Economic Update: Capitalism vs. Socialism



Direct Download

[S9 E17]

This week on Economic Update, Professor Wolff does something a little different. He dives deep into the 200+ year old debate and struggle between capitalism and socialism and looks into how it has become both confused and confusing. The different definitions of these systems make honest, balanced discussions and evaluations of them increasingly more difficult. Now that socialism is rising yet again to challenge capitalism, the debate demands a closer examination of the terms and their numerous, new and different meanings.

**We make it a point to provide the show free of ads. Please consider supporting our work. Become an EU patron on Patreon: https://www.patreon.com/economicupdate



This transcript has been edited for clarity. 

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives: jobs, incomes, debts—our own, our children's. I'm your host Richard Wolff. I’ve been a professor of economics and that, I think and hope, has prepared me to present these economic updates to you.

Today's program is a little bit different from our normal because it focuses on a specific topic. We've done a few of those—socialism, fascism, and others. Today, I want to focus on the struggle between, the conflict between, the great debate you might say, between capitalism and socialism. It has been the kind of basic story of global history for at least the last two centuries, so it deserves some attention as a topic in its own right. But, particularly in the last 30, 40, 50 years, something peculiar has happened. Back in 1989, when the Soviet Union fell in on itself, you might say, and Eastern Europe went back from being a socialist world to being part of the capitalist world, a lot of self-congratulation among people who like capitalism took the following form: “Well, the great debate between capitalism and socialism has been resolved. One side won and the other side lost. Capitalism is triumphant and socialism will fade out of the human experience—the end of human history.” And, here we are few decades later, and, to the surprise really of not all that many, it turns out that the celebration was, at best, very premature. Socialism is back all over the place and nowhere less so… nowhere more so than here in the United States where the celebrations were particularly vigorous about what? About a socialism that's really back.

One is really reminded of Mark Twain's famous comment when reading his own obituary in a Hartford, Connecticut newspaper. He penned a one-line letter to the editor: “Reports of my demise are exaggerated” he wrote. So, let's take a look at this great struggle—so-called—between capitalism and socialism. Not the least reasons why it is such a confused and kind of inarticulate debate—a debate in which the two sides don't seem to even agree on what each of them represents nor what the other one is that they're so opposed to. It can get really so confusing that it isn't that surprising that large numbers of people tune out of that debate as though it really were irrelevant.

Now, I don't think it is, but I understand why others do, and so part of what we're going to be doing is looking closely at what exactly is being debated, and finally we should have some sense of why there's this confusion. This isn't simply people not thinking clearly. That wouldn't be fair, and that's not true. Here's the reason: capitalism has been with us at least three to four centuries—and I mean capitalism as an idea but also capitalism as a reality, existing as it did at first as a national system in what we now call England, spreading from there to the rest of the British Isles, to the rest of Western Europe, then to North America, and eventually to become the global system we know today. So, we have lots of examples of a capitalism that has been around for three, or maybe a bit more, centuries.

Socialism is really quite new in comparison. It arose as a critique—as a resistance if you like—to capitalism. It has an idea, yes, and that's older—maybe a century and a half or so—but in actual practice of trying to organize an economy, it's much younger. It's barely a century of experiences and then only in a few places—nothing as comprehensive and diversified as capitalism; and as socialism has spread over the entire world in the last 150 years or so, it has, of course, settled into very different countries and very different levels of economic, political, and cultural development, and so you get, you guessed it, a lot of diversity—diverse forms of socialism, diverse forms of capitalism—and they're always changing, so a debate between them has to take a lot of variation into account, and an awful lot of people haven't the time or the interest or the attentiveness to take account of the differences. We are going to do that.

Okay, a reasonable debate between two alternative ways of organizing a society—the capitalist way and the socialist way—ought to be mature enough, you might think, to say, “let's look at the strengths and weaknesses of the one, and then let's look at the strengths and weaknesses of the other” and occasionally—not very often—occasionally people get together who can manage that level of maturity but most can't or, if they could, they choose not to. Why is that? Well, you all know. There's been a struggle—a debate. People feel very, very strongly. For a long time in the cold war that dominated the second half of the 20th century that were just emerging from—and I mean emerging from—during that cold war, the polarization was such that you couldn't have a balanced, mature conversation. If you were a capitalist, the sum total of evil was socialism. If you were a socialist, the sum total of evil was capitalism. Each side saw the flaws and weaknesses of the other and denied those it was accused of. We're not going down that road. None of you need it. You've grown up in it. It's all around you. We're actually going to go a little differently about what we have to do. So, let's begin.

Are there positive aspects of socialism and capitalism? Of course. Let's start with those of capitalism, so they're on the table. Capitalism has shown itself to be very dynamic technologically. It is a system in which there's constant pressure to come up with a new thing, a better thing, or if not a better thing, a new thing that you can sell is a better thing, and so we have modern technologies of all kinds which capitalists and those who like capitalism celebrate. Technical dynamic quality, capitalism has that, and if you think it's positive, as often it is (excuse me), then that's a positive aspect of capitalism. Here's another one: the rise of capitalism is the rise of the city, of the urban coming together of many different people into a cultural diversity that for many—myself included—is very attractive as a way to organize life. Capitalism has delivered urbanism, and that's a positive in many ways. And, here's another one: capitalism has brought the world together. We really can speak of a global economy in a way this race of human beings never could before. We're linked by shipping, by telecommuting, by the Internet. You know we have a global system. Those are positive things one can ascribe to capitalism.

What about socialism? Here are some positive things: it has gone way further in the direction of egalitarianism—making us all equal in some fundamental set of ways—than capitalism could. That's a nice thing. People are not as divided. People are not as different from one another in their standards of living, in their access to material goods in most socialist societies compared to capitalist; and if you're in the bottom half of this society in terms of poverty and access, well then socialism has really lifted you up in a way that capitalism has not been able to do. It has really done something for the mass of people at the bottom in most of the cases where it has been instituted. And, I could go on. Socialists are famous for providing kind of a universal access to basic things human beings need—education, transportation, hospitalization, medical coverage, and so on, and these are positive aspects.

But, let's now graduate. Assume that we are having a conversation in which we can mention the goods and the bads. What are some of the bads? Well, capitalism has had an awful lot to do with war. It’s not unique—other systems went to war, but the wars capitalism has produced—particularly the two big ones in the 20th century—were called world wars and were devastating on a scale we have not yet seen in any socialist environment. We have not seen wars between socialist countries that look anything like what capitalism produced. We haven't seen—similarly, with capitalism and socialism—we haven't seen quite the negative situation when it comes to how you treat people who are poor. There is poverty, and then there is how you treat and define poverty. Capitalism has been kind of ruthless in that area; socialism kind of not so good and not so bad but better than the capitalism. On the other hand, socialists have often been kind of poor when it comes to civil liberties and civil rights, tending to give government more power than capitalists are willing to give it, and so you get a kind of negative association within socialism for the concentration of power in the state.

So yeah, they have strengths and weaknesses. The systems are complicated, and any reasonable conversation ought to deal with that. But, now let's get to why there's so much confusion. There's confusion because we don't agree on the definitions, and we haven't for a long time, and that has to be put on the table. Otherwise, we don't know what it is we're in favor of or opposed to, and a lot of the conversation is confused in that way.

So, here we go, very simple, as we come toward the end of the first half of this program, we're going to give the definitions that we're then going to use in the second half to really tell the story. So, the first definition is this: capitalism is when enterprises are privately owned and operated. They are owned by individuals or groups of individuals who set them up, own them, and run them. Socialism, by contrast in this definition, is when the government does that. It's not private groups of people. It's not private individuals. Its officials of the government who own, who operate, who run the enterprise, or at least control it. Okay, that's one definition. Here's a second one: capitalism exchanges goods and services—both the resources that go into production and the products that come out of it—by means of market exchanges. Capitalism is the “free market” where buyers and sellers confront each other and negotiate the terms of exchanging whatever any of them has to sell or has produced.

By contrast, socialism isn't the market system; it is the government planning and controlling and directing who gets what and who gives up what for what. In other words: “market versus planning” it’s often called. Those are definitions. Here's another one: capitalism is when you organize production with a few people at the top making all the decisions—the owner, the chief executive, the board of directors—and the vast mass of other people called employees doing what they're told, whereas socialism, the workers who do the work are themselves their own bosses. Oh, that's a very different definition. We're going to have to look at them because these different definitions are all cropping up without being dealt with as they really are.

We've come to the end of the first half. I want to remind all of you to subscribe to us on the YouTube system because it's a real big help to us, to make use of our websites: rdwolff—with two “f”s—.com and democracyatwork.info and, as always, a shout out to our Patreon community for the invaluable support they provide. We will be right back.

Welcome back, friends, to the second half of today's Economic Update where we are discussing and now, we're really going to jump into it this so-called struggle or debate between capitalism and socialism.

Before the break, we gave the basic definitions. I now want to elaborate on them, use them, and show you why one of them is what's happening in that great debate now and the others are what's fading out in that ongoing and ever-changing great debate. So, let's begin.

In the definition that focuses on private versus state enterprises, let's take a closer look. Is that something that really makes capitalism present or absent? In other words, is it reasonable to think that capitalism is private enterprise and government taking over the enterprise is socialism? And, I would argue strongly with you that it is not. Let me explain briefly. In previous economic systems, we never reasoned like that. If we saw in a slave economic system—whether it was in the pre-Civil War American South or any of the many other places in the world where slavery has existed often for centuries—if we see there, as we do, that there were sometimes private individuals who owned and worked slaves, whereas sometimes there were state groups—state entities—who owned and operated slaves, did we say that one was slavery and the other one was not? No, we didn't.

Let me give another example: in feudalism, where the division is between the lord who operates the land and the serf who works on it, were there governments that had serfs alongside of private individuals who had serfs? Yes. Did we say that therefore serfdom or feudalism—the name we gave that system—was somehow not there. No, we didn't, and I would argue the same logic applies to the capitalism versus socialism debate. The fact that states, either alongside or instead of private groups, hire and employ workers doesn't end capitalism. It is a strange argument that says because of this relationship between employer and employee operates outside the state and inside the state, therefore one is capitalism and one is the opposite. Uh uh, makes no sense, isn't a reasonable way to go.

So, then how about the other one—market versus planning? Oh, the same problem. Did slave and feudal societies only deal with markets? No. Did they exclude markets? No. Slavery is famous for what? The market in human beings; they bought and sell people, they bought and sell land, etc. etc. So, the presence of a market way of distributing things versus a planned or organized way that exists in all of these systems and the presence or absence of it in the United States or in the world today is not, I would argue, a sign of the presence or absence of capitalism. Shouldn't be part of the, quote, “debate” between capitalism and socialism.

Well then, what ought it to be? It ought to be about that third definition I gave you. It ought to be about what distinguishes a capitalist system from, say, the predecessor systems of feudalism and slavery, and that is the relationship between people in the act of producing the goods and services we all need. In the slave system, it's the master and the slave; in the feudal system, it's the lord and the serf; and, in the capitalist system, it's the employer and the employee. One is a dominant minority and the other is a subordinated majority, and whether the state or a private person is the exploiter or the dominator or the person at the top is really a secondary matter.

Socialism, if it means anything, means the end of a system in which a few people own and operate effectively the economic system. On that basis then, what sense do we make of the last 200 years of the so-called debate, and the answer is they were debating the wrong thing. They got caught up in a debate, which is perfectly okay to have, between whether it's better to have the government do something or whether it's better to have the private sector do something. I understand that debate. That's fine. That's got nothing to do with capitalism and socialism. You can have that debate without pretending that when the government hires people to do something, you've got a fundamentally different system than when the private sector does. The answer is you don't much, and ask people who work in the private sector and ask people who work in the public sector and ask people who go between the two, and they'll tell you not all that big a difference. One of the reasons you had all the troubles in the so-called socialist world after the first revolution that established socialism—the Soviet revolution in 1917—one of the reasons they had the difficulties they had afterwards is that the hopes and dreams of people for a fundamentally different system, a real freedom from the small group who control everything and the mass who do what they're told that they inherited from feudalism or from slavery, they had hoped that the revolution to socialism would end all that, and they discovered to their deep pain and sorrow that they hadn't done that. They had gone from a private capitalist to a state capitalist—a private person telling them what to do in the factory to a government official telling them what to do. They remained employees. All that had changed was the particular position of the employer and exactly who he was.

So then, what did it all add up to? The following peculiarities: with this focus on the state you had basically two kinds of socialism that emerged over the last 150 years. The first kind saw the state coming in but not taking over production. What it did was regulate, control, limit what the private employer could do to and with his/her employees. That's the kind of socialism we find in Scandinavia, in Western Europe. It's the kind of socialism that is often referred to as democratic socialism or social democracy. The government is brought in as a limit, as a shaper, as a context for what remains private employers and private employees. So, that's one kind of socialism. The other one was when the state took a more interventionist, more active role. It didn't just regulate. It didn't just limit and control. It took over the enterprise. The state officials didn't tell the private employer what to do, they replaced the private employer and substituted state officials, and you know the examples of that: Russia—Soviet Union, People's Republic of China, Cuba, Vietnam, and so forth. There the government took a more active role. But again, whether the government limits private employers or itself becomes the employer, you still retain the employer-employee relationship. You're not really about capitalism versus socialism.

It's much more accurate, much more consistent with history, to see this as a struggle between private capitalism and state capitalism, and whatever you may think about that struggle, and however you may evaluate the one kind of capitalism relative to the other—and many people have strong feelings about that, which I respect—it ought to be kept separate from the question of an altogether different system—one that does away with the employer employee relationship, sees it as the problem, and sees the alternative as where we need to go next, and what would that be? Let me rush to assure you not fanciful new idea, not something cropping out of my head or the head of anybody else, but something that is as old as the human race and that needs now to be brought forward in a modern form to solve problems that the other systems—slavery, feudalism, and capitalism—could not solve, and the number one problem to make it all come together is the desire of human beings for democracy, for a society in which each of us counts, each of us has value, each of us has an equal say in making the decisions we have to make collectively.

If we're going to live in communities and not as isolated Robinson Crusoes on imaginary islands, to live together, to work together—this idea. We're all going to have a say. We're all going to have an equal say. We're going to come to our decisions collectively, working it out. It's this democratic idea that inspired, for the last several centuries, the decision by communities to do away with kings, to do away with Emperors, to do with it away with people who thought they could and should lead the society and exclude the rest of us from equal participation or any participation at all. We fought for that in our communities, and now we are ready to fight for it in the workplace where we spend most of our lives—at least as adults. 9:00 to 5:00, five days a week, whatever your regimen, the workplace is a crucial part of your life, and if you believe in democracy, if you understand that hunger, then you want a workplace that institutes, that establishes democracy, and you know what that means. It means that socialism for such people is about doing away with employer-employee—doing something which has been called worker cooperatives for thousands of years, communities of people carrying out production.

They exist today in Spain where millions of people are involved, in Italy likewise, and in many many other countries including the United States. Workers have a long-standing hunger to organize work that way. Every generation of young people gropes their way. Well, let's recognize that we have misspecified the debate between capitalism and socialism long enough. Put aside the struggle between capitalism of a private sort versus capitalism of the state sort. Let's get on with the business of a real transition, a real debate between capitalism and socialism where one is the undemocratic organization of the workplace into employer and employee and the other one is the dramatic reconstruction of the workplace so it meets what we have all desired and then can be the support for democracy in our politics where it is now a mere formality in elections that are bought and sold like the commodities coming out of our factories and our stores to the chagrin and the shame that most people paying attention already feel.

Capitalism and socialism is the struggle. It is not surprising that in its early phases of the last century or so, it's struggled to get its ideas clear. Those struggles have now led us to be able to formulate a greater clarity, and it is my hope that I have given a reasonable rendition of it, so that we can go forward to a much more successful struggle for improvement than we were able to do so far. Everything in the past is a step that got us to where we are—no glad-handing dismissal of those who went before. Their struggles enable me to see what I can see and what I can share with you.

I hope you have found this of interest. Once again, make use of our websites democracyatwork.info. You can contact us through email with them. You can follow us on Facebook, Twitter, and Instagram. Our thanks to the Patreon community, and I look forward to speaking with you again next week.


Transcript by Eric Fleischmann

Customized by

Longleaf Digital