Tuesday, September 15, 2009

Capitalism isn't going anywhere, and here's why

By Dan Danford

A friend was recently pondering the merits of socialism. I think he’d like to soften capitalism, and make it friendlier and more compassionate. He’s a sensitive guy, and he likes to help as many folks as possible.

But there are some problems with that. First of all, capitalism got us here. Socialism could never create the living standards we all take for granted today. No rewards for creativity or innovation results in neither of those things, and they've been responsible for myriad advances in everything from safety to medicine. Personal recognition and reward for exceptional effort are the very essence of capitalism. I’d suggest that many Americans who aspire to creativity and innovation do so precisely because they've been freed from challenges inherent to earlier socialistic regimes.

Compare the relative accomplishments under both systems in the 1940s, ’50s, and ’60s - especially the standards of living among middle classes. There's no real comparison where it really counts: how the typical citizens live their daily lives. I don't tout capitalism because it's morally superior, but because it's done more for more folks than any other contemporary system.

Some argue that socialism strips away the temptation for corruption, but that’s not true. Corruption exists under every social system. I’ve grown weary of the “corporate greed” theme. I suppose it is inevitable, given the situation with bank bailouts and Wall Street shenanigans. Most of us work for decent companies, though, which exist to serve customers. They are profit-making organizations, but those profits fuel our entire system.

Basic economics provides support to those of us who favor capitalism. At its simplest, there are just two basic types of economic activity: producers and consumers. Producers are farmers and businesses, and some professionals.
Everyone else is a consumer. All of us consume things, of course, but many people work in jobs that consume, too. Take public education, for instance. There’s no question that teachers do meaningful work. So do judges, and fireman, and legislators. Still, it’s important to note that they are paid with tax money.
The same thing goes for other government workers, social agencies, and charitable groups. The money that flows to them in taxes or other support originates from society’s producers. Those groups, in turn, pay their workers who pay their taxes and consume more goods. But the spigot of money flows directly from farmers, and businesses, and other people and firms who support them.

According to a recent article on federaltimes.com, the single largest employer in Kansas City, Missouri, is (are you ready for this?) the Federal Government. Think about that for a second. Now think about this: no producers, no taxes, no money. Wages and taxes from producers and their employees cover the entire cost of education, social agencies, and government.

I don’t make excuses. I despise criminal or unethical behavior, but crime is such a wee part of corporate America. Yet, some folks think every business is bad and every MBA is a crook. There are no easy answers. I understand my friend’s points. There's clear need for regulatory and government activity, and unhampered capitalism can be dangerous. There’s a definite role for government and a need for balance.

But I also fear unintended consequences. Some of our most regulated activities, including medicine and public education, display ample reasons for concern. Regulation itself can create massive barriers to entry, and monopoly status.

Consumer pricing, access, and service suffer because well-intentioned regulations favor incumbent vendors. Incentives for creativity and innovation fall idle.
Personal recognition and rewards are the very essence of capitalism. They are the key elements missing from socialism. Until those statements are reconciled, there is little hope for success in socialism.

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