By Kevin Judge | July 21, 2018
Capitalism and Socialism seem like opposites, not likely to be compatible. Socialism focuses on the distribution of wealth in society by state direction. Capitalism emphasizes the creation of wealth by private citizens.
We often here criticism that Capitalism results in income inequality and disparities in living standards. We don’t talk about the obvious fault of Socialism, the failure to adequately create new wealth. You can argue that, as we say in tech talk, this is not a bug it is a feature. Socialists simply assume that the resources are there to make everyone prosperous, if only the right people can be made to pay the piper.
More than a century of experience with Socialism have only proven this a fallacy. As Margaret Thatcher famously put it “The problem with Socialism is that sooner or later you run out of other people’s money”.
Yet, all the major Capitalist countries support important social programs originally conceived as socialist. In most cases, the capitalist versions of public education, pension and medical programs are superior to their counterparts in more purely Socialist countries. Just check out Cuba and Venezuela if you do not believe me.
What experience should have taught us by now is that robust social programs can only be sustained by societies that are also good at producing new wealth. The economic system that does that best, hands down, is free market capitalism.
It is important to make a distinction between free market capitalism and just capitalism. Private ownership of business operations is capitalism, but many businesses operate as partners with the state or under strict regulation and not strictly subject to competitive market forces. This usually leads to corruption and inefficiencies, but still is a more productive model than state-controlled operations.
While big business should not be a pejorative, the real dynamism in the American economy comes from small and startup businesses. This is the primary source of new job creation and new wealth. The tragedy of the Obama years was that new business creation ground to a near halt, a predictable result of policies that placed significant burdens on business.
Ironically, the policies of a President who talked about income inequality, only exacerbated the problem. Large established business and already wealthy person were able to deal with the new burdens, and often welcomed the fact that it limited competition from newcomers.
If you really want to improve America’s social programs and expand state provided benefits, the best thing you can do is support a robust private sector and favorable business environment. It may seem counter intuitive, but a left leaning social agenda will be more plausible in the long run through conservative pro-growth, pro-business economic policies.
Unfortunately, we need to apply any increase in tax revenue to a looming debt crisis first. Yes, reality sucks.