Abstract
This paper focuses on the modern day application of socialism in western economies. It describes specific actions taken by western governments with the man focus being the US in minimizing the effect of the current economic recession but which have some underlying characteristics of socialism. It demonstrates the recent appreciation of socialist measures by the western population as the best ways of minimizing the effect of the financial crisis as well as preventing future crisis from happening. The paper concludes by cautioning against the trend due to a possibility of reversal of gains made in the past.
Socialism
Socialism has been one of the greatest loathed ideologies in the western world over the past decades. The west has fought it from a variety of frontiers across the globe. Governments which embrace capitalism in managing economies have been hailed and even generously rewarded by the west with their heavy resources. The less cooperative authorities receive continued criticism and cold relations with the west as a way of trying to hasten their movement towards adopting capitalism. Economic might has been the main reference point showcasing the success in employing capitalism.
Recent developments in the world economy have however sought to reverse the situation. The collapse of the financial system which started in the US has sparked renewed debate on the viability and the strength of the liberalized economic systems. Countries which have for ages been viewed as the perfect models for economic and financial success and stability have had their reputations irreversibly tarnished. The confidence of their own citizens has been shaken and the popularity in their economic leadership waned (Brian, Para 6).
The crisis started with the collapse of the housing markets. The collapse resulted from the greed and relaxed regulation in credit financing which lead to the continued irrational upward valuation of houses over the past decade. The resultant bubble burst with the realization that the high prices were untenable. The development of ingenious financial products such as sub-prime mortgage by the financial institutions led to uncontrolled lending spree by bank executives whose main interest was to earn as much commissions and bonuses as possible. The fact is that nobody can borrow his/her way to a good time forever. Lending standards were almost non existent. Lending became outright fraud. With time, the default rate rose higher than the expectations by lenders and investors and the collapse started (Brian, Para 7).
The crisis triggered the deepest global recession since the great depression of the 1930’s. Starting in the US, the crisis griped Western Europe and has spread like a plague to the rest of the world. The poor nations have become the hardest hit. The disproportionate effect of the crisis on the poor has raised a heated debate on the fairness of the global economic system.
The East has moved to maximize the moment. Heightened sentiments criticizing the western model have become the norm. A series of presidential speeches in the Middle East and the former Soviet Union have continually slandered the western capitalist system by constant reference to the failures exhibited during the downturn.
Modern trends
With the confidence of westerners greatly trimmed and their risk aversion increased in multiple folds, the relevance of capitalism in advancing the individual as defined by early economist has got a big blow. Few can positively relate the capitalist system to economic prosperity despite the great advances made under the system in the last century. The manifestation of greed in the capitalist economies has scared the working class to unprecedented levels. The threat of reversing the gains made over a long period of time is now more real than ever. Millions are terrified by the loss of homes and the extremely uncertain futures they facing. Bankruptcy rates have skyrocketed mainly due to the mass lay-off of workers in many sectors of the economies but most severely in the financial sector.
The foregoing has resulted in a greater level of sympathy and appreciation of a more socialist system by the global population. Most of the reactions by western governments exhibit some socialist tendencies. A Stimulus package worth some 700 million USD has been approved by the American authorities.
Economists would argue that the package has nothing to imply a movement towards socialism. However, the way a significant amount of the money is spent raises eyebrows. A good proportionate is being spent on bailing out financial institutions and other severely affected industries such as the car industry in the US. On the face of it the moves have been geared towards mitigating the impact of the crisis on the citizens. The bailouts have improved the health standing of many institutions whose collapse would lead to the lay off of numerous workers as well as increased panic by the entire workforce (Charles, Para 8).
The other side of the coin gives a different picture. Some bail out methods amounts to recapitalization. This means that the government has continually gained a higher stake in the direct operations of the country’s huge businesses. In some companies, the government has gained as much as 30% of the shareholding. It is however not clear what will happen after the crisis. Will the government recoup its money or will it maintain the shares and use the power to influence decisions? Despite continued protests, the latter seems more probable.
Other western nations like the UK, France and Germany as well as capitalist eastern nations such as Japan have moved in the same direction. The realization that the massive job loss could destabilize the countries has led to the pumping of huge sums of money in the economy with a big part going to recapitalize falling institutions.
Interestingly, the US government which boasts of a free liberal system made a very significant move regarding the remuneration of bank executives. Any bank receiving government money has to observe a 5 million dollar cap in remunerating its chief executives. The action came against a backdrop of pressure from the civil society and the media for the government to rein on the supposed unscrupulous bank executives. The action was popular and well appreciated by US citizens despite its socialist face (Gregor Para 5).
The recent presidential elections only serve to affirm this view. President Bush left office with the lowest popularity in recent times. He being a member of the Republican Party which advocates for a more liberalized economic system shows the height of disappointment by the said system. The campaign period was mainly based on the debates which if keenly analyzed depict a trend of collision between capitalist and socialist ideals. In the end the democrats won overwhelmingly a clear endorsement of their socialist policies.
Democrats have throughout American history been biased towards a less liberal higher tax economy where the welfare of the poor is constantly addressed through hurting the richer. This is very evident with the current debate on healthcare reforms. Already, there exists a healthcare program initiated by democrats’ years ago. Medicaid, Medicare as well as social security programs are programs which seek to improve the welfare of the less able through government intervention.
The current proposals on healthcare seek to provide universal healthcare insurance. This involves the government’s intervention in to leverage insurance costs for the poor. This is by making the richer pay more for their health insurance while subsidizing the cost for the lower class. The debate has been rife with the proponents downplaying the huge socialist aspects of the plan. Clearly consolidating the healthcare system to eliminate administration costs and improve access for all is a noble idea. However, it contradicts the liberal ideals of the American system.
The increasingly popular involvement of the government is unlike the past where everyone demanded that the government be a regulatory agent with minimal or no direct involvement in the market. The people had great confidence in the free market economies and almost always believed that things would be best when individuals are left alone to pursue their goals. That view seems to be changing in recent times. Today the pressure is on the government to intervene in the economy in order to ensure stability (Webloggin, Para 12).
The continued direct government involvement in the economy no matter how good the intention may be is a complete turn around. The American economy has avoided this like a plague. The current economic hard time has offered the best chance for democrats to further their socialist goals.
Socialist ideas are known to date as far back as far as Aristotle. He discovered that that the most prominent source of conflicts is the inequality in social and economic condition. People feel cheated when they see the huge differences in social and economic status manifest around them. Contempt for leadership and the social elite starts building. This presents the onset of conflicts. The lower class feel agitated and decide to disrupt the activities of the entire economy in a push for their issues to be addressed the first being the redistribution of the nations wealth from the rich to the lower-class. This kind of conflicts is the start of social disorder that is capable of pushing the operations of a country to a halt resulting in untold losses and a reversal of the gains made. This is the worst imagined scenario for any authority.
Modern socialism is the outcome of industrial revolution. It has over the past decades spread over the civilized world. The industrial revolution was a critical period where competition and innovation were the main drivers of the economies. Industrialists rose and constantly exploited the workers leading to further impoverishment of the already poor as the rich took it all. This prompted the intervention of the government to curtail the blatant exploitation and improve the welfare of the poor. Interventions started with the setting of wage floors below which no worker would be paid. Some nations introduced price ceilings in a bid to curb inflation and ensure the lower class had access to basic foods and other social amenities (Webloggin, Para 12).
Taxation policies increasingly became more biased towards the rich than the poor. The governments realized that leaving the provision of all basic services such as education, water and energy at the hands of the private players amounted to political suicide. Clearly, the same motives drive the socialist tendencies today.
However, unlike the past where the policies were due to temporary pressures, the current pressure for socialist policies is likely to be sustained and heightened for a long time. This stems from the immense pain experienced due to the ongoing recession. The bursting of the housing market bubble has left people wondering where the next bubble will burst. As explained earlier, the burst was caused by years of greed and insensitivity to risk within the capitalist system. It is only reasonable to project future movement towards more control and more involvement by the government in the economy (Rusk, pp22-35).
Indeed, various legislations have been proposed and some passed as a reaction to the financial crisis. Tighter regulations on credit access as well as the need to make further disclosures represent the starting point of the campaign. The fact that the previous US government was caught unawares is probably the most disturbing. It means that successive governments including the current one will seek to be more proactive in responding to such crisis. As mentioned above most of the actions tenable in averting economic crisis are largely socialist.
With this analysis a socialist movement is in the offing. At the moment, it may appear as though the capitalist nature of the western countries cannot wither. The recent developments outlined above differ with this. The people are slowly embracing socialism well iced and wrapped in very appealing motives of getting the economy moving as well as preventing future crisis.
Conclusion
The biggest question is “What will be the effect on the business environment?” Capitalism has remained the safe haven for businesses to thrive. The free competitive environment has offered a fertile ground for continued innovation and inventions that continue to revolutionize the world. Curtailing this freedom even in the slightest manner can lead to a significant slowdown of such innovations and a lower level of employment creation in the future.
True, pure capitalism or pure socialism can be very dangerous as it can make some members of the society lose too much as others gain too much leading to heightened instability. Public goods such as lighting sanitation and security require the direct involvement of the government as there may be insufficient incentives for the private sector to move in and invest or the nature of the product demands government involvement. However, other goods and services should ideally be left for the private sector to provide.
The socialist bias is likely to degrade the supportive economic environment enjoyed by businesses today. This could present the onset of grave inefficiencies and corruption in the private sector a prerequisite towards a failing economy. A complete socialist western economy may not result due to the historical appreciation of capitalist system and the high costs of transition but the results of the current sympathy on socialist ideas may be alarming. Adequate caution should be taken to ensure that only the most relevant changes in the economy are effected in order to minimize the movement towards socialism and maintain the most of capitalist ideals for the future prosperity of western economies.
Works Cited
Brian, N. Moving the Modern Socialist Agenda Forward. Frontier Center For Public Policy. 2005. Web.
Charles, H., Modern Socialism. Kessinger Publishing, 2005. Web.
Gregor, G. Labor focus on Eastern Europe. A review of European affairs 1999. Web.
Malcolm C., Socialist Policy Defined. New York Times Archives. N. d. 2009.
Rusk M., Modern Socialism. Journal of Modern Socialism. 2009. Web.
Webloggin. Democrats Brazenly Move Toward Socialism. 2008. Web.