In this post I will highlight some of the differences in Capitalism and Socialism. This post is not meant to be an exhaustive comparison but a relatively simplistic look at the basic differences that exist in the two isms. I will explain the importance of American freedom and liberty, not just to Americans, but to the world. It is Capitalism that has allowed us to enjoy the freedom and liberty that is part of American’s DNA. No people in the last 200+ years have had a more positive impact on the world. Two of the most significant reasons the USA is the greatest nation on earth are our Constitution, and Capitalism. In part 1, I will discuss the impact Capitalism has had on the American people, and by extension, the world.
Capitalism is at the heart of the highest standard of living enjoyed by people anywhere in the world. It has benefited everyone regardless of their position on the economic ladder. A study published by the U.S. Bureau of Economic Analysis, combined with World Bank data, produces a compelling story for Capitalism. The data shows that the poorest 20% of U.S. households have higher average consumption than the averages for all people in most of the nations in the OECD. Those poorest Americans were within 5% of the average of all people living in the Netherlands, France, Ireland, Finland, and Belgium, for instance. They consumed more than the average of all people living in Canada, Greece, United Kingdom, Sweden, and Australia, and many others. There is no economic system that has lifted nearly as many people out of poverty. No country in the world has done more to feed the starving or to heal the sick. Nobody has provided more relief to war torn, or famine stricken people, all over the world than the USA! When a natural disaster strikes people anywhere in the world we are the first to show up to provide the lion’s share of relief. It is our economic system that produces the prosperity to do all of this.
I have lived my entire life in Battle Creek, MI. It is the home of Kellogg and Post Cereals. I know scores of people who became millionaires working for these two great companies. They retired, or will retire, owning their homes and fabulous pension and health care plans. They have too many toys like boats, motorcycles, etc. to mention. Many own second homes or go south for the winter. This is true for “common” people working at good manufacturing plants all over the country. Many of these people walked right out of high school and into factories with no training. They are indeed living the American Dream. In no other country, or other economic system, will you find this affluence in the ranks of hourly workers.
Having said that, even its most ardent advocates admit that Capitalism is not perfect. It has been said that Capitalism is the worst economic system-except for all of the others we have tried. Until some yet unknown economic system is devised Capitalism will remain the best system for uplifting the spirit and economic well-being of mankind. There is a growing number of uninformed young people, who would like to replace our economic system with pie in the sky Socialism. Their mistaken views of Socialism are nurtured by arrogant educational elites who spend their time living in a theoretical world. In reality Socialism rewards underachievers while destroying the initiative of industrious, entrepreneurial people. We must fight with all of our strength to defend the watered down remnants of Capitalism that still exist in the USA.
It seems that every 30 to 40 years educated derelicts rear their ugly heads spewing the virtues of Socialism. These misguided souls, mostly economics, and political science professors, claim to have studied Socialism every way possible. Some have spent their entire careers studying its machinations. When reminded that Socialism has never, ever, worked they remain undaunted. They claim that through their studies, and their superior intellect, they have identified the reasons why the system has always failed. They have written books explaining why Socialism is superior to Capitalism they brag. When viewed through a theoretical lens Socialism can look pretty appealing. Even more so to their students who have limited life experience. Many professors have forgotten, if they ever knew, that real people don’t have the luxury of living in a theoretical world. We must live in reality! Socialism promises free health care, free college education, free this, free that. Realists understand that nothing is free. Whether monetary, or through a loss of freedom, everything has a cost. In reality Socialists have failed to deliver on their promises. Their false promises have resulted in societal misery and the deaths of countless millions of its citizens.
The basic difference in Socialism and Capitalism is ownership. In a Socialist system the means of production and distribution of goods is owned and controlled by the government. There is no profit motive. Without a profit motive there is no reason to increase production, or improve quality. Workers become uninspired drones. After the collapse of the Berlin Wall workers were asked what it was like to work under the Socialist system in East Germany. One of the responses was: We pretended to work and they pretended to pay us. How could it be otherwise? There is also no competition. Competition keeps companies and their employees sharp and innovative. There is no incentive for working hard or improving the quality of products. It doesn’t matter if the company makes a crappy product. People are forced to buy the crap because that is all that is available.
In a Capitalist system the means of production and distribution are owned by people. Private companies are typically owned by the person(s) who started the company. Public companies are typically owned by shareholders. Capitalism introduces the opportunity for profit. When the potential for profit is introduced, owners of both public and private companies have a motive to improve quality and increase production. Increased production often causes prices to go down. Lower prices lead to increased sales. An increase in sales is typically followed by higher profits. Higher production, sales, and profits, give employers more latitude to raise employee wages. Higher wages result in an increase in employee standards of living. Profits also lead to building new factories and hiring more employees. Everyone benefits. That is as long as the company is producing a quality product. Capitalism encourages competition. If a company makes a crappy product, consumers have the choice to buy a better product elsewhere. Capitalism is a predatory system that keeps producers honest. Historically that has benefited customers.
Another significant difference in the two systems is choice. Consumers in a Capitalist system have a plethora of products from which to choose. We also have a lot of different places to shop for those products. We find those products readily available in every color, size, design, price, and quality. The market decides how many of a given product will be produced. If we run short of winter coats, manufacturers simply produce more. When it comes time to purchase a new car Americans have access to nearly every automobile manufactured anywhere in the world. The choices of models, colors, and options, are nearly limitless. And we have the means with which to make the purchase.
Citizens living under Socialism are extremely limited as to what they can buy, where they may shop, and when. Many products, including food, are limited in availability. The government decides how many winter coats will be produced. That is all that will be produced. If winter proves to be more severe than planned some citizens will have to do without. Your options for a new car are limited, often to poorer products produced locally. In 1989, before the Berlin Wall came down, East Germans only new car choice was the Trabant. That’s it. The Trabant was truly an awful car! It was powered by a 2 cycle engine that required the owner to mix oil with gas to make it go. It went from 0 to 60 in 20 seconds. It cost about the equivalent of one years wages and had to be paid for in advance. Paying in advance is understood until you know the waiting time for delivery was approximately 10 years! I mean what’s not to like so far? There was a joke about buying a Trabant and about the East German economy in general. It went something like this. A customer pays one year’s salary to a dealer who tells him the car will be delivered in 10 years on December 1st. The customer asks what time on December 1st? The dealer questions why the customer needs to know that information so far in advance. The customer replies he has a plumber scheduled on that day and didn’t want them at his apartment at the same time. A lot has changed since 1989. What I have described will always exist in an economy that is planned by the government, for the benefit of the government, without concern for the people.
I could go on for hours about why Capitalism is a better, more efficient, form of government than Socialism. In a nutshell Capitalism allows for people to make their own choices. They can choose what kind of work they want to do, for whom, and how they want to spend their discretionary incomes. (Most Socialist workers have no discretionary income). Capitalism favors hard working, entrepreneurial people who want to be compensated fairly for the work they do. It is made for people who are comfortable making their own life decisions without interference from the government. Socialism is all about survival with no chance of improvement.
We are doing an awful job of educating our young people to the benefits of Capitalism. We must do a better job of educating them of the historic horrors that have occurred wherever Socialism has been in place. They are not getting this information from their Socialist professors. It is up to us to ensure they get the correct information necessary for decision making. If we are serious about keeping America the best nation on earth we must reverse the trend of young people who tragically misunderstand Socialism.