Malcolm Forbes was an energetic supporter of free market capitalism. His private airplane, a DC-9, was emblazoned with the words “CAPITALIST TOOL.” The term had been used by the Soviets during the Cold War to describe his weekly business publication and it quickly became the magazine’s motto, and his.
Technically, capitalism and socialism are economic terms, not political terms, but each described forms of economic organization that quickly became rivals…and politicized. In the process, “capitalist” and “socialist” took on a second life as pejoratives.
Karl Marx was not the first socialist, but his ideas were ultimately the most successful in capturing a political following. His idea that capitalists prospered by exploiting labor seemed to track with the miserable workplace conditions in the 19th century capitalist economies — especially in Germany and Great Britain which he analyzed and wrote about most specifically. Most of today’s socialist arguments are still focused on workplace conditions, allegations of exploitation and income inequality.
Marx was born in 1818, and perhaps coincidentally, the 200th anniversary of his birth has seen socialism, “…making a comeback in American political discourse.” This observation marks the beginning of a recent report by the Council of Economic Advisers (CEA) which advises the president on economic policy.
The CEA report is entitled, “The Opportunity Costs of Socialism,” and it provides a valuable picture of the historical development and current status of socialism in our world today. Anyone wanting a jargon-free, math-free and even gluten-free “read-in” into the development, track record and potential of socialism could profit greatly by reading at least the report’s two-page executive summary. It couldn’t have come at a better time for, as its authors note, “Detailed proposals from self-declared socialists are gaining support in Congress and among much of the electorate.”
In the report, the CEA makes an important point that in today’s developed world there are not absolutely capitalist or socialist economies. They are all mixtures of both systems. Describing an economy as socialist or capitalist becomes a matter of degree — the proportions of the mix. We use terms like “moderately socialist” and “highly socialist,” for example, to describe economies that have some, or considerable amounts of free market forces within them.
The absolute socialist economies belong to the past — although North Korea and Cuba remain as ghosts. Today’s socialists do not want to talk about the now defunct Soviet Union or China under Mao Tse Tung. Each of these large-scale examples began with a bloodbath revolution and proceeded from that to mass extinctions, starvation, economic failure and widespread misery. None of this record is ideal as a marketing tool for the socialist idea.
There are, however, examples of partially socialized economies whose histories don’t involve dictatorships and bloodbaths. In Great Britain, for example, some industries were socialized while allowing the rest to function in the free market. The U.K. economy also provides an example of how a democracy can change its mind. Some industries like steel, for example, were socialized and then sold back to private capital when social control wasn’t working out.
The Nordic countries are often cited by today’s socialists as examples of successful socialist economies. They are certainly “largely socialist” economies but, as the CEA points out, this was not a cost-free exchange of economic structures.
The CEA report estimated what the opportunity cost would be, for example, if the U.S. economy were reshaped to resemble the Nordic model. It concluded that, “American families earning the average wage would be taxed $2,000 to $5,000 more per year net of transfers if the United States had current Nordic policies. Living standards in the Nordic countries are at least 15 percent lower than in the United States.”
The biggest problem with socialism, even if it preserves democracy, is the loss of the price system. With all of its faults the free market price system is remarkably efficient in allocating resources, including capital — far more so than any known substitute.
The loss of that efficiency has its price, and it is in economic growth. The Nordic countries recognized that problem and years ago began bringing back private enterprise. The result is that the Nordic economics are generally less socialized than they had been in the 1970s.
Whether the public in America will consider the costs of socialism when its benefits — “free stuff” — are dangled in front of them is a political question that economists are not equipped to answer. There is a very real possibility that we will have to face that question soon, though, and that means that the pejoratives and smears will be flying.
In that kind of information environment reports based on genuine economic research and comparisons will be especially valuable to voters looking to decide whether socialism is worth its costs.
James McCusker is a Bothell economist, educator and consultant.