© Josh Sager – November 2013
The United States is one of many successful modern mixed economies. As opposed to a purely anarcho-capitalist or socialist economy, mixed economies like our combine capitalism and socialism in order to get results superior to what either ideology could get in their pure form.
Mixed economies vary in the proportions of socialism and capitalism that they contain, but most of them only vary by relatively small degrees. On one end of the spectrum, countries like the USA have higher proportions of private sector involvement (ex. the US keeping the healthcare market in the private sector) while, on the other end of the spectrum, countries like Finland have more expansive public sector programs.
Unfortunately, an increasing extremism and policy ignorance within the right wing over the past few years has led many in the right to reject the idea of a mixed economy. These right wing partisans support privatization of virtually every sector of the economy and a transition from a mixed economy to one far more reliant on the private market.
Here are a few examples of this phenomenon:
Health Care – While the GOP once supported mandates and subsidies in healthcare (ObamaCare) as an alternative to socialized medicine, they now propose a return to the free market. According to most in the GOP, we should simply implement more health savings accounts and leave the market to run free—those who cannot afford care will be left to rely on charity, emergency rooms, or a mortuary
Education – On the state level, the GOP tends to support school privatization and voucherization, while, on the federal level, the GOP supports the abolition of the Dept. of Education.
Disaster Aid – Many prominent right wingers have supported shifting disaster aid back to the private sector and shutting down federal disaster response agencies. For example, during the 2012 debates, Romney supported “sending it [disaster aid] back to the private sector” and the rest of the field had no argument.
The right wing push to privatize neglects economic reality and will inevitably fail to benefit large portions of the American population if it is allowed to progress—it will do this simply because absolutist economic philosophies (ex. pure capitalism or communism) are too rigid to function properly.
The Failure of Purist Economics
Absolutist philosophies on how an economy should be structured fail for the simple reason that they assume that everything in society can be standardized into a free market or governmental model—a libertarian sees the free market as the solution to every problem while a communist sees the government as the universal fix. In reality, different economic models have different benefits and drawbacks, thus they are not equally applicable in all situations.
Socialized programs can be very equitable and efficient in providing some goods, as they create a large consumer pool and deal effectively with the free-rider problem. Rather than expecting everybody to independently find a private provider for their vital needs as well as a way to pay for them, socialized programs create a way for everybody to pay in what they can afford, yet receive everything that they need. These programs are best suited for ensuring that everybody has a certain floor of well-being (food, healthcare, education, etc), just for living in a civilized society and regardless of their personal circumstances.
While socialized programs are good at some things, they do have some limitations and drawbacks. The first, and arguably largest, flaw with a socialized program is that it provides the same benefits regardless of input levels—this equality dulls the need to work in order to get benefits. In situations where survival is at stake, this “flaw” is actually a positive (as it ensures that those without the ability to work aren’t left to die) but, in other situations, it can become extremely problematic. For example, if everybody is guaranteed a cutting edge computer and television, then there is no compensation stratification based upon effort in order to incentivize people to work hard and advance.
The second flaw in socialized programs is that, in comparison to market-based programs, socialized programs are worse at innovation. Innovation is driven by competition and has a significant risk/reward component. In short, many different, parallel, and competing efforts to improve a product (ex. a camera) tends to create advances faster than one socialized effort which must deal with the need for equality—this isn’t to say that socialized efforts to develop new technologies aren’t beneficial in some cases (ex. Darpa developing the internet), merely that many sectors of the economy are better served in the private sector.
Capitalism has several benefits as an economic philosophy. First and foremost, a regulated capitalist economy promotes growth and development. Akin to how natural evolution happens, the cutthroat natural selection of the market helps goods improve in quality as inferior goods are pushed out of the market. Many sectors of the economy—from consumer electronics to children’s toys and baked goods—benefit from market competition in a way that socialism simply cannot match.
While it is effective for some areas of the economy, pure capitalism fails to achieve equitable results. In pure capitalism, people who cannot pay are neglected, less able to advance in society (after all, they aren’t guaranteed an education), and can even face starvation—this neglect is inherent to the system, as capitalism is based around people BUYING goods rather than being given the right to certain good simply be living in society.
In addition to being inequitable, capitalism cannot provide certain goods because the free rider and start-up cost problems are simply too large. For example, capitalism cannot effectively implement the creation of a national infrastructure because the costs for starting the system are too large and unprofitable for any private entity to see as a valid investment.
The Proper Mixture
In my—and many far more knowledgeable experts’ opinions—socialized programs should take care of everything that society cannot do without, yet the market cannot provide efficiently or equitably; once these vital functions are taken care of by the government, a regulated private market should be able to take care of the rest of the economy.
Socialism should control: Healthcare, education, public safety (fire/police/prisons), national defense, disaster aid, food/housing/energy assistance and public transportation.
Functionally speaking, this economic mixture is closer to the social democratic countries in Europe than the United States. Economic sectors like healthcare, education and transportation are relatively more socialized in social democracies than the USA, and we have seen better results—for example, the United States ranks 46th in terms of healthcare in a cross-country comparison of 48 developed countries (hooray, we beat Serbia and Brazil), while the social democracy of France ranks at the top.
Put simply, any transition from a mixed economy towards a purely market-based or government-based economy is not only bad policy, but the exact opposite of the direction that we should be moving in. The right wing’s instinct to return to a more market-driven economy flies in the face of the evidence that a strong socialist safety net promotes a more equal and healthy society.
Personally, I am nowhere near a socialist and think that it is certainly possible to fall too far towards pure socialism in a mixed economy—that said, we are nowhere near that point. If we are to be better off as a country, we must begin to look a little more like the social democracies of Europe and a little less like the free-market dominated “rugged individualist” country that many on the right have been pushing.
This ranks as one of the most balanced and fairly written articles on economic systems I have read.
There are lots of strong opinions out there about whether we should have a pure free market system or a pure socialist system, but like everything else in life, the truth is almost always a healthy balance that avoids extremes.
The quest for the “perfect system” is in itself the problem, because there is no such thing.
Capitalism and socialism both have pros and cons so as this article rightly points out, it makes sense to attempt to maintain a system that draws the benefits of both and in doing so avoid some of the potentially disastrous affects that history has demonstrated happens when we allow an extremist ideology to become too dominant.
Thank you very much. Any time that somebody pushes a pure economic system, you can simply discount them as ignorant on issues of applied economics.