Capitalism or Socialism?

Arguing over “capitalism or socialism, small government or big government” serves only to confuse voters; indeed, that is often the point: when the rich advocate “small” government, they almost always mean “small” for someone else. The banquet of a good lifestyle requires both the salt of capitalism and the pepper of socialism, big government when it helps society, small government otherwise.

The issue we face is deciding when government should be big, when it should be “small,” to what degree the economic system should be capitalist or socialist.  Given an environment of strict regulation and a well educated citizenry, capitalism in certain sectors of the economy can facilitate rapid development by replacing tedious and inefficient government oversight with self-organized popular creativity. But fraud is inherent in a system that allows some to become grossly more powerful than others, as 99% of us have learned to our sorrow since 2007.

Moreover, even the rich would not like pure capitalism. Who wants to pay a toll on every single road? The West had such a system once – in the Middle Ages, where local noblemen and other robbers interrupted trade and travel to line their pockets. Who, except a dictator, would want a capitalist Internet charging a fee every time you surfed or sent an email? Who would want to buy the air they breathe from a local vendor?

Does that last example sound idiotic? Corporations are already trying to steal the planet’s drinking water and then sell it back to the thirsty. This particular abuse of the commons (drinking water, like air, being a “common” good that should be shared by all) provoked a revolution in Bolivia and a bit of a revolt in Atlanta as well. As extremist fans of extreme capitalism undermine government’s power to regulate while corporations take advantage by polluting the air we breathe, the temptation to buy clean, bottled air can only increase. A better way to go for all breathers (even rich ones) would obviously be to defend the commons by keeping the air clean.

Other examples of situations where capitalism seems pretty clearly inappropriate are legion. Extreme capitalism is not even appropriate in that capital of capitalism, Wall Street – it leads to fraud, distortions of fundamentals, and the chaos that requires emergency Big Government of the most extreme type. Even the purest and richest of pure capitalists, it seems, cannot function efficiently without oversight; just ask the boys at AIG and Lehman.

Education provides another example of an area where small government and unrestrained capitalism (in this case, turning education into a private business) risks real harm to the common good. Conservatives love to advocate private schools, but would they appreciate having to send their kids to a private socialist or Salafi school? Once society grants private schools the right to exist, where is the line to be drawn?

Health care is a second misleading example of conservative knee-jerk hostility to government leading to outcomes harmful to themselves as well as everyone else. Why would anyone want a capitalist health care system, with doctors focused on profit rather than helping the sick? Who wants medicine prescribed on the basis of the profit it returns to the doctor rather than the health value for the patient? On the other hand, Big Government-Big Pharma corruption widespread in government-run health care is equally pernicious. Any system can be abused, but the very purpose of capitalist health care is to make money, and the easiest way to do that is to treat only the affluent and to ignore…the sick! The purpose of socialist health care, in contrast, is for society to decide on some minimum level of health care and then provide it to all. The real argument should center not on the size of government involvement in health care but whether the government role protects the public or acts as a cover for Big Pharma greed.

Morally, there is no contest. Socialist principles are indistinguishable from the Declaration of Independence’s call for government “of the people, by the people, and for the people.”

In practice, the issue is less clear-cut. Even the richest corporate leaders want some socialism: Big Oil happily takes billions in U.S. welfare every year; Big Pharma designs the health care system to maximize profits rather than health care quality; Big Finance warps the U.S. tax code to its private benefit. No billionaire wants pure capitalism.

On the other hand, there is no doubt that social regimes can become both oppressive and inefficient. Moreover, many examples of situations where socialism (i.e., ownership by society) is inappropriate also exist. Public (i.e., socialized) libraries are great as long as the government’s role is restricted to funding and depoliticizing, but who would want the government to decide which books we could read? Public management of the Internet is crucial to its contribution to society, but who would want the government to censor their emails? Government inspectors are critical to a safe food supply, but who would want the government setting their dinner menu?

And then there’s the little matter of physical security. Who wants private armies? The West had that system once, too. It was called feudalism. On the other hand, a state that controls all means of force is an invitation to dictatorship. One possible compromise is to have both central and local powers, with the central government having only those powers explicitly awarded to it. But ultimately security for society must rest on strong government combined with the rule of law, transparency, and popular vigilance…not private enterprise.

It matters little to the victim whether oppression comes at the hands of a corporation or a regime. And yet, a fundamental distinction exists between the worst socialist regime and the worst capitalist system: at least under socialism, the people always have the option of voting. (If a socialist system removes the right to vote or, as in the USSR, rigs the vote, then the system has turned into something else – call it a dictatorship or communism or whatever you want; it is no longer “socialism;” it is no longer rule for society but rule for the rulers.) In a system with a weak regime and powerful, unrestrained corporations, the people have no defense at all. Such a system has surely never existed in modern human history, for the corporations would immediately demand and receive special privileges and transform the system into a Big Government Corporate Welfare System, essentially fascism without brutality, and, indeed, that is precisely the goal of the class war launched by the super-rich in the U.S. Under a Big Government for Corporations system, the people would have no recourse but armed revolt, which would surely provoke a corporate crackdown and the transformation of the system into full-blown fascism.

The problem in the U.S. today is essentially Big Government that works for Big Capital rather than Society and does so in an atmosphere of unadulterated corporate piracy. There is a fundamental distinction between the corporations of the 1950s that provided lifetime careers at good salaries while they made America rich and the banks that run mortgage mills to make a quick buck off high fees with the intention of selling the mortgage fast enough to avoid responsibility for what happens to the deluded new owner. The rich seem to recognize no common interest between themselves and the society that protects them from foreign aggression or domestic street crime, that paves the roads their limousines use, that buys the product they produce (if, indeed, they still produce anything). Government is indeed “big” and uses its power to hand out corporate welfare on the basis of the size of the corporation rather than the utility of the service that corporation provides to society.

Life is too complicated to be regulated at every point, and people are too vulnerable to be left on their own in a world of enormous institutions. It’s not a matter of capitalism vs. socialism. Rather, the challenge is to balance freedom for individual creativity against the common need for protection. Capitalism with a heavy dose of socialism in sectors critical to the common good works in a strong democracy, enabling economic efficiency to be combined with popular oversight. “Strong democracy,” however, implies the acceptance by all of a social contract that puts government in the hands “of the people.” Room exists for powerful private interests as long as the economic pie is expanding faster than the rate at which power and wealth flow to the most powerful private elements. To the degree that those private power centers seek profit at the expense of the common good, capitalist tendencies need to be curtailed in favor of socialist tendencies; put differently, government power needs to be enhanced for the express purpose of protecting the commons (be it air, water, civil rights, freedom of education, protection against police brutality, clean food, or reliable health care) against abuse by those powerful private interests.

Today in the U.S., conservatives are correct that government is too big: too big when it allows corporate fraud to go unpunished, too big when it allows war profiteers to make billions, too big when it gives welfare to wealthy oil corporations, too big when the police suppress protests against corporate crime). When government tries to regulate and finds itself too weak to control corruption or corporate abuse, then the government is too small. The problem is not the size of the government but in whose interests the government functions. 


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Here we go again -

• Dimon admits Morgan Stanley behavior "egregious:" Wall St. financial firms have become the enemy of American society
• Senator Carl Levin: "The enormous loss JP Morgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making. Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards to implement the Merkley-Levin language to protect taxpayers from having to cover such high-risk bets."
• Simon Johnson - "fatal flaw in Federal Reserve thinking"
• Memo to Senate Banking Committee: "Banks would not be allowed to conduct broker-dealer activities, make markets in derivatives or securities, trade securities or derivatives for either their own account or customers, or sponsor hedge or private equity funds."
• Paul Volker, 5/9/12 in Senate testimony: "The expectation that taxpayers will help absorb potential losses can only reassure creditors that risks will be minimized and help induce risk-taking on the assumption that losses will be socialized"