Well Regulated Capitalism

Mixing Government and Economics

Capitalism is an economic concept familiar to pretty much every American. In its basic form, capitalism can be described as an economic system where private enterprises combine capital and labor to produce products or services of value to others. All exchanges are dependent on values freely agreed upon by the parties involved. Ideally, such activity generates a profit for owners of the enterprise.

Notice that there is no mention of government support for, or regulation of, these enterprises. Therein lies the rub. In reality, an enterprise requires infrastructure and resources. For example: Infrastructure is needed to move materials and finished products. Workers must be educated to a point that makes specialized training possible. Some form of widely accepted currency is needed to facilitate the exchange of goods and compensation of workers.

As soon as you have a bunch of enterprises, you have a society. At the minimum, a society expects its leaders to provide some degree of protection from crime, basic infrastructure and defense against foreign attack. At this point, in a democracy, we can think of members of society as citizens and their elected leaders as government. Since many citizens work for enterprises, it is inevitable that capitalism will cross paths with government.

To provide needed infrastructure, resources, protection and other services, government requires financial resources. That leads to the introduction of a system of taxation. At that moment capitalism is no longer unregulated and can no longer be viewed as a purely economic concept.

To my knowledge, there has never been an example of a functioning government based on unregulated capitalism. If you know of one, please comment. As the old joke goes, “Now that we’ve established what you are, we’re just haggling over price.” In the case of capitalism, we’re just haggling over how much regulation and how to best implement it.

Finding Good Pudding

At this point I could insert a few thousand words on economic theory. I could detail philosophic and academic debates on the subject. Instead, I’ll rely on a concept I learned from my grandmother. She liked to say “the proof is in the pudding”.

We’ve already established that no regulation results in no pudding… because pudding represents regulated capitalism. Fortunately there is no shortage of pudding makers that encourage capitalistic enterprise. China has even joined the list. To narrow the list down a bit, let’s stick to democracies.

After not a lot of research, I came up with this list. In all fairness this list is crowd sourced. A coalition of smart people worked to create a page on Wikipedia that ranks democracies.[1] These 24 made the “Full Democracy” cut.

Because every country on the list encourages capitalist enterprise, none will be disqualified for government regulations that purists would call socialist. As has been established, now we’re just haggling over how much regulation constitutes “Well Regulated”.

What can be done to rank these countries so as to indicate that they regulate capitalism in a way that results in yummy pudding? Who is better qualified to judge this than those who have no choice but to eat the pudding? “Citizens” is a good name for these folks.

There are several “contentedness” rankings that claim to indicate how well citizens of a given country are doing based on various criteria. I looked at the following three.

1: Adrian White’s Satisfaction with Life Index was created in 2006. Subjective well being correlates most strongly with health, wealth, and access to basic education.[2] It has not been updated since it was created.

2: The Legatum Index is an annual index based on a variety of factors including wealth, economic growth, education, health, personal well-being, and quality of life.[3]

The World Happiness Report is an annual index based on six factors including real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make life choices, freedom from corruption, and generosity.[4]

An interesting pattern emerges when looking at these reports. The following 5 countries are in the top 10 of each list. In order of average ranking we have:

  1. Switzerland
  2. Denmark
  3. Canada (tie)
  4. Finland (tie)
  5. Sweden

It seems reasonable to use these 5 countries to represent good pudding makers. What is the secret ingredient in terms of the relationship between government and private enterprise? More specifically, how does government regulation of capitalism in these countries differ from that in the United States? I put the focus on the U.S. because there is a big election coming up. This kind of information could be useful to voters.

Start with the fact that all five countries are frequently labeled socialist, especially by free market capitalists who are envious because they don’t have any countries. What’s the deal? Can a country be socialist and capitalist at the same time?

Socialists and Capitalists have at least one thing in common. The radical purists on both sides agree that socialism and capitalism don’t mix. Socialists of that ilk say that the Soviet Union was not socialist… it was State Capitalism. To avoid this sort of thinking, let’s ignore radical extremes. The very existence of good pudding countries shows that capitalism and socialism can and do coexist.

There are many countries where capitalism, regulation, and some degree of socialism exist. The degree of success, in terms of contented citizens, seems to correlate to how well regulations are implemented and how successfully corruption is kept in check. Complexity, corruption and lack of transparency don’t make for good pudding. The current situation in the U.S. is a good example of this. Few say that things are humming along just fine in America. The one index that puts the U.S. at #10 puts a lot of emphasis on wealth and economic growth but not much on income inequality. All of the candidates for president are calling for major changes related to how enterprises are regulated.

DIY Good Pudding

There is a name often used to describe the political/economic system found in our top five pudding makers. They are accurately called Social Democracies. Unfortunately, the name tends to be confused with Democratic Socialism, which is a whole other thing. The confusion is compounded by the fact that some go so far as to inaccurately define Social Democracy as just another name for Democratic Socialism.

Here’s what our friends at Wikipedia came up with to define Social Democracy[5]

“Social democracy is a political ideology that supports economic and social interventions to promote social justice within the framework of a capitalist economy, and a policy regime involving welfare state provisions, collective bargaining arrangements, regulation of the economy in the general interest, redistribution of income and wealth, and a commitment to representative democracy. Social democracy aims to create the conditions for capitalism to lead to greater egalitarian, democratic and solidaristic outcomes. “Social democracy” is often used in this manner to refer to the social and economic policies prominent in Western and Northern Europe during the latter half of the 20th century.”

Here’s another definition by RationalWiki, a site dedicated to “analyzing and refuting pseudoscience and the anti-science movement” among other things.

“Social democracy is the idea that the state needs to provide security and equality for its people and should actively reorder society in a way that is conducive to such developments, but that such changes should be brought about gradually, legitimized by a democratically-elected majority. It is native to Europe, where social democrats regularly feature as one of the major parties and have led (or at least participated in) governments in most states at some point in time, most notably in Scandinavia (up to being nicknamed the “Nordic model”). Social democrats typically regard government intervention as a force for good, constraining markets and engaging in redistributive efforts for the benefit of the lower classes in order to establish a more equitable society.

Somewhat confusingly, social democracy is not the same thing as democratic socialism, nearly-identical names notwithstanding. Modern social democrats believe in maintaining the capitalist system — democratic socialists (in fact, all socialists) do not.”[6]

Regardless of your choice of definitions, adding a big box of Social Democracy to the mix seems to be key to making great pudding.

Another significant factor that impacts how laws (regulations) are passed in good pudding countries, is the fact that multiple political parties are involved. The U.S. has multiple parties, but in reality only two take part in the law making process. Could it be that having multiple parties leads to more negotiation and less gridlock? Could it explain why laws regulating private enterprise are simpler and more transparent in countries where good pudding is made?

Let’s add some political party diversity in lawmakers to the mix. I’d say that gives us a pretty good starting recipe.

Well Regulated Capitalism

There we have it. Let’s name our mix “Well Regulated Capitalism”, described as follows:

“ Regulations on private enterprise, including taxation, that enable policies and/or processes that benefit citizens and enterprises alike. Think of things like education, health care, common infrastructure, immigration policy, a social safety net, protecting the environment and the like. In large countries, states/provinces may be empowered to implement a lot of the details. Funding can be federal, state or a combination. Simplicity and transparency must guide the definition and implementation of each regulation.”

What changes are needed to fix “Poorly Regulated Capitalism” in the U.S. that has resulted in a move from democracy to oligarchy? Watch the short video below if you doubt that this has happened. It is based on a peer reviewed academic study published by Princeton University last fall.[7] The video will be a real eye opener if you still think the U.S. is a democracy.

If you are a pudding eater in the U.S.A., it is up to you to change the situation and restore democracy. Get busy researching the candidates. Demand facts backed up by research. There was a time when a lot of Wikipedia articles weren’t backed by credible sources and/or were inaccurate. That is rarely the case today, almost never when the article is on a popular topic. In the case of the 2016 election, Wikipedia is a great starting point. That said, make it a point to check the cited source if what you read is not clear or doesn’t seem right.

Fellow pudding eaters of America, the ball is in our court. Thanks for reading.

[1] https://en.wikipedia.org/wiki/Democracy_Index

[2] https://en.wikipedia.org/wiki/Satisfaction_with_Life_Index

[3] https://en.wikipedia.org/wiki/Legatum_Prosperity_Index

[4] https://en.wikipedia.org/wiki/World_Happiness_Report

[5] https://en.wikipedia.org/wiki/Social_democracy

[6] http://rationalwiki.org/wiki/Social_democracy

[7] http://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf