Recent political discussions (including many for which the word ‘discussion’ implies a degree of civility and willingness to listen that is non-existent) include arguments for or against socialism or capitalism as a preferred system. The opinions voiced often fall short not only in politeness, but also in clarity and logic. In addition, many pundits seem to lack an understanding of the basic types of systems, or the differences between economic and political systems.
Three Contrasting Systems:
Productive debate depends on agreement about the meaning of the terms used. For this article, the following definitions will apply (source: the Oxford Dictionary):
· Socialism -- A political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole; (in Marxist theory) a transitional social state between the overthrow of capitalism and the realization of Communism.
· Communism -- A theory or system of social organization in which all property is owned by the community and each person contributes and receives according to their ability and needs.
· Capitalism -- An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.
It is important to note that not only do these three systems differ in how they treat certain aspects of a community/group/country, but in the scope of their respective definitions. For example:
Communism involves a system that disallows private ownership of property in an attempt to ensure production based on ability and distribution based on need. The classic view of communism does not specify a governmental structure, but assumes one that implements its principles with fairness.
Socialism allows for private ownership of property as long as the property involved in economic matters is controlled by the community/group/country (usually, via a central government). Like communism, it does not specify a governmental structure, but assumes a mechanism that manages the public ownership/regulation of the economy.
Capitalism, in its purest sense, excludes community/group/country ownership or control of economics in favor of private ownership and a profit motive. It does not specify a governmental structure, but implies that whatever government exists does not interfere in economic matters.
Critique of Each System:
Each of these economic systems has serious shortcomings, due primarily either to false assumptions about human nature, or touting an appealing economic theory while ignoring the realities of human behavior. The respective systems’ flaws include:
Communism – This system makes two seriously faulty assumptions of theory, and adds a third in practical implementation:
(1) The principle “from each according to his ability” assumes workers self-motivation based on a non-selfish dedication to the good of all members of the community/group/country. Unfortunately, it ignores a basic trait of humans ... self-interest. People are naturally selfish (to verify this, observe a group of toddlers ‘sharing’ toys), and benefit to self is their natural primary motivation.
(2) The corresponding principle “to each according to his need” follows the same false assumption regarding human nature. Only if people subvert their self-interest to the good of the community/group/country will they be satisfied with only their “fair share” of the available wealth.
(3) When communism is actually adopted, a third shortcoming is encountered. The governmental structure put in place is assumed to be one that will manage the public ownership of property in the best interest of the populace. This implies fairness, efficiency, and commitment to equitable treatment of all members of the community/group/country. In reality, every large scale attempt to implement communism has proven disastrous in terms of economic productivity, societal advancement, and human rights. **
** Because implementation of communism requires a uniform commitment to the good of the group that outweighs the members’ natural self-interest, the system has generally proven unable to attain and sustain success. Notable exceptions are relatively small groups, usually those whose shared religious beliefs are sufficient to subdue individual’s self-interest. Examples in the U.S. include Iowa’s early 20th century Amana colonies, and the upper Midwest’s Hutterite colonies.
Socialism – This system stands on its own, despite Marxist’s insistence that it inevitably leads to communism (an idea negated by real history). Some observations about the socialist system:
(1) Socialism is not as inherently flawed as communism, namely because it does not often advocate the same degree of central ownership and control of the various facets of the economy. When analyzing socialism, one must recognize the term can be applied to an extremely broad spectrum ranging from that of dominant private ownership and minimal governmental control, to dominant public ownership and extensive governmental control.
(2) Socialistic systems are probably best viewed as a continuum stretching from minimal to maximum ownership/regulation of facets of the economy. The farther the system moves along this continuum, the more it begins to face the same three shortcomings exhibited by communism. That is, it runs afoul of human nature in the areas of motivation, self-interest, and equitable governance. Increased governmental authority equates to increased likelihood of undesirable results in the same three areas.
(3) In a practical sense, most systems described as capitalistic are, in fact, a blend of capitalism and socialism (more on this later).
Capitalism – This system, like communism and socialism, has embedded in its structure certain flaws or faulty assumptions which, when the system is implemented, become apparent. The primarily issues include:
(1) Perhaps the strongest attribute of capitalism, its ability to motivate, is closely related to one of its key weaknesses. The profit motive appeals to the self-interest of individuals; this aligns with human nature. Private ownership of many aspects of the economy offers financial rewards that motivate people toward the levels of effort and risk-taking that generate high levels of production and innovation. Unfortunately, self-interest - the same human attribute that prompts a high level of motivation – too often engenders disregard for others and an attitude best described as greed.
(2) One modern aspect of capitalism has simultaneously fostered the greatest economic advances in history and a great imbalance in wealth (probably not the greatest imbalance ever, but still very significant). This is the invention of business structures (trading companies, stock companies, and more recently corporations) which allow individual investors to combine their capital to form large, economically powerful organizations. The positive aspect of these mechanisms is the ability to fund businesses far beyond the scope of individuals (which of us could fund General Motors or Google?) which then possess the resources to produce more and better goods and services. The negative aspect is that the financial rewards of these organizations accrue only, or at least primarily, to those who are in some way part of them, e.g. a stockholder, employee, or manager.
(3) If left unregulated, there is nothing inherent in capitalism that commands the attention of business other than the profit motive. Free and unfettered capitalist organizations focus on the good of the entire community/group/country/world only to the extent that the stakeholders (in particular, board members and management) wish to do so. The history of modern business is replete with examples of enterprises which, in their pursuit of profit alone, exploited their employees, their communities, and the environment.
Some Conclustions:
1. Each of the three economic systems discussed above, even if theoretically advantageous, carries within it one or more “fatal flaws” which, if left unchecked, work to the detriment of the broader community/group/country/world.
2. Though one hardly expects this to be covered in economic texts or classes, the common denominator of all three systems is their vulnerability to a single human trait – self-interest (aka selfishness, aka greed). The individual’s natural tendency to place self above others, which honesty requires us to recognize as universal, may be the greatest economic challenge in any system.
3. Communism and socialism are closely related, share the same weakness in terms of incompatibility with the reality of human motivation, and vary principally in the degree to which the theories are at variance with reality.
4. There is reason to believe that capitalism best leverages people’s natural drive, and that the profit motive is compatible with their self-interest. But left unregulated, there is no reason to believe capitalism will act for the greater good of the community/group/country/world.
5. The description of America as a capitalist country is only partially accurate. Ownership of economic production is primarily private. But in most types of businesses, government is highly involved both as a regulator and, in some areas, an owner or investor. Government also exerts control over many businesses in its role as the largest consumer of goods and services.
6. A realistic appraisal of human nature leads to the conclusion that both unregulated capitalism and either communism or complete socialism will undoubtedly fail to maximize the potential and well-being of the populace. Unrestrained capitalism will exploit them; communism/socialism will de-motivate them. The reasonable answer is a blend of regulated capitalism (to leverage natural self-interest) and very limited socialism (to avoid destroying the motivation of natural self-interest).
7. Business should in most instances be privately owned and financed, but regulated to an extent that will (a) retain financial rewards that appeal to their stakeholders’ self-interest, and (b) hold in check the stakeholders’ natural greed.
8. Arguments framed in an “either/or” view, and favoring either unregulated capitalism or full socialism as “the solution” ignore the reality of human nature and the role of self-interest both as a positive and a negative. The issue is not one of “either/or” but of balance. The optimal blend of capitalism and “conservative socialism” (via regulation) will sync with the realities of human behavior, and thereby best serve the members of the community/group/country/world.
A final comment: I have chosen not to address “democratic socialism” because it is not an economic theory. It is instead an imagined hybrid of an economic theory and a type of political system. As such, it merely obfuscates the discussion of capitalism and socialism.
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