation of socialism, communism.

Our economic system, capitalism, prevailed in that epic struggle of right vs. wrong when the Berlin Wall came tumbling down and the “Evil Empire” collapsed in 1985. For much of the world, this victory of one ideology over another seemed to resolve any debate over which system is best. The former Soviet republics all rushed to establish “free enterprise” in varying degrees but with dubious success. Over the past 20 years of transition to capitalism in these now “free” nation-states, according to Professor James Petras in a Global Research Internet posting (Capitalism versus Socialism: The Great Debate Revisited), most basic industries, those that were formally controlled by the state, have been taken over by European- and U.S.-lead multi-national corporations and by mafia billionaires. In Poland, the former Gdansk Shipyard, point of origin of the Solidarity Trade Union, is now a museum and over 20 percent of the country’s work force is unemployed. Another 30 percent, according to Financial Times (February 21/22, 2004), was employed at the date of this publication in marginal, low-paid jobs including prostitution, contraband, drugs, flea markets and street vending. In other former Soviet republics, things have been even worse. Bulgaria, Rumania and Latvia, according to the CIA World Fact Book, all are struggling with high unemployment, high rates of inflation, corruption and crime.

In our own country, with government regulation and oversight of industries, everything from aviation to banking and finance to peanut production, reduced substantially over the past thirty years, beginning with Reagan’s two terms (Clinton did nothing to reverse the deregulation trend while he was President although he did restore a more progressive tax code and constrained government spending), we’ve witnessed the disparity between the haves and have-nots grow dramatically; the rich have gotten richer while the poor have gotten poorer.

At the beginning of the Reagan era, the richest twenty percent of Americans held nearly eighty percent of our nation’s wealth. Today, they are estimated to hold over ninety percent with over forty percent concentrated within the top one percent. That leaves just twenty percent for the rest of us.

Even as the current recession was beginning, and please don’t try to convince me that the Bush Administration was caught unaware, with the subprime mortgage debacle gaining attention in the press, unemployment starting to creep upward, and the price of gasoline soaring to over $4.00 per gallon for regular unleaded in much of the country, the biggest corporations in America like Exxon/ Mobile and Wal-Mart were posting record profits. Top executives of failing banks and the auto industry were still making millions. So our economics textbooks are right, capitalism guarantees nothing with respect to economic equity — quite the opposite. Capitalism, when unconstrained, guarantees systematic exploitation of the world’s resources and the vast majority of humanity by the privileged few.

Freedom is good, yes, but too much freedom is anarchy — and in anarchy, only the strong and well-connected survive.

My granddaughter, a heretofore valued employee as manager of the bakery department for a large retail outlet firm’s store in Utah, a right-to-work state, has been given notice. After seven years of working for the firm, steadily advancing in responsibility and salary, she’s now making too much money what with sales down and profits declining for the store during the current recession. Management wants to consolidate her department with another under a new manager to whom they can pay less. But to do so, they first had to make up an excuse to fire her. Otherwise they would have had to move her at her current salary to a different job. So, they are claiming that the employees under her are suddenly complaining about her management style and erratic behavior. They say that she’s too emotional, having recently given birth to her first child and being diagnosed with post-partum depression. Is this fair? No, I don’t think so. But being in a right-to-work state, they’ll probably get away with it, at least in the near-term. We are encouraging our granddaughter to file a claim against them through the state’s Equal Employment Opportunity Commission. Should this fail, and I anticipate it will, we will stand behind her and subsidize her efforts to claim compensation under the American’s with Disabilities Act.

My reason for sharing this story is to illustrate the fact that corporations, by and large, have no conscience. All they really care about is meeting shareholders’ expectations for growth and profitability. When aggregate demand declines, businesses scale back production and services, so unemployment rises. This is why giving businesses tax breaks during times of recession does nothing to stimulate the economy.

Seen on a continuum of practice among economic systems in the world today, capitalism and socialism are not either/or options. No system can claim to be pure; ours, since the Great Depression, has never been more than a limited free-enterprise economy. Therefore, capitalism and socialism, to my mind, are both outmoded ideologies — both proven to be vulnerable to human nature — corruptible and failed in extreme or near-extreme practices.  

If we nationalize banks or extend a helping hand to the poor by making health care affordable and available to all, if we guarantee a quality education to all our young, and/or if we permit the government to negotiate drug prices for Medicare recipients with the pharmaceutical industry, are we stepping out on the proverbial slippery slope? If we say that we are, are we not guilty of the pitfall to objective thinking called the post hoc fallacy? On the other hand, if we refuse to consider changes in our economic system, changes that could advance “social” and “economic” goals alike – goals like improving our nation’s health, making sure the next generation is competitive in the global economy, protecting the environment, and advancing economic equity, what does this say about us as a people?

By our behavior in recent years and by our media messages, movies, television programming and Internet content, is it not understandable that others, especially the Islamic world, see us as being a godless nation led by ruthless ideologues bent on spreading our radial beliefs throughout the world, by force if necessary? Hmmm… that sounds familiar.

Okay, so say that we do move our political and economic systems more toward the middle of the social/economic continuum by divesting the mega corporations of their stranglehold on prices and wages. Say we reconsider whether it was wise to allow the merger of Exxon and Mobile for example and that we restore regulation to the financial sector. Say that we begin holding the captains of industry responsible for decisions that prove harmful to the people as a whole. Say that we implement public oversight of corporations accepting tax-player bailouts and that we give relief to the poor, whether working or unemployed by no fault of their own. Say that we allow governments to “make work…” create jobs through public works projects that make meaningful and lasting improve- ments to our infrastructure. What then? Will we have, as the world’s best example of what capitalism can accomplish, compro- mised our ideals, or will we have merely stopped deluding ourselves? The top twenty percent of Americans would probably not like it. The top one percent surely wouldn’t. But are we are not still a democracy?

Please feel free to post a comment, whether or not you agree.

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Published in: on February 16, 2009 at 3:10 pm  Comments (5)  

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5 CommentsLeave a comment

  1. Capitalism, when unconstrained, guarantees systematic exploitation of the world’s resources and the vast majority of humanity by the privileged few.” By saying this you are confusing equal opportunity with equal results. An unconstrained capitalist economy allows small business to thrive, granting everyone an equal chance to own a business. It doesn’t eliminate failure, but that is the purpose of a competitive marketplace.

  2. Thank you for your comment, Taylor.
    Yours, of course, has been the conventional view in America for many years, ever since the election of Ronald Reagan and the selection of Alan Greenspan to head the Federal Reserve. Unfortunately, we have learned our lesson about this all over again, and it may be years before we recover. We forgot our history leading up to the Great Depression, going down the same road of unconstrained capitalism. The removal of regulatory oversight in the derivatives market by President Clinton and his willingness to overrule the Treasury Department and allow the merger of oil giants Exxon and Mobile, the SEC looking the other way under President Bush as crooks like Barney Maddoff bilked billions from trusting investors, Fannie Mae and Freddy Mack failing to ensure homebuyer safeguards in the subprime housing market. No, sir, unconstrained capitalism does not ensure equal opportunity, and I am not confusing this with equal results. Unconstrained capitalism fosters declining competition with near monopolies like WalMart and oligopolies like the airlines, big oil and big pharma emerging. Big fish do in fact eat little fish, Taylor!

  3. First of all, I enjoy the blog. I read it whenever I get the chance. It is seldom that I find something so well written on a blog.

    With that said, I never thought that a simple comment to this post would be met by a response that simply says, “You can have the opinion you do, but don’t post it on my blog.” As a libertarian, I respect the right of everyone to have an opinion, different as it may be from my own. What you did, post an argument in response that disrespects my right to an opinion, is poor etiquette. You posted a vicious, name dropping refutation that disrespects my right to an opinion on your blog. You disrespected my right to an opinion. You managed to kill my opinion with ad hominem attacks, red herrings, and arguments that refute without reason for why your opinion is better. You need to show how your opinion is better without attacking the opposite side, what you’re doing is pure
    ignorance. Why and how is unconstrained Capitalism destructive(or capitalism at all, for that matter)? If you can do this without dropping Reagan’s name, Bush’s
    name, or anyone considered an enemy to the big government cause I would appreciate it.

    Don’t attack my arguments, explain yours, go into detail with reasons why you believe what you believe, I might be convinced by your persuasion. If you are unable to respond without attacking my post, don’t bother. That will tell me all I need to know.

    I would appreciate it if you would at least pay a modicum of respect to the readers of this blog, instead of destroying what could be intelligent conversation between two not so like minded people. I believe intelligent debate should always be encouraged, but it is often not an option, instead discouraged by name-callers afraid of dissenting opinions.

    Sincerely,
    Taylor

  4. Gosh, Taylor, after re-reading my response to your previous comment about my posting on the evils of extremism, i.e., unconstrained capitalism and unyielding socialism, I find it difficult to understand how you could be offended by what I wrote. However, stating as you have that what I write and how I defend my views is “pure ignorance,” well, that is offensive to me. As for explaining how unconstrained capitalism is destructive vice attacking your comment, it seems clear to me that I did explain myself without resorting to demeaning language. Our current problems in the financial and housing sectors were not caused by small commercial banks and credit unions; they were caused by the big firms that are now considered too big to fail — AIG, Bank America and CitiGroup. They got too big because government allowed them to exceed the reasoned limits of market share as measured by the the Herfindahl-Hirschman Index (see my posting “Only In America Dominated by Big Oil” http://kgarry.wordpress.com/2007/06/26/only-in-an-america-dominated-by-big-oil/.

  5. I agree with you. I believe that the collapse of Wall Steet is like the fall of the Berlin Wall, One signaled the end of State Socialism the other the fall of Free market Capitalism. I have actually referred to it as Economic Anarchy as opposed to the political anarchy my ancestors participated in fighting for workers rights when they didn’t have any. It is time to begin to plan new economic ideas. Our economy will not recover as long as we keep trying to resuscitate the dead banking system. If you have time look at my web site http://www.philadelphiaprogressiveexaminer.com
    Tim Mccown


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