This essay is Part 3 of a three-part series on socialism:
In the first essay of this series, I took socialism, as defined by the Oxford English Dictionary, and showed why it is immoral (unjust) in theory and in its “purest” practice. Then, in the second essay, I explained why, in the real world, attempts to approach pure socialism have always resulted in oppressive, dictatorial governments with high degrees of corruption. (Again, as explained in the second essay, worker-owned cooperatives cannot generally be called “socialism.”)
In this essay, I’ll discuss partial socialism, as it presents itself in the Scandinavian countries of Europe, (like Sweden,) in the US, and in the 2016 presidential campaign of Bernie Sanders. Some people will say that pure socialism is impractical and/or inconsistent with human nature, but still think that there should be a “balanced” mixture of socialism and capitalism. Capitalism, they think, mustn’t be “unfettered,” but rather must be reined in by government regulation and welfare programs. This they will often call “democratic socialism” or “social democracy.”
I’ll explain why partial socialism and welfare programs are unjust and destructive of people’s well-being.
Once again, from the Oxford English Dictionary, socialism is defined as:
A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.
But “the community as a whole” is not a single entity, and does not think with a single mind. There is not even a single, definite organization encompassing “the community as a whole.” So it can’t really do anything or own anything. In socialist practice, “the community as a whole” is taken to be represented by government. (And as I explained in Part 2, the logic of socialism means that this government doesn’t even have to be “democratic,” in the way that term is often understood. At least in the Marxist version, it can also be represented by an informal government, consisting of organized gangs of proletarian thugs with guns–this is Marx’s “revolutionary terror.”)
So socialism should really be defined as:
A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the government.
Full socialism is where the means of production, distribution and exchange are “public,” or owned by the government. Economic capitalists–individuals who own and profit from any means of production or exchange–are completely abolished, and their productive property is expropriated by the government. Everyone becomes a wage worker of some sort under the government, and no one earns personal profits from private property (capital.)
In partial socialism, capital is not owned outright by the government. Economic capitalists still exist, but they are regulated in their use of their productive property for the alleged benefit of “society as a whole.”
The ownership of some piece of property means the right to use and dispose of it as one sees fit. When the government regulates an individual’s use of his property, (beyond preventing him from using it to physically attack or defraud others) the government is taking some level of de facto ownership of the property for itself. This is why regulation can be considered socialism, to a less-than-full degree.
Social Programs (a.k.a. The Welfare State)
Until now, I have discussed socialism in terms of the government’s treatment of property rights in the means of production. This is the most essential idea behind socialism. But in every real-world expression of socialism of any degree, it goes hand-in-hand with governmentally sanctioned social programs. The government not only regulates productive (“private”) property, but also forcibly takes individuals’ “personal property” for redistribution, (usually in the form of tax money.)
Despite socialists’ division of property into “private property” and “personal property,” and their claim to deny the former while respecting the latter, the fact remains that the justification for both types of property is the same, and their distinction is baseless. As I argued in Part 1, both kinds of property are required to enable individuals to pursue their own happiness in the long term: to earn just rewards from their own productive effort, and to use their own judgment to innovate, create wealth, and plan for their own future. Under capitalism, both kinds of property are initially earned the same way: by one or more individuals exerting the effort to transform existing material and land into valuable objects and developed land. (In cases of both objects and land, value is created by individual effort.)
So when socialists deny the right of people to their private, productive property, they obliterate any rational case for rights of “personal property” in their own minds. This leads them to see personal property as something that can be forcibly taken whenever “society” (government) deems appropriate. This forms the basis of coercive wealth redistribution, in the form of various welfare programs.
Welfare is more prominent in the goals of social democracy than of Marxist-Communist socialism. Marx himself was against welfare, because he thought it would blunt the “economic forces” of revolution: The workers would tend to be mollified, and their hunger to take down the capitalists would be lessened. Instead of welfare programs, Marx counted on a state of “superabundance” in late-stage socialism to usher in communism and a utopian well-being for people. (This “superabundance” is where the production of all of life’s necessities requires no labor, so that people can just take these necessities freely from a common pool.)
Since most of today’s socialists and social democrats don’t believe in the orthodox interpretation of Marx’s theory of historical development, they aren’t counting on “superabundance” to arise. They want to enact Marx’s maxim for communism, “from each according to his ability, to each according to his needs,” as much as they think feasible, as soon as possible. So they see welfare programs (forced wealth redistribution) as the means to human well-being and “social justice,” in the here and now.
Thus we get the two pillars of social democracy: Business regulation by government, and welfare redistribution by government.
Bernie Sanders: Egalitarian Social Democrat
Bernie Sanders calls himself a “democratic socialist,” but that term tends to imply that he’s a full socialist of a “democratic” sort. This is clearly not the case for his stated policies. Sanders does not advocate for the abolition of capitalists and for the public ownership of the means of production.
But he does advocate for a high degree of regulation of business and a high degree of welfare redistribution. This makes him a partial socialist, or a “social democrat.”
Note that Bernie Sanders is constantly railing against the “millionaires and billionaires,” and “the top one tenth of one percent.” He demonizes the wealthy for being wealthy, and equates any high inequality of wealth with violations of “social justice” or “economic justice.”
This idea, that (high) inequality of wealth is inherently wrong, is called “egalitarianism.” Egalitarianism takes equality of wealth as an ideal, regardless of differences in people’s efforts, abilities, or levels of responsibility. When asked specifically about what economic policies they’re for, most egalitarians will say that of course they’re not for a complete leveling of wealth or incomes. That would be absurd, they admit. But when wealth inequality is “too high” in their opinion, they take that as ipso facto proof of wrongdoing on the part of the rich. The facts of how the wealth was obtained don’t matter to them; the extremely rich are all to be treated like criminals who “rig the system for their own benefit.” Whether their wealth was actually obtained through fraudulent dealings and special government favors, or whether it was earned through voluntary transactions without special favors, the “millionaires and billionaires” are all supposedly to blame for economic problems and injustice.
In the case of the egalitarian Bernie Sanders, the proposed solution to the problem of “millionaires and billionaires” is a greater degree of partial socialism. Rather than proposing measures that would actually reduce cronyism, (1) Sanders proposes business-hindering regulations and large tax increases that wouldn’t discriminate between wealth earned by voluntary transactions, and wealth taken through fraud and cronyism. All millionaires and billionaires deserve financial punishment, in his opinion, for the sake of reducing wealth inequality.
Now Sanders often says that his promotion of greater socialism is for the benefit of “poor and working Americans.” So if asked, he would deny that his message is about punishing all rich people. He would say he just wants to lift up lower-income people who have been oppressed and impoverished by a corrupt system. Yet relatively free markets have been tremendously effective at raising the real incomes of the poorest people in every society, to the extent they have been implemented. (Free markets arise to the extent a society has a rule of law that is effective at protecting individual rights to life, liberty and property, without other governmental restrictions on action, subsidies, or forced redistribution of wealth.)
When the US most closely approached free markets in the 19th and early 20th Centuries, the result was a quadrupling of the real wages of factory workers during the 1800s, and an exponential rise during the early part of the 1900s:
In 36 years, from 1970 to 2006, subsistence-level poverty in the world dropped by 80%. It dropped largely due to freer markets around the world, especially in places like China and India. This is an amazing achievement of partial capitalism, and of the entrepreneurs, scientists, artisans and skilled workers who use their minds to innovate within that system.
When we compare these achievements to the stagnation, oppression, and mass killing of socialist countries like the Soviet Union, Mao’s China, Cuba, East Germany, Pol Pot’s Cambodia, and North Korea, the contrast is striking. The latest example we have of socialism in action is Venezuela, which, as of this writing, has massive shortages of almost everything, including food. The country is breaking down and people are having trouble getting enough to eat.
But of course, Bernie Sanders doesn’t want to lead the US to that sort of socialism, he’ll protest; he wants to lead the US to be more like “socialist” Sweden. This is an example of successful socialism, he claims–it’s “socialism done right.”
What About Sweden? Are Scandinavian Societies Socialist Success Stories?
The first thing to notice is that there are no Scandinavian countries, including Sweden, that are anywhere close to fully socialist. They all allow lots of private ownership of business, and have fairly high levels of protection for private property rights, relative to much of the world. They have welfare systems that are proportionally larger than those in the US, but they also have lower corporate tax rates than the US. In many ways, they place less burdensome regulations on businesses than the US does, and so are closer to being free markets in that respect.
Scandinavian countries are mixed economies: mixtures of socialist elements with capitalist elements. And a look at the history of Sweden shows that it is the capitalist elements that are responsible for what prosperity it has enjoyed. In the book, Equal is Unfair: America’s Misguided Fight Against Income Inequality, Don Watkins and Yaron Brook discuss the history of Sweden:
What is clear is that if we look at the history of Scandinavian countries, we find that they have prospered during periods in which they had more economic freedom (and higher inequality), and they have faltered in periods in which they had less freedom (and lower inequality). Take the case of Sweden, for example.
In the beginning of the 1800s, Sweden was among the poorest countries of Western Europe. By the mid-1900s, Sweden was one of the richest countries in the world. What made this possible? Freedom. Over the course of the first half of the nineteenth century, all major government restrictions, regulations, and controls were removed and the basic institutions of capitalism were established: private ownership of the means of production, freedom of competition, and free trade. The government was small (spending around 10 percent of GDP), and taxes were low.
The 1870s would mark the beginning of what is known in Sweden as “The 100 Golden Years.” Between 1870 and 1970. Sweden enjoyed some of the highest economic growth, productivity growth, and wage growth in the world. By 1970, it was the third-richest country in the world, in terms of GDP per capita. At the end of the twentieth century, however, Sweden was fighting to remain within the top 20. Why? Because it abandoned its commitment to liberty.
Between 1960 and 1980, the burden of government spending doubled, rising from 30 percent of GDP to 60 percent of GDP. To fund its growing welfare state, taxes skyrocketed: the top marginal tax rate, for example, hovered around 90 percent throughout the 1970s and 1980s. As a result, the rate of economic progress also slowed. In the 1950s and 1960s, the average growth rate was 3.5 to 4.5 percent per year. Between 1971 and 2001 the average in Sweden was just over 2 percent per year. [Below the OECD average for the same period.]…
In 2006, Sweden started once again to move in a freer direction. As the late Johnny Munkhammar, a member of the Swedish parliament, wrote, Swedes “have seen their borders opened for more labor migration, they have seen still more state-owned companies sold, and have seen their public authorities shrink in number. Stockholm has also cut property taxes and abolished the wealth tax, and instituted a new system of income-tax credits that lets working people with average incomes keep what amounts to an an extra month of wages, after taxes, per year. Today, the state’s total tax take comes to 45% of GDP, from 56% ten years ago.” As a result, Sweden has no budget deficit and has reemerged as one of Europe’s fastest-growing economies. (Inequality in Sweden, meanwhile, has risen.) Far from a counter-example, Sweden’s history demonstrates precisely what we’ve argued: that liberty and prosperity are inextricably linked, and that economic inequality simply doesn’t matter.
I also recommend an audio course on Swedish politico-economic history called, “What About Sweden?” by Carl Svanberg.
Partial socialism has not only been economically destructive in many countries like Sweden and the US, it is inherently unjust wherever it is practiced.
The Injustice of Partial Socialism and Welfare Programs
Justice means people getting what they individually earn. To earn something is to exert one’s own rational effort to produce it, or trading one’s products for it, without being parasitical on the production of others. (By “being parasitical,” I mean an adult taking someone else’s product, without offering something in return that they consider worthy compensation for what they give.) Earning wealth and other values is the means by which human beings support their lives; if no one earned food and shelter, no one would survive; if no one earned greater levels of wealth (“luxuries”), no one would live above extreme poverty. So justice, as a societal condition, means that most individuals typically act–and institutions are set up–so as to reward the sort of actions that promote human life and well-being (rationality, earning), and punish the sort of actions that destroy human life (irrationality, parasitism). When the government acts in such a way as to punish individuals for rationality and creation of wealth, and reward individuals for irrationality, irresponsibility, laziness, etc, the government is perpetrating injustice.
Justice is not about having one’s needs met by others. If someone sits around unemployed on his parents’ couch his whole adult life, watching TV, demanding that his mother spoon feed him, he is not earning that food and his mother is not promoting justice by feeding him. (Now if he’s generally strives to be productive, but is temporarily injured so he can’t work, his mother may choose to help him and it would be just. His well-being as a productive man is a value to his mother, in that it increases her own psychological well-being. For more on this, see: Other People as Egoistic Values Versus Other People as Objects of Self-Sacrifice in Ayn Rand’s Philosophy.) So the demand that people’s “needs”–for food, healthcare, housing, or a “living wage”–be treated as “rights,” to be filled by the expropriation of others, is not a call for justice. It is, in fact, a call for massive injustice, as I will explain after discussing regulation.
The first pillar of social democracy is governmental business regulation. Recall that it is this pillar that is most properly called “partial socialism.” Governmental business regulation is unjust in principle. To see why, let’s take an example.
Let’s say Jim owns a small store. He currently takes comes in an hour early every Monday, Wednesday and Friday to clean the store and stock shelves. He would like to have someone else come in and clean the store, freeing him up to spend those hours building the store’s website, and seeking investment and a larger space to expand the store. Jim is trying to save money that he knows he’ll probably need for initial costs of expansion. He’s willing to spend $30 a week to have someone clean the store, otherwise, he’ll take extra time during lunch and after closing time to work on the website and expansion.
Danny is a college student who is looking for part-time jobs. He doesn’t have many skills, and doesn’t have a lot of time to work along with his busy class/study schedule. He lives right near Jim’s store and asks about the “help wanted” sign. Jim is willing to pay Danny $10 per hour to come in Mondays, Wednesdays and Fridays to clean the store and stock shelves. Danny is willing to accept $10 per hour for doing the job, since he thinks the job is a good deal for him in his circumstances. But the state has just enacted a minimum wage law that makes paying anyone less than $15 per hour illegal. Jim can’t offer Danny the job. He decides, instead, to put in the extra hours himself.
This is an injustice perpetrated by the government: If Jim made a voluntary deal with Danny that both of them judge will benefit them, (work at $10/hr) Jim would be punished by the government. He would be punished without having done anything wrong. Danny is also being punished in a certain respect: The government has forcibly robbed him of an opportunity to earn money. It’s like a little tinge of imprisonment. When the government imprisons someone, it is using force to stop him from pursuing career opportunities, love interests, friends and other things that support and enrich his life. What the government has done to Danny and Jim is like that, but to a much smaller degree: It has forcibly thwarted their attempts to improve their lives in this case.
The same sort of injustice applies to all the other cases where the government regulates business (beyond protecting people’s bodies and property from force and fraud by others.) When the government demands FDA approval before a dying cancer patient can try an experimental therapy, the government is threatening to punish a healthcare provider just for honestly trying to save a patient’s life. When the government legally requires a business to pay extra taxes for unemployment insurance, it is threatening to punish the business owners for making a voluntary agreement with employees that doesn’t include unemployment insurance. The business has violated no one’s rights by making such an agreement, but will still be punished for doing so. When the US government forcibly confiscates people’s gold, (as the US government did in 1933) then forces people to accept Federal Reserve notes from debtors, regardless of any agreement the parties might have made, the government is visiting an undeserved punishment on people.
A slightly different kind of injustice applies to welfare programs. Welfare forcibly takes money from people who earned it, and gives it to those who did not. This is a punishment for a great many who were thoughtful, responsible, self-disciplined, and thus successful, for the sake of rewarding people who may very well have been thoughtless, irresponsible, and undisciplined, and thus unsuccessful. Social Security and Medicare take money from people while they work, then gives them less money back than they could have received by saving or investing what they paid in. This forcibly penalizes people who would have been responsible in saving for retirement, in order to reward those who were irresponsible in saving. (If people see someone who was responsible but just very unfortunate, they can voluntarily donate to the person. This would not be injustice, in general.)
Whenever the government initiates force against people to regulate business, or transfer money as handouts, it is acting to punish the rational and responsible. In many cases, this is done for the sake of “protecting” the irrational and irresponsible from the bad consequences of their own bad choices.
Why Partial Socialism and Welfare Programs are Destructive
It should come as no surprise that a government policy of economic injustice–of punishing the earning of wealth and rewarding the failure to earn wealth–is destructive to human life and well-being. After all, what is economic activity but the striving of people to survive and make their own lives better? To punish personal success in the economic realm is to discourage future success, to some degree, and to forcibly transfer resources from economically productive hands to unproductive ones. As seen in the case of Sweden, this harms economic growth. And it is economic growth that makes it easier for the poor to earn wealth, to receive charity and to live at a higher standard of living. (Recall the 80% reduction in extreme world poverty mentioned earlier, and note that a “poor” person in the US is much better off than a poor person in Haiti and most of Africa. Many poor in America have a problem with eating too much and getting fat, instead of a problem with starvation.)
Regulation cuts off many methods of running a business that people may find more productive. Subsidies and forced professional licensing requirements tend to favor current majority practices at the expense of innovators. Labor regulations make hiring workers very expensive and time-consuming. All this reduces the ability of businesses to innovate, to adjust to new technology, and to provide job opportunities to low-skilled workers. The productive capacity and efficiency of businesses is reduced from what it otherwise would be.
Welfare programs not only drain the wealth of wealthy and middle-class people, but also tend to reduce people’s incentive to work, to be frugal, or to improve their skills and move to higher incomes. This is especially true when the benefits are provided as a “right,” with no strings attached. This effect can be seen in the effects of welfare reform in the US in the mid-1990s. Unemployment dropped and poverty decreased after the welfare system was altered in 1993 and 1996. (See here. There is also no evidence, to my knowledge, of an increase in extreme poverty, when extreme poverty is properly measured. See here and here.)
Welfare programs encourage poor people to see money as something to just be grabbed through politics, rather than earned through work. It encourages a mentality of entitlement to others’ money in place of a strong work ethic. Thus it causes people to lose pride in their own ability to pay their own way and support themselves. That is a recipe for a resentment of productive work and for unhappiness. (2)
Bernie Sanders is not a full socialist, but the social democracy he subscribes to is partial socialism with welfare programs. It is not as unjust and destructive as pure socialism, but it is still quite unjust and destructive. When Bernie Sanders advocates for more welfare and government control, he is advocating for policies that will not raise the poor up, but only bring the rich down.
Just rewards for individuals’ wealth creation can result in very large differences in income, even while the relatively poor in the society become richer themselves. When the government initiates force against people to regulate business and redistribute wealth, it is punishing the rational and successful for the sake of the unsuccessful. So the social democrat’s obsession with using government force to reduce inequality leads to injustice and less economic growth. It reduces people’s freedom of action–which means the opportunities they have to improve their lives according to their own judgment–and thus harms their lives and well-being.
For a fuller discussion of the issue of economic inequality and why it’s not relevant to people’s economic well-being, I recommend Equal is Unfair: America’s Misguided Fight Against Income Inequality, by Yaron Brook and Don Watkins.
For a comprehensive case for the morality and practicality of capitalism, I recommend The Capitalist Manifesto: The Historic, Economic and Philosophic Case for Laissez-Faire, by Andrew Bernstein.
(1) What would actually reduce cronyism is for the government’s regulatory role in the economy to be reduced. As you reduce the government’s power to “pick winners and losers,” you reduce the incentive for businessmen to lobby the government to be made into “winners.” Regulators also have an incentive to get in bed with the companies they regulate, because, in addition to getting perks and kickbacks, they want stability in the industry they regulate. Stability makes their job easier, and helps them avoid apparent problems and outcries from constituents that could get them in trouble. When new, innovative companies try to enter the market, it can be disruptive to the “established order.” Regulators hate that. So they grant favors and tend to encourage monopolistic control.
Ever notice that the companies in the most regulated sectors of the economy are the ones people complain about the most? Finance, medicine and education are among the most regulated, and they are what people complain about the most. Electronics is among the least regulated, and it has made amazing advances without skyrocketing prices or deteriorating quality.
Microsoft never used to lobby in Washington. Then the anti-trust regulators came after them for giving away Internet Explorer for free. After that, they started lobbying.
(2) International polls on rates of self-reported “happiness” are not reliable indicators of people’s actual well-being in different countries. Different cultures have different ideas and expectations about life that will affect people’s responses. They will often tend to rate their well-being relative to a standard set by those around them, in the same country. When expectations for what is possible to individuals are lower in a country, the reported numbers for well-being will be inflated relative to a culture with higher expectations.
Socialism and Welfare vs. Justice: Why Inalienable Private Property Rights are Required for Justice
On Fairness and Justice: Their Meanings, Scopes, and How They Are Not the Same
Wealth is Created by Action Based on Rational Thought
How Business Executives and Investors Create Wealth and Earn Large Incomes
19th-Century Capitalism Didn’t Create Poverty, But Reduced It
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A distinction without a difference. Sanders is a diehard socialist. He wants to be in charge of the distribution of goods.
Wow, this is great stuff. My compliments to the author.
A word about the motivation of socialists in particular and authoritarians/responsibility-abdicators in general. As a practicing unlettered big-picture praxeologist in the tradition of Ludwig von Mises, I always examine motivation carefully.
1. Government exists for the benefit of those who govern.
2. Show me a socialist (collectivist) and I will show you an individual who seeks to avoid the rigors of the entrepreneur-consumer-driven market, either by abdicating their responsibilities for their protection and/or welfare in exchange for entitlements pandered for votes or political support, or by seeking authority over others and the power, glory, and material benefits that go with authority.
3. Note that all statist (compulsory) governments, including minimal government, foster both avoidance of the rigors of the entrepreneur-consumer-driven market and initiation of force to realize the benefits to those who govern.
4. Authoritarians are merely the unethical takers in society. The real culprits are those who enable authoritarians by abdicating their protection/welfare responsibilities in exchange for entitlements.
5. It is time for Atlas to shrug.