Capitalism, Socialism,

and Democracy
Coherencies and
Contradictions

1
 Capitalism & Democracy
Inherently linked?
No!
Capitalism
also linked to non-
democratic regimes (e.g. China).

2
 Socialism & Democracy
Mutually exclusive?
No!
MostEuropean Countries are social
democracies not to mention that the
United States has many elements of
social democracy.

3
 1) Democratic Capitalism
Capitalism= Economic system based
on private property and free markets.

4
 Traditional Capitalism
Also known as: Free Market or laissez-
faire Capitalism and has five components:
1. Private ownership of property
2. No legal limit on accumulation of property.
3. Free Market-no government intervention in
the economy
4. Profit motive as driving force.
5. Profit as measure of efficiency

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 Adam Smith (1723-1790)
Intellectual Father of Capitalism
who said:
1. Humans motivated by self interest.
2. Should be free to pursue profits.
Result: The Invisible Hand.
1. Efficient economic system; all will
benefit because goods will be
produced and sold cheaply.
6
 Capitalism Vs. Feudalism
Capitalist entrepreneurs had to organize to
fight against the system of their time,
Feudalism.
Feudalism was the economic system
derived from Monarchical and Aristocratic
society.
Serfs or Peasants were allowed to work the
land but a percentage of their labor went to
the king, noble, or lord who owned the
land.
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 Capitalists as Radicals
Feudalism was inefficient, did not
promote economic growth because
there was no private property.
Capitalists organized, started social
movements based upon the ideas of
Adam Smith: Private property,
government non-intervention.

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 Late 19th and Early 20th
Century
Changes to capitalism as a result of
criticism.
Some regulation of the economy

9
 Mixed Economy:
Rise of the Welfare State
Main Catalyst: The Great Depression
(1929-1941)
Key Presidents: FDR, LBJ, and Nixon.
Specific areas: retirement, health,
unemployment, education.

10
 Arguments for Mixed
Economy
John Maynard Keynes (1883-1946):
argued that depressions can be
avoided if government pumps money
into the economy to eliminate
unemployment. Also argued for
government role in building a social
security system and regulate
business.

11
 Who Else uses Mixed
Economy?
Japan, most European countries built
welfare states.
Why?
Eliminate antagonistic relationship
between business and labor through
government mediation =
corporatism.

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 Welfare System
Two types of assistance:
1. Need-based: Food stamps, aid to
families with dependent children,
unemployment.
2. Non-need based: pensions, social
security.

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 Response to criticism:
Welfare system does give away
money.
But, they are supposed to ease
tension and inequality.

14
 Perpetuates Dependence
May be true to some extent, but
what is the alternative?
Minimum wage jobs?
Supposed to help people subsist at a
minimum level.

15
 1980s & 1990s
Return to free market principles
(Reagan).
Dismantling of Welfare state.
Cut taxes.
Massive Government Debt.

16
 Capitalists & Democracy
Capitalistsargue that democracy
requires capitalism because of
freedom to accumulate.
Private property is highest value
(economic freedom).
Economic freedom exists when
government and monopolies are
checked.

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 Monopolies
Give too much power to business (J.P.
Morgan).
Reduce competition (Bill Gates).
Eisenhowers warning: Military
Industrial Complex; creation of a
power elite (military, corporate,
government).
Result: Collusion of Interest

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 Economic Freedom
Problem for small businesses?
Many hurdles.
Working hard often not enough.
Problem of equality of opportunity
(race and gender barriers).

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 Critics of Democratic
Capitalism
Focus on extremes of poverty and
wealth
And, Influence of wealth on political
process
And, Power differentials between
employers and employees.
They say: capitalism produces
inequality of wealth and power.

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 The answer:
Privateproperty must be checked.
What are the effects on the
community if not?
Outsourcing, factory closures
Must be accountability of economic
power to the people (political power)

21
 Too much Capitalism
Results:
Profit motive strengthens selfishness
Loss of community values of
cooperation
Free Market allows rich to
accumulate without responsibility to
community (Multinational
Corporations).

22
 Democratic Socialism
(Social Democracy)
Characterized as follows:
a) much property held by the public through
democratically elected government,
including major industries, utilities, and
transportation systems;
b) a limit on the accumulation of private
property;
c) government regulation of the economy;
d) extensive publicly financed assistance and
pension programs;
e) social costs added to financial
considerations as measure of efficiency.
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 History of Socialism
Response to the Industrial
Revolution
1. Working conditions, living
conditions, pay.
Christianity: sharing, community,
cooperation.

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 Revolution or Evolution?
Marx argued for revolutionary
transition to socialism (communism)
through workers revolution.
Later, others argued for reform
through elections.

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 Assumptions
Citizens ought to control political and
economic life.
Should be democratic accountability.
If people control economic system then
more equality and less poverty will
follow.
Limited Private Property. Socialists are
not against private property, but are in
favor of government regulation.
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 Government 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 Democracy
Politicsand economics are
connected.
People should decide the direction of
the economy.
Community should benefit, not just a
few individuals.

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 Continued
Profitmotive (self-interest) goes
against the interests of the
community.
Liberty requires economic security
(remember positive liberty).

29
 Continued
Welfare/Social Security (high taxes on
rich):
Typical democratic socialist welfare system
(Sweden) includes extensive medical care
system (free or minimal costs), prenatal
care for expectant mothers, sabbatical
leave for mothers (full pay);
unemployment benefits and retraining
programs, free public education;
workers representation on boards of
corporations; rent subsidies. 30
 Criticisms
Problem of bureaucracy,
accountability.
High cost
Corruption

31
 Response
Ombudsman: hears complaints about
bureaucracy
tries to correct inefficiencies,
corruption etc (like an independent
commission).

32
 More Criticisms
Free market of competitive capitalism is
essential for efficient production and
distribution of goods.
Interference with free market through
government ownership and control puts too
much power in the hands of government
destruction of freedom and democracy
but the electoral process is still there.
Human Nature acts against socialist
idealism.

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

34
 More Trends
Welfare policies drain money from
private investments (taxes) that would
otherwise create more jobs reduction
of government spending.
Problem: unemployment, social
inequality.
Socialists argue that social costs must
be included in cost of doing business.
Problem: profits.

35
 Other Socialist Ideas
1. Market Socialism or Third Way
2. Developmental Socialism
3. Economic Democracy
4. Communal Living
5. Cooperatives

36
 Recent Policy Issues:
Deregulation: Enron, Anderson
Relinquishing government oversight of
the economy. Core idea: over
regulation has forced inefficiencies on
the economy correction is needed.
Problems: 1) lowering of health and
safety standards for workers; 2)
Savings and Loan disaster; 3) product
quality
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