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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