Economic Systems vs. Political Systems

• Part 1: Latter-day Saints and Anti-Mormons
• Part 2: What's in a Name?
• Part 4: Flawed Humans and Their Ideas

Another myth I often encounter regarding socialism is that it is somehow antithetical to democracy; that it breeds despotic regimes and runs counter to the American notions of freedom. We often hear about ‘communist dictators’, but rarely ‘capitalist’ ones (though they most certainly exist). Examples of this sort of language are in the State of the Union Address from February 4, 2020. “Socialism destroys nations. But always remember, freedom unifies the soul.” Venezuela is also mentioned, with emphasis on Maduro being a “socialist dictator”. The address mentions the many hopes to “restore democracy” in that country. Of course, The legitimacy of Venezuela’s government and the degree to which it is democratic (or not) is a separate topic that deserves its own article, but regardless, this is an example of how socialism is often portrayed as being at odds with democracy.

Conversely, capitalism is often implied to be synonymous with democracy in a way to suggest one cannot exist without the other. Often, the words ‘democracy’, ‘capitalism’ and ‘freedom’ are conflated. It doesn’t help that the markets of capitalism are often called ‘free’ and confused with the concept of freedom as it pertains to civil rights and liberties. This ideological ‘bundling’^[1] of separate concepts leads to adopting a somewhat linear understanding of the political spectrum that I figure looks something like this:

Furthermore, this ‘bundled’ view often results in charges of unpatriotic behavior. Gina Hamilton gives an example of this in a piece she wrote on this topic. Herman Cain—who was a Republican presidential candidate in 2012—called those participating in the Occupy Wallstreet protests “un-American” because they “don’t believe in capitalism”. Hamilton points out:

Democracy (or republicanism, if we want to get technical) is a political system. Capitalism is an economic system. The two things are as alike as blue and banana.

There is not a single mumbling word in the Constitution — or in any founding documents — about the type of economic system the young country was going to have. If anything, there is a strong suggestion, in Article I, Section 8, that the Congress has the responsibility not only to pay our debts and protect the country from outside invaders, but to “provide for the general welfare,” which could be read as an exhortation to make sure that individuals are cared for in time of difficulty.

Hamilton then goes on to describe the various iterations and forms the US economic system has taken over time, but points out this:

But throughout, the core government has remained the same. Bicameral Congress, executive branch, judicial branch, in eternal checks and balances. In theory, anyway.

So the fact is, being an American is not synonymous with being a capitalist, and it shouldn’t be a test of citizenship to show loyalty to the economic theory du jour.

As Hamilton emphasizes, economic systems and political systems are really two different things. An economic system is the manner in which a society distributes and allocates resources. This could be anything from ‘pure’ communism—where there is no private property and planning is used to manage resources, to ‘pure’ capitalism, where all property is privately controlled and markets are used to set prices and allocate resources. In practice, there is no truly ‘pure’ communist or capitalist country today. All countries have elements of both economic systems in varying degrees. A common criticism of ‘pure’ communism is, “it’s great in theory but doesn’t work in practice.” Be that as it may, it’s important to note that ‘pure’ capitalism also suffers from the same flaw. There is no example I’m aware of, of a modern country or society that has successfully implemented ‘pure’ capitalism. These ‘pure’ extremes both seem planted firmly in the realm of utopian fantasy—at least for the foreseeable future.

A political system manifests itself in the form and characteristics of the governance of a society. This can range from very democratic—with highly participatory forms of government where all citizens have rights and a voice in the affairs that affect them—to severely authoritarian and autocratic, where people have little or no say and few rights. Economic and political systems certainly are related and interact, but the ‘mixture’ of each a country uses varies widely. Although in the US we are accustomed to hearing about capitalist democracies and socialist dictators, there also exists the possibility (and indeed real examples) of socialist democracies and authoritarian capitalist regimes. Our earlier political spectrum featured previously only had 1 axis. What happens if we add a second axis to more accurately account for 2 variables? I gave it a shot, and ended up with this:

I’m not an expert in political science, so my approximation of where countries fall on this 2D plot is perhaps oversimplified. I specified particular regimes/governments to narrow the period of history to one in particular for some of the points. On points where no government is specified, the present-day one is assumed. Though I’m sure many may disagree on where I placed some of the points (I’m not too sure of them either to be honest), my intent here is to demonstrate a different way of thinking about the relationship of economic and political systems rather than ‘bundling’ them together on the same axis. I wish to illustrate that these are effectively two separate variables that can combine in different ways, with the extremes forming quadrants rather than just a simple left/right scale.

On the bottom left, one extreme combination is highly-authoritarian government coupled with a non-market (or command) economy. On the bottom right lies fascist territory, featuring highly-authoritarian regimes enforcing extreme forms of capitalism. The upper portion of the graph features the political ideal of highly democratic and participatory governments. Towards the upper left, we approach ‘pure’ communism where all resources are held in common and managed democratically. Towards the upper right, we approach ‘pure’ capitalism with high levels of democracy and resources being managed entirely through market mechanisms. Theoretically, the upper extreme of the graph could even take the form of ‘stateless’ anarchy, where a state actually wouldn’t exist or be needed (and the people would genuinely rule themselves autonomously). At the extreme upper left, the state has ‘withered away’^[2] due to irrelevance in a class-less society utilizing a democratically-planned economy whereas on the extreme upper right, there would be no need for a state as society would have no resources or interests held in common; these being entirely held and managed by private actors via markets. I won’t dwell on this as it is a hypothetical ideal unlikely to be achievable in reality in any near future as mentioned previously, but I’ve included it on the graph.

An interesting example of a country that has occupied vastly different points on the graph throughout its modern history is Chile. In 1970, Salvador Allende—a socialist—won a democratic election. He hoped to transform Chile by implementing a socialist program which included nationalization of large-scale industry (especially copper which was a valuable export), healthcare, and education. Allende hoped to improve the conditions of Chile’s poorest citizens, primarily through employment in nationalized industries and public works projects. His administration also began implementing pioneering work in economic management and planning, such as the futuristic Project Cybersyn, which used the latest in computer technology and methods available at the time to coordinate materials, labor and resources across various industries. Data was collected in near real-time from various factories and facilities in state-run enterprises and sent to Santiago for processing and modeling. Decisions and instructions—especially in times of crises—could be sent back to these facilities in order to better respond to developing situations or emergencies. The development team working on Cybersyn also had plans to enable the citizenry to actively participate in economic and political decision-making using a CCTV-based interactive apparatus. This was years ahead of its time, and allowed the government to mitigate the impacts of a truckers strike in 1972 by rerouting resources and keeping abreast of the developing situation.

Allende was voted in democratically and enjoyed popular support. Conditions for the working class improved, as noted by Israel Zipper in Politics and Ideology in Allende’s Chile

By now meat was no longer a luxury, and the children of working people were adequately supplied with shoes and clothing. The popular living standards were improved in terms of the employment situation, social services, consumption levels, and income distribution.

Allende was aiming for the upper-left quadrant on the graph, desiring to build a highly-democratic and participatory form of socialism—one much different from the authoritarian flavor of the USSR. Unfortunately, it was not to last. His opponents decided he had to go. In a US-backed military coup on September 11, 1973, jets bombed the presidential palace, and Allende committed suicide, rather than be captured. Thus, the democratically-elected presidency came to an end and the horrifically-brutal military junta regime of Augusto Pinochet began.

Pinochet’s regimen enjoyed the support of the US. This was the height of the cold war after all, and ‘evil’ socialism in all of its forms had to go! The irony here is that Pinochet’s junta was perhaps even more brutal and totalitarian in nature than other totalitarian regimes criticized for being so while under the banner of socialism. The junta infamously used the National Stadium in Santiago as a detention, interrogation, torture and execution facility. Over 40,000 people spent time here during the junta regime. The thing that might be surprising to people though, is that Pinochet was no socialist. In fact, his regime ushered in a form of extreme neo-liberal capitalism preached by Milton Friedman. Friedman trained many Chilean economists at the University of Chicago and they become known as the Chicago Boys. Friedman’s theories were relatively new at the time and he and his Chicago Boys found in Chile a great opportunity to test them out, with the support of Pinochet and of course the US. Friedman would go on to become an advisor to Reagan, who also championed and implemented many of his policies in the US, which became known as Reaganamics.

Allende’s Chile would not really fit on our first simplified graph with 1 axis. Here is an example of a socialist government elected democratically, and seeking to preserve it and increase democratic participation in matters of economic planning. Chile under Pinochet does not fit on the first graph either, with its brutal authoritarianism, yet highly-capitalistic policies of Friedman and the Chicago Boys. Under the junta, Chile was dragged into the fascist bottom-right corner of our 2D graph. Authoritarian capitalism is certainly a thing. Capitalism itself is no guarantee of democracy. On the other hand, socialism does not preclude democracy. Socialism and democracy are not mutually exclusive.

Furthermore, it’s also not a given that capitalism will automatically foster and promote democracy. In this article from Harvard Business Review(HBR),^[3] various prominent economists and political science scholars point out the conflict of interests democracy and capitalism have, such as this from Stevin Klein:

The organizing principles of democracy and capitalism differ. Democracy rests on the belief that everyone should have an equal say in decisions that affect them. Capitalism doesn’t. Instead, it bases production around the profit motive and the capacity to enter and exit relationships based on opportunities. This is the heart of the tug they have on one another: Realizing an ideal of equal voice will mean limiting the ability of individuals and firms to abandon their economic and political relationships even if democratic decisions don’t favor them. We know what the outcome of this tension is: Capitalists often turn to authoritarianism before they accede to a new regime of democratic checks.

This is exactly what happened in Chile, when capitalism overthrew democracy in a coup.

Another example of a country that tried to move towards the upper-left quadrant of socialism and democracy is Czechoslovakia in 1967-1968. In that case, the country was already a communist Warsaw Pact member, yet was trying to liberalize and ‘de-Stalinize’. The 1968 Action Program, devised by Alexander Dubček—a prominent figure in the communist government—and his communist party associates, sought to introduced a series of reforms in areas including civil liberties, economics and government structure. The Action Program was part of an initiative Dubček called ‘Socialism with a human face’. Unfortunately, these reforms ran afoul of Moscow, and Czechoslovakia was invaded by its Warsaw Pact allies in August 1968. The invasion stopped the reforms, and strengthened the authority of the authoritarian wing of the Communist Party of Czechoslovakia.^[4]

It’s interesting that in Chile’s case, capitalist interests backed the coup that overthrew Allende’s socialist government, while in Czechoslovakia, it was Stalinist forces that violently intervened. Both countries wanted to move towards the upper-left quadrant of the 2D graph above. Chile got yanked back to the fascist bottom-right by forces of capitalism, while Czechoslovakia got pulled back down to the bottom-left by Stalinist forces.

A lot of emphasis is put on socialism vs. capitalism, but perhaps the real struggle is actually between democracy and authoritarianism.

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1. ↩︎ On a completely unrelated note, I was amused at this traditional alternative definition of ‘bundling’ I stumbled on while writing this article. I’ve never heard of this before: “The traditional practice of wrapping two people in a bed together, usually as a part of courting behavior.” I guess this is literally just sleeping together instead of ‘sleeping’ with them, in the modern slang sense.

2. ↩︎ Withering away of the state is a concept expressed by Friedrich Engels in his work Anti-Dühring.

3. ↩︎ Hardly a socialist-leaning source. It’s worth noting that a publication that focuses on good business management practices publishes critiques of capitalism. This isn’t some pro-socialist capitalism-bashing outlet, but even educated capitalists understand that something is very wrong with the current state of capitalism worldwide, and how it is increasing concentrations of wealth, power, and thus increased authoritarianism, rather than democratic freedoms.

4. ↩︎ Part 2 (The Kingdom of Forgetting) of the BBC documentary series The Lost World of Communism covers these events.