What, exactly, does Democratic presidential candidate Bernie Sanders have in mind when he asks on his website if we are “Ready to Start a Political Revolution?” He has proclaimed unabashedly that he is a socialist, a statement that has raised eyebrows about his electability. He wants to turn us into the Soviet Union!! Is that what he has in mind?
Far from it. He has qualified his statements to make it clear that he is a democratic socialist, but that term fails to convey what he really has in mind, or at least I think it does. There are two distinct political ideologies, democratic socialism and social democracy. Although they sound very similar, the definitions are very different. 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.
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Social democracy has a different meaning. This economic system retains capitalism as an economic system, but attempts to smooth the features of capitalism that impose unfair costs or inequitable outcomes on some segments of society. This is what I’d guess Bernie Sanders has in mind despite his proclamation that he is a democratic socialist (though I’d speculate that his followers are more of a mixture). To some degree, all developed economies have some elements that fit under this definition, for example social insurance programs such as unemployment compensation or social security.
The basic idea behind social democracy is that capitalism is much better than any other system yet discovered at producing economic growth and innovative technology, responding flexibly to changes in technology and consumer preferences, and delivering the types and quantities of the goods and services each of us want at the lowest possible price. But that growth, innovation, efficiency, and flexibility comes at a cost. Unlike socialism where production is controlled by the state and is hence relatively smooth, production under capitalism is subject to booms and busts.
During recessions, workers who played no role at all in causing a recession suddenly find themselves without employment as businesses begin failing. How will they pay the bills, pay college tuition for their kids, keep paying for health insurance, contribute to retirement programs, etc. with no income and with their saving, if they have any, rapidly declining as they use it to pay bills they cannot avoid?
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We all benefit from having a flexible, innovative economy, but why should individual workers pay the costs of these features of capitalism by themselves when the benefits go to all of society? They shouldn’t, and the way to avoid this is through social insurance – programs like unemployment compensation and food stamps that spread the costs of involuntary unemployment across society more generally. Presently, the social insurance that is offered to unemployed workers is insufficient – even with these programs workers still pay a much too large fraction of the costs – and they have every reason to demand change.
Business cycles are not the only way in which capitalism produces unfair outcomes, or outcomes that are inconsistent with the competitive model people have in mind when they tout the benefits of a capitalist system. For example, the competitive model assumes that participants in markets have the same degree of bargaining power, but that is not a very good description of labor markets where firms have the upper hand in negotiations. Without unions or some other mechanism to equalize bargaining power, workers will not receive their share of the value of what the firm produces.
Or what about a student who has done what he or she was told to do to be successful – worked hard to get into the right college, studied hard during college – and then graduates during a recession when jobs are hard to find. That student will have a lower earnings profile, on average, for his or her entire life, and many will not find jobs at all and struggle to pay off the student loans they needed to pay for their education. Is it their fault that jobs are hard to find due to a recession that economists did not see coming? Should they bear this risk alone, or should society share this risk? More generally, we all benefit from having a more educated society, so why shouldn’t society bear more of the cost?
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How about businesses? Is it fair of them to impose pollution costs on society at large and increase the risk of global warming? Why should society absorb these costs while they keep the profits for themselves? Shouldn’t government intervene to correct this inequitable and inefficient situation by making them internalize the costs that society is paying for them? Similarly, is it fair when some firms have monopoly power they can exploit, power that results in higher prices and inefficiencies that raise the price and lower the quantity of goods and services that consumers have available to them? Is if fair for some firms, e.g. those in the financial industry, to be so big and so powerful that they can influence the political process in their favor? Shouldn’t regulatory authorities be more proactive in correcting these problems?
The list goes on and on. Our health and our ability to seek opportunity depend largely upon luck. Some people are born to parents with considerable wealth that they will inherit someday, with open doors to the best schools and the connections needed to be successful. Some are born healthy, while others are plagued with problems. Some people are born with natural talents that others do not have. Why should a person be condemned to poverty just because they weren’t lucky enough to be born in the right place and with the talents, health, and opportunity necessary to find success? Shouldn’t society be more compassionate when capitalism relegates them to a life of struggle and poverty? Why shouldn’t the lucky ones among us be asked to do more to help the unfortunate?
I am very much in favor of social democracy – to varying degrees, all developed economies have some elements that fit under this definition – and I think we should move even further in that direction. Under my particular version of this system, government would intervene in the economy for three main reasons, to correct the inherent inequities associated with the booms and busts that characterize capitalist economies, to correct market failures that move us away from the competitive markets needed for capitalism to function best (monopoly power, externalities, asymmetric information, political influence over regulations, and so on), and to correct inequities in the opportunity for success as well as inequities in the outcomes an imperfect market system produces.
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The question for me is which candidate is most likely to be able move us in that direction, and least likely to open the door to a Republican who would work to reverse the important gains that we have made in the past. For me, that candidate is Hillary Clinton. I am very pleased that Bernie Sanders is pushing her toward these types of policies with full force, that is very important, and I very much agree with the policies he is promoting (for the most part). But I worry that he is unelectable in the general election, in part because he hasn’t defined what he means by “socialism” very well and he is vulnerable on that point. Eight years of Trump or Cruz, or any of the other Republican candidates, combined with Republican control of the House and Senate would be a disaster for social democracy.
The upside of both candidates is similar. Both Clinton and Sanders would work to expand social insurance and correct inequities, but neither would be able to do much more than implement incremental change, if they can do even that given the political realities they will face. I do, however, think Clinton is likely to be more effective at taking advantage of possible ways to move the agenda forward. Importantly, both would protect the programs that are already in place. But the downside is very different. 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.