In my last post I argue that capitalism and socialism need not be opposed to one another, as capitalism is focused mainly on increasing resources or wealth, while socialism is focused more on their distribution. However, as encountered in the real world, capitalism usually involves private ownership of resources while socialism often involves, instead, group or state ownership and management. Thus, if the frame of reference is ownership or management, the two could well be seen as opposites, if not necessarily antagonists. In any case, rather than focusing on labels (“capitalism”, “socialism”), it will be helpful, instead, to concentrate on how the two economies operate.
Capitalism, it was noted, increases resources or wealth by feeding back some of the output of a productive process to improve its yield. Also, to ensure that this happens, built-in incentives seem to be needed. In theory, there is no reason why such improvement-oriented feedback could not work when resources are collectively owned. However, abundant experience with such approaches (U.S.S.R., Albania, Communist China, North Korea – to cite just a few modern examples) shows that collective ownership does not increase the size of the pie. There are several likely reasons:
- Innovation is a “micro” activity and tends to be stifled at a “macro” level;
- While the common good should motivate the members of a collectivity to improve its processes, opinions about what is worth doing or what is of value are not uniformly shared; so the enthusiasm, the extra work, and the consensus needed to implement or to test a change in process is weakened; and
- As collective ownership often leads to the aggrandizement of power and wealth in the hands of a ruling class, little or none of the output of the economy is fed back in, so as to improve yields and hence increase the size of the pie.
Thus private ownership and management would seem to be an essential feature of an economic system that ensures the growing of the pie. However, that is a pragmatic rather than a deductive conclusion. One recalls the conclusion of Thomas Aquinas to the effect that he could find no philosophical basis for private ownership, but nevertheless supported it because he noted that resources are better managed when held by individuals than when held in common. One is reminded also of what Garrett Hardin more recently referred to as the “tragedy of the commons”. With that in mind, and taking our clue from Aquinas, it has to be said that control of resources needs to be seen not so much as absolute ownership but as stewardship.
I noted in the earlier blog that the way resources are distributed expresses, de facto, the values of a society. Whether based in economic pragmatism or religion, these values boil down to the degree of responsibility the members of a society feel toward one another. At one extreme, we have the shared care and concern of members of a closely knit family, and at the other, an every-person-for-himself mentality that inexorably results in greater and greater disparities between the “haves” and the “have nots”. This latter is often referred to as laissez-faire capitalism. “Laissez-faire” is French for “let them do” (more or less as they please). It is important to stress that it is not an integral part of capitalism. The laissez-faire philosophy boils down to reduction or elimination of all external constraints on economic activity, i.e., little or no regulation.
The current debate in the United States, in which the terms “capitalism” and “socialism” are bandied about as epithets, is really about regulation, not about abstract economic principles. Regulation is not anti-capitalist, and does not in itself kill the process improvement which is the strength of a capitalist system. Nor does it necessarily stifle the incentive needed for the system to work. Thus to label regulation as “socialist” is nonsense. Perfectly good examples of constructive regulation exist in the contemporary world. Germany is a highly successful capitalist economy (and one we obviously admire, as judged from the tenor of television commercials), and yet the disparity between the haves and the have nots in the German economy is vastly smaller than in the United States. This is partly because the interests of the employees in big companies are required to be represented at the level of the board of directors of the corporations concerned. With that arrangement, both management and labor have a chance to see that what is good for both is good for the company. The necessity of regulating such arrangements is virtually self-evident: all the companies in an economy have to play by the same rules. The only feasible way to ensure that is to impose those rules from the top. George Tyler, in his book, “What Went Wrong . . .” describes two variants of capitalism, which he calls family capitalism and shareholder capitalism. Both are equally capitalist. They differ mainly in the sets of regulations under which each operates.
I mentioned above that the choice of systems of distribution might be based in economic pragmatism or in religious principles. It may be worth expanding a bit on each.
An economy must have both producers and consumers, and under ideal circumstances most members of a society would play both roles. That was the insight of Henry Ford who, as noted in the earlier blog, understood that his workers needed to be able to afford (and to buy) his automobiles. When wealth is so concentrated at the top of the economic ladder that those lower down have little or no purchasing power, then the economy will sooner or later – but inevitably – grind to a halt. It is a self-defeating situation and hence one that cannot be sustained. Expert economists and political scientists have noted also that democracy itself depends upon a society’s having a large middle class. That is almost surely a part of the reason so many underdeveloped nations have had trouble accepting and integrating a political system that we in the U.S. consider ideal. Political power inevitably attaches to concentration of wealth, and when that happens the lower class majority no longer has effective voice or influence. We have at best an oligarchy, i.e., rule by the few. The ancient Greeks, who created the first true democracy, coined the term “oligarch”, and Aristotle, himself, spoke of its disadvantages for a society over 2,300 years ago.
Religion does not speak with a single voice on these issues, but perhaps the most pertinent insights in this regard are found in the Jewish and Christian traditions, in which ownership of all resources is ultimately held by God, and in which the human role is as a manager or steward. (Obvious questions are: Management for what purpose? Stewardship for what end?) It is clear that a steward can abuse his or her control, as gospel parables clearly illustrate. Still the chemistry of stewardship – the attitude toward resources – is vastly different from that of absolute ownership.
Christianity adds another dimension to the Jewish understanding of stewardship. Very simply, baptism is seen as entry into a new family, with God as Father – a family not only with privileges, but with responsibilities as well. Early Christians – and we today – pray “Our Father . . .”, not “My Father”. Jesus said “You are all brothers [and sisters]” (Matt 23:8). Everyone within this kinship (and to whom we refer when we say “our”) is brother or sister to me. I am called/expected to use my resources not only for myself, but for them as well – for them first, actually. That was immediately evident in New Testament times, in a culture where kinship established one’s identity, and kinship obligations were paramount. Not everyone in a pluralistic society today necessarily buys into this understanding. Still, for those who call themselves Christian, it is a contradiction for them to ignore their responsibility to brothers and sisters.