Capitalism vs. Socialism: A Changed Debate


This article originally appeared at

Once again, private capitalism's contradictions, flaws and weaknesses threaten its own existence. Two major global collapses -- first in the 1930s and more recently, since 2008 -- plus periodic downturns every few years have underscored the instability that haunts the system. At the same time, deepening inequality has turned ever-larger populations into capitalism's critics. Talk of reform and revolution has crowded onto political agendas. The capitalism versus socialism debate has returned everywhere. However, it is a changed debate transformed by lessons drawn from the Soviet Union and other similar experiences and experiments. The debate now displays three key alternative systems, not two: private capitalism, state capitalism and socialism. And that changes everything.

During the later nineteenth and twentieth centuries, we mostly believed ourselves to be caught up in a struggle between capitalism and socialism -- as the two alternative economic systems differentiated by how the individual related to the state. Private versus public enterprises, free markets versus central planning: these were the epochal individual versus state oppositions that, especially in economics, took the form of capitalism versus socialism. But we know now that we should not equate the private-versus-public debate with a real consideration of capitalism versus socialism. Capitalism, we have learned, displays both private and state forms, and socialism differs from both of them. Capitalism, as we discuss further below, is a production system structured by its relationship of employer to employee as different persons or groups, regardless of whether employers are public or private. In contrast, socialism's very different structure has employer and employee being the same person.

Reexamining past economic systems that coexisted with state apparatuses shows that they included both private and public enterprises. In many examples of slave economic systems, there were private masters alongside public masters. That is, private individuals or groups of citizens owned slaves, but so did local, regional or national state bodies and agencies. Likewise, in many examples of feudalism, we find private individuals who were lords ruling over serfs alongside, for example, kings or other state bodies who were also lords presiding over serfs.

Societies where slavery prevailed sometimes displayed struggles between the private and the state slave enterprises. Where feudalism prevailed, there were comparable struggles between the private and the state feudal enterprises. Such struggles sometimes broadened into grand oppositions between private and public, individual and state, citizen versus government, etc. But those struggles and oppositions usually occurred within one, shared class system: slavery or feudalism.

Capitalism has a parallel history. Private enterprises (owned and operated by private individuals and groups holding no position within any state apparatus) have frequently coexisted with public or state enterprises. The latter were owned by the state and operated by state officials. In both the private and public capitalist enterprises, the common basic relationship was between employer and employee. This matched the common relationship (master-slave) shared by private and public slave enterprises and the common relationship (lord-serf) shared by private and public feudal enterprises.

In slavery, feudalism and capitalism, the proportions of private versus state enterprises could and did vary. Public enterprises were sometimes a small and marginal portion of a region's or nation's total economy. They might also be altogether absent, or, at the opposite extreme, be the chief or even the only kind of enterprise. Depending on which form prevailed, economies could be described as private or state slavery, private or state feudalism, or private or state capitalism.

What obscured these parallels over the last century and a half was confusion between private versus state capitalism, on the one hand, and capitalism versus socialism on the other. Most people described the dominant opposition as capitalism versus socialism, but their definition of socialism equated it with state capitalism. They viewed capitalism as an economy based on private capitalist enterprises (or "free" enterprises) and markets as organizations for the distribution of enterprises' resources and products. They viewed socialism as an economy of public enterprises (or "state" enterprises) and central planning as the organization for distributing resources and products. In effect, they conflated socialism with state capitalism.

These confusions of terms and meanings likely arose because nineteenth and twentieth century socialists focused strategically on capturing the state (either by revolution or by parliamentary politics). They planned to use the state as the means to transform capitalism into socialism. State capitalism would serve as a kind of way station where state capitalist enterprises and central planning prevailed (occupied the "commanding heights") over private capitalist enterprises and markets. Such an economy would then be further transformed into socialism, presumably by the socialists who had captured state power. Socialists were often quite vague about their ultimate goal of socialism, especially when compared to their clear focus on political strategies to win state power and establish state capitalism.

Most socialists gradually stopped viewing the state as merely the means for (and state capitalism as a way-station to) a further transformation. Instead, state capitalism -- operated by a state apparatus controlled by people who identified as socialists -- came to be viewed as, in itself, the transformation of capitalism into socialism. Converting private to state capitalist enterprises and subordinating markets to central planning came to define the achievement of "socialism." Two sequential transitions -- the first from private to state capitalism and the second from state capitalism to socialism -- were conflated into the first one alone.

The last century's so-called great contest between capitalism and socialism was thus actually a contest between private and state capitalism. The US mostly favored private capitalism. It displayed chiefly private enterprises with significant instances of state capitalist enterprises; it likewise displayed a largely market system of distribution with significant instances of planned distributions. Meanwhile, the USSR was mostly a state capitalism. It displayed chiefly state capitalist enterprises and centrally planned distribution with significant instances of private capitalist enterprises and market distributions. However, most of its advocates and its critics alike described the USSR as "socialist."

Historically, then, the revolution of 1917 achieved a transition from private Russian capitalism to Soviet state capitalism, while the 1989 implosion achieved precisely the reverse transition. In good dialectical fashion, those oscillations between private and state capitalisms enable us to clarify that socialism lies beyond them both.

The socialist alternative to both private and state forms of capitalism is the end, the supersession, of capitalism as the specific employer-employee organization of production. The replacement of private enterprises by state enterprises and markets by planning are changes that mostly leave in place the employer-employee organization of production, capitalism's distinguishing mark. The employer-employee relationship in production differentiates capitalism from slavery (where master-slave is the distinguishing relationship). It differentiates capitalism likewise from feudalism (where lord-serf is the distinguishing relationship). Finally, the employer-employee relationship differentiates capitalism -- in both its private and state forms -- from socialism, in which the dualistic oppositions of master-slave, lord-serf, and employer-employee are all dissolved. In socialism -- if we return to its original conception as a basic alternative to capitalism -- the workers/employees themselves function as their own collective employer.

Worker coops -- what might more precisely be called worker self-directed enterprises -- are the core or definition of a socialist organization of production that is a systemic alternative to capitalism. In worker self-directed enterprises, no dichotomy of enterprise participants pits them against one another. No minority (masters, lords or employers) dictates to a majority (slaves, serfs or employees). Enterprises comprise a community of individuals democratically organizing all of their own work activities. The production process itself is thereby socialized. The socialization no longer applies merely to the ownership of means of production and the distribution of resources and products as in classical "socialism." Worker self-directed enterprises democratize the enterprise, thereby providing more of a basis for the democratization of the economy and society than capitalism (private or state) could ever achieve.

Karl Marx's analytical focus on exploitation -- how surpluses are extracted from producers (slaves, serfs and proletarians) by exploiters (masters, lords and capitalists) -- points toward a socialism that negates all forms of exploitation. In contrast, state capitalist enterprises change who the exploiters are and the conditions of that exploitation. State and private capitalisms can be and have been very different in their social consequences, political complexions, etc. Struggles between them have had momentous historical significance. But they did not end worker exploitation; they did not establish a socialist economy that banished exploitation.

For struggles between private and state capitalisms to become means for or steps toward transitions to socialism, their limits must be appreciated. The emerging twenty-first century socialism, focused on a system beyond state capitalism, represents both a return to Marx's basic insights and a learning from the successes and failures of what the twentieth century called socialism. This will be a stronger, more developed kind of socialism, confronting a capitalism whose internal contradictions, flaws and weaknesses are now more widely appreciated than ever.

Showing 6 comments

  • Dan Va
    commented 2017-01-07 08:40:35 -0500
    Peter R. I appreciate and thank you for your arguments; there is truth to what you say. However the private ownership of land is not addressed by your assertion. Moreover, asserting that a socialist society is “… less interested with material objects and therefore more interested in intellect and knowledge” very neatly avoids the method by which we are communicating now. This was not created by a voluntary collective. It seems to boil down to the following argument: The natural tendency of freedom from Having to be productive vs Having free time to do anything one wants; is that forced productivity will produce far more than being allowed to do nothing. A.O. Hirschman the long ago US ambassador who created the Central American countries so as to have a basis for the legal status to occupy the Panama Canal, observed that, a working pace that is stringent vs one that isn’t, produces fewer accidents and better quality execution of goals. It also produces a symbiotic creativity related to the efficacious attainment of those goals. Conversely, I strongly agree that private ownership of an enterprise has a problem with the “mal-distribution of income” Heilbroner and Milberg; The Making of Economic Society. It leads to predatory ownership of land and housing which is a recipe for long term societal self strangulation. Which seems to be what the US is experiencing now. Your assertion that the urge to self educate being stronger when supported by a socialist vs a capitalist society is strongly contradicted by the Art.1 Sec. 8 protection of intellectual property rights in the US Constitution. Ben Franklin et. al. gave this much thought. Earning a break from focused constant effort is accommodated in wise capitalist society. Being on constant break will produce starving overpopulation – Malthus.
  • Peter Rakowski
    commented 2016-12-11 21:38:02 -0500
    Dan Va: People can educate themselves in any type of economic society. In fact, i would argue that generally, the intelligence of a collective group of people is more powerful than a single persons. I would also argue that the motivation to educate the self is promoted more in a socialist society as opposed to a capitalist society. The reason is that people in a socialist society have more freedom. So, they have freedom to pursue their interests, whatever they may be. In a socialist society it is assumed that an individual is less interested with material objects and therefore more interested in intellect and knowledge.
  • Dan Va
    commented 2016-12-10 23:23:09 -0500
    So much of present private capitalism is involved with discretionary spending by the consumer that it is hard to conceive that any true socialism could achieve the production of those things. How does a group of low educated, self directed people decide to build a theme park or a personal computer? This overlooks the capitalist impetus provided for in the US Constitution at Art.1, Sec.8 on patents and copyright for artists and inventors and scientists.
    … Socialism does well to equitably produce and distribute basic needs but not so much on the creative side. No one paid Galileo to invent and improve production of telescopes. But one has to wonder whether; had his creativity had been pre-occupied with the needs of the community, could he have had the time to grind glass into lenses?
    … Most of our needs have been met to the point that we often hear of the over-capacity to produce. Gigantic excess savings by the super rich people and corporations has no where to go. If it is plausible, as discussed by Dr. Heilbroner, that those savings possess “withheld wages” Then, who owns them(?) seems to be a fair question.
    … Summarily: Living off the land is one thing. Living off the foolish labors of naïve workers is a malfeasance. Capitalism and Socialism seem to be a yin-yang thing they are mirror images of the other. On the downside: capitalism produces gross inequalities with surplus; and, socialism produces only the basic needs with stifled creativity and shortages. No?
    … I advocate that capitalism is a fatter way to live but needs to learn to cultivate merit and creativity by occasionally finding ways to distribute savings/wealth away from the concentration based on socialist ideas of fairness.
  • Steve Parsons
    commented 2016-12-10 17:16:30 -0500
    Prof. Wolff … and … you need to address Geoengineering in your presentations and articles NOW…IMMEDIATELY – >
  • Glen Ladner
    commented 2016-12-10 09:52:20 -0500
    You said: “… all we’re doing in this new kind of socialism is to distribute the ownership and operation of the employer to the workers at the company.” — This isn’t just a minor technicality, but has major implications. If employers become owners, the employee has more freedom and power over a major aspect of his life, such as whether a business will decide to fire their employees and give their jobs to low paid workers in another country, which would not benefit the now fired employees. Employee/owners will also be able to decide whether to allow executives to make hundreds of times more than the non-executives, or to, instead, distribute the profits more equitably.

    Employee/owners could also decide to implement automation at their place work, and instead of firing people and letting the profits of increased efficiency go to executives, the employee/owners could decide to reduce all of their hours of work because of the increased productivity of the automation This is a major increase of freedom, self determination, and wealth of the employee.

    On a wider perspective, this will help prevent the massive accumulation of wealth, and the political power that comes with that unequal wealth, by a few owners.
  • Reality Bias
    commented 2016-12-09 14:50:10 -0500
    It seems this is more “democratic capitalism”, than it is a kind of socialism. You could even say it’s a merging of the ideas expressed in Marx’s criticisms of capitalism, with many of the benefits of modern capitalism. At the end of the day, all we’re doing in this new kind of socialism is to distribute the ownership and operation of the employer to the workers at the company. The fundamental rules of ownership and decision making power based on ownership in capitalism remain – workers just become their own employers’ owners.

Donate to Become a

[email protected]

Monthly Supporter

Customized by

Longleaf Digital