American-style capitalism has resulted in enormous wealth creation, but it has also led to a concentration of wealth and left many people behind. While capitalism provides an incentive for individuals to be productive, it has led to excesses that result in economic distortions and periodic economic downturns. That is why some people question whether the US wouldn’t be better off with a socialist system that doesn’t provide outsize rewards to some while others can’t meet their basic needs.
A distinguishing feature of socialism is public ownership of all resources. Thus, the state would own all sorts of businesses, land, property, and other means of production that now belong to individuals. Everyone would be employed in public enterprises and there would be no incentive for anyone to manage things so they could pocket additional profits. There would be no stock market, private investors, or the distortions that come with them. Instead, the government would decide how society’s resources would be managed in such a way as to benefit everyone. And everybody’s essential needs would be taken care of.
The Invisible Hand
In contrast, capitalism depends on market forces to allocate resources effectively. If you want something, you pay for it and market demand and supply determine the price, in theory. If working, there is no need for any centralized planning in a market economy. If entrepreneurs come up with an idea, they can act on it and build up their business. If it is successful, it might pay them an outsize reward, which is compensation for the risk they took. If their business fails, they bear the losses too. In this sort of model, the government doesn’t make plans for private businesses.
Elements of Socialism
While the American economy is a capitalistic one, there are also certain elements of socialism in which the government acts to ensure the welfare of Americans. For instance, there is the social security system that makes a payment to American workers after the age of retirement. This is based on the taxes the system had collected from them during their working years. And there are unemployment benefits paid to workers who lose their jobs during market disruptions. This too is funded by tax collections. There is also the government-enabled healthcare system, or Obamacare, that critics are pointing to as socialistic and un-American. Additionally, the government provides certain essential functions, such as national security and public education, and ensures the smooth functioning of society by governing the country, engaging in lawmaking, and penalizing those who break the laws.
Unalloyed Socialism not for America
In theory, pure socialism sounds like an ideal system in which no one would exploit another person and everyone would be equal. However, this system has been tried out in other countries, such as the former USSR, and has been discarded due to its impracticalities. It seems that while everyone was equal in practice, there was still a hierarchy with politicians and their cronies at the top, leading to disparities between people, and there were a lot of shortages of even essential items.
While American capitalism has not resulted in an equal distribution of wealth, anyone is free to aspire to something better and better act in her own best interests. Rather than looking to socialism, a better way to deal with market distortions is to have the government play a larger role and creating impediments so that businesses don’t take on large risks and only reap the rewards, while the government backstops them if things don’t work out.
The Bottom Line
Capitalism has led to occasional economic distress and distortions. While it is not a perfect system, compared with pure socialism, it seems it is the lesser of two evils. Thus, it seems a capitalistic system, with some socialist touches, might be what is best for the US.