One of the fundamental differences between capitalism and socialism is in the area of class structure and, unfortunately, many people do not grasp this difference. Under capitalism, there are three levels: an upper class representing super successful people who have earned a fortune, the middle class representing John/Jane Doe who works diligently to put food on the table for their family, and a lower class representing the less fortunate of us. Influence is top-down based on the economic pecking order, thereby creating resentment by those lower in the chain.
Socialism, on the other hand, has just two classes: the ruling class, as represented by the state, and the working class where everyone is equal. I tend to refer to this as a “Master/Slave” relationship as the analogy to slavery is uncanny, where the Master micromanages everything and the Slave puts forth just enough effort to get by, but expects to be taken care of by the Master. There are many other nuances, but for the purposes of this article, the big difference here is the middle class.
A sizable middle class represents an economic engine for a country. Capitalism encourages people to work, to invest and to spend their money, allowing a country to collectively compete. The average person wants nothing more than to earn a respectable livelihood, so they can enjoy life and raise a family unencumbered by overbearing government regulations. As President Calvin Coolidge observed, “After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world. I am strongly of the opinion that the great majority of people will always find these the moving impulses of our life.”
Do people truly understand the power of the middle class? I think they’re starting to overseas. We may not have invented the concept of a middle class, but we sure perfected it, and everyone wants to emulate it. Since the fall of the Soviet Union, countries around the world have been re-configuring their economic policies in order to remain competitive in a global economy. In case you haven’t been paying attention, new middle classes have slowly emerged in such places as China, Belarus, Brazil, Russia, Vietnam, and among South African blacks. People in these countries now have spending power thereby causing a demand for products and services, not to mention a call for construction of new houses and businesses.
In order for capitalism to work, you need to be allowed to have certain freedoms, such as the freedom of expression, the freedom to innovate and invent, the freedom to choose your own path, the freedom to conduct legitimate business, etc. This is why it is rather ironic how some of our former communist foes are now embracing capitalism. Under socialism, there is no protection of intellectual property, such as patents, trade secrets, copyrights, etc. Everything is owned by the state, not the individual.
In the absence of a middle class, you have just the rich and the poor (the “have’s” and the “have not’s”) which lends itself to being a feudal state controlled by dictators or monarchies. Such a state does not operate harmoniously, corruption is rampant, and unrest is common. The “have not’s”, which is a sizable majority, have little to earn and spend. Consequently, the economy sputters and stagnates which our communist friends discovered the hard way.
As mentioned, in order for capitalism to work, certain freedoms have to be permitted to allow a person to work, earn, and save their money, not to have it redistributed to others by government decree. This means there is an explicit relationship between freedom and capitalism. Implicitly, it means capitalism requires a certain amount of democracy to allow the citizens to participate in how the government runs, which means capitalism cannot work under a dictatorship (see Cuba, Iran, North Korea, Venezuela, et al). As an aside, it is the middle class who elects government officials, not the upper or lower classes. The upper class may support politicians economically, but it is the middle class that casts the votes.
When someone asks me about my political leanings, I tell them I am an unabashed capitalist. This of course means I believe in liberty, and the right of the individual to lead a meaningful life, and I abhor any attempt by government to alter this or forcibly redistribute the wealth earned by the individual. I can understand government monitoring the legality of someone’s occupation, but aside from this they should not hinder a person’s right to earn a living.
Capitalism is our greatest export. It represents the seeds of freedom and economic prosperity. If it spreads, it could lead to world stability and peace which, of course, certain tyrants and crackpots openly reject. For example, Iraq will be an interesting experiment in capitalism. If Iraq succeeds, freedom and democracy will succeed, which is why Middle Eastern terrorists desperately want to see it fail as it represents a challenge to their authority. It’s not so much about religion as it is about control. Capitalism is a genuine threat to feudalism, a system which has no regards for the rights of the human-being and respect for the human spirit. Make no mistake, feudalism is barbaric.
- In order to effectively compete in a world economy, you need capitalism.
- In order for capitalism to flourish, you need freedom and democracy.
- A byproduct of capitalism is a sizable middle class with spending power.
- Therefore, any attempt to change capitalism is a threat to freedom, democracy, and the middle class.
No, I am not a proponent of government sponsored bailouts, stimulus packages or the creation of artificial jobs. Such devices does a disservice to capitalism and is unnatural. It is not government’s role to tamper with capitalism, only to establish the environment for capitalism to flourish, namely assuring freedom and protecting rights, serving its constituents, and providing incentives to encourage new avenues of business.
I am also of the belief that capitalism is very much akin to Darwin’s “natural selection” whereby goods and services evolve and improve in order to effectively compete. Under socialism, there is no competition as everything is controlled by the state. From this perspective, it is not “natural.” In other words, capitalism recognizes change through competition; in order for it to succeed, you must allow for the right to failure. By doing so, you assure our right to succeed.
Keep the Faith!
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