The Case against Capitalism (and Socialism)

When teaching my tenth-grade world history students about capitalism, socialism, and communism, I start by giving them a ten-question survey of their views. This includes questions like:

  1. Free trade between countries is: a. Good, because it leads to lower prices for consumers, b. Bad, because it leads to lower wages/ less jobs for workers in your country, or c. Bad, because it leads to the exploitation of the working class around the world
  2. To address economic inequality, we should: a. Give everyone the chance to rise into the middle class through education and hard work, b. Tax the rich to fund programs for the poor, or c. Redistribute land and property from the rich to the poor
  3. Which is the greatest danger to the people? a. Government tyranny infringing upon individual liberty, b. Wealthy elites exercising too much power over the government, or c. Systemic exploitation of the working class by the middle class

Almost no one ever chooses all A’s, B’s, or C’s. Even conservative students will occasionally select the socialist answer, and even liberal students will select the capitalist answer at times.

From there, I try to make the strongest case for each system using the words of Adam Smith and Karl Marx. Then, as a class we pick these arguments apart, identifying their strengths and weaknesses.

For example, Smith and other capitalists claim that allowing individuals to pursue their self-interest in a free market most often benefits society as a whole. This argument works in many cases. Smith is correct in his insistence that “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” One can imagine a range of economic transactions where individuals freely pursuing their self-interest in a competitive market results in win-win scenarios.

However, there can be numerous “market failures,” cases in which businesses acting out of self-interest can harm society as a whole. The easiest example to illustrate this concept is pollution. A company might save money by dumping waste into a river rather than disposing of it more carefully. This is good for the company in the short-term, as it increases profits, but terrible for society in general and even the company in the long-run.

So what do we do? We make rules. We pass laws demanding that industrial waste be disposed of safely. Even the most libertarian of economists will not deny the need for such regulations. In fact, they are necessary for capitalism to function. Capitalism is not so much the natural state of human affairs, but rather owes its existence to the establishment of certain laws, going all the way back to the eighteenth century. Conservative thinkers often (rightly) decry government intervention in the economy, but capitalism cannot exist without a government capable of establishing and enforcing “the rules.” In order to have a basketball or football game, all participants must know the rules, and neutral referees (the government) must enforce them. The teams and individual players cannot be expected to police themselves.

Okay, so the pollution example is handled easily enough. But are there inherent contradictions built into the capitalist system, as Marx claims? Consider big corporations. Their obligation is to maximize profits for shareholders. They can do this in two main ways: either reducing production costs and/or increasing demand. But both strategies can have negative repercussions for society, even endangering the capitalism system itself. If businesses cut production costs too much (for example: automating production, hiring fewer workers, or shipping jobs overseas) then either unemployment increases or wages decrease. Either way, there is not enough demand left to maintain current production levels.

Businesses must therefore innovate or die. But each innovation creates a new problem, essentially kicking the can down the road. For example, you can pass laws encouraging consumers to take on debt (for example, the mortgage interest deduction). This allows them to consume more goods. But what happens when the credit bubble bursts? Answer: another crisis (2008), another short-term solution (bailouts, stimulus).

Efforts to drive up demand are similarly problematic, especially for companies that sell products detrimental to the public good. Big Pharma, Big Tobacco, and Big Fast Food companies can only increase demand by getting the public to consume more drugs, cigarettes, and burgers. Each of these outcomes is demonstrably harmful to society as a whole and the individuals who find themselves addicted to these “products.”

Now, a capitalist might say that consumers are free to choose broccoli over Big Macs, gym memberships over cigarettes, holistic treatments over opioids. But when we look around, we see that the allure of cheaper, more convenient alternatives is too tempting for most people to resist. Even conscientious moms balk at spending twice the amount on grass-fed beef or organic produce. In the case of cigarettes and opioids, addiction negates any claim of consumer choice.

America’s current opioid epidemic is the most insidious example of capitalism run amok. It started back in 1996, when Purdue Pharma began aggressively marketing a new opioid painkiller, OxyContin. This included a bonus system for pharmaceutical reps to increase sales. According to one article,

These efforts succeeded spectacularly… OxyContin prescriptions for non-cancer-related pain went from about 670,000 in 1997 to about 6.2 million by 2002… A small group of physicians, some receiving funding from drug firms… lobbied to have pain recognized as the ‘fifth vital sign’… In 2001, Purdue spent $200 million marketing Oxycontin… by 2002, sales topped the $1.5 billion mark. Between 1991 and 2013, the number of annual opioid prescriptions in the U.S. increased from 76 million to 207 million, with corresponding increases in the number of cases of addiction, overdose, and death… the Department of Justice took notice, and charged Purdue with misbranding the drug’s abuse potential. In 2007, Purdue pled guilty and paid over $600 million in fines.

From a purely economic perspective, Purdue did what they were tasked to do: they made profits for their owners and shareholders. It’s hard to imagine any fines outweighing the billions they have made as America’s largest legal drug dealer. Perhaps they told themselves they were doing good – just helping to ease the pain of those who were suffering. Perhaps the enormous sums of money streaming in helped them sleep at night.

In the last sixteen years, overdose deaths from opioids have risen fivefold. From 2000 to 2016, 600,000 Americans died of opioid overdoses. Today, an average of 115 Americans die each day from overdosing on heroin or prescription opioids. At just 5% of the world’s population, we consume 80% of its opioids.

Addressing Big Pharma’s role in the opioid crisis does not require dismantling the entire capitalist system. But we have to be willing to change the rules to avoid undesirable outcomes. Interestingly, The U.S. and New Zealand are the only countries that allow pharmaceutical companies to advertise drug claims directly to consumers. Banning DTC marketing would not be enough to solve the problem, but it would be one step in the right direction.

If you change the rules of the game, you change how the game is played. Think of how much the addition of the 3-point line has changed basketball; outside shooting is now essential to win games. Within a few years, shooters got so good that the line had to be moved back. Think how much differently soccer would be played if there was no off-sides call. What if baseball went to a five-strikes-and-you’re-out rule, or dropped it to two? Either way, players and teams would respond to the new rules to maximize their chances of success.

To recap: every modern economic system, including capitalism, needs a clear set of rules and a government capable of enforcing them. Altering the rules alters how the game is played. When coming up with the rules, we must put the good of human beings first and foremost in our minds, not abstract concepts – whether they come from the left or the right. Increased government regulation is not a magic wand we can wave over any problem to improve it, and neither is deregulation.

G.K. Chesterton describes the confusion over the “capitalist” and “socialist” labels. Though most would consider him a conservative, Chesterton refused to defend capitalism, which he defined as:

That economic condition in which there is a class of capitalists, roughly recognizable and relatively small, in whose possession so much of the capital is concentrated as to necessitate a very large majority of the citizens serving those capitalists for a wage. If capitalism means private property, I am capitalist. If capitalism means capital, everybody is capitalist. But if capitalism means this particular condition of capital, only paid out to the mass in the form of wages, then it does mean something, even if it ought to mean something else.

G.K. Chesterton and Hillaire Belloc proposed a third option, which they called “distributism.” This system, based largely on Catholic social teaching, seeks to distribute property more evenly than “pure” capitalism (which doesn’t really exist), but without relying on government ownership of the means of production; thus, it is not socialism either. Distributism is based on the Catholic concept of subsidiarity – the idea that a community of a higher order should not interfere in the workings of a community of a lower order. The nation should not try to do what the states can do; the states should not try to do what the localities can do; localities should not try to do what families can do.

Simply put, scale matters. Almost everyone prefers the idea of small businesses to big corporations. Why not restructure our laws to favor the former and impede the latter.

Take this famous exchange from the classic film It’s A Wonderful Life:

George Bailey: Now, hold on, Mr. Potter. You’re right when you say my father was no businessman. I know that. Why he ever started this cheap, penny-ante Building and Loan, I’ll never know. But neither you nor anyone else can say anything against his character, because his whole life was… why, in the 25 years since he and his brother, Uncle Billy, started this thing, he never once thought of himself. Isn’t that right, Uncle Billy? He didn’t save enough money to send Harry away to college, let alone me. But he did help a few people get out of your slums, Mr. Potter, and what’s wrong with that? …is it too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn’t think so. People were human beings to him. But to you, a warped, frustrated old man, they’re cattle. Well in my book, my father died a much richer man than you’ll ever be!

If we are to be “capitalists,” then let us be capitalists like George Bailey and not Mr. Potter.

How do we encourage the George Bailey’s of the world and keep the Mr. Potter’s at bay? Most of us would rather live in Bedford Falls than Pottersville. So why do we give our money to Mr. Potter? It will be hard to change the rules of the game to favor small businesses, as they cannot afford corporate lobbyists. In the meantime, we can consider the social effects of our daily economic decisions, choosing to spend our dollars supporting small businesses whose goals and business practices align with our values, even if it means spending a few extra dollars for daily items.

Joseph Peace summarizes disributism thus:

In practical terms, the following would all be distributist solutions to current problems: policies that establish a favourable climate for the establishment and subsequent thriving of small businesses; policies that discourage mergers, takeovers and monopolies; policies that allow for the break-up of monopolies or larger companies into smaller businesses; policies that encourage producers’ cooperatives; policies that privatize nationalized industries; policies that bring real political power closer to the family by decentralizing power from central government to local government, from big government to small government. All these are practical examples of applied distributism.

In my son’s 10-year-old boys’ basketball league, the rules are designed to give all players the chance to play and grow. For example, each player must play at least two full periods. If one team is up more than 10 points, they can no longer apply full-court pressure. Now, is this the equivalent of “socialist” basketball? Certainly not. The system still runs on competition. Coaches and players still have the freedom to decide what type of sets to run and shots to take.

It seems like the rules of the game are rigged to disproportionately benefit those who are already wealthy. This is not just a Bernie Sanders talking point. In fact, both Sanders and Trump – the two most popular candidates in the last election cycle – ran against capitalism (recall Trump’s attacks on free trade). The fact that the eight wealthiest people in the world have more money than the bottom half – that’s 3.5 billion men, women, and children – should give us all pause. Most voters – Sanders and Trump supporters alike – want to see the rules changed to create a more fair game. If a rec sports league can do it, why can’t we?

Instead of focusing on labels and ideologies, which often mean different things to different people, we should be focused on real-world solutions that put people – not profits, and not government – back at the center of economic life.

Advertisements