Introduction
The United States has always defined itself by its ideological values and political beliefs which have become the centerpiece of citizens’ lives. The country has emerged as a Democratic counterbalance to authoritarian rule. Eventually, Democracy intertwined with capitalist economics became the global status quo. However, recent social trends have shifted away from traditional views. A Harvard University survey claims that 51 percent of American millennials no longer support capitalism, in favor of other economic and political systems (Aberman). Capitalism is under threat due to a number of challenges that the modern economy faces and inequality are forming as a result of economic policies. The American population is actively seeking justice, stability, and fairness. Without careful consideration and planning, implementing increasingly popular ideologies such as socialism becomes increasingly dangerous. This report seeks to evaluate socialism as an alternative to capitalism as the primary economic system of the United States and present viable solutions to the issue.
Political Economy
Capitalism and socialism are aspects of what is known as political economy. It is a study of power and social relations that overlook the production, distribution, and consumption of resources. Political economy has been critical in recent history for social change. Capitalism and socialism lie at the opposite ends of the economic spectrum. Each country chooses a specific system to adhere to, but elements are borrowed from other systems to create a mixed economy. Most industrialized nations, including the United States, follow a system of mixed capitalism (Mosco 13).
Current Capitalist System
Capitalism is a rational economic system that seeks to maximize economic growth and allocate resources based on input. Citizens pursue self-interests in hopes of raising their prosperity and living standards. The market is competitive, guided by the “invisible hand” where prices are determined by actions of market players (Li 6). A pricing mechanism exists which balances supply and demand. Therefore, profit relies on motive and allocation of resources or opportunities amongst suppliers. Private individuals most often control property and capital assets. Workers work for a wage and capital can be used for investment. Individuals can enter and exit any field of employment, financial dealings, and business opportunities freely (Scott 3).
Variations of capitalism exist which depend on the degree of government intervention in the market to control pricing, competition, and allocation of resources. Private investors are both empowered and regulated by the political authority through laws that control property dealings (Scott 3). Models of capitalism can also impact production organization for companies, have differing values, and unique public institutions. The United States follows a form of liberal capitalism. The states steps in when the individual and family units fail. There is a lack of universal rights and benefits offered by the government are based on individualized income. Overall, the federal government has limited roles in education, welfare, and health care. Protection of labor is the responsibility of businesses for the most part. Government-owned corporations are practically non-existence. Innovation, individualism, and competition are the core of liberal capitalism rather than social equality (Bresser-Perreira 25).
Weaknesses of Capitalism
The primary weakness of capitalism is that it has limited means of reducing socio-economic inequality. There is a systemized and continuously growing wealth gap since private property, and capital is passed down through generations, creating inherent social division as the upper class continues to profit at the cost of lower classes. In terms of economic crises, the government always acts in a manner that benefits the upper class while the burden falls disproportionately on the poorer segments of society. Policies and institutional structure are financed more freely in the United States that leads to laborers bearing the majority of the cost for any projects (Dufour and Orhangazi 11). Further weaknesses of capitalism include extreme consumerism and profit at any cost. While the number of opportunities is a positive aspect, the increased focus on productivity and growth leads to adverse outcomes. In order to increase profits, companies may resort to unethical means, unsustainable measures, and destructive behaviors that impact the environment and the population’s quality of life and safety.
Socialist Economic System
Karl Marx identified capitalism as a “contradiction between the objective tendency towards socialization of production and the capitalistic system of private appropriation” (Li 2). In turn, his leads to class conflict and economic crises. Therefore, to resolve this contradiction, a different socio-economic system should be implemented that relies on public ownership of production and equal distribution of resources to meet population needs (Li 2). This proves that society resorts to socialism only when capitalism begins to fail. A socialist approach emphasizes centralized planning and control that would distribute all available resources. Unlike the capitalist system, it would theoretically resolve mass unemployment, the wealth gap, and social pathologies (Muhammad). Interestingly, capitalist theorists of the early 20th century emphasized that the public sector would constrain and absorb private ownership. The Marxism model of development is theoretically faster growing than a capitalist-based economy. Therefore, the infrastructure, labor, and political coordination necessary to accommodate growth would have to overtake private assets to support the evolutionary process of the public economy and civilization (Streeck 18).
Negative Aspects and Outcomes
After the fall of the Soviet Union in 1989, most expert economists determined that socialism is flawed as an economic system. It was not a rational approach to economics and failed to address the issues of information, motivation, and innovation. The contemporary economy, particularly of a large country, maintained a significant amount of inputs and outputs. The sheer number of data could not be effectively tracked, measured, processed, and utilized by a centralized governing body. Furthermore, historically, socialist states had to participate in the global capitalist economy and were continually encountering difficulties in operation (Li 4). In the modern world, socialism would be ineffective. Any business policy would require majority support that would lead to a decrease in public expenditures and benefits. The basic population would not support such measures. Therefore, politicians would be forced to create an illusion of reform to maintain stability and ensure that there would be no cutbacks to social programs (Christensen). Therefore, there would be stagnation of reform and innovation in the country.
While socialism promises aspects of equality and security, it is most often results in poverty and abuse of government power. The principle of collectivism is flawed and unsustainable over the long term because it ignores the fundamental human behaviors in economic theory: self-interest. The system fails because it does not produce incentives. Individual contributions are not valued, and everyone is paid practically equally, no matter how hard they work. Theoretically, it is supposed to drive the group to work harder for a better collective reward. However, in reality, individuals lose incentive and begin to work less since income will be essentially equal for everyone despite value-added. As a result, both production and innovation decrease dramatically (Perry).
Discussion
Capitalism arose as a result of competition amongst countries as well as the fight against unethical collectivist ideologies. As capitalism rose to prominence as the primary economic system internationally, there were unexpected results. For example, socialist countries had to adopt capitalist institutions if they wished to participate in international trade and economic growth. Capitalism became mostly unchallenged in most regions of the world. However, seeing no alternative to the system, those wishing to challenge United States hegemony resorted to more radical religious expressions which had a significant role in recent conflicts (Aberman).
As stated earlier, the United States is a mixed capitalist economy that combines private ownership, assets, and production with strict taxation and regulation (Tupy). Recently, American society has faced significant burdens and regulations from the federal government, which seeks to encompass some of the wealth. Policies are creating barriers for entrepreneurship and business to create value. As a result, experts place the United States as 18th in terms of economic freedom, falling behind many of the more “socialist” European countries (Christensen).
The widespread belief is that under capitalism, the market is autonomous in the distribution of resources and the government has a minor role in taxation and redistribution of income. However, there are a wide variety of financial mechanisms which the government has, that affect the allocation of profit. The government can not only manipulate distribution but effectively shape institutions and markets in a manner that predicts fiscal outcomes and creates a desired structure for the economy (Hacker and Pierson 169). Modern capitalism is intertwined with the Democratic political establishments. The government can manipulate the economy through a range of fiscal policies to shape markets. However, market players can influence political authority through collective and sustained pressure (Hacker and Pierson 196). This is the basis of the capitalist political economy.
The form of capitalism that a country chooses inherently impacts its performance in the global economy. In plausible conditions, it can be assumed that with the appropriate level of risk aversion and entrepreneurial return, countries choose to adopt “cutthroat” capitalism. It creates greater inequality but produces significantly more technological innovation and economic growth. However, other countries choose a softer version of capitalism which focuses on social equality and welfare for citizens. These countries are much poorer, do not maintain influence on the global arena, and adopt technology from others (Acemoglu et al. 36). Therefore, the United States chooses to maintain its hegemony in the world by following a cutthroat capitalist approach that has been the core concept of its economic system for decades.
Recent generations, especially those growing up after the collapse of the Soviet Union, when capitalism dominated the global economy, have no viable alternative. There is a general dissatisfaction with the negative aspects of capitalism without offering solutions. Furthermore, the political climate is structured in a manner where people are forced to be either in support or against capitalism in a clear-cut manner. The evident inequality is destabilizing belief in capitalism, and radical opinions arise stating that there is no free market and the upper 1% is manipulating the system. A lack of consensus is inherently unsupportive of economic prosperity (Aberman). A free-market capitalist economy offers aspects of opportunity and self-determination. It is intuitive to human nature and allows for creativity, freedom, and reward for the work that is put in.
Possible Solution
In recent Presidential elections, there has been an increased discussion of an alternative system. Popularized in 2016 by Senator Bernie Sanders, the concept of social democracy or social capitalism has become more viable. This framework would essentially transform traditional capitalism into a gradual, non-violent, and legislative process. Policies would attempt to curb inequality and improve the quality of life for citizens. Democratic socialism which first emerged in the 1960s was immediately labeled as an offspring of dictatorial communism. Due to the ideological competition with the Soviet Union and its overall weaknesses of bureaucracy and institutionalism, social democracy was rejected (“Is Democratic Socialism the Right Path for America?”).
However, there has been increased interest in various forms of property ownership that reflect socialist elements. For example, worker-owned cooperatives, municipal corporations, and neighborhood land trust all use a democratized ownership structure in a decentralized manner. Elements of various economic systems can be combined. For example, large enterprises can be split into joint ventures which include community and worker organizations. Already, many places have governments and corporations collaborating to manage publicly owned utilities. Overall, new strategies and resources are available in the modern-day to create an alternative socially democratic system. The socialist aspects would apply to its benefits and vision, but the democratic principles would affect the governance structure and accountability mechanisms (Alperovitz). This may become viable as the American population becomes more dissatisfied with the concept and challenges of traditional capitalism.
Conclusion
The essential truth is that there cannot be a political democracy with economic democracy. In any stem, power inherently resides with those controlling wealth. In socialism, government controls property, but can often act without regard for the interests of the people. In capitalism, rights and ownership are controlled by corporations in the free market. In a Democracy, where power resides with the citizens, the extent of influence should not be limited by-elections. Economic structures should be built with a distribution of power to the people but with the interests of the community and societies. However, capitalism in its variations serves as a better political-economic system for the United States than socialism.
Annotated Bibliography
Aberman, Jonathan. “Jonathan Aberman: If Not Capitalism, Then What?” The Washington Post, 2016, Web.
This article is from the Washington Post. It is written by an expert in entrepreneurship and economics. The source has high credibility as a newspaper. The article is relevant to the paper because it describes how millennials view capitalism and seek out potential alternative economic systems. It helps to outline the rise and transformation of capitalism in the United States over history and time, as well as its social impacts.
Acemoglu, Daron, et al. Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World. 2012.
It is a working paper from recognized economists. This research has been cited in journal articles and published in high-profile sources such as The New York Times. Therefore, it can be argued that it holds some reliability. The paper is relevant because it provides critical information on the development trajectory of countries choosing the adoption of different forms of capitalism.
Alperovitz, Gar. “Socialism in America Is Closer Than You Think.” The Nation. 2016.
The source of this article is a well-known and widely read a political magazine. It holds some validity and value from an academic standpoint. The piece offers unique examples of democratic socialism practices occurring in the United States and offers suggestions on its continued development without compromising the country’s principles.
Bresser-Pereira, Luiz Carlos. “Five models of Capitalism.” Brazilian Journal of Political Economy, vol. 32, no. 1, 2012, pp. 21-32.
This is a paper from a foreign academic journal. It is peer-reviewed and holds academic value. The paper presents an in-depth overview of distinct types of capitalism existent in the global economy in the modern-day. It also compares and contrasts countries based on the capitalist approach they have chosen to adopt. This is relevant to the paper seeking to evaluate the liberal capitalism practiced in the US.
Christensen, Lars. “European Socialism: Why America Doesn’t Want It.” Forbes. 2012.
Forbes is considered a leading magazine for business and economics, offering insights into relevant modern issues. The article offers a description of how democratic socialism functions in Europe, along with its social and economic outcomes. The process of change described in such societies provides insight into how the system is not adaptable to the United States.
Dahlgreen, Will. “British People Keener on Socialism than Capitalism.” YouGov UK. 2016.
This is the source of the graph presented in the paper. It is a public poll conducted by a large-scale international market research and data analytics company YouGov. Therefore, the poll likely has some statistical validity. It is relevant to the paper since it presents how capitalism and socialism are viewed in countries with varying capitalist approaches to the economy.
Dufour, Mathieu, and Özgür Orhangazi. “Capitalism, Crisis, and Class: The United States Economy after the 2008 Financial Crisis.” Review of Radical Political Economics, vol. 46, no. 4, 2014, pp. 461-472.
This publication comes from a peer-reviewed journal that provides academic support for the data. The article describes the failings of capitalism during financial crises. It offers an insight into the distribution of the financial burden and the effect of fiscal policy on various layers of the population. This was helpful to identify the weaknesses of capitalism as an economic system.
Hacker, Jacob, and Paul Pierson. “Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States.” Politics and Society, vol. 38, no. 2, 2010, pp. 152-204.
This source is from a well-respected academic journal and holds significant academic value. It is relevant to the paper by offering a detailed description of capitalism’s financial mechanisms as well as the intricate interaction between politics and the economy. It is critical to the paper to support the argument of capitalist efficiency.
“Is Democratic Socialism the Right Path for America?” CNN. 2015.
This is a CNN opinion piece that gathers the input of various economic experts on the rise of democratic socialism and the platform that Bernie Sanders pushed during the 2016 Presidential campaign. Overall, this is a valid source since these experts are recognized professionals in the field. It holds relevance to the paper by offering feedback on implementing democratic socialism as a compromise on the argument between the two political systems.
Li, Minqi. Socialism: The 20th Century and the 21st Century. 2012, Web.
This publication is a working paper developed for a conference by an author from a respected political economy research institute. It has been reviewed and edited by peer editors from the university which gives it academic validity. The source is relevant because it offers an in-depth perspective on socialism, its mechanisms, and failures in comparison to capitalism which are the central aspects of this paper.
Mosco, Vincent. “Political Economy.” The Routledge Companion to Global Popular Culture, edited by Toby Miller, Routledge, 2014, pp. 13-22.
This source is a published book and has academic validity. The book itself is not relevant to the topic as it deals with media. However, the cited chapter offers a well-written description of political economy as a concept. This is relevant to the paper as it is necessary to provide the reader with background about the core foundation of the discussed ideologies.
Muhammad, Cedric. “3 Reasons why Good Socialism Defeats Bad Capitalism.” Forbes. 2013.
This article is from Forbes, a leading magazine for business. It is more of an opinion piece but offers a useful perspective that argues against the view that is presented in the paper. It is relevant since it can be used to challenge the thesis and then refuted in order to validate the argument.
Perry, Mark. “Why Socialism Always Fails.” American Enterprise Institute. 2016.
This source is from a think tank that is extremely conservative. Although academically valid, it maintains some bias. The article itself is significantly opinionated. However, it is relevant because it offers support for the thesis.
Scott, Bruce R. The Political Economy of Capitalism. 2006.
This publication is from a faculty member of one of the best business universities in the country. It is well-researched and holds significant academic value. It is relevant to the paper as it provides a comprehensive overview of capitalism with its mechanisms and functions as a political economy theory. It is necessary in order to understand the intricate aspects of the modern-day system.
Streeck, Wolfgang. “The Politics of Public Debt: Neoliberalism, Capitalist Development and the Restructuring of the State.” German Economic Review, vol. 15, no. 1, 2013, pp. 143-165.
This is an academic source from a peer-reviewed journal. It maintains academic validity. The majority of the article is not relevant to the paper. However, some of its aspects describing the structure of capitalist institutions and its relationship to economic concepts such as public debt are relevant for support in the paper.
Tupy, Marian L. “Bernie Is Not a Socialist and America Is Not Capitalist.” CATO Institute. 2016.
This publication is from a well-known and respected think tank and research organization. However, it is considered libertarian, which may present a level of bias. The article is considered a commentary piece. However, it offers valuable analysis and information on the political economy systems prevalent in the United States. It provides critical statistics and comparison to various practical and theoretical perspectives.