“Socialism,” or at least what passes for that concept, is getting a lot of attention from pundits and politicians these days. And we can be sure that it will be getting more as we approach the 2020 elections.
It’s as if capitalism were under siege. It’s not, at least in the sense that any Democratic candidate is recommending replacing our market-based economy with a centrally planned economy. We can be sure that any proposal for financial, environmental or health and safety regulations, or proposals for public policy to make lives better for the broader public, will be labeled as “radical left” or “socialistic.”
Capitalism has been coming up short, not working for a large swath of the American public. Ironically, as Trump hails the virtues of capitalism, it is leaving many people economically behind, and motivated them to vote for him.
If capitalism, as we know it, is in trouble, and if politicians are proposing policies calling for government action, it is because capitalism has not been working for a large segment of the population. Financial deregulation boosted profits of big banks — until they got into trouble through reckless management — contributing to the Great Recession of a decade ago. Corporations have been making record profits, but instead of the fruits of technological advance and increased productivity being realized by the working class, the income gains accrued to corporate CEOs.
In short, when capitalism devolves into a “winner take all” system, we can expect discontent that leads to a demagogue like Trump who assures those left behind that he, alone, can fix it. Instead, the nation gets subjected to a giant “bait and switch” con job.
Instead of proposing measures to address income inequality, perhaps the most egregious current deficiency of American capitalism, Trump and his Republicans catered exclusively to the nation’s wealthiest and, especially through the Trump/Republican tax bill, made after-tax income even more unequal than it was. It matters not to the vast majority of Americans that unemployment is low, GDP is rising and financial markets are flirting with all-time highs. If families are working two or three jobs, struggling to pay bills, raise their kids and are worried about health care, macroeconomic statistics are meaningless. High flying financial markets mean nothing to the majority of Americans who own no corporate securities or, at most, might see a couple bucks increase in their retirement accounts — for those fortunate enough to have them. American economic history includes a long process of making capitalism work for the broad spectrum of society. In early American history, industry was free to employ child labor and exploit workers. Public policies to counter such practices didn’t occur until the 20th century. The rights of labor to organize and bargain for higher wages and better working conditions didn’t occur in any significant manner until the New Deal of the 1930s. This era also ushered in significant reforms for banking and financial markets.
Financial and banking reforms of the 1930s and the legalization of collective bargaining for labor were instrumental in the post WWII expansion of America’s middle class. America’s Social Security system, once denounced as “socialism,” has proved to be successful and popular. These were among the policies that took the harshest edges off capitalism and made the system work for a broad spectrum of American society. Both FDR and Harry Truman considered some form of federal involvement in health insurance, but it never came to pass. Prior to becoming governor of California, Ronald Reagan lobbied against any government involvement in health care, denouncing it as “socialized medicine.” To address that deficiency of capitalism, failure of the profit-motive to provide affordable health care to the elderly, it took the canny LBJ to get Medicare through a reluctant Congress. Had it not been for his disastrous involvement of America in Vietnam, LBJ would go down in history as one of America’s greatest presidents.
Progressive labor laws, Social Security, Medicare; these are among the public policies that have taken the harsh edges off capitalism to make the system work better for all.
Unfortunately, lessons learned during the 1930s were unlearned, forgotten or dismissed as “America is different now.” Banks and financial institutions were deregulated, contributing to the Great Recession of 2007-08. Conservatives at state and federal levels successfully weakened the power of labor unions. The decline in power of organized labor was hastened by the decline of manufacturing relative to service jobs that were less unionized.
Conservatives have recently made some lame, ill-fated attempts to privatize Social Security and Medicare. Fortunately, these — at least so far — have gone nowhere. Trump did his best to eliminate the Affordable Care Act. Republican promises to replace the ACA with “something better” have been among the most flagrant broken promises ever sold to the American public.
Due to technical change in the American economy, there is a formidable challenge to make capitalism work in the future. That challenge is to replace the past route to middle class, manufacturing. International trade gets a disproportionate amount of blame; deliberately moving manufacturing across the Rio Grande to take advantage of cheap labor is a valid criticism. But existing domestic manufacturing is technologically driven, less labor intensive.
The solutions to making capitalism work for all are unclear, and controversial — but the task is urgent.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.
