I received an interview request from a student who was writing an economics paper. The questions I realized were probably questions many people had and though they may tangentially be educated about various economic systems a good introduction into the three man economic systems may be called for.
1. Can you define each of the three? Communism, Socialism, and capitalism. What are the differences?
There is debate between the definitions of all three. But traditionally the three fit along a spectrum from total government ownership of everything (communism) to technically the absolute absence of government (anarchy) “Socialism” fits in between where the government owns OR TAXES at a rate of around 50%. However, sometimes people refer to “socialism” as the same thing as “communism.” So when you are reading or talking about socialism, you need to know what context it’s in. Are they talking Sweden or Norway where 50% of GDP is taxed, or are they talking SOCIALISM as in a purely 100% totalitarian Marxist control of the economy.
2. Can you list examples of each? Can be modern examples or past examples.
Capitalism – Bermuda, Singapore, 1940’s America, Cayman Islands, Hong Kong
Socialism – Current day US, all of Europe, Canada
Communist – Venezuela, Cuba, Soviet Union, North Korea, East Germany, California (just kidding)
3. Are there any misconceptions that people have? If so why might people believe these misconceptions
Yes, absolutely. The reason people have misconceptions is because most people (Americans) are idiots when it comes to economics. They’re more concerned about Kim Kardashian than they are the US federal deficit. The most typical of these misconceptions is that the US is somehow a “capitalist” country or that China is a “communist” country. None of them take the time to study economics, tax rates, spending rates, etc., so most people are arguing from idiotic emotions rather than unbiased, cold, heartless facts and statistics.
4. How does government play a role in each? How does the citizen population play role?
Citizen population only plays a role in terms of voting. But the government plays a role based on how involved or how much ownership it has in an economy. If the government tax or spending rate is 50%+ of GDP, then it’s a solid socialist or communist country. If the government only consumes or spends 20% of the economy, then it’s a solid capitalist country.
5. Are there any flaws in each of them? What are they and can they be fixed?
This would take 10 books to answer. In short, the biggest flaw in socialism or communism is that it invariably ends up with more parasites than producers in the economy. Government spending and welfare freebies make it more attractive not to work than to work. Economic production collapses to the point it can no longer support itself and you get deficit spending, trade deficits, and inevitably countries cut you off and you collapse. Starvation and general economic crappiness ensues.
Capitalism, however, is not without its problems. Usually economic growth is so great it allows for one, even three, generations to live off of the work and backs of just one. Those successive generations lose the lessons of hard work, toil, and innovation. Consequently, the money runs out and you have spoiled little brats expecting a free handout. Also, capitalism is high susceptible to “crony capitalism,” wherein successful business use their money and lobbying power to bribe the government to pass unfair laws that advantage said people. The bank bailouts, Chesapeake Energy’s shutting down of the Keystone Pipeline, even the teapot dome scandal are all examples of capitalism becoming corrupt and thus “crony capitalism”
Both have their disadvantages, but crony capitalism has yet to kill 100 million people in peacetime through starvation.
6. Do some just work in theory and not in reality? If so why?
Yes. Communism is based in a (veritable) madman’s idealism (just look up the personal habits of Karl Marx). Capitalism is based in human nature by much more hygienic and sane 18th century philosophers. People are always greedy, always going to serve themselves, so why not build an economic system around it. Only idealistic idiots think about puppies and flowers and unicorns about “wouldn’t it be great if everybody made the same amount of money” blabbity blah blah blah. Besides, Marx and Smith are moot. There’s over 200 years of track records between the two ideologies. Socialist/communist countries have failed miserably compared to the capitalist counterparts.
North Korea vs. South Korea
East vs. West Germany
The US vs. the USSR
Communist China vs. Capitalist China.
Not to abbreviate or dumb down the life long economic argument, a system that allows its people to keep the majority of the fruits of their labor will result in people producing more fruit. You want to confiscate/steal/tax them, then you deter work and deter economic production. The fact this is even a debate shows how political forces have desperately tried to corrupt it.
7. Has a country ever switched to another system (ex. Communism to socialism, socialism to capitalism) ? If so why? Was it successful? Did it fail? What were the reasons for its outcome
Not drastically, but then again, I’m going off of the current knowledge I have now. A historian would know, but no examples are coming to me now. There are some instances (say the Baltics) that broke away from Soviet Russia and did quite well in the 90’s, but many of those countries reverted back to their socialistic tendencies and are in the crapper again. But anything as “drastic as that” is not available. Countries change slowly over time. So your best case studies are countries divided by socialism and capitalism a la the Koreas and E. vs. W. Germany.
8. Do these systems affect the quality of life, standard of living, or freedom?
Most certainly yes. All one has to do is compare South Korea standards of living vs. the North. East vs. West German standards of living. The comparison isn’t even close. The “most successful communist country” (USSR) only had 33% the standards of living the US did. About the only “socialist” successes are the Scandinavian countries . But even they had financial problems or (in the case of Norway) are lucky enough to have oil account for a full 25% of their economy. Those abberations aside you can expect most socialist countries to be a 2nd place/2nd rate western European country like Spain, Italy, France, etc.
9. Do factors such as corruption, poor leadership, geography, population, crime etc. affect these systems?
Oh, most certainly and this gets back to the issue of crony capitalism. Technically Russia today is a capitalist country. But that is only by stated tax rates. It’s so corrupt nothing else can get done. Corruption is largely a non-economic issue. If corruption has influenced and infected a country, then it’s economic policies are largely rendered moot. Africa is a perfect example of this. You and me and everybody else could debate the economic policies of Somalia all day. It doesn’t matter, because it’s a shithole that’s highly corrupted, highly war-torn and until you have the establishment of law, “economic theories” are truly first world problems that are not relevant to Somalia.
As for other factors (geography, population), not and Hong Kong, Singapore, the Caymans, etc. prove this. If you do not have corruption and a motivated AND MORAL work force, you can achieve anything. Sinapore’s and Hong Kong’s stratospheric rise in economic growth is proof you don’t need a ton of resources. You just need smart people motivated people, and honorable people. This is one of the best things about capitalism in that it allows people to achieve their best no matter what the geographic or natural resource handicaps are. Smart people always find a way to succeed, it’s an issue of whether a government will let them, or tax/steal from them so a politician can bribe poorer people to put him/her into power.
10. Why do some work for certain countries while others seem to work better for different countries
There are absolutely various sociological reason an economic system works better than not. For example the Scandinavian countries seem to do very well with socialism. But they are (at least for now) a homogenous society with a solid national identity. In the US it doesn’t work so well because, bluntly, there are various races and instead of focusing on talent, skill, and character, political lines have been drawn (primarily by the democrat party) to alienate and pose against different sex, creed, colors, religions, etc. So if you have a variable (like homogenous population), sometimes socialism “can” work. But once you get different groups of people in, then natural human envy takes hold and an argument for the transference of wealth of a “privileged” class to the “underprivileged class” occurs, consequently destroying the economy in the process.
11. Which one is better in your opinion? Why?
Capitalism. NOT CRONYcapitalism. But real capitalism.
And there is no opinion. It’s because it is what has helped serve and advance society and humanity the most. And the argument isn’t even close. Capitalism, free markets, free men have yielded more inventions, more advances, more drugs, more innovations, etc., than any socialist or communist nation has. It boils down to whether or not you’re going to let individual achieve their best and reaps the rewards of them achieving their best, or go some idiotic, whinny, wimpy, “woe is me I need other people’s money” route. Do you award the winners or losers.
Even the losers benefit from a capitalist society because the Steve Jobs and Jonas Salks and Wright Brothers are allowed to achieve their best, creating new innovations and creations that improve the standards of livings of EVERYONE infinitely more than mere income transfers and socialist parasitism can. It’s why North Korea today presumably spends all of its money on “the people,” but the poorest people of the US are richer than your average “rich” North Korean.
12. Can you give modern examples of each one?
Sure, North Korea, South Korea.
1980’s US vs. 1980’ USSR
East vs. West Germany
Monaco/Lichtenstein/Luxembourgh vs. All of Europe
Just look at history and ask yourself a simple question:
Do countries that allow their people to be free and keep the majority of the fruits of their labor result in higher standards of living, higher life expectancies, higher innovation, and higher economic growth
Do countries that confiscate/tax 80% of their people’s production, to transfer it to people who don’t work or are as not efficient, result in higher standard of living, higher life expectancies, higher innovation, and higher economic growth.
The question is so simple it moots the entire “study” of economics.