Mark Thoma has recently wrote about his take on Bernie Sanders misconception of Democratic Socialism. Mark is a respected macroeconomist and professor at the University of Oregon. He has an awesome blog which provides the best window into the debates among economists going on in the blogosphere. But he seems to suffer from the same misconceptions most Americans have of the term. This is bit disappointing since have watched his YouTube course on the History of Economic Thought. I would have thought he would have a better grasp on these terms.
Here is how he put it:
"Democratic socialists reject capitalism as an economic system and want to replace it with state ownership of the means of production (i.e. the state owned factories, businesses, land, housing, and so on) combined with political democracy. This feature, democratic choice over political leadership, distinguishes democratic socialism from authoritarian Marxist-Leninist style socialism."
First off, Democratic Socialism is synonymous with Socialism. A democratic political structure has always been the defining element of Socialism along with social ownership. The only reason it needs qualification is to avoid confusion with authoritarian forms such as Marxism-Leninism in which the state would have control of the economy. In a Democratic Socialist system, or just Socialist system, the means of production would be owned through a variety of social ownership structures: employee-ownership, consumer-cooperative, state ownership or public ownership. A (Democratic) Socialist economy can be market-based or centrally planned, both are compatible. Some argue market-based economies suffer from too much inefficiency and waste, thus the constant need for government intervention through social insurance programs. Social programs would still be required in a market-based socialist economy. But the dynamism and innovation you attribute to Capitalism should really be attributed to the Market-based structure. Whether the ownership structure of an enterprise is employee-owned or proprietary makes no substantive difference in terms of innovation. Although, one could argue that in an employee-owned structure innovation is more likely given that employees are more free to speak their mind and share their ideas.
Capitalism is NOT unique because of its Market-based structure, what makes it different from any other system is its concentration of ownership. Markets do tend to allocate resources and goods more efficiently. But that question, however, is a separate problem from how the ownership of the means of production is allocated. Fundamentally, what we are talking about when we discuss a transition from Capitalism to Socialism is a broadening of the distribution of ownership of the means of production. How we get there, and what we do after is where the various iterations of socialist thought diverge. Should the economy be centrally planned? Is better for the state to takeover to initiate the transition? Do we need a Vanguard Revolution to get it done? Should we abolish money and come up with a different way to ascribe value? Should all enterprises be state-owned? Employee-owned? or some combination? These are separate questions.
Americans just don’t seem grasp just how much of our economy is socialist already. According to the American Public Power Association, publicly owned utilities account for 60.9% of the total of electricity providers. Cooperative owned utilities own 26.5%. Only 12.3% can be considered private providers. Employee-owned businesses as of 2013 accounted for 12% of the private sector businesses, and are expected to continue to grow in the next decade. They have demonstrated resilience even in the face of recession with over 66% either growing or staying the same in 2009, the worst year of the Great Recession. According to a 2013 report by the National Cooperative Business Association, there are 29,000 cooperatives in the U.S. and 1 in 3 Americans are members of a co-op. It's worth noting every financial institution that calls itself a credit union or mutual company (e.g. Liberty Mutual Insurance, Mutual of Omaha, State Farm Insurance, Nationwide Mutual Insurance Company, etc.) is technically a co-op since customers are shareholders in those businesses. 92 million people bank with credit unions and 233 million were served by co-op owned and (or) affiliated insurance companies. Employee ownership, cooperative ownership, public ownership, these are ways to expand ownership.
The expansion of the ownership of the means of production, or socialism, has been happening since the inception of the United States. The only thing that has really changed is what we define as the means of production, which should be really thought of as any component(s) of an enterprise engaged in providing a service or good for consumption.
My main point here is do NOT assume (Democratic) Socialism means only state-ownership of means of production, because that is just one of many options to achieve a broader ownership of the means of production.
It should also be noted there is such a thing as State Capitalism just as there is State Socialism.
Mark also thinks that what Bernie Sanders really means is Social Democracy. I have trouble with this given that social democrats generally accept Capitalism and advocate a policy regime involving welfare state provisions, collective bargaining arrangements, regulation of the economy in the general interest, progressive taxation, and a commitment to representative democracy.
I would agree that the Democratic Socialist label Sanders ascribes to himself is a bit misleading, although probably unintentional. Sanders seems to suffer from the same confusion of most Americans on this topic, and it has frustrated many whom are socialist thinkers and advocates because they know it's misleading. Most of his proposals are more or less just Social Liberalism. Social Liberalism endorses a market economy and the expansion of civil and political rights and liberties, but differs in that it believes the legitimate role of the government includes addressing economic and social issues such as poverty, health care, and education. If Sanders was serious about making our economy a more Socialist society, he would be advocating ways to incentivize employee-ownership, cooperatives, and public-ownership where there is market failure such as utilities and internet access.
Mark also makes the mistake of thinking Sanders is unelectable due to the “Socialist” label, but there is growing acceptance of socialist ideas among liberals, especially millennials. With each new poll, it seems the unelectability myth is being turned on its head. One would think the enormous crowds at his campaign rallies (even in conservative states) and over 2 million individual contributions would begin to sway the doubters. But if that wasn’t proof of enough, poll after poll show Sanders trouncing the Republican candidates by greater margins than Clinton. And Sanders is gaining ground with each new poll in early state primaries and nationally.
As to Sanders electability relative to Clinton, I think Mark underestimates the current of animosity towards Clinton by Republican voters and many liberals for that matter. She is broadly seen as dishonest and untrustworthy (a reputation I think is unwarranted). Her favorability ratings continue to decline with the most recent CNN/ORC Poll. Jan. 21-24, 2016 found 52 percent reporting unfavorable and 20 percent of regular democrats reported the same. Bernie Sanders on the other hand had only a 33 percent unfavorability rating among all voters and only 12 percent of regular democrats in the same poll.
And if she is elected the Democratic nominee, all of her past history and political life will come roaring back. Clinton has only experienced a taste of what is coming if she wins the nomination, something she didn’t have to weather in 2008 given that she lost the nomination to Obama. If she does manage to survive both nomination and the general election in 2016, she will likely be as politically divisive as Obama has been.
Sanders does not have this baggage. Sure the Socialist label will cause him some consternation. But he is fairly good at explaining what he means by the term. He is politically astute by linking what he means by Democratic Socialism to Denmark and other Scandinavian countries as well his vision to FDR. His message has been consistent for the 32 years he has been in political life. He is striking a chord with voters who recognize the inequality in our society. He is upfront and honest about what he believes and how he thinks the country needs to move forward. Even Republicans understand this about Sanders.
Mark makes the following challenge:
“Convince me that Bernie’s electable – and that the risk of a Republican winning is similar to what it would be if Hillary becomes the candidate – and I’ll change my mind.”
There is probably nothing I could really say to convince you Mark that Sanders is the better choice. But I recommend you start asking your students what they think, and you will quickly realize the power Bernie Sanders has in this moment. I think he can win. If this country has any hope of furthering the social programs you espoused in your article, Bernie is our best shot.
Socialism is a term which gets thrown around but without any real understanding of its meaning. For both the Left and Right, it carries the connotation of big government and expanded welfare state, both of which are wrong. Only a small minority can identify what socialism is truly about, social ownership. But perhaps that will soon change.
In the past year, there has been a sudden surge in curiosity about the concept of socialism thanks in no small part to Bernie Sanders, the independent senator from Vermont who is running for Democratic Presidential Nomination of 2016. Sanders describes himself as a “democratic socialist”, which has driven many to research the term. Mother Jones recently reported socialism was the most searched word of 2015 with a 169% increase in searches on the Merriam-Webster website since 2014. The problem is Merriam-Webster provides a very inaccurate definition which reinforces one of the many misconceptions most Americans have on the topic, mainly that socialism is all about state control and ownership of the economy.
“a way of organizing a society in which major industries are owned and controlled by the government rather than by individual people and companies.”
This is the definition Americans, especially older Americans, tend to think of when they think of socialism, but there is a lot information missing here.
Before we go over what socialism is, it might be useful to go over couple things it is not. First, socialism is NOT the same thing as communism. Yes, they are in fact different. The confusion is understandable given the long history of propaganda and conflation by politicians in the U.S. especially during the Cold War. Socialism and communism also tend to be broad terms encompassing many off-shoots of thought and debate which are easily confused.
Second, socialism is NOT what abandon any notions of socialism — or communism for that matter — based on what you know about the political and economic structure of China, Cuba, and the former Soviet Union. These countries were socialist in name only and have never effectively practiced a true form of socialism. In fact, some argue it was more or less a form of state capitalism. In addition, the totalitarian tendencies of the Soviet regime under Stalin obliterated any democratic component of their political system, which is just as essential to a socialist society. Understand that if communism had truly been achieved in any of these countries, you would have seen a “withering away of the state” as Marx and Engels said in the Communist Manifesto, not the centralization of power we witnessed instead.
Finally, the difference between capitalism and socialism is NOT market economy vs planned economy. Although central planning is an important concept in socialist debate about how best to allocate resources more equitably, it is only one aspect of the economic system, one that we practice here in the U.S. During World War I, the Federal Government used centralized resource allocation and created a number of new agencies, such as the Food Administration and Railroad Administration, to direct economic activity in certain sectors to help the war effort. Today, the government directs significant amounts of funding into R&D through the Department of Defense and the Food and Drug Administration. Many of the products sold in the private sector are the result of federal R&D allocation which is responsible for half of all R&D conducted in the U.S. It is possible to take central planning to an extreme where is is counterproductive (e.g. North Korea, Cuba, etc.), but most countries fall on a spectrum somewhere in the middle. It is not a binary choice between market allocation and planned allocation. Most stable developed economies have an effective mixture of both.
When we talk about capitalism vs socialism, fundamentally what we are talking about the distribution of the means of production. In a capitalist economy, the means of production (capital and resources ) are owned by individual capitalists who invest and take risk with their own or another’s wealth to form an enterprise engaged in producing goods and or providing services. Capitalists keep profits from such enterprises and pay workers only for their labor. Since capitalists get to keep the profits, inequality is a natural result of the system without redistributive intervention. Fundamentally, what we are talking about when we discuss a transition from capitalism to socialism is broadening the distribution of ownership of the means of production. This is the central current of all socialist thought. Where the various iterations of socialism diverge is on how best to achieve this transitions and where do we go from there. Do you achieve it through a revolutionary Vanguard Party which takes over the state and forms a dictatorship which establishes a socialist state? Do you achieve it through solely democratic means? Should the state be involved at all? How do you incentivize the transition? And what about after you have socialist economy. Do still have markets? What concentration of central planning is needed if any? Do we still use money or some other form of exchange? These are questions where the various forms of socialism begin to branch out. So it is entirely possible to have socialism and a complete market-based economy, they are not mutually exclusive. It is possible to still have money and possible to have no central planning by the state. But all these questions are side issues. The major element you need to think about when thinking about socialism is the distribution of the means of production through social ownership.
Social ownership comes in a variety of forms which include, but is not limited to, employee-ownership, cooperative ownership, and public-ownership (also referred to as state-ownership and government ownership). Most people understand how employee ownership works: employees make the decisions and share in the profits from the enterprise. Additionally, very few would argue employee owned companies are a negative for the economy.
Employee ownership gives workers a real stake the in success of their company beyond employment. This pushes them to work harder, longer, and better to ensure their company is successful, which in turn produces greater reward for that work.
In a cooperative, stakeholders (consumers) typically pay into the enterprise, usually through membership fee, and all profits or gains are shared equally among them through lower prices on goods and services. Cooperatives are also democratically controlled by their members. Co-operatives U.K. reports cooperatives businesses are typically more economically resilient than many other forms of ownership, with twice the survival rate in their first five years relative to other business ownership models. A common example of a cooperative people should be familiar with is a credit union. Credit unions are member-owned financial cooperatives, operated for the purpose of promoting savings, providing credit at competitive rates, and providing other financial services to its members. Members own a stake in the credit union through their deposits and reaped the benefits through savings through the elimination of transaction fees and required minimum balances among other ways.
Public-ownership is where there seems to be the most controversy and misunderstanding. One of the best examples of public-ownership is the U.S. Postal Service. The USPS is a non-profit publicly-owned mail and parcel service company which operates in our market based structure with other competitors, e.g. UPS and FedEx. The USPS is quite efficient and provides a valuable service at a very reasonable cost to consumers; this is possible precisely because it is non-profit. Granted, competition is limited, but that is true of many industries (e.g. home internet, PC operating systems, etc.).
Another example is public utilities. Public utilities are provide an essential service but are typically exist as a monopoly in the municipalities they serve. This is the result of market failure, not a failure of socialism. Socialism is only describing the form of ownership, expanded from a few capitalists to the general public interest. Utilities monopolies are what economists call natural monopolies and result because there is only one grid which feed electricity, water, etc. into consumers. We have not yet found a way to have multiple companies use the same grid. With water and electricity, this seems to be an insurmountable obstacle, but with telephone and internet, its a matter of political choice considering in Europe they have solved this problem. But you get the idea. Whether an enterprise is publicly or privately-owned doesn’t fix the market failure. In either case, government regulation will be needed to ensure fairness to consumers.
The truth of the matter is that the transition to socialism is already underway. According to the American Public Power Association, publicly owned utilities account for 60.9% of the total of electricity providers. Cooperative owned utilities own 26.5%. Only 12.3% can be considered private providers. Employee-owned businesses as of 2013 accounted for 12% of the private sector businesses, and are expected to continue to grow in the next decade. They have demonstrated resilience even in the face of recession with over 66% either growing or staying the same in 2009, the worst year of the Great Recession. According to a 2013 report by the National Cooperative Business Association, there are 29,000 cooperatives in the U.S. and 1 in 3 Americans are members of a co-op. It’s worth noting every financial institution that calls itself a credit union or mutual company (e.g. Liberty Mutual Insurance, Mutual of Omaha, State Farm Insurance, Nationwide Mutual Insurance Company, etc.) is technically a co-op since customers are shareholders in those businesses. 92 million people bank with credit unions and 233 million were served by co-op owned and (or) affiliated insurance companies.
Our economy is becoming more socialist everyday, not because of the expansion of the welfare state but because more and more businesses in the U.S. are choosing ownership structures which broaden control, management, and reward to a greater number of stakeholders than just the capitalist class.
Aaron Medlin is a PhD student at the University of Massachusetts Amherst studying macroeconomics of private debt, monetary economics, international finance, and comparative economic systems.