Promoting the Wrong Discussion–Socialism vs Capitalism

By Mike Koetting July 18, 2021

The Republican Party has gone full-out on equating Democrats with Socialism. That, of course, is absurd.  It is absurd not simply because it is so far from accurate but also because the entire distinction between “capitalism” and “socialism” is so dated as to have questionable relevance in today’s world. No serious analysis could call China a purely socialist country or the United States a purely capitalist country.

Two examples of the latter are worth some exploration.

Covid Vaccine

The Wall Street Journal ran an article crowing that it was private corporations that created the vaccine. This is true and important, but it is only part of the story.

I think the ability of private corporations to move quickly and minimize distractions from their focus is a serious advantage. I really don’t believe we would have gotten the vaccines this fast without the work carried on by the private corporations. Dismissing that would be a mistake.

On the other hand, we need to be cognizant of the role that government played in making this possible. For openers, Operation Warp Speed provided $12 billion even before there were vaccines. This was an important risk mitigation strategy for the private corporations, as the Wall Street Journal acknowledges. (Pfizer did not take Operation Warp Speed money for research and development, but it’s partner, BioNTech received $450M from the German government and the venture signed $2B in contracts with the US Government before there was a working vaccine.)

Moreover, the work on vaccines is supported by the government in many other ways. Years ago, Barney Graham, the deputy director of the NIH Institute of Allergy and Infectious Disease, was working with Jason McLellan at the University of Texas to develop a vaccine to protect against Middle East respiratory syndrome (MERS). As their work progressed, Graham and McLellan realized that by making slight changes in the genetic sequence that they could create vaccines against multiple viruses. Their modification is a key element of all the COVID vaccines used in America.

This is only one of the ways long term investments by government, with no need to hit quarterly targets, creates an environment where private companies can apply their imagination in a very focused way, and, incidentally, make their quarterly targets. For instance, in 2017 the NIH funded Moderna to develop techniques for accelerated vaccine development before COVID was on the scene.

There is no need to argue about whether this is “capitalism” or “socialism.” It’s neither. But it does seem like a reasonable way to run an economy in a very complex world with ever accelerating technological and scientific realities. It leaves unanswered some very real questions about how to distribute the rewards of this fruitful partnership. The fact that private corporations are a critical part of the economy does not justify any particular distribution of rewards. That is an important topic, but a different one that will be left for another day. For now, it is enough to simply recognize that both private enterprise and government intervention are essential parts of the economy as we have developed it.

Fossil Fuel

Fossil fuel is another collaboration of government with private enterprise, but a much less happy story.

Federal tax policy provides up to $20B in subsidies to fossil fuel providers annually. These incentives were designed to reduce the cost of using fossil fuels, but most were put in place in era when there were no viable alternative energy sources and before the full weight of environmental damage became clear.

Republicans have generally worked hard to maintain supports for the fossil fuel industry. This is true not only in Congress, but throughout the country. Ten Republican states have already adopted legislation making it harder to shift away from fossil fuels. They have adopted versions of a model bill authored by the American Gas Association. State treasurers from 15 Republican states complained in a letter to the Biden administration that it was “picking economic winners and losers” by supporting alternative energy sources over fossil fuels and that the administration was guilty of pressuring financial institutions to “discriminate” against fossil fuels.

There are understandable reasons for Republicans to be concerned about the decline of fossil fuels. Republican states will be disproportionately impacted—both in drastic declines in revenue from fossil fuel sources and indirectly through the loss of jobs. It is going to be a rocky transition away from fossil fuel and more so in Red states. We can see how difficult this is going to be, for instance, in Florida, where, ignoring the extent to which his state is at risk from rising sea levels due to global warming, Ron Desantis self-righteously supported a measure to make it difficult for local municipalities to demand alternative fuels. Apparently he guesses that high gas prices and bad short term economic impacts will impact his political career well before any of the longer-term benefits of adopting alternative energies kick in. As David Axelrod is fond of saying, “There’s a reason Profiles in Courage is such a thin book.”

Regardless, this is no longer capitalism by the textbook. Shi-Ling Hsu, a professor at Florida State University, argues if this were in fact a capitalist economy, the fossil fuel industries, particularly coal, would be experiencing a much greater impact from the array of market forces lining up against them. Costs of alternative energies are falling rapidly and financial institutions are getting worried not because of anything Democrats have done, but because they read the longer-term economic tea leaves.

In this context, the argument by some Republicans that Biden is a “socialist” who “wants to pick economic winners and losers” shows how absurdly confused they are as to what we mean when we use the term “socialist”. Or, for that matter, ”capitalist”. In real capitalism, when companies lose market advantage or the public becomes too concerned about the costs imposed on it by the process (e.g. the cost of pollution from a manufacturing process or product), the companies are forced to change or go out of business.

And so…

To bludgeon the painfully obvious, what we have in our daily life is neither “capitalism” or “socialism” and we should stop muddying our conversations about policy with labels that create artificial obstacles. We need to be able to discuss the role of the private sector in the stunning development of medical advances and the actual costs and benefits of fossil fuels and their alternatives without dynamiting the conversation before it begins. These are complicated, nuanced issues of huge importance. Restricting the argument to cavemen’s clubs doesn’t help.

I think there is another issue here. When people use these labels, they are most often not even talking about economics. They are talking about their perception of how government relates to the mediation between individual freedom and collective welfare. But this code further muddies the conversation. One group wraps itself around freedom and their definition of “socialism” is government willing to stomp on individual freedoms. (Understandably, China is the most evil empire in this view of the galaxy, a view abetted by China’s continued insistence it is a socialist country, when it’s simply an oligarchical, fascist society that understands it keeps power by sharing material wealth to a degree.) To the other group, more concerned about the suffering following from the unequal distribution of power and money, “capitalism” is individuals willing to stomp all over collective welfare as long as it suits their purpose.

It’s little wonder these two groups don’t have a productive conversation.

The current divides in this country are caused by a variety of factors. Confusion on these terms is a minor contributor in terms of causality. But I suspect it is a larger contributor in terms of making it hard to talk ourselves out the mess we have created. We are using words to talk past each other.

We need to get beyond the labels. We are enjoying the benefits and suffering the problems of a mixed economy. A mixed economy is a tangible reminder that neither individual rights nor collective welfare are absolute goods. We all want a country where both individual rights and the welfare of all people are generally protected. We have a much better chance of getting somewhere near there if we talk about the specific issues. Trying to communicate using these broad labels is like trying to do brain surgery while wearing oven mitts. Neither is likely to be good for the patient’s health.