Socialism and Capitalism

2/7/19 | 0 | 0 | 241 εμφανίσεις

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Socialism is a global political movement that emerged from the French Revolution. Its goal was to speak for the dispossessed, only sometimes as a democratic political party. In all of its guises, it has been a powerful political force in most of the world. In the United States, however, it has been relegated to the political margins, seen largely as alien to the American ethos. It has now emerged explicitly as a subject of debate in American politics and therefore requires some thought.

Origin Stories

The important difference between socialism and capitalism – even more important than what each actually preaches – is that capitalism is less an intellectual or moral system than a reality born of the industrial revolution. Socialism, on the other hand, has always been an intellectual movement, crafted by intellectuals such as Saint-Simon, Fourier, Lassalle and Marx, all of whom made the moral case for socialism and imagined what such a system would look like. These intellectuals loathed inequality and despised the intellectual shallowness of the rich and sought to create a political movement that could bring their vision to life. It was commandeered by politicians such as Karl Kautsky in Germany, and Vladimir Lenin in Russia.

Socialism argued that the private ownership and control of investment capital, which created the means of production, was flawed in two ways. First, it diverted wealth from the common good to the private benefit of the rich. Second, in investing on the basis of the highest return on capital, capitalism neglected investment in social goods that had a lower or no return on capital. It limited human possibilities.

In general, socialism advocates a radical restructuring of society – the means of production should be transferred to state control, and the state should determine the investment strategy. There were three underlying goals to this argument. First, that socialism would make possible the political equality that wealth inequality did not allow for. Second, that the state would produce for the common good, since state officials would not profit from the decisions they made. Finally, that the state would be controlled democratically, and therefore be under control of the public.

Capitalism did not attempt to make the case for itself. In fact, it was not something imagined and planned for. It was the reality that emerged alongside the Industrial Revolution. The industrial revolution could not develop without investment, and the investors hoped to make a profit, and that profit was reinvested. The capitalists’ wealth came to dwarf that of the old European aristocracy, and it grew larger as capitalists pursued more wealth. The capitalist did not contemplate the virtue of wealth, or the effects of industrialism on the human condition. The capitalist considered the moment and acted on it. Capitalism was not an ideology, nor did intellectuals defend it until the 20th century, when Hayek and Friedman, among others, sought to make the moral case. In the United States, capitalists bound their work to Christian notions of charity, but they had no systematic vision of their own.

Capitalism’s greatest explicator was Adam Smith, who wrote “The Wealth of Nations.” In it, he described how individual decisions, driven by self-interest, would culminate in an increase in the wealth of nations. In one of his lesser-read books, “The Theory of Moral Sentiments,” Smith made the argument that moral principles do not derive from external theories (by which he implicitly meant socialism and religion) but rather from pragmatic, necessary solutions to problems. So, Smith’s ultimate defense of capitalism is that it worked. But by this he meant that it maximized wealth – not that it limited inequality.

The capitalists determined where money was invested, based on expectations of returns on capital. In this sense, they controlled the direction capitalism would go, in that they didn’t care where it went so long as their wealth increased. From this came the towering structures of Euro-American civilization, along with the reality that the wealth of nations left vast swaths of society serving the system as workers and excluded many others from the system. Human action usually comes at the expense of others.

Reallocating Capital

The socialist argument was that, so long as capitalists pursued their own immediate interests, the wealth of society would accumulate in their hands, and the matters of inequality and poverty would not be addressed. At the core of the socialist argument was that the very indifference to ideology by the capitalists would create vast wealth for the few, without alleviating the suffering of the many. Therefore, there had to be a reallocation of capital. Some capital would go toward easing the suffering of the excluded. But even more would go to the state, which would assume responsibility for investment. The state was a superior agent of investment the individuals making investment decisions would either be civil servants or an elected representative of the people, and, having no personal interest in the outcome, would make the best decisions possible based on democratically defined ends.

The clash between capitalism and socialism has many dimensions, but the most important is this: Capitalist investment is not centralized. Investment capital comes from many sources, and there are countless investors making decisions. The diversification of capital limits the consequences of any single decision. It makes capitalism vulnerable to cycles and fads, but devastation is not the same as annihilation. It can and (and regularly does) recover from devastation. But the emphasis is on what the investment process can recover from, not the havoc that the devastation might cause to the public.

Socialism places confidence in the state, and control of the state in the hands of the public. The public as a whole has an understanding of what it needs but is not sensitive to the price paid. The state, then, must either abide by the will of the many or make investment decisions regardless of the public will, but for the good of the public (or at least what the state regards as their good). Since the state is an abstraction, the decisions are actually made by state officials. Given the vastness of the decisions made by the state, it must devolve to an army of civil servants who individually hold minimal power, but who collectively would take the place of investors, unbound by the demand of self-interest.

Democratic socialism cannot be democratic because of the scope and scale of modern economies. It either evolves in a Soviet direction, to name one extreme, or, as in oft-cited Sweden, leaves most investment decisions to private investors, taxing them and transferring money to the rest of society. In the Soviet model, the state tries to manage mid-level civil servants by terrifying them with death. In the Swedish model, the battle is formed by demands of increasing social benefits and decreasing investment capital.

Under capitalism, the diversification of capital sources protects against bad decisions made by centralized governments. But it must, by its nature, create inequality and occasional social crisis. The flow of money into the hands of the investor class must generate crises as industries are shut down and as new ones are created. The speed of what Joseph Schumpeter called “creative destruction” generates rapid and intense crises that can turn just as rapidly into social unrest, chaos or repression. Capitalism has generally solved this in the same way that social democracy has: It has left investment to private investors and then imposed taxes on them to cushion social dislocation.

In short, the distinction between modern industrial capitalism and social democracy is minimal. Leaving aside socialist fantasies about the abolition of greed or capitalist fantasies in which a state will expect nothing from its citizens, the two systems have more or less merged. Capitalists and socialists accept private investment. Both expect economies to grow and from that growth they will pay taxes. In both Sweden and the United States, taxes are hated by the public, but the benefits are loved. Still, the political system decides the taxes and the politicians do what they were meant to do in a democracy – pander to the public. What may differentiate one politician from the next is the amount of taxation they propose, but even that is used to balance the system.

Even within today’s hybrid system, democratic socialism has risen as a topic of debate within the Democratic Party. I would argue that the reasons for the emergence can be explained this way. The Democratic Party was defeated by Donald Trump in the last presidential election because he seemed to speak for the interests of the industrial working class that is in decline. This class had been the foundation of the New Deal coalition that had dominated the Democrats and from which the Democrats shifted, focusing instead on other sectors of society.

The conversation around socialism in the Democratic Party represents an attempt to woo the voters feeling intense pain who voted for Trump. Whether this group will respond is a key question. For the most part, the conversation will appeal most to those already committed to the Democratic left. That is where the battle is going on now. So it seems designed to win the Democratic nomination and lose the general election. But I am not a politician, so they may see things I can’t. What I can say is that the discussion of socialism is purely symbolic and intended to indicate a commitment to unspecified radical change. But structurally, there is little there that can substantially change the economic system, because there has been a massive convergence between the socialists rising from the French Revolution and the industrialists rising in the factories of Edinburgh. The debate is functionally archaic – but perhaps of some symbolic power.

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George Friedman

George Friedman is an internationally recognized geopolitical forecaster and strategist on international affairs and the founder and chairman of Geopolitical Futures. Dr. Friedman is a New York Times bestselling author and his most popular book, The Next 100 Years, is kept alive by the prescience of its predictions. Other best-selling books include Flashpoints: The Emerging Crisis in Europe, The Next Decade, America’s Secret War, The Future of War and The Intelligence Edge. His books have been translated into more than 20 languages. Dr. Friedman has briefed numerous military and government organizations in the United States and overseas and appears regularly as an expert on international affairs, foreign policy and intelligence in major media. For almost 20 years before resigning in May 2015, Dr. Friedman was CEO and then chairman of Stratfor, a company he founded in 1996. Friedman received his bachelor’s degree from the City College of the City University of New York and holds a doctorate in government from Cornell University.
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