Is America Already Socialist?

America-2014

Socialism has been a hot topic in the 2016 election cycle. Bernie Sanders has drawn an unexpected amount of support, and he is promoting something called “Democratic Socialism” in the US. In response, POLITICO Magazine published an anti-socialist polemic titled “How Did America Forget What ‘Socialist’ Means“.

 This brings up the obvious question: What exactly does the word ‘socialist’ mean? Well, you could turn to various dictionaries. There’s the Oxford Online Dictionary, Merriam-Webster, Random House, and Wikipedia. They’re each slightly different but basically: Socialism is a system where the means of production are owned by everyone.

The POLITICO article references socialist systems in Cuba, China, Vietnam, Laos and North Korea, as well as the old Soviet Union. All of these countries followed a Marxist concept of socialism, in which private property is outlawed and the government owns all of the means of production. Based on this definition, Bernie Sanders is not a socialist. Bernie has loudly disavowed any plans to nationalize the corporations or outlaw private ownership of capital. This is fortunate, as the POLITICO polemic is absolutely correct in one thing. Outright nationalization has been a disaster in every country that’s attempted it.


However, European and Canadian socialists haven’t nationalized the corporations either. (except for healthcare, which Bernie would nationalize as well) Despite the fact that the Danish do not describe themselves as ‘socialist’, Bernie Sanders has cited Denmark, Sweden and Norway as shining exemplars of democratic socialism. This requires a definition of socialism far different from the Marxist ‘state control of the means of production’.

In a country like Denmark, Sweden or Norway, the government and labor unions have a great degree of control over corporate practices such as hiring practices, work hours, wages, and pensions. This follows the spirit of the word ‘socialism’ by giving the public a sense of ownership in business decision-making. However, it avoids actual public ownership of businesses, which is the dictionary definition of ‘socialism’. So it’s entirely reasonable to say that Denmark is not a socialist country, but it’s also reasonable to say that Denmark is a socialist country. (as Bernie does)

Many economists have argued that under this relaxed definition of socialism, the US is every bit as socialist as Europe. They rightfully point out that the US has a higher regulatory burden than most European countries – especially when it comes to licensure, registration, permitting, and tax laws. These complicated and expensive-to-follow laws are a method of public control of private businesses, so under the relaxed definition they are ‘socialism’. And these laws cast a powerful shadow on American businesses. The World Bank rates the US’s Ease of Doing Business lower than Denmark, the UK and New Zealand. The Heritage Economic Freedom Index rates the US and Denmark roughly the same. If capitalism is supposed to stand for freedom of doing business, the US is no more capitalist than Denmark.

The Danish regulatory regime has a strong focus on ‘fair distribution of wealth’, something that American socialists envy greatly. In comparison, US regulatory bodies are non-redistributive by nature, largely because socialism has been a toxic word in the US for so many decades. Medicare was prohibited from negotiating drug prices for exactly this reason. Instead of addressing inequalities, our unfree and uncapitalist regulatory bodies mostly serve narrow special interest groups. The RFS corn ethanol standard was supposed to benefit the environment, yet most environmentalists believe it to be harmful. Despite this fact, very few politicians are willing to run against the Big Corn lobby.


You could accurately describe the US economic system as being ‘capitalist in name only’, or CINO. You could also say that the difference between the US and Denmark is that Denmark places government regulators in corporate boardrooms, while the US places corporate executives in government regulatory committees.

Both conservative and liberal groups have written many jeremiads about “regulatory capture“, the tendency for government regulators to serve special interests instead of regular citizens. Established businesses push restrictive licensure laws to prevent competitors from setting up shop. Megabank executives pressure their friends at the Federal Reserve to carve out exceptions to banking laws. Car dealerships twist state laws to prevent competitors from entering the state. Environmental agencies willfully ignore mass poisonings. Startup businesses run into ridiculous restrictions all across the US.


Unfortunately, while almost everyone can agree that corrupt regulatory bodies are a major problem in the US, there is very little agreement on how to fix this problem. Some people believe that regulatory bodies can be improved by making the regulations more strict and punishing those who game the system. Others believe that regulatory bodies can be fixed by putting ‘the right people’ in charge – someone altruistic and incorruptible.

Libertarians believe in George Stigler‘s theory of regulatory capture – which is that regulatory capture is inevitable. No matter how strict the rules or how well-intentioned the personnel, corruption can only increase over time. This is because there is a strong financial incentive for corrupt individuals to influence a regulatory body, but there is a weak or nonexistent incentive for righteous individuals to fight back. This may sound like a nihilistic theory, but it certainly seems consistent with the present-day US economy. According to this theory, any attempt to “purify” corrupt agencies will have at most a temporary effect. Instead, the best antidote to corruption is to limit the number of levers and knobs that a corrupt bureaucrat could possibly touch. This means keeping regulations as simple as possible, eliminating special incentives, and cutting down on subjective discretion as much as possible.

Steve Forbes famously said that “Capitalism is the world’s greatest economic success story.” Unfortunately, it is also the world’s greatest political failure story. Over the course of the the 20th century, capitalist economic systems repeatedly triumphed over communist economic systems in productivity and wealth. Yet at the same time capitalism itself has degenerated into the corrupt system of CINO-ism.

How, or if, capitalism can be saved may be the most important question of the 21st century.

Unless robots decide to kill all of mankind. That might be slightly more important. Until then, capitalism is the most important question.

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