Out of the Woods

Capitalism or Socialism

According to a recent Associated Press story, the weeks before the election sent many Americans scurrying to their dictionary to look up all sorts of things. According to Merriam-Webster's the words most often looked up were "capitalism" and "socialism."

We see in Merriam-Webster that in a capitalist society the means of production – farms, factories, laboratories, – are owned by private parties (or corporations). In a socialist society, according to Merriam-Webster's, means of production are controlled and owned by the state.

If you put it that way, it is clear that capitalism is preferable. But these two definitions completely distort the nature of both capitalism and socialism. The contrast is not between the free decision-making of private owners and a society where the government funds everything. Capitalism as we know it would do tremendous damage to many of us, if the government were not trying to protect consumers against unhealthy food, dangerous appliances, and medications that might well kill you.

Capitalism cannot function without a strong government--what many people call "socialism."

Capitalism, as we know it, leaves the control of means of production to the owners of factories, of farms, of research laboratories. More precisely it allows only a small subgroup of owners to control production and the protection process. The bulk of means of production is owned by private parties who have saved up their money and invested it in the stock market or by pension funds and others that invest money on behalf of private parties. These owners of stock do not manage the factories which they own a part of. They are called once a year to attend a stockholders meeting. Before the meeting management instructs stockholders how to vote their stock. The issues that come up for a vote usually have very little to do with actually running the company.

Here is an interesting example: a friend told me that some stockholders of a company in which she had invested some of her life savings, proposed a resolution for the stockholders meeting that would have instructed management to tell the stockholders of political contributions management made with company funds. Management refused to put this resolution on the agenda of the stockholders meeting. Management can do that. The stockholders have no recourse.

Capitalism leaves control of our productive machinery to a very small number of people. The law instructs these managers to increase stockholder value as much as they can. Making a greater profit demands sharp competition with competitors – lowering production costs, cheapening products, and reducing the wage bill either by cutting wages or by laying off workers.

In this competitive environment, the sleaziest operator always sets the rules. If you try to provide good value for your customers and a good work environment for your employees, you may have a larger wage bill or pay more for materials than a less scrupulous competitor. If you want to remain in business your costs must be close or equal to those of the less conscientious competitor. In spite of your best intentions you to have to substitute cheaper materials and lower your wage bill.

The result is that in a capitalist, competitive economy some outside agency is essential to make sure that the food you buy in the supermarket will not make you sick, that the car you drive will not kill you, that the cleaning materials you use will not harm you and your family, and that the medicines you take will not at some future time create more serious health problems for you.

The continual pressure for lowering production costs encourages producers to cut corners. Government protection for the consumer is absolutely essential. As products become more and more complicated, and as capitalism produce more and more different products, the government's surveillance apparatus becomes proportionally larger and more complex. Government interference with the economy increases as the economy grows and produces more products that can potentially create serious injuries.

Similarly, the government needs to step in to protect employees for being overworked, underpaid and exposed to dangerous working conditions. Only after many decades of vigorous agitation did workers succeed in getting a guaranteed eight hour working day (instead of a ten, 12, 14 hour day). The government has to forbid child labor and force employers to have a healthy working environment. In 2011 there, in spite of government supervision, were 3 million injuries and illnesses that kept people away from work. Left to its own devices the owners of workplaces would wreak untold havoc.

The growth of government activity in the economy is often called "socialist" by its opponents. But the growth of government supervision of the economy is an integral part of capitalism. Capitalism produces cigarettes, alcohol, soft drinks and fast food that contributes to the growth in obesity and diabetes. Capitalist drug companies constantly produce new medications many of which have serious side effects against which the government tries to protect us. Capitalists produce toys that may kill infants and cars that may seriously injure their parents. They would be even more destructive without some government action.

The progressive involvement of the government in the economy is not the result of "socialist" errors on the part of the government. It is an inevitable part of the capitalist system where competition for greater profits produces a wealth of dangerous products. Here company profits are more important than the well-being of consumers. They can only protect themselves against the capitalist owners by allowing the government to grow ever larger.

If you really are for smaller government, you need to work to put an end to this rapacious capitalism.