Capitalism and socialism converging as partners By Prem Misir, Ph.D.
Guyana Chronicle
October 21, 2002

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The cry for capitalism can be heard loud and clear today. Some naïve and budding politicians in Guyana continue to discuss applications of capitalism as a pure system. They fail to understand that even the US, perceived as an exemplar of capitalism, does have a socialist base in its economic system. Since the end of the cold war, we have witnessed a barrage of testimonies on the failure of Marxism and socialism. The former Soviet Union and several other Eastern European countries are consistently being cited as illustrations of the failure of socialism. Many of these countries masqueraded with a non-Marxist version of socialism as an economic system of production, and these countries also had totalitarian regimes driving the entire societies. Today, the supercession of these socialist experiments by capitalism is presented as a panacea for all of society’s ills.

And it is as if capitalism, the miracle maker, is the ultimate champion of social and economic disadvantage. It is as if we have reached the end of ideology, meaning that capitalism is the last stage of economic evolution. But this is not the case, as evidenced throughout history. Every economic system of production, as all social phenomena, is subject to change. The rate of change, however, varies from society to society.

Capitalism, is it pure?
Throughout history, the ruling class, that is, people who control the levers of economic and political power, have presented their ruling ideology as a belief system that cannot be replaced. And why should they want their ruling ideology to be replaced when it protects and sustains their vested interests? Capitalism is an ideology for the rulers in a society where it is the economic system of production. Private ownership of the means of production, self-interest and the profit motive, and market competition, are important components of capitalism. Private ownership refers to ownership of machines, lands, and factories by individuals, who also determine what should be produced. Profit denotes selling a product for more than it costs. Market competition indicates a situation where there is an exchange of products between willing buyers and sellers.

Welfare/state capitalism in the US
The US is generally seen as a model of pure capitalism, historically described as laissez-faire capitalism (meaning ‘hands off’).
Laissez-faire capitalism is a reality when the laws of demand and supply prevail without governmental interference. The US is instructive here because contrary to popular and simplistic perceptions, there is no pure capitalism. The US has welfare or state capitalism where ownership is in private hands and profit seeking prevails, but these exist within an arena of governmental intrusion, that is, within a large array of laws intended to protect the citizens’ welfare. Let me provide a strong reference on the US from Henslin (1995), to demonstrate the absence of pure capitalism, and the existence of a capitalism tinged with elements of socialism.

“Suppose that you have discovered what you think is a miracle tonic: it will grow hair, erase wrinkles, and dissolve excess fat…Before you count your money…you reckon with market restraints, the laws and regulations of welfare capitalism that limit your capacity to sell what you produce. First, you must comply with local and state rules. You must obtain a charter of incorporation, business license, and a state tax number that allows you to make untaxed purchases. Then come the federal regulations. You cannot simply take your item to local stores and ask them to sell it; you must first seek approval from federal agencies that monitor compliance with the Pure Food and Drug Act. This means that you must prove that your product will not cause harm to the public. In addition, you must be able to substantiate your claims…Your manufacturing process is also subject to government regulation: state and local laws concerning cleanliness and state and federal rules for the storage and disposal of hazardous wastes…”

Even if you are able to comply with all these regulations, other Federal agencies will monitor compliance with racial and sexual discrimination, payment of minimum wages, transmittal of Social Security taxes, and transfer of unemployment compensation and sales taxes. And of course, there are the beaming eyes of the Internal Revenue Service. In the US, a person is free to pursue private ownership and profit, but government laws and regulations limit market competition, an important component of capitalism.

Clearly, then, the US does not have pure capitalism. This governmental regulatory intrusion is integral to a government’s central planning role, which is part of a socialist base. Again, the socialist base of the US economy is blurred because some socialistic elements have become well integrated into the economic system. Look at these examples, drawn from Henslin: unemployment compensation - taxes paid by workers given to those who do not at that time produce a profit; subsidized housing - shelter, created by others for the poor and elderly, with no profit motive; welfare - taxes paid by many and given to the needy; minimum wage - it is the government and not the employer who determines the minimum at which a worker shall be compensated; Social Security - the retired are not given what they paid into the system, but are provided with money taken from the current workforce. These are some clear examples of the US economy having a socialist base.

Socialism, is it pure?
What is socialism? Socialism has three elements: public ownership of the means of production, central planning, and distribution of goods without a profit motive. Socialism enables the means of production and distribution to be collectively-owned, with the view to meeting people’s needs and deterring profit maximization. Inasmuch as the US has no pure capitalism, there also is no pure socialism in those countries purported to be socialistic. What they all have is a mixture of both capitalism and socialism, but to varying degrees. The realty is that the former socialistic countries had more of socialism and less of capitalism, but many of them were driven by totalitarian political systems. The US has more capitalism and less socialism, but is driven by a democratic political system.

Social & economic disadvantage in the US
Capitalism as an economic system of production, is fine if everyone starts on a level playing field. However, this is not the case in capitalism, also referred to as market economy. Support for the capitalistic components is desired. However, capitalism by itself is not sufficient for any society with a high level of social stratification, that is, a society characterized by considerable inequalities.

The developmental strategy needs to be rethought for societies with an uneven playing field where sectors of the economy are not all equal one to the other. This is true of Guyana and many other Third World

societies. The strategy should be to address the relationship of the worker to the products of his labour, i.e., whether the worker has a say in what he produces; and on the process of producing that product, i.e., whether the worker is exploited. The worker’s lack of control over his/her own product could lead to alienation and to lower levels of productivity.

Capitalism could generate great satisfaction to a large number of people. But its production of vulgar and structured inequalities facilitates some persons and hinders others from advancing to economic and social well-being. Through no fault of their own, many of those prevented may never fulfill even some basic needs, due to institutionalized inequalities and discrimination. A useful society to examine in terms of social and economic conditions is the US.

The US, the bulwark of capitalism, has not worked well in the interest of working people, but capitalism has always enhanced the quality of life of the upper classes and the power elite. A close examination of some selected characteristics of American Society will attest to this scenario.

In 1999, the US had about 44,286 million Americans living below 125% of the federal poverty line, that is, 16.2 percent of the population, 43 million without health insurance, and parts of the US like Central Harlem have an infant mortality rate higher than that of Bangladesh. Wealth and income inequality are spectacularly striking in the US.

According to the Statistical Abstract of 1993, this wealth constitutes real estate, corporate stocks, bonds, and business assets. The largest

amount, 68 percent of the wealth is owned by 10 percent of the country's families. This 10 percent controls over 50 percent of all real estate, 90 percent of corporate stocks and business assets, and 95 percent of bonds. The super-rich, 0.5 percent of Americans, possess 27 percent of the nation's total wealth. The top 20 percent of the population earns about 44 percent of the income in the US, and the bottom 20 percent gets less than 5 percent of the country's income. This situation of wealth and income inequality has not significantly changed even using today’s income and wealth data.

Personal income per capita in current dollars in 2000 was $29,676, which was lower for American Indians, Africans, and Hispanics. In 1999, the percent distribution of aggregate income for the lowest 5th was 4.3, for the highest 5th 47.2, and for the top 5 percent 20.3.

In the Reagan-Bush era with the use of supply-side economics (trickle- down economics), the evidence is clear that those in the highest income brackets did exceedingly well, while the working classes experienced reduced real incomes. The argument in supply-side economics is that exempting capitalists from the capital gains tax and other financial burdens, will induce these capitalists to plough more investments into their corporations, and in the final analysis, workers stand to benefit. The history of those Reagan-Bush years have demonstrated the fallacy of capitalism on its own helping the working people merely through laissez-faire orientations.

More recently, allowing corporations to administer welfare programs tocorporations has produced minimal results for poor people in the US.

The Asian financial crisis of 1997 and after, especially the bankruptcy ofJapanese Banks, shows how vulnerable capitalism is to the global economy.

The repercussions are being felt in the US, and the consequences are far from over. Today, the increasing social and economic disadvantage in the US clearly points to the need for more socialism to be infused through greater central planning.

Convergence of capitalism and socialism
Societies with sharp inequalities may require a complementary and convergence relationship between capitalism and socialism. The establishment of such a system is long overdue, especially in multiracial societies, as in Guyana. Guyana is highly stratified not only on economic, but also on ethnic lines. By definition, since a capitalist society thrives on economic and individual competition, clearly some groups will be facilitated to increase their quality of life, while others who lack the capitalist resources become non-competitive and demoralized in the system.

The problem of race relations is born out of this gross social and economic inequality. And therein lies the class explanation of race issues.

However, conspicuous similarities are growing among capitalist and socialist nations. Clark Kerr (1983) has argued that as countries become industrialized, they demonstrate sharp similarities with each other.

Similarities are seen in the labor force, higher education, and urbanization which would make capitalist and socialist countries exude considerable parallels. Form (1979) also points to these countries’ convergence in their economic ideologies of capitalism and socialism, exemplified by the US’ socialist economic base, and the shedding of some orthodox socialist elements by the former Soviet Union and the Eastern European bloc.

The United States’ solution to poverty and related social problems, has dictated the injection of both socialistic rules and standards to work conjunctively with capitalistic principles, albeit a policy that lacks continuity and where socialism is subordinate to capitalism.

Likewise, Guyana, in order to reduce poverty and associated social ills, may need to inject both elements of capitalism and socialism in developmental strategies. However, these two economic systems of production have to converge and be rooted in a relationship based on equality.

Convergence, a force to reckon with?
Absence of this converged economic system of production is impoverishment, disparities in wealth and income, and vulnerability to the global economy. Clearly, the absence of a convergence of these two economic systems can hardly promote social, economic, and moral development, and would intensify racial tensions, through rising social and economic disadvantage in multiracial societies. The fulfillment of people's general needs as a social policy has a greater probability of success within an integrated economic system of production, where both capitalism and socialism operate as equal partners. Developing societies need to find an alternative to globalization which solely works to the advantage of developed nations. The convergence between capitalism and socialism may be what developing countries need as an alternative to the requirements of globalization.

The globalization trend now is being challenged, and a receptivity toward applying a converged economic system of capitalism and socialism, is gradually attracting some interest. Fukuyama in the Time, May 22, 2000, believes that the rumblings of anti-globalists show that the egalitarian sentiment still is alive, and that socialism is making a comeback. The push toward social equality is returning, as evidenced by the World Trade Organization meeting in Seattle in 1999, and the World Bank-IMF meeting in Washington a year or so ago. The convergence of capitalism and socialism as equal social partners is long overdue.