Capitalism and Socialism Defined
Before proceeding to the substantive analysis, I should like, in order to minimize any ambiguity or uncertainly that may otherwise arise, to attempt to define, at an appropriate level of generalization for the task at hand, the two most significant concepts, not to say economic systems, being compared and contrasted, here; namely Capitalism and Socialism.
Capitalism then is, in such general terms, an economic system in which the means of production, (which is to say all capital goods and systems used to produce the goods and services we consume), the means of distribution (whether transportation and retail outlets and the like, or electronic networks and grids etc.) and the means of exchange (such as currency and banking facilities and the like), together with the naturally occurring resources necessary for the production of such goods and services, are overwhelmingly, but not necessarily entirely, owned and directed by private Capitalists or stock holders. A system within which labor is usually free to pursue its own interests, but a system which is generally configured so as to predominantly serve the perceived interests of the Capitalists, which is to say to maximize returns on Capital or Profits. And Capitalism is usually, at least in principle, Competitive; each private enterprise engaged in so-called laissez-faire, or free market, competition with other similarly privately owned enterprises, for the same resources, labor, and markets/customers.
Turning now to define Socialism, it is possibly helpful in order to avoid confusions and misconceptions to begin by contrasting it to, and thus distinguishing it from, Communism; an economic system in which the means of production , distribution, and exchange, not to mention all naturally occurring resources, are entirely owned and operated by the government or State. A government or State which directly controls them and their products, including labor, ostensibly on behalf and “according to the( ) needs” of the population in general, and the working class or proletariat in particular. A proletariat or working class which, although sometimes narrowly misconceived of as only those engaged in physical labor, may be more properly conceived as all those employed in waged labor of any description—be it physical or intellectual (e.g. managerial, administrative, technologically innovative, inspirational, educational, etc.)—and therefore engaged, directly or indirectly, in the gathering of resources, and their transformation into goods and/or the provision of services, and thus in the creation of all real economic value.
Socialism on the other hand, at least as it is most usually encountered and identified as such in practice, may be seen as occupying a position between these two (Capitalist and Communist) alternatives. Which is to say, as an economic system in which much, although by no means necessarily all, of the means of production , distribution, and exchange are publicly owned and operated, and in which the government or State, insofar as it is politically aligned with the socialist economic ethos, regulates the operations of the publically owned and operated sector and determines what it produces, in accordance with the perceived interests and needs of the general public. While the operations of that sector which is either privately owned and operated, or publicly owned and privately operated, is, given the same political alignment, usually subject to extensive regulation in the name of the interests of the general public; although this sector generally remains free to determine what it produces, except in those cases where its products are perceived as detrimental to the environment and/or the general public. A system in which the natural resources it utilizes may be privately, or publicly, owned, and in which labor is free to follow its own interests and to seek employment in any sector, but where the terms and conditions of employment, even in the private sector, are often subject to extensive government regulation, in the perceived interests of the workforce. Yet an economic system in which, while profit generating tendencies may be allowed and even encouraged to some degree in order to incentivize productivity or efficiency, profits are usually subjected to significant taxation in order to finance projects and so on perceived to be in the public interest. An economic system which is therefore, in the final analysis, based upon, and aims to further, cooperation between, if not quite all then, the overwhelming majority, to their mutual benefit, even if sometimes at the expense of the profits of a competitive capitalist class.
Now it will, of course, be objected, that such neo-Weberian “Ideal Types” are seldom, if indeed ever, encountered in their pure form in the real world. The most obvious exceptions to the nomenclature briefly sketched here being that Capitalism in its actually existing form, is, of course, often subject to some degree of government regulation and taxation in pursuit of socially agreed upon public goals, or conversely, may, largely through its largesse, unduly influence and even capture the political process, and may accordingly be heavily subsidized by general tax revenues, and otherwise assisted by the State, in the interests of private owners or stockholders. And in some cases, it may, so far from being competitive, actually be monopolistic, and in many cases oligopolistic. While on the other hand, the State’s control of Communist economic systems may be exercised to the benefit of corrupt political functionaries and administrative bureaucrats rather than in the interests of the working class as a whole and/or the population more generally. A tendency to which Socialism is not entirely immune either. However, as it is not my intention to sharpen such nuanced distinctions, but rather to provide an overarching, and yet hopefully not too superficial, overview of the general tendencies of, and recent development in, contemporary political economy, and as in so doing I will inevitably introduce an analytical framework that will help clarify such distinctions as it contributes to the greater understanding of the very political economies from which it derives—notably the US and China as arguably the two most paradigmatic examples of actually existing Capitalist and Socialist societies, respectively—then it is my hope that the nature of and distinctions between Capitalism and Socialism preliminary sketched here will suffice for now.
To proceed then, the 2008 economic meltdown in the world’s leading capitalist economy, the US, and other capitalist economies, followed by The Great Recession, gave rise to fundamental questions concerning the nature and future viability of capitalism. In response, the capitalist classes and their representatives, ever concerned to protect their privilege, were quick to point to predatory lending—often in the form of so-called subprime mortgages1—as the origin of a crisis which they were anxious to insist was largely limited to real estate financing, even as, due to overleveraging,2 it spilled over into the economy more generally. And although such practices were indeed the immediate cause of the financial crisis, and the eradication of the most obvious rot (e.g. Lehman Brothers and their ilk) and the structural modification of the most obviously overleveraged assets therefore prevented the immediate collapse of the capitalist system, when analyzed from a wider perspective such predatory lending and overleveraging can be seen and understood to be responses to a crisis of overproduction which follows inevitably from the competitive nature of capitalism; a competitive capitalist system which therefore seems to be the ultimate cause of a crisis within itself, which will finally lead to its ultimate demise.
That is to say that the struggle for the greatest efficiency , which is the inherent precondition of survival in a competitive capitalist system, results in upward pressure on production, and downward pressure on wages, benefits, and other costs of production which largely provide the economic demand for the increased production. A driving up of Supply and a driving down of Demand which, other things being equal, results in falling prices, which clearly threatens the very profitability upon which the survival of capitalism is also dependent. An internal or dialectical contradiction—between efficiency and profitability —at the very heart of capitalism, which while it portends its eventually inevitable collapse, may nevertheless be postponed by demand stimulating credit. A solution which not only ensures continuing, and even increasing, demand for ever more goods and services without requiring profit threatening wage increases or price reductions, but happily, at least for the economic elite, resulted in their accruing yet more profit, in the form of interest on the credit they advanced. Credit which, prior to the 2008 crisis was largely made available through mortgages—collateralized or guaranteed as they were by concrete (or indeed bricks and mortar) assets, which is to say housing—and to a lesser extent through Credit Card, Student Loan and other general household, not to mention national, debt. The profits from the, wholly unproductive, financial economy even beginning to rival that from the real economy productive of the goods and non-financial services, without which money generated by the financial economy would be entirely worthless. But credit, which having eventually to be repaid, could only ever offer a temporary solution.
Turning then to focus on the housing mortgage market as the main conduit for such credit. In that market an increase in the availability of mortgages —financed by the leveraging (or selling on to others) of securitized derivatives (or promises by the borrowers to pay their mortgages)—drove up the price of housing, thereby increasing the value of the collateral (residences) that underwrote a further increase in mortgages that drove housing prices still higher and so on and on. This then manifested itself as housing price increase which attracted ...