Capitalism, Socialism, and Democracy

Coherencies and Contradictions

Capitalism & Democracy

 Inherently  No!  Capitalism

linked?

also linked to non-democratic nonregimes (e.g. China).

Socialism & Democracy

 Mutually  No!  Most

exclusive?

European Countries are social democracies not to mention that the United States has many elements of social democracy.

1) Democratic Capitalism
 Capitalism= Capitalism=

Economic system based on private property and free markets.

Traditional Capitalism
 1. 2. 3.

4. 5.

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

Adam Smith (1723-1790) (1723Intellectual Father of Capitalism who said: 1. Humans motivated by self interest. interest. 2. Should be free to pursue profits.  Result: The Invisible Hand. Hand. 1. 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. 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, king, noble, or lord who owned the land.

Capitalists as Radicals
 Feudalism

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

Late 19th and Early 20th Century

 Changes

to capitalism as a result of

criticism. criticism.  Some regulation of the economy

Mixed Economy: Rise of the Welfare State

 Main

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

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Arguments for Mixed Economy

 John

Maynard Keynes (1883-1946): (1883argued 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. business.

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Who Else uses Mixed Economy?

 Japan, Japan,

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

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Welfare System

1.

2.

Two types of assistance: NeedNeed-based: Food stamps, aid to families with dependent children, unemployment. NonNon-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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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).  Eisenhower s 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:
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)
 Private

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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)

 a)

b) c) d) e)

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

  

Monarchy Aristocracy Democracy

(one) (few) (many)

Dictatorship Oligarchy 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 (selfthe 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; 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 Supply-

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). (monetarism).

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More Trends
 Welfare

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

1. 2. 3. 4. 5.

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

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Recent Policy Issues: Issues:

Deregulation: Deregulation: Enron, Anderson, Banks  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 Problems: safety standards for workers; 2) Savings and Loan disaster; 3) product quality

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