What are capitalism and socialism?

We hear the terms capitalism and socialism often these days, but rarely do we hear definitions or explanations. Politicians and commentators say things like, “There is no good alternative to capitalism!” or “Socialism is the fairest and best system,” as if these were all-or-nothing propositions. This kind of talk leaves most discussions with a simplistic either-or conclusion, and without touching the ground of economic or political reality. Although types of economic systems are complex topics that cannot be reasonably treated in a short piece like this, we’d like to make a few points about these terms to help readers consider them further.

First, capitalism and socialism are largely economic systems, yet they are closely tied to political and social structures. Capitalism generally refers to a system where economic value can be independently generated as surplus and then extracted, reinvested, traded, or put to other purposes. Socialism generally refers to economic systems where the distribution of profit or wealth is in some way controlled for more equitable results and for community benefit. Capitalism tends to emphasize individual entrepreneurial freedom, while socialism tends to stress a fair distribution across the board and responsibility to community. Even so, these are generalizations. In fact, capitalism and socialism can be seen as representing two broad perspectives on human motivation and ways of managing resources.

Second, capitalism is often conflated with democracy, although the two may or may not go hand in hand. There can be capitalist democracies, as are common in Western Europe, North America, and other parts of the world. Equally possible are authoritarian forms such as in China today and as seem to be developing in Brazil and elsewhere. Some of the most successful economies and stable, happy societies are actually democracies with mixed economies like those found in Scandinavian countries–hence the term “democratic socialism.” Think of state-sponsored health care, day care, and education combined with Ikea or Equinor (formerly Norwegian Statoil).

Third, rarely is a country purely capitalist or socialist. The U.S., for example, is considered by most to be a capitalist nation, but there are also many socialist elements such as Medicare, Social Security, public schools and libraries, and the benefit structure for military personnel. In addition, there are numerous ways in which the U.S. economy is not a truly free market, including various types of corporate subsidies and bail-outs, and recently, tariffs intended to protect certain industries. The ways in which our own economy is actually mixed gets lost in superficial discussions.

Fourth, we can talk about the limitations and excesses of each type of economic system. For unbridled capitalism, a great risk is a structural divide in wealth and opportunity. We have seen the wealth gap in the U.S., as measured by ownership of wealth, widen greatly over the past 40 years such that the top 10% owned 73% of the overall wealth in 2007 (peer-reviewed article cited by Stanford Center on Poverty and Inequality). For socialism, there’s a risk of the excessive centralization and regulation of an economy to the detriment of creativity and innovation. Both economic systems can allow for the concentration of wealth and influence in the hands of a few (oligarchy).

Another common risk of both systems is the exploitation of workers. The stereotype of a socialist economy is of workers being assigned jobs for which they may be ill suited, working for the system, and having little opportunity for individual initiative and innovation. The stereotype of a capitalist economy is of lucky folks pursuing the “lifestyles of the rich and famous,” whereas those left behind may be underemployed, unemployed, or even hungry and homeless. These are some elements of truth to both of these characterizations. Still, mixed economies have a strong track record, and workers may enjoy both security and opportunity. So, let’s consider more deeply what “a level playing field” really means in practice.

Both systems can privilege growth in conventional ways and overlook longer-term environmental effects. We know how disastrous the consequences of “making a quick buck” can sometimes be for communities and regions. We also know that ill-considered policies intended to better manage the public good can go badly wrong. Although we hear very few politicians speak of a “post-growth” economy or society, the climate crisis staring us in the face will mean we have to rethink what growth means and embrace sustainability, regeneration, and resilience regardless of the economic system.

Fifth and finally, it is useful to “cross” capitalism or socialism with democracy to consider different combinations. Pure democracy is very hard to come by, and the U.S. may not always be the gold standard, especially when we consider low levels of citizen participation. It is also well documented that wealthy people have much more political influence (via campaign contributions, personal contact with elected officials, etc.) than do poor people. Campaign spending limits, together with public campaign financing, now seem almost unimaginable in the U.S., but many people across the political spectrum believe there are good reasons to revive that possibility.

Rather than weaponizing capitalism or socialism in debates, let’s consider what kind of economic system will work best in the U.S., taking some lessons from other countries as well as from our own history and experience. Sensible and realistic discussions can take us beyond the labels, stereotypes and slogans. Perfection isn’t possible, but a dynamic balance may be. Genuine dialogues about these issues will require learning, observing and listening.

Sally Planalp and George Cheney are residents of Moab and part-time professors of communication at the University of Colorado, Colorado Springs. The views expressed here are their own and do not represent the university or any other institution.