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Socialist style poster workers
We know one thing for sure about the 2023–24 election cycle: Republicans will label Democrats and their policy proposals as “socialist,” one of the most successful one-word epithets in the arsenal of political opposition rhetoric.
Why Is the Socialist Label So Effective?
Socialism is an economics concept: an economy in which the means of production and distribution are owned and managed collectively through state, local and centralized government. The socialist label gains its persuasive power not from economic logic but through fear. The label conjures up an image of a bygone economic system that no one is proposing: Soviet-style economy-wide socialism and the accompanying bread lines, job assignments, and gulags for dissenters.
By contrast, modern economies are comprised of a mix of sectors. Some of these are private sectors, consisting of privately-owned firms with key decisions made by entrepreneurs and investors guided by market forces, especially the price system. Individual entrepreneurs and investors own the means of production, and they make decisions to make themselves better off, usually measured in profit. Examples are numerous, from car manufacturing to groceries, from restaurants to oil companies. As economist and philosopher Adam Smith proposed and experience has verified, when certain pre-conditions are present, most importantly competition, profit-seeking can serve the public interest even though that is not the goal of the profit-seeker.
Other sectors are public, organized by government authorities who are chosen by election, appointment, or other means of selection and succession. In a public sector, the means of production are owned by some level of government (national, state or local). Here, too, examples are all around us, from streets and roads to police and military protection, to the patent system, to contract enforcement.
Public/Private Complementarity
To function properly and efficiently, private sectors require publicly provided assets, services and institutions that complement market activity. Chief among these is the “rule of law,” i.e., rule-making and court-enforcement, such as property rights, contract and criminal law, and trade law and well-functioning police, fire fighters and military services. The public sector physical assets—commonly called “infrastructure”—must be kept in good working order to support the efficient operation of the market system.
The challenge of economic organization is to determine task-by-task, sector-by-sector, whether ownership of the means of production should be private or public and whether the allocation of resources within each sector should be directed by market forces or by the public sector.
Two Market Failures; Two Pro-Market Correctives
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Consider two areas of great policy interest: infrastructure investment, and carbon pollution that contributes to global temperature increases. In each of these cases, the pre-conditions for unregulated market efficiency is missing; public intervention is needed to correct the market failure.
Infrastructure Investment
Infrastructure assets, such as roads, sewer and water systems, rural broadband and school buildings, enhance the performance of the market system, and yet the market will not provide them. The public sector that builds, maintains and repairs the infrastructure of the state, local or national jurisdictions can be financed in a variety of ways, usually called taxes and user charges. This public investment is needed to support the market system, a complementarity that is a natural part of capitalism and should not be mistaken for “socialism.”
Climate change
When fossil fuels are used in manufacturing, agriculture and transportation, or in commercial and residential structures, market forces will not naturally require users to pay one very real cost: the damage caused by the dumping of carbon into the atmosphere. Consequently, the market price of fossil-based energy is artificially low, and this energy source is over-used and over-produced. Recognizing this, economists have for years proposed the imposition of a user tax on carbon emissions. With such a carbon tax, both consumers and producers will have an incentive to substitute less carbon-intensive products, a key first step in addressing this long-neglected threat to the human habitat on the planet.
The natural resistance to a new, pervasive tax such as one on carbon can be moderated by including in the proposal a rebate of the tax revenue raised: a “carbon dividend.” The Treasury Department’s Office of Tax Analysis estimates that a $40 per ton rebate would generate roughly $2,000 per year for a family of four, approximately 9% of the income for those who fall into the lowest income decile. In other words, while the world would gain some future relief from climate change, the poorest citizens would gain a significant immediate monetary boost derived from the policy that makes that future benefit possible.
To implement this carbon-tax/rebate plan, a government agency is needed to measure emissions, apply the tax, collect the revenue, distribute the dividend, and enforce the law, once again: not to be confused with socialism.
As these two examples show, it is illogical to affix a pejorative to public activity that enables the economy to work better. It is important not to conflate socialism with the public sector of a capitalist system.
