Capitalism, Socialism, and Social Democracy

In his latest piece at Bloomberg legal scholar and Obama Administration appointee and advisor Cass Sunstein leaps to the defense of capitalism, cautioning Democrats of the hazards of embracing socialism:

Since 2010, most Democrats have had a favorable attitude toward socialism. Recently, 57 percent of Democrats reported such a favorable attitude, well above the 47 percent who said they have a positive attitude toward capitalism. (By contrast, 71 percent of Republicans are upbeat about capitalism, and only 16 percent feel positively about socialism.)

True, most of the Americans who approve of socialism are likely to be thinking of something like Scandinavian-style social democracy, rather than something out of Karl Marx. But words matter, especially when they refer to systems of governance. What, then, is socialism?

According to a standard definition, socialism calls for government ownership or control of the means of production. By contrast, capitalism calls for private ownership and control — for a robust system of property rights.

In capitalist systems, companies and firms, both large and small, are generally in private hands. In socialist systems, the state controls them. If they are given room to maneuver, their rights are conditional; they can be taken away at any time.

Many people have identified socialism with government planning. Socialist systems give public officials a great deal of authority over prices, levels of production and wages.

Friedrich Hayek, socialism’s greatest critic, showed that giving that authority to government is a recipe for disaster. The reason is that even if officials are well-motivated, they lack the necessary information.

Unlike planners, free markets and the price system are able to encode the knowledge, the preferences and the values of dispersed people. Hayek rightly described the process as “a marvel.”

Whether we are speaking of laptops or sneakers, coffee or candy bars, umbrellas or blankets, markets establish prices, levels of production and wages on the basis of the desires, the beliefs and the values of countless people. No planner can possibly do that.

So here’s the problem. Many Democrats say that they like socialism. But it is doubtful that they want the government to own and operate the nation’s airlines, hospitals, restaurants and department stores.

Nor is it likely that they would favor a political candidate who called for a National Planning Agency, establishing prices for goods, services and wages. Even if they want an increase in the minimum wage, socialist-style planning is surely a bridge too far.

In his own effort to explain what he meant by socialism, Sanders did not invoke Karl Marx. Instead he spoke of Franklin Delano Roosevelt.

In particular, Sanders pointed to Roosevelt’s great 1944 speech, in which he called for a Second Bill of Rights. As Roosevelt described it, the Second Bill includes a right to adequate medical care; a right to a good education; a right to protection against the fears of old age, sickness, accident and unemployment; a right to freedom from domination by monopolies; a right to earn enough to provide adequate food, clothing and recreation; and a right to a useful and remunerative job in the private sector.

Roosevelt contended that “economic security and independence” are essential to individual freedom. Sanders endorsed that claim.

Sanders also spoke of economic inequality, emphasizing the extraordinary wealth of the top one-tenth of 1 percent, and the distress and difficulty faced by those at the bottom.

In his words, “Democratic socialism means that we must create an economy that works for all, not just the very wealthy.” That means better access to health care, higher taxes on the wealthiest, better educational opportunities for all, and an effort to “put millions of people back to work.”

Reasonable people are drawn to all of those ideas. But please, let’s not call them “socialist.”

Roosevelt’s own goal was to save capitalism, not to overthrow it. As he once put it, “One of my principal tasks is to prevent bankers and businessmen from committing suicide.” He believed in what Democratic Representative Joe Kennedy of Massachusetts is now calling “moral capitalism.”

I think that part of the problem is the sloppy use of language. How much of that is deliberate I have no way of knowing but I suspect that some of it is. “Socialism”, “state socialism”, and “social democracy” are not synonymous although far too many people use the terms as though they were. Indeed, history tells us that rather than their being allies state socialism is the implacable enemy of social democracy. The former has inevitably stamped out the latter whenever it encountered it.

My own view is more aligned with G. K. Chesterton’s—that the main problem with capitalism is that there are far too few capitalists. What is needed is less government power rather than more. Natural monopolies are the exception rather than the rule—most have been granted, nurtured, or supported by government. Very few billionaires have become billionaires or once acquired held on to their riches other than through rent-seeking.

In other words powerful, centralized governments far from being an effective tool for decentralizing wealth abet ,its concentration. It would help if people desired freedom more than they did what the wealthy can afford to buy.