The debate goes back to the founding days of our Forefathers—the role of government in a society of free men. Since its birth, the U.S. ideology has shifted to and fro on the roles of political and economic freedoms and this has caused a fundamental disconnect between voting citizens and the role of their government. While many view socialism as an attempt to create greater social and economic equality, they often do not specify whether it is the inequality of income or the inequality of opportunity that they most oppose. However, free marketers like Friedman discount the role of government in mitigating certain market failures, arguing that inequality is in fact desirable at some levels. While the current combination of democracy and capitalism has been shifting towards a more mixed-economy form, there has been a tendency to label the economic structure as “socialism.” This paper will attempt to enumerate implications of democratic socialism in the U.S. as a result of certain trade-offs that arise between the political and economic realms.
Socialism is an economic system in which the government owns “income-producing property” and is the “principal employer of labor” (p. 52, Okun). A democracy is a political system that enables citizens to have an equal distribution of rights—reflected in the inherent rights specified in the Constitution and the policy of ‘one vote each’. While Schumpeter views socialism as an inevitable result of capitalist self-destruction which will also destroy democracy, Coe and Wilber disagree in that a “democracy can survive and even thrive in a socialist state” (p.13, Coe and Wilber, 1985)1. Assuming that the U.S. transitioned into a socialist economy, what would the expectation be? Would all citizens be equal or better off?
The simple answer is no. The longer answer requires that first the transition be considered and then the actual system of socialism.
In order to transform the American economy into a socialist one, the transfer of property from private ownership to state ownership must be made. Two methods of transference can occur: either the government compensates owners at market value for their assets or it confiscates them. Okun asserts that “[socialism] could really dent the distribution of income right from the start only if it paid owners much less than the value of their assets, or, in the extreme, confiscated with no compensation at all” (p.53, Okun, 1975). Any economic philosopher or political scientist can attest that Americans value freedom—and confiscation or under-compensation of a citizen’s assets is an infringement on their right to property. He defines economic freedom as “a component of freedom broadly understood” (p.8, Friedman, 1962). And he continues that “freedom as a value in this sense has to do with the interrelations among people” (p.12, Friedman, 1962). Therefore free men face the ethical challenges of inequality—but to redistribute welfare (in this case assets, to create an equal ‘starting point’) would infringe upon political freedoms.
From this trade-off the notion of having either maximum economic efficiency or maximum social welfare is born. Socialism opts for the maximum amount of social welfare in lieu of certain economic efficiencies. Alleged inefficiencies could refer to the economy following the preferences of “central planners” and not consumers, the inability to measure and track measured real GNP, the distribution and production of knowledge (lack of incentive for innovation and investment in knowledge), high costs of bureaucracy, or any combination of these factors (p.51-61, Okun, 1975).
Combining a political system designed to have complete equality of rights (and purportedly of opportunity) with a competitive capitalist economy will protect individuals’ freedoms—a concept deeply engrained in the American psyche. However, this paradigm change to socialism will uproot and distort this belief by infringing on personal freedoms for group welfare. Whether we deem this as ethically tolerable, the political sphere must adapt accordingly—and at this point, with the will of the people. This equates to citizens deciding upon fewer political freedoms at the expense of economic equality.
To no longer have certain political freedoms due to a movement towards economic equality will greatly impact the level and desire to engage in innovation and entrepreneurship. Schumpeter’s crude acknowledgement and pessimistic ruin of capitalism sprung from social factor and it would not “fail on strictly economic grounds” (p.8, Coe and Wilber, 1985). However, there are certain economic factors that would diminish under socialism, such as the incentive of great profits for innovation. It is the bourgeois class that instills a spirit of innovation and the principle of creative destruction. As Okun bluntly states:
Indeed, unless special legal provisions make it feasible, the protection of private property rights in knowledge and information is inherently difficult; in the absence of laws establishing patents, copyrights, and authorizations for industrial secrecy, there would be little scope for profit by inventors, authors, and idea producers. And hence there would be little market incentive to invest in the production of knowledge (p.58, Okun, 1975).
Some social incentive may exist to increase investment in knowledge; however relying upon the charity of humanity has proven ineffective as “men [are] imperfect beings” (p.12, Friedman). Coe and Wilber point out that even in the lack of capitalism, “market-type economic arrangements” have been scarce among socialism societies (p.22, Coe and Wilber, 1985). In the reality of capitalism, “it is not the kind of competition which counts but the competition from the new commodity…competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and outputs of the existing firms but at their foundations and their very lives” (p.84, Schumpeter, 1942). This sort of competition is one factor in what has given rise to such great innovation and achievement since the industrial revolution. To take away the risky nature of entrepreneurship and the incentive of profit rewards, innovation and investment would be highly impacted.
Not only would lack of innovation affect economic growth in the long-run, but labor market allocations would manifest ineffective productivity in the short-run. Because the state would be the owner of labor (in economic literary terms) and equally distribute all labor incomes, “it is doubtful” this would occur “unless the free choice of jobs were eliminated” (p 54, Okun, 1975). Furthermore, Okun presents the question of trade-offs between economic incentives and productive efficiency by highlighting the lack of willingness to expend effort in the face of equal wages despite productive contribution (p.42-43, Okun, 1975).
Many issues face the current system in the U.S. and as the current paradigm meshes the economic and political realms closer and closer, one needs to step back and look in the direction in which it is headed. A mixed economy implies greater social equity and government intervention (for market failures and redistribution), yet socialism entails something greater. It implies that certain political rights will be lost in the transition of economic systems; that certain inefficiencies will exist even in the new system (as enumerated upon above); that innovation would be hampered by lack of economic incentives; and that job choice would effectively be eliminated. Until the political realm is willing to deal with these consequences and spell out the daunting translations of such policy for the American people, few citizens need to worry about Obama and the democrats “turning us socialist” (Yang, 2009).
Footnote:
1 Schumpeter asserts a definition of democracy that includes an “institutional arrangement for arriving at political decisions which realizes the common good by making the people itself decide issues through the election of individuals who are to assemble in order to carry out its will” (p.250, Schumpeter). Coe and Wilber consider Schumpeter’s view too narrow in that democratic politicians also “shape and guide the ‘will of the people’” (p.13, Coe and Wilber, 1985).
Works Cited:
Coe, Richard D., and Charles K. Wilber. "Schumpeter Revisited: An Overview." Capitalism and Democracy: Schumpeter Revisited. Notre Dame: University of Notre Dame, 1985. 1-34. Print.
Friedman, Milton. "Introduction." Capitalism and Freedom. 1962. 1-36. Print.
Okun, Arthur. "Equality of Income and Opportunity." Equality and Efficiency. 1975. 65-87. Print.
Okun, Arthur. "Equality of Income and Opportunity." Equality and Efficiency. 1975. 32-64. Print.
Okun, Arthur. "Increasing Equality in an Efficient Economy." Equality and Efficiency. 1975. 88-120. Print.
Okun, Arthur. "The Case for the Market." Equality and Efficiency. 1975. 32-64. Print.
Schumpeter, Joesph. "The Process of Creative Destruction." Capitalism, Socialism, and Democracy. 3rd ed. New York, 1942. 81-86. Print.
Yang, Carter. "Napolitano Not Talking 'Terror'" CBS News. CBS News Interactive Inc., 26
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