Capitalism, Socialism, and Democracy

Capitalism, Socialism,
and Democracy
Coherencies and
Contradictions

1

Capitalism & Democracy
 Inherently

linked?

 No!
 Capitalism

also linked to nondemocratic regimes (e.g. China).

2

Socialism & Democracy
 Mutually

exclusive?

 No!
 Most

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

3

1) Democratic Capitalism
 Capitalism=

Economic system based
on private property and free markets.

4

Traditional Capitalism

1.
2.
3.
4.
5.

Also known as: “Free Market” or “laissezfaire” Capitalism and has five components:
Private ownership of property
No legal limit on accumulation of property.
Free Market-no government intervention in
the economy
Profit motive as driving force.
Profit as measure of efficiency

5

Adam Smith (1723-1790)


1.
2.

1.

Intellectual Father of Capitalism
who said:
Humans motivated by self interest.
Should be free to pursue profits.
Result: “The Invisible Hand.”
Efficient economic system; all will
benefit because goods will be
produced and sold cheaply.
6

Capitalism Vs. Feudalism






Capitalist entrepreneurs had to organize to
fight against the system of their time,
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, noble, or lord who owned the
land.
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Capitalists as Radicals
 Feudalism

was inefficient, did not
promote economic growth because

there was no private property.
 Capitalists organized, started social
movements based upon the ideas of
Adam Smith: Private property,
government non-intervention.

8

Late 19th and Early 20th
Century
 Changes

to capitalism as a result of

criticism.
 Some regulation of the economy

9

Mixed Economy:

Rise of the Welfare State
 Main

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

10

Arguments for Mixed
Economy
 John

Maynard Keynes (1883-1946):
argued 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.
11

Who Else uses Mixed
Economy?
 Japan,

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

12

Welfare System

Two types of assistance:
1. Need-based: Food stamps, aid to
families with dependent children,
unemployment.
2. Non-need based: pensions, social
security.


13

Response to criticism:
 Welfare

system does give away

money.
 But, they are supposed to ease
tension and inequality.

14

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.

15

1980s & 1990s
 Return

to free market principles
(Reagan).
 Dismantling of Welfare state.
 Cut taxes.
 Massive Government Debt.

16

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
18

Economic Freedom
 Problem

for small businesses?
 Many hurdles.
 Working hard often not enough.
 Problem of equality of opportunity
(race and gender barriers).

19

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:
 Private

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)

21

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.
23

History of Socialism
Response to the Industrial
Revolution
1. Working conditions, living
conditions, pay.
 Christianity: sharing, community,
cooperation.


24

Revolution or Evolution?
 Marx

argued for revolutionary
transition to socialism (communism)
through workers’ revolution.
 Later, others argued for reform
through elections.

25

Assumptions
 Citizens

ought to control political and
economic life.
 Should be democratic accountability.
 If people control economic system then
more equality and less poverty will
follow.
 Limited Private Property. Socialists are
not 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)

27

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 the interests of the
community.
 Liberty requires economic security
(remember “positive liberty”).

29

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;
workers’ representation on boards of
corporations; rent subsidies. 30

Criticisms
 Problem

of bureaucracy,
accountability.
 High cost
 Corruption

31

Response
 Ombudsman:

hears complaints about
bureaucracy
 tries to correct inefficiencies,
corruption etc (like an “independent
commission”).

32

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.
33

Current Trends
 Supply-side

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).

34

More Trends
 Welfare

policies drain money from
private investments (taxes) that would
otherwise create more jobs reduction
of government spending.
 Problem: unemployment, social
inequality.
 Socialists argue that social costs must
be included in cost of doing business.
 Problem: profits.
35

Other Socialist Ideas
1.
2.
3.
4.
5.

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

36

Recent Policy Issues:





Deregulation: Enron, Anderson
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
safety standards for workers; 2)
Savings and Loan disaster; 3) product
quality
37