Capitalism Socialism and Democracy

7/27/2019 Capitalism Socialism and Democracy

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Capitalism, Socialism,Capitalism, Socialism,

and Democracyand DemocracyCoherencies andCoherencies 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 socialMost European Countries are socialdemocracies not to mention that thedemocracies not to mention that the

United States has many elements ofUnited States has many elements of

social democracy.social democracy.


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1) Democratic Capitalism1) Democratic Capitalism

CapitalismCa

pitalism= Economic system based= Economic system based

on private property and freeon private property and free

markets.markets.


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Traditional CapitalismTraditional Ca

pitalism

Also known as: Also known as: Free MarketFree Market or or laissez-laissez-

fairefaire Capitalism and has five Capitalism and has five

components:components:

1.1. Private ownership of propertyPrivate ownership of property2.2. No legal limit on accumulation ofNo legal limit on accumulation of

property.property.

3.3. Free Market-no government interventionFree Market-no government interventionin the economyin the 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 CapitalismIntellectual Father of Capitalism

who said:who said:

1.1.

Humans motivated byHumans 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 willall willbenefitbenefit because goods will bebecause 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 tohad to organize to

fight against the system of their time,fight against the system of their time,

FeudalismFeudalism..

FeudalismFeudalism was the economic systemwas the economic systemderived from Monarchical and Aristocraticderived from Monarchical and Aristocratic

society.society.

Serfs or Peasants were allowed to work theSerfs or Peasants were allowed to work the

land but aland but a percentage of their labor wentpercentage 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 notwas inefficient, did not

promote economic growth becausepromote economic growth because

there was no private property.there was no private property.

Capitalists organizedCapitalists organized, started, started socialsocial

movementsmovements based upon the ideas ofbased 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 20and Early 20ththCenturyCentury

Changes to capitalism as a result ofChanges to capitalism as a result of

criticismcriticism..

SomeSome

regulationregulation

of the economyof the economy


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Mixed Economy:Mixed Economy:

Rise of the Welfare StateRise of the Welfare State

Main Catalyst: The Great DepressionMain 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 MixedArguments for Mixed

EconomyEconomyJohn Maynard KeynesJohn Maynard Keynes (1883-1946):(1883-1946):

argued that depressions can beargued that depressions can be

avoided if government pumps moneyavoided if government pumps money

into the economy to eliminateinto the economy to eliminateunemployment. Also argued forunemployment. Also argued for

government role in building agovernment role in building a socialsocial

security systemsecurity system andand regulateregulatebusinessbusiness..


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Who Else uses MixedWho Else uses Mixed

Economy?Economy?JapanJapan, most, most European countriesEuropean countries builtbuilt

welfare stateswelfare states..

WhyWhy

??

Eliminate antagonistic relationshipEliminate antagonistic relationship

betweenbetween business and laborbusiness and labor throughthrough

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 toNeed-based: Food stamps, aid to

families with dependent children,families with dependent children,

unemployment.unemployment.

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

security.security.


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Response to criticism:Response to criticism:

Welfare system does give awayWelfare system does give away

money.money.

But, they are supposed to easeBut, they are supposed to ease

tension and inequality.tension and inequality.


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Perpetuates DependencePerpetuates Dependence

May be true to some extent, butMay 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 aSupposed to help people subsist at a

minimum level.minimum level.


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1980s & 1990s1980s & 1990s

Return to free market principlesReturn 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 democracyCapitalists argue that democracy

requires capitalism because ofrequires capitalism because of

freedom to accumulate.freedom to accumulate.

Private property is highest valuePrivate property is highest value

(economic freedom).(economic freedom).

Economic freedom exists whenEconomic freedom exists when

government and monopolies aregovernment and monopolies are

checked.checked.


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MonopoliesMonopolies

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

Morgan).Morgan).

Reduce competition (Bill Gates).Reduce competition (Bill Gates).

Eisenhowers warning: MilitaryEisenhowers warning: Military

Industrial Complex; creation of aIndustrial Complex; creation of a

power elite (military, corporate,power elite (military, corporate,

government).government).

Result: Collusion of InterestResult: Collusion of Interest


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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 opportunityProblem of equality of opportunity

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


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Critics of DemocraticCritics of Democratic

CapitalismCapitalism Focus on extremes of poverty andFocus on extremes of poverty and

wealthwealth

And, Influence of wealth on politicalAnd, Influence of wealth on political

processprocess

And, Power differentials betweenAnd, Power differentials between

employers and employees.employers and employees.

They say: capitalism producesThey 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 theWhat are the effects on theeffects on the

communitycommunity if not?if not?

Outsourcing, factory closuresOutsourcing, factory closures

Must beMust be accountabilityaccountability of economicof 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 ofLoss of community values ofcooperationcooperation

Free Market allows rich toFree Market allows rich to

accumulate without responsibility toaccumulate without responsibility tocommunity (Multinationalcommunity (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 publicmuch property held by the publicthrough democratically electedthrough democratically electedgovernment, including major industries,government, including major industries,

utilities, and transportation systems;utilities, and transportation systems;b)b) a limit on the accumulation of privatea 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 assistanceextensive publicly financed assistanceand pension programs;and pension programs;

e)e) social costs added to financialsocial costs added to financialconsiderations as measure of efficiency.considerations as measure of efficiency.


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History of SocialismHistory of Socialism

Response to the IndustrialResponse to the Industrial

RevolutionRevolution

1.1. Working conditions, livingWorking 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 revolutionaryMarx argued for revolutionary

transition to socialism (communism)transition to socialism (communism)

through workers revolution.through workers revolution.

Later, others argued for reformLater, others argued for reform

through elections.through elections.


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AssumptionsAssumptions

Citizens ought to control political andCitizens ought to control political and

economic lifeeconomic life..

Should be democraticShould be democratic accountabilityaccountability..

IfIfpeople controlpeople control economic systemeconomic system

then more equality and less povertythen more equality and less poverty

will follow.will follow.

Limited Private PropertyLimited Private Property. Socialists. Socialists

are not against private property, butare not against private property, but

are in favor of governmentare in favor of government

regulation.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 arePolitics and economics are

connected.connected.

People should decide the direction ofPeople should decide the direction of

the economy.the economy.

Community should benefit, not just aCommunity should benefit, not just a

few individuals.few individuals.


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ContinuedContinued

Profit motive (self-interest) goesProfit motive (self-interest) goes

against the interests of theagainst the interests of the

community.community.

Liberty requires economic securityLiberty requires economic security

(remember positive liberty).(remember positive liberty).


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ContinuedContinued

Welfare/Social SecurityWelfare/Social Security (high taxes on(high taxes onrich):rich):

Typical democratic socialist welfareTypical democratic socialist welfare

system (Sweden) includes extensivesystem (Sweden) includes extensivemedical care system (free or minimalmedical care system (free or minimal

costs), prenatal care for expectantcosts), prenatal care for expectant

mothers, sabbatical leave for mothersmothers, sabbatical leave for mothers

(full pay);(full pay);

unemployment benefits and retrainingunemployment benefits and retraining

programs, free public educationprograms, free public education;;

workers re resentation on boards of


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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 aboutOmbudsman: hears complaints about

bureaucracybureaucracy

tries to correct inefficiencies,tries to correct inefficiencies,

corruption etc (like an independentcorruption etc (like an independent

commission).commission).


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More CriticismsMore Criticisms

Free marketFree market of competitive capitalism isof competitive capitalism is

essential for efficient production andessential for efficient production and

distribution of goods.distribution of goods.

InterferenceInterference with free market throughwith free market throughgovernment ownership and control putsgovernment ownership and control puts

too much power in the hands oftoo much power in the hands of

governmentgovernment destruction of freedomdestruction of freedom

and democracyand democracy but the electoralbut the electoralprocess is still there.process is still there.

Human NatureHuman Nature acts against socialistacts against socialist

idealism.idealism.


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Current TrendsCurrent Trends

Supply-side economicsSupply-side economics argues thatargues that

government should only control thegovernment should only control the

supply of money in the economy tosupply of money in the economy to

keep inflation lowkeep inflation low governmentgovernmentborrowing main source of inflationborrowing main source of inflation

((monetarismmonetarism).).


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More TrendsMore Trends

Welfare policies drain money fromWelfare policies drain money from

private investments (private investments (taxestaxes) that) that

would otherwise create more jobswould otherwise create more jobs

reduction of government spending.reduction ofgovernment spending. ProblemProblem: unemployment, social: unemployment, social

inequality.inequality.

Socialists argue that social costsSocialists argue that social costs

must be included in cost of doingmust be included in cost of doing

business.business.

Problem: profits.Problem: profits.


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Other Socialist IdeasOther Socialist Ideas

1.1. Market Socialism or Third WayMarket Socialism or Third Way

2.2. Developmental SocialismDevelopmental Socialism

3.3. Economic DemocracyEconomic Democracy4.4. Communal LivingCommunal Living

5.5. CooperativesCooperatives


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Recent Policy IssuesRecent Policy Issues::

DeregulationDeregulation: Enron, Anderson: Enron, Anderson

Relinquishing government oversightRelinquishing government oversight

of the economy.of the economy. Core idea: overCore idea: over

regulation has forced inefficienciesregulation has forced inefficiencies

on the economyon the economy correction iscorrection is

needed.needed.

ProblemsProblems: 1) lowering of health and: 1) lowering of health andsafety standards for workers; 2)safety standards for workers; 2)

Savings and Loan disaster; 3)Savings and Loan disaster; 3)

d t litd t lit

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