A Tale of Two Systems: Capitalism and Socialism

As the November 2020 presidential election rapidly approaches, it is critical to become educated about important issues in order to make informed choices. After emerging from the Great Recession (2007-2009), which involved an unprecedented housing crisis and the loss of millions of jobs, the American people and their leaders have found themselves facing important questions about the role government should play in the economy. Other debates stemming from this central inquiry involve topics such as the proper classification of the US’s current economic model, as well as the ultimate direction in which it should aim. The two primary systems which dominate conversation today, each with substantial numbers of supporters and opponents, are capitalism and socialism. These systems preach largely opposing messages about the role of the state in the economics of everyday life. In the heated world of politics, it is very easy to disguise both sides behind veils of stereotypes and misconceptions.

Capitalism often brings to mind images of handshakes exchanged in smoky rooms, factories belching toxic fumes, and money-lusting robber barons who place the lives of their stakeholders at a second priority only to their personal pursuit of wealth. While it is indisputable that some people have misused capitalism in their pursuit of personal gains, the reality is much more multifaceted than that. Stepping beyond the stereotypes, capitalism, according to the popular financial website Investopedia, is “… an economic system in which private individuals or businesses own capital goods.” This means that the two primary economic forces, supply (the quantity of a good available for sale) and demand (how much of a good the public will purchase at a given price) are allowed to balance each other out. Ideally, capitalism enables each person the freedom to produce and sell whatever they choose, at whatever price they set. If the good is poorly manufactured or priced inappropriately, the firm will go out of business. Because of the competition integral to capitalism, firms are motivated to produce the highest quality goods at the lowest possible prices.

For many reasons, capitalism is good for consumers. Because the only rational path for suppliers is to produce whatever the market demands, consumers enjoy the peace of mind that product choice and high quality expectations bring. Additionally, sellers are unencumbered by restrictive rules and regulations that hinder their freedom to conduct business however they see fit. Capitalism has a history of marked success. For much of history, the vast majority of humans lived in poverty unimaginable by contemporary standards. The adoption of large-scale capitalism, manifested by the Industrial Revolution that ran from the late eighteenth to early nineteenth centuries, was one of the drivers of Western nations’ unprecedented economic success. This increase in the standard of living of common folk is largely attributed to the opportunities that capitalism provides based upon a person’s own initiative and ingenuity. 

Moving beyond the West, in the diverse nations in which capitalism has made itself present at specific points in time, places such as China and Africa, poverty levels have diminished. After China rejected the communist policies of Chairman Mao under the leadership of Deng Xiaoping in 1978 in order to resuscitate the country’s economy, China went from a famine-wracked hellhole in 1960 to possessing the world’s third-largest stock market, the Shanghai Stock Exchange, in 2015. Despite the major challenges the African continent continues to face from political turmoil and monetary inflation, between the years of 2004-2009, Africa’s economy grew about six percent annually, an above-average amount. Worldwide, capitalism has lifted over one billion people out of poverty and halved the number of people living on about $1.25 a day. To take a statistical view of these figures, consider that in 1980, 84% of people worldwide lived in extreme poverty. By 2013, that number had shrunk to less than 10%. 

Despite the economic prosperity capitalism affords, as well as its appeal to liberty-lovers everywhere, capitalism possesses legitimate drawbacks that are worthy of concern. One of the primary remarks stated by this system’s opponents are the inevitable individuals who find themselves unable to compete in society. In a capitalist world, where earning one’s daily bread is entirely dependent upon skills and the toppling of opponents, there is little place for vulnerable people such as those with disabilities or illnesses, the elderly, and children. These individuals are forced to become dependent upon the charity of others, which is a fickle foundation to rest upon. 

Additionally, the potential of a single firm to acquire awesome and unchecked amounts of power is also a legitimate concern of capitalism’s opponents. Monopolies have total control over the prices they set, and can use their influential positions to exploit both customers and employees. The effect of this misuse of responsibility can have devastating effects on the firm’s stakeholders and impose negative externalities on society and the environment, including pollution, unhealthy working conditions, and ludicrously high prices. One example of a real-life monopoly was the Carnegie Steel Company, which exhibited an outsize influence on the national price of American steel during the late nineteenth to early twentieth centuries. Monopolies can be nearly impossible to dismantle, particularly when they control a necessary resource.

Neatly opposed to capitalism stands socialism, an economic system that is undergoing a resurgence in popularity, particularly among America’s Democratic party and the Millennial population. According to Investopedia, socialism is “…an economic and political system based on public [government] ownership… of the means of production.” In a perfectly socialistic society “…all legal production and distribution decisions are made by the government, and individuals rely on the state for everything from food to healthcare.” The primary rationale behind many socialists is that this system eliminates the unavoidable inequality found in capitalism, ensuring that each and every citizen receives what they need as the state sees fit. Additionally, today’s strain of socialism is in near unanimous agreement regarding specific goals, including government-subsidized higher education and healthcare, as well as increased priority given to environmental conservation and reduction of CO2 emissions. After all, as Representative Alexandria Ocasio-Cortez, America’s most prominent contemporary socialist voice, says, “In a modern, moral, and wealthy society, no person in America should be too poor to live.”

2019 SXSW Conference And Festival - Day 2
Representative Ocasio-Cortez is one of America’s most prominent socialist voices.

It is hard to disagree with socialists on some of their points, particularly their desire for a world predicated upon the idea of perfect fairness. No one is happy to see or experience poverty, and no one desires a society in which economically disadvantaged people are unable to fulfill their educational goals or access quality healthcare. However, it is important to realize that, no matter what is espoused by a politician or creed, everything incurs an unavoidable cost. While many socialists like to use the word “free” to describe the all-access medical treatment, housing, and education a socialist utopia would provide, that simple word conceals much of the story. It is true that consumers would not be charged up-front for those services. However, the costs would, nonetheless, be displaced from citizens’ pockets in the form of sharply increased taxes for everyone, including those who have no need for those state-subsidized services. What is fair in a couple with young children helping to fund someone else’s higher education, particularly if they never attended college themselves?

Another issue of socialism lies within human nature itself. Despite what many people would wish to be true, humans are incentivized by the accumulation of things, and cannot resist the comparison of themselves against their neighbor. Even if the state intervened in civilization to the extent of ensuring a classless society, it is inevitable that people would still seek to compete under the radar. A story illustrating this point is told of a man who worked for a lightbulb factory in a socialist community. He began slipping lightbulbs home, one at a time, after work. Eventually he accumulated quite a pile, even though he had no use for the goods. The valueless nature of the pilfered trinkets didn’t matter to the man; the act of laying claim to a personal stash of anything was enough for him. What socialism neglects to consider is that people are motivated by advancement, by demanding opportunities, by optimistic inequality; the idea of success being an attainable, albeit difficult, outcome for most. While it is a noble goal to believe humanity would be able to live in universal equality and brotherhood, it only takes a few minutes to observe everyday rudeness in order to call the pristine facades we present to each other into doubt.

Additionally, supporters of pure socialism must grapple with its troubled history. Though similar ideals have roots dating back as far as ancient Greece, socialism can first be properly established as a formalized system of political thought after the Industrial Revolution, where it initially aimed to improve the conditions of the working-class. In 1848 Karl Marx and Fredrich Engels composed a book entitled The Communist Manifesto, which explored the concept of socialism as the necessary outcome of a class war which would grant the working-class supremacy over the bourgeoisie. Marx’s ideas have also served as an influence to other systems of political thought besides socialism, such as communism and anarchism.

Marxist concepts have served as the inspiration behind some of the most hideously violent regimes of the twentieth century, responsible for a combined total of over one hundred million deaths. Every socialist system of government based upon Marx’s ideas, from Fidel Castro’s Cuban catastrophe to Mao Zedong’s “Great Leap Forward” in China, has resulted in the deaths of millions from armed guards, concentration camps, and famine. But what caused this yawning divide between an egalitarian paradise and a vision of hell on earth? In order for the state to keep its fingers rooted within citizens’ pies, nothing short of a dictatorship preserves a mockery of peace and order. In the voyage towards state-sanctioned erasure of the individual, only totalitarianism will captain the vessel.

What about the Scandinavian countries? Don’t they manage to pull it off? And aren’t they shining examples of what modern-day socialism looks like? While it is true that the Scandinavian countries do have a substantially greater welfare state than the US, and do heavily tax their citizens in order to fund these generous systems, they still largely operate according to the guiding principles of the free market and possess strong societal underpinnings of individual work ethic and personal responsibility. A more fitting word than socialist to describe the economies of Denmark, Sweden, and Norway is the Nordic Model, a recognized system of organization that combines high levels of centralized social support with free market ideals. And even the Scandinavian countries, which are consistently ranked by the World Population Review as having some of the lowest levels of government corruption in the world, are taking steps to reduce the extent of their welfare states after disturbing trends of lackluster economic growth and individuals abusing their benefits have been unearthed.

Where does America stand in this? Are we a capitalist or socialist society? The answer is that we lie somewhere in between, albeit skewed towards capitalism and the priority of the individual over the group. As US citizens, we are fortunate to live in a society that allows people to enjoy the fruits of their labors while maintaining systems of support for the disenfranchised. In America, there is room for both startups and subsidies, the thrill of free choice in investments and the peace of mind that comes from a Social Security check. Maybe the answer to what constitutes the most ethical society for all is what we already have; a system that, while not infallible, does its best to balance maximum freedoms and a level playing field. However, as November 3rd approaches, the debates that rage between party lines will only grow hotter. Everyone has the right to an opinion, and hopefully one that is fueled by healthy skepticism and buttressed by sound research. Take time to learn the facts, so you can vote with conviction.




















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