With Bernie Sanders, an avowed Socialist, running for the Democratic presidential nomination, it’s time to ask what is meant by “Socialist.” As with any term, the definition of Socialism has evolved over the years, the original coiner of the term, Henri de Saint Simon (1760–1825) describing it as the opposite of “individualism” which stressed that people act or should act in isolation from one another. Socialists saw individualism as harming society through ignoring gross inequality, poverty and social oppression whereas Socialism stressed cooperation and community with an egalitarian ideal.

Independence, self-reliance and the moral worth of the individual are the basis of individualism which, coupled with capitalism, leads to both an individual’s potential to attain great wealth while at the same time downplaying the social dimensions of an individual’s success. When President Obama said that a person’s success was generally based on the social construct of public education, public roads, public rules enforced by public offices such as the courts, and so on, he was not demeaning individual accomplishment, he was stating the obvious that “no man is an island” but rather succeeds within a social context that supports his efforts.

I began this short paper with the philosophical underpinnings of Socialism as it strikes at the heart of an important distinction between Socialism and Capitalism. Socialism stresses the cooperative nature of humankind whereas Capitalism focuses on the individual and their freedom to excel. Politically, Socialism relies on government as a necessary part of organizing and maintaining rules of cooperation around wealth and its generation within a society whereas Capitalism relies on government to establish and maintain rules that support competition and the personal ownership of capital and minimizes its role in the control and distribution of wealth.

Phillip O’Hara, in the September 2003 edition of the Encyclopedia of Political Economy described three forms of socialized ownership: state-owned firms, employee (socially) owned firms and citizen ownership of equity. Taking the last form first, citizen ownership of equity is akin to owning stocks in a company, the challenge with this being that as a minority owner there is very little the citizen can do about the purposes, governance or distribution of profits, unless they are part of a consortium of other equity owners that are able to band together to have an impact on management and the corporation’s board of directors.

The second form, employee-owned firms, is best exemplified by an American form referred to as ESOPs (employee stock ownership plan) where employees have an opportunity to purchase the corporation they work for. According to the National Center for Employee Ownership, “Participants in ESOPs do well. A 1997 Washington State study found that ESOP participants made 5% to 12% more in wages and had almost three times the retirement assets as did workers in comparable non-ESOP companies (NCEO website).” Examples of successful majority-

owned ESOP’s are Publix Super Markets (160,000 employees), Lifetouch (25,000 employees), W.L. Gore and Associates (maker of Gore-Tex, 10,000 employees), and Davey Tree Expert (7,800 employees). Companies with ESOPs and other broad-based employee ownership plans account for well over half of Fortune Magazine’s “100 Best Companies to Work for in America” list year after year (NCEO website). Another form would be cooperatives, best known in rural communities where private enterprise does not see a market opportunity and so local citizens band together and form a co-op to supply services such as electricity, phone service (before cellular was available), and internet, to name the most obvious. The first form is the one most Americans think about when the term Socialism is discussed, namely state-owned firms. “State” refers to ownership by the government whether Federal, State or Local. Though many think of socialist enterprises as being planned, they can also rely on markets to set prices and supply (Alec Nove, “Socialism,” New Palgrave Dictionary of Economics, Second Edition (2008). The Los Angeles department of Water and Power is an example of a publicly owned utility. So is the Tennessee Valley Authority. In many instances, these were established by a local (federal in the case of the TVA) governmental authority to supply a service that is, by its nature, a natural monopoly due to the high cost of infrastructure. Think water, electricity and gas. Even when the utility is investor-owned, it will ideally (though not always in practice) be regulated by government to insure that there is no excessive monopoly pricing due to the lack of competition. Both major political parties in the United States agree that growing inequality is a problem for our country. When one tenth of one percent of the people own more than 90% of the wealth, something is wrong. When the top 1% of American income earners have seen a 138% increase (adjusted for inflation) in their earnings since 1979 while the lower 90% have only seen a 15% increase over the same time period (Michael Scherer, “Up with People”, Time magazine July 20, pg.42), something is wrong. Both parties’ candidates talk about this disparity, but where they differ is on the solution. The Republicans would cut taxes, diminish the role of government regulations and encourage enterprise that will grow the economy, thus creating more wealth for all to share. This is the individualistic/capitalistic perspective. What isn’t being said is that it is public education, public highways, and public courts to enforce contract law and commerce (just to name a few) that are the bedrock of a capitalistic system. Imagine America without the Interstate Highway system or without the publicly funded university system that has educated millions. These have been essential to our success and continued support of them is necessary if we aspire to continue growing and prospering. These are also reflective of social goods which was the original definition of Socialism, goods that were created for the common welfare of all rather than the profit for the few. David Kotz wrote (“Socialism and Capitalism: Are They Qualitatively Different

Socioeconomic Systems? University of Massachusetts) that a socialist economy should be based on production for use rather than profit; it should satisfy economic demand and human needs rather than accumulation of wealth for the few. The challenge is to define what the human needs are and therefore what goods should be produced to meet that demand. And this is where the rubber meets the road, for a capitalist economy by definition is best suited to price and market goods reflective of demand whereas a socialist economy can many times best meet social needs that private capital is either unable or unwilling to invest in either due to the large needed investment for infrastructure or the unproven market with its commensurate risk. Socialism vs Capitalism is a false dichotomy for, in fact, all developed economies depend on both which is where the term “mixed economy” comes from. The real debate is not over the extent to which we have a capitalistic economy but rather what is the balance between social goods and private goods, between production for use or production for profit, between what is socialistic and what is individualistic. When Bernie Sanders calls himself a Socialist, what he is saying is that there needs to be a better balance between the haves and the have-nots. And in his eyes, government must, and does, play a very important role in this through taxation, regulation and the support of social goods that benefit the many rather than the few.

Michael Pinto, Ph.D. August 2015

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