Capitalism, Socialism, and Democracy

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Capitalism, Socialism,

and Democracy

Coherencies and Coherencies and

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Capitalism & Democracy

 Inherently linked?Inherently linked?

 No!No!

 Capitalism also linked to non-Capitalism also linked to

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Socialism & Democracy

 Mutually exclusive?Mutually exclusive?

 No!No!

 Most European Countries are “social” Most European Countries are “social” democracies not to mention that the democracies not to mention that the United States has many elements of United States has many elements of

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1) Democratic Capitalism

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Traditional Capitalism

 Also known as: “Also known as: “Free MarketFree Market” or “” or “laissez- laissez-faire

faire” Capitalism and has five components:” Capitalism and has five components: 1.

1. Private ownership of propertyPrivate ownership of property

2.

2. No legal limit on accumulation of property.No legal limit on accumulation of property.

3.

3. Free Market-no government intervention in Free Market-no government intervention in

the economy the economy 4.

4. Profit motive as driving force.Profit motive as driving force.

5.

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Adam Smith (1723-1790)

 Intellectual Father of Capitalism Intellectual Father of Capitalism who said:

who said:

1.

1. Humans motivated by Humans 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.

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Capitalism Vs. Feudalism

 Capitalist entrepreneursCapitalist entrepreneurs had to organize to had to organize to

fight against the system of their time, fight against the system of their time,

Feudalism Feudalism..

 FeudalismFeudalism was the economic system was the economic system

derived from Monarchical and Aristocratic derived from Monarchical and Aristocratic

society. society.

 Serfs or Peasants were allowed to work the Serfs or Peasants were allowed to work the

land but a

land but a percentage of their labor went to percentage of their labor went to the king

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Capitalists as Radicals

 FeudalismFeudalism was inefficient, did not was inefficient, did not promote economic growth because promote economic growth because

there was no private property. there was no private property.

 Capitalists organizedCapitalists organized, started , started social social movements

movements based upon the ideas of based upon the ideas of Adam Smith: Private property,

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Late 19

thth

and Early 20

_{and Early 20}

thth

Century

 Changes to capitalism as a result of Changes to capitalism as a result of criticism

criticism..

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Mixed Economy:

Rise of the Welfare State

 Main Catalyst: The Great Depression Main Catalyst: The Great Depression (1929-1941)

(1929-1941)

 Key Presidents: Key Presidents: FDRFDR, , LBJLBJ, and , and NixonNixon..

 Specific areas: Specific areas: retirementretirement, , healthhealth, , unemployment

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Arguments for Mixed

Economy

 John Maynard KeynesJohn Maynard Keynes (1883-1946): (1883-1946): argued that depressions can be

argued that depressions can be

avoided if government pumps money avoided if government pumps money

into the economy to eliminate into the economy to eliminate

unemployment. Also argued for unemployment. Also argued for

government role in building a

government role in building a social social security system

security system and and regulate regulate business

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Who Else uses Mixed

Economy?

 JapanJapan, most , most European countriesEuropean countries built built welfare states

welfare states..  WhyWhy??

 Eliminate antagonistic relationship Eliminate antagonistic relationship between

between business and laborbusiness and labor through through government mediation =

government mediation = corporatism

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Welfare System

 Two types of assistance:Two types of assistance:

1.

1. Need-based: Food stamps, aid to Need-based: Food stamps, aid to

families with dependent children, families with dependent children,

unemployment. unemployment.

2.

2. Non-need based: pensions, social Non-need based: pensions, social

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Response to criticism:

 Welfare system does give away Welfare system does give away money.

money.

 But, they are supposed to ease But, they are supposed to ease tension and inequality.

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Perpetuates Dependence

 May be true to some extent, but May 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 a Supposed to help people subsist at a minimum level.

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1980s & 1990s

 Return to free market principles Return to free market principles (Reagan).

(Reagan).

 Dismantling of Welfare state.Dismantling of Welfare state.

 Cut taxes.Cut taxes.

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Capitalists & Democracy

 Capitalists argue that democracy Capitalists argue that democracy requires capitalism because of

requires capitalism because of freedom to accumulate.

freedom to accumulate.

 Private property is highest value Private property is highest value (economic freedom).

(economic freedom).

 Economic freedom exists when Economic freedom exists when government and monopolies are government and monopolies are

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Monopolies

 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).

 Eisenhower’s warning: Military Eisenhower’s warning: Military Industrial Complex; creation of a Industrial Complex; creation of a

power elite (military, corporate, power elite (military, corporate,

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Economic 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 opportunity Problem of equality of opportunity (race and gender barriers).

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Critics of Democratic

Capitalism

 Focus on extremes of poverty and Focus on extremes of poverty and wealth

wealth

 And, Influence of wealth on political And, Influence of wealth on political process

process

 And, Power differentials between And, Power differentials between employers and employees.

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The answer:

 Private property must be checked.Private property must be checked.

 What are the What are the effects on the effects on the community

community if not? if not?

 Outsourcing, factory closuresOutsourcing, factory closures

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Too much Capitalism

Results: Results:

 Profit motive strengthens selfishnessProfit motive strengthens selfishness

 Loss of community values of Loss of community values of cooperation

cooperation

 Free Market allows rich to Free Market allows rich to

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Democratic Socialism

(Social Democracy)

 Characterized as follows:Characterized as follows:

a)

a) much property held by the public through much property held by the public through

democratically elected government, democratically elected government,

including major industries, utilities, and including major industries, utilities, and

transportation systems; transportation systems;

b)

b) a limit on the accumulation of private a 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 assistance and extensive publicly financed assistance and

pension programs; pension programs;

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History of Socialism

 Response to the Industrial Response to the Industrial Revolution

Revolution

1.

1. Working conditions, living Working conditions, living

conditions, pay. conditions, pay.

 Christianity: sharing, community, Christianity: sharing, community, cooperation.

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Revolution or Evolution?

 Marx argued for revolutionary Marx argued for revolutionary

transition to socialism (communism) transition to socialism (communism)

through workers’ revolution. through workers’ revolution.

 Later, others argued for reform Later, others argued for reform through elections.

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Assumptions

 Citizens ought to control political and Citizens ought to control political and economic life

economic life..

 Should be democratic Should be democratic accountabilityaccountability..

 If If people controlpeople control economic system then economic system then more equality and less poverty will

more equality and less poverty will

follow.

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Government and Economy

 Monarchy (one) _ Dictatorship

 Aristocracy (few)_ Oligarchy

 Democracy (many) _ Tyranny

 Free Market (Pure form: Market rules)

 Democratic Capitalism (hybrid)

 Democratic Socialism (hybrid)

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Socialism and Democracy

 Politics and economics are Politics and economics are connected.

connected.

 People should decide the direction of People should decide the direction of the economy.

the economy.

 Community should benefit, not just a Community should benefit, not just a few individuals.

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Continued

 Profit motive (self-interest) goes Profit motive (self-interest) goes against the interests of the

against the interests of the community.

community.

 Liberty requires economic security Liberty requires economic security (remember “positive liberty”).

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Continued

 Welfare/Social SecurityWelfare/Social Security (high taxes on (high taxes on rich):

rich):

 Typical democratic socialist welfare system Typical democratic socialist welfare system (Sweden) includes extensive medical care

(Sweden) includes extensive medical care

system (free or minimal costs), prenatal

care for expectant mothers, sabbatical

leave for mothers (full pay);

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Criticisms

 Problem of bureaucracy, Problem of bureaucracy, accountability.

accountability.  High costHigh cost

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Response

 Ombudsman: hears complaints about Ombudsman: hears complaints about bureaucracy

bureaucracy

 tries to correct inefficiencies, tries to correct inefficiencies,

corruption etc (like an “independent corruption etc (like an “independent

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More Criticisms

 Free marketFree market of competitive capitalism is of competitive capitalism is

essential for efficient production and essential for efficient production and

distribution of goods. distribution of goods.

 InterferenceInterference with free market through with free market through

government ownership and control puts too government ownership and control puts too

much power in the hands of government much power in the hands of government

destruction of freedom and democracy destruction of freedom and democracy

but the electoral process is still there. but the electoral process is still there.

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Current Trends

 Supply-side economicsSupply-side economics argues that argues that government should only control the government should only control the supply of money in the economy to supply of money in the economy to

keep inflation low

keep inflation low government government

borrowing main source of inflation borrowing main source of inflation

(

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More Trends

 Welfare policies drain money from Welfare policies drain money from private investments (

private investments (taxestaxes) that would ) that would otherwise create more jobs

otherwise create more jobs reduction reduction

of government spending.

 ProblemProblem: unemployment, social : unemployment, social inequality.

inequality.

 Socialists argue that social costs must Socialists argue that social costs must be included in cost of doing business.

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Other Socialist Ideas

1.

1. Market Socialism or “Third Way”Market Socialism or “Third Way” 2.

2. Developmental Socialism Developmental Socialism 3.

3. Economic Democracy Economic Democracy 4.

4. Communal Living Communal Living 5.

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Recent Policy Issues

:

_:

 DeregulationDeregulation: Enron, Anderson: Enron, Anderson

 Relinquishing government oversight of Relinquishing government oversight of the economy.

the economy. Core idea: over Core idea: over

regulation has forced inefficiencies on

the economy

the economy correction is needed. correction is needed.

 ProblemsProblems: 1) lowering of health and : 1) lowering of health and safety standards for workers; 2)

safety standards for workers; 2)

Savings and Loan disaster; 3) product