11

Capitalism, Socialism, Capitalism, Socialism, and Democracyand Democracy

Coherencies and Coherencies and ContradictionsContradictions

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Capitalism & DemocracyCapitalism & Democracy

Inherently linked?Inherently linked? No!No! Capitalism also linked to non-Capitalism also linked to non-

democratic regimes (e.g. China).democratic regimes (e.g. China).

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Socialism & DemocracySocialism & Democracy

Mutually exclusive?Mutually exclusive? No!No! Most European Countries are “social” Most European Countries are “social”

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

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1) Democratic Capitalism1) Democratic Capitalism

CapitalismCapitalism= Economic system based = Economic system based on private property and free on private property and free markets.markets.

55

Traditional CapitalismTraditional Capitalism

Also known as: “Also known as: “Free MarketFree Market” or “” or “laissez-laissez-fairefaire” Capitalism and has five components:” Capitalism and has five components:

1.1. Private ownership of propertyPrivate ownership of property

2.2. No legal limit on accumulation of property.No legal limit on accumulation of property.

3.3. Free Market-no government intervention in Free Market-no government intervention in the economythe economy

4.4. Profit motive as driving force.Profit motive as driving force.

5.5. Profit as measure of efficiencyProfit as measure of efficiency

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Adam Smith (1723-1790)Adam Smith (1723-1790)

Intellectual Father of Capitalism Intellectual Father of Capitalism who said:who said:

1.1. Humans motivated by Humans motivated by self interestself interest..

2.2. Should be free to pursue profits.Should be free to pursue profits. Result: “Result: “The Invisible HandThe Invisible Hand.”.”

1.1. EfficientEfficient economic system; economic system; all will all will benefitbenefit because goods will be because goods will be produced and sold cheaply.produced and sold cheaply.

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Capitalism Vs. FeudalismCapitalism Vs. Feudalism

Capitalist entrepreneursCapitalist entrepreneurs had to organize to had to organize to fight against the system of their time, fight against the system of their time, FeudalismFeudalism..

FeudalismFeudalism was the economic system was the economic system derived from Monarchical and Aristocratic derived from Monarchical and Aristocratic society.society.

Serfs or Peasants were allowed to work the Serfs or Peasants were allowed to work the land but a land but a percentage of their labor went percentage of their labor went to the kingto the king, noble, or lord who owned the , noble, or lord who owned the land.land.

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Capitalists as RadicalsCapitalists as Radicals

FeudalismFeudalism was inefficient, did not was inefficient, did not promote economic growth because promote economic growth because there was no private property.there was no private property.

Capitalists organizedCapitalists organized, started , started social social movementsmovements based upon the ideas of based upon the ideas of Adam Smith: Private property, Adam Smith: Private property, government non-intervention.government non-intervention.

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Late 19Late 19thth and Early 20 and Early 20thth CenturyCentury

Changes to capitalism as a result of Changes to capitalism as a result of criticismcriticism..

Some Some regulationregulation of the economy of the economy

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Mixed Economy: Mixed Economy: Rise of the Welfare StateRise of the Welfare State

Main Catalyst: The Great Depression Main Catalyst: The Great Depression (1929-1941)(1929-1941)

Key Presidents: Key Presidents: FDRFDR, , LBJLBJ, and , and NixonNixon.. Specific areas: Specific areas: retirementretirement, , healthhealth, ,

unemploymentunemployment, , educationeducation..

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Arguments for Mixed Arguments for Mixed EconomyEconomy

John Maynard KeynesJohn Maynard Keynes (1883-1946): (1883-1946): argued that depressions can be argued that depressions can be avoided if government pumps money avoided if government pumps money into the economy to eliminate into the economy to eliminate unemployment. Also argued for unemployment. Also argued for government role in building a government role in building a social social security systemsecurity system and and regulate regulate businessbusiness..

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Who Else uses Mixed Who Else uses Mixed Economy?Economy?

JapanJapan, most , most European countriesEuropean countries built built welfare stateswelfare states..

WhyWhy?? Eliminate antagonistic relationship Eliminate antagonistic relationship

between between business and laborbusiness and labor through through government mediation = government mediation = corporatismcorporatism..

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Welfare SystemWelfare System

Two types of assistance:Two types of assistance:

1.1. Need-based: Food stamps, aid to Need-based: Food stamps, aid to families with dependent children, families with dependent children, unemployment.unemployment.

2.2. Non-need based: pensions, social Non-need based: pensions, social security.security.

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Response to criticism:Response to criticism:

Welfare system does give away Welfare system does give away money.money.

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

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Perpetuates DependencePerpetuates Dependence

May be true to some extent, but May be true to some extent, but what is the alternative?what is the alternative?

Minimum wage jobs?Minimum wage jobs? Supposed to help people subsist at a Supposed to help people subsist at a

minimum level.minimum level.

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1980s & 1990s1980s & 1990s

Return to free market principles Return to free market principles (Reagan).(Reagan).

Dismantling of Welfare state.Dismantling of Welfare state. Cut taxes.Cut taxes. Massive Government Debt.Massive Government Debt.

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Capitalists & DemocracyCapitalists & Democracy

Capitalists argue that democracy Capitalists argue that democracy requires capitalism because of requires capitalism because of freedom to accumulate.freedom to accumulate.

Private property is highest value Private property is highest value (economic freedom).(economic freedom).

Economic freedom exists when Economic freedom exists when government and monopolies are government and monopolies are checked.checked.

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MonopoliesMonopolies

Give too much power to business Give too much power to business (J.P. Morgan).(J.P. Morgan).

Reduce competition (Bill Gates).Reduce competition (Bill Gates). Eisenhower’s warning: Military Eisenhower’s warning: Military

Industrial Complex; creation of a Industrial Complex; creation of a power elite (military, corporate, power elite (military, corporate, government).government).

Result: Collusion of InterestResult: Collusion of Interest

1919

Economic FreedomEconomic Freedom

Problem for small businesses?Problem for small businesses? Many hurdles.Many hurdles. Working hard often not enough.Working hard often not enough. Problem of equality of opportunity Problem of equality of opportunity

(race and gender barriers).(race and gender barriers).

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Critics of Democratic Critics of Democratic CapitalismCapitalism

Focus on extremes of poverty and Focus on extremes of poverty and wealthwealth

And, Influence of wealth on political And, Influence of wealth on political processprocess

And, Power differentials between And, Power differentials between employers and employees.employers and employees.

They say: capitalism produces They say: capitalism produces inequality of wealth and power.inequality of wealth and power.

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The answer:The answer:

Private property must be checked.Private property must be checked. What are the What are the effects on the effects on the

communitycommunity if not? if not? Outsourcing, factory closuresOutsourcing, factory closures Must be Must be accountabilityaccountability of economic of economic

power to the people (political power)power to the people (political power)

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Too much CapitalismToo much Capitalism

Results: Results: Profit motive strengthens selfishnessProfit motive strengthens selfishness Loss of community values of Loss of community values of

cooperationcooperation Free Market allows rich to Free Market allows rich to

accumulate without responsibility to accumulate without responsibility to community (Multinational community (Multinational Corporations).Corporations).

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Democratic SocialismDemocratic Socialism(Social Democracy)(Social Democracy)

Characterized as follows:Characterized as follows:a)a) much property held by the public much property held by the public

through democratically elected through democratically elected government, including major industries, government, including major industries, utilities, and transportation systems; utilities, and transportation systems;

b)b) a limit on the accumulation of private a limit on the accumulation of private property;property;

c)c) government regulation of the economy; government regulation of the economy; d)d) extensive publicly financed assistance extensive publicly financed assistance

and pension programs; and pension programs; e)e) social costs added to financial social costs added to financial

considerations as measure of efficiency.considerations as measure of efficiency.

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History of SocialismHistory of Socialism

Response to the Industrial Response to the Industrial RevolutionRevolution

1.1. Working conditions, living Working conditions, living conditions, pay.conditions, pay.

Christianity: sharing, community, Christianity: sharing, community, cooperation.cooperation.

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Revolution or Evolution?Revolution or Evolution?

Marx argued for revolutionary Marx argued for revolutionary transition to socialism (communism) transition to socialism (communism) through workers’ revolution.through workers’ revolution.

Later, others argued for reform Later, others argued for reform through elections.through elections.

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AssumptionsAssumptions

Citizens ought to control political and Citizens ought to control political and economic lifeeconomic life..

Should be democratic Should be democratic accountabilityaccountability.. If If people controlpeople control economic system then economic system then

more equality and less poverty will more equality and less poverty will follow.follow.

Limited Private PropertyLimited Private Property. Socialists are . Socialists are not against private property, but are in not against private property, but are in favor of government regulation. favor of government regulation.

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Government and EconomyGovernment and Economy

Monarchy (one) Dictatorship

Aristocracy (few) Oligarchy Democracy (many) 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 DemocracySocialism and Democracy

Politics and economics are Politics and economics are connected.connected.

People should decide the direction of People should decide the direction of the economy.the economy.

Community should benefit, not just a Community should benefit, not just a few individuals.few individuals.

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ContinuedContinued

Profit motive (self-interest) goes Profit motive (self-interest) goes against the interests of the against the interests of the community.community.

Liberty requires economic security Liberty requires economic security (remember “positive liberty”).(remember “positive liberty”).

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ContinuedContinued Welfare/Social SecurityWelfare/Social Security (high taxes on rich): (high taxes on rich): Typical democratic socialist welfare system Typical democratic socialist welfare system

(Sweden) includes extensive medical care (Sweden) includes extensive medical care system (free or minimal costs), prenatal system (free or minimal costs), prenatal care for expectant mothers, sabbatical care for expectant mothers, sabbatical leave for mothers (full pay); leave for mothers (full pay);

unemployment benefits and retraining unemployment benefits and retraining programs, free public educationprograms, free public education; ;

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

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CriticismsCriticisms

Problem of bureaucracy, Problem of bureaucracy, accountability.accountability.

High costHigh cost CorruptionCorruption

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ResponseResponse

Ombudsman: hears complaints about Ombudsman: hears complaints about bureaucracybureaucracy

tries to correct inefficiencies, tries to correct inefficiencies, corruption etc (like an “independent corruption etc (like an “independent commission”).commission”).

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More CriticismsMore Criticisms

Free marketFree market of competitive capitalism is of competitive capitalism is essential for efficient production and essential for efficient production and distribution of goods.distribution of goods.

InterferenceInterference with free market through with free market through government ownership and control puts too government ownership and control puts too much power in the hands of governmentmuch power in the hands of government destruction of freedom and democracydestruction of freedom and democracy but the electoral process is still there.but the electoral process is still there.

Human NatureHuman Nature acts against socialist acts against socialist idealism.idealism.

3434

Current TrendsCurrent Trends

Supply-side economicsSupply-side economics argues that argues that government should only control the government should only control the supply of money in the economy to supply of money in the economy to keep inflation lowkeep inflation low government government borrowing main source of inflation borrowing main source of inflation ((monetarismmonetarism). ).

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More TrendsMore Trends

Welfare policies drain money from Welfare policies drain money from private investments (private investments (taxestaxes) that would ) that would otherwise create more jobsotherwise create more jobs reduction reduction of government spending.of government spending.

ProblemProblem: unemployment, social : unemployment, social inequality.inequality.

Socialists argue that social costs must Socialists argue that social costs must be included in cost of doing business.be included in cost of doing business.

Problem: profits.Problem: profits.

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Other Socialist IdeasOther Socialist Ideas

1.1. Market Socialism or “Third Way”Market Socialism or “Third Way”

2.2. Developmental Socialism Developmental Socialism

3.3. Economic Democracy Economic Democracy

4.4. Communal Living Communal Living

5.5. CooperativesCooperatives

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Recent Policy IssuesRecent Policy Issues: :

DeregulationDeregulation: Enron, Anderson: Enron, Anderson Relinquishing government oversight Relinquishing government oversight

of the economy.of the economy. Core idea: over Core idea: over regulation has forced inefficiencies on regulation has forced inefficiencies on the economythe economy correction is needed. correction is needed.

ProblemsProblems: 1) lowering of health and : 1) lowering of health and safety standards for workers; 2) safety standards for workers; 2) Savings and Loan disaster; 3) product Savings and Loan disaster; 3) product qualityquality