Regardless of the terms used—particularly the “isms”: capitalism, socialism and communism—there are only two economic choices.
An “economy” is not production like growing vegetables and making plows. The “growing” and the “making” parts only apply to personal consumption. “Economy” can only refer to the “market” of a person transferring those vegetables and plows to another in return for compensation, be it cows and chickens or paper dollars and silver.
There is no such thing as an economy of subsistence farmers who individually consume what they individually produce. An economy is trade—or a market—in goods and services that are produced. The definition that “an economy is the large set of inter-related production and consumption activities” is not accurate because the “activities” refer to trade—“market”—not the production or consumption.
The two economic choices are fundamentally a free market or a controlled market—again regardless of any hybrid that utilizes both concepts while favoring one over the other to a degree.
Writing during the first industrial revolution of the early to mid-1800s, Karl Marx believed that companies would, in the quest for higher profits, exploit workers through lower wages. In some aspects he was correct, as industry was labor intensive with all manufacturers paying the same amount for basic raw material and non-labor production costs.
But what Marx did not understand was how the market works, because he never had a “real” job where there was competition for labor. He sold his words and ideas to newspapers where there was no competition at all. We all learn quickly the fact that no matter our profession, there is always someone who can do the same job we are doing at the same skill level or better and who is willing to work for a lower compensation.
That fact is part of a “free market.”
The labor movement—trade unions—was the way the workers organized to collectively force companies—by threat of work stoppage—to have better conditions and salary. But also, the unions controlled the free market of labor by stopping a worker from accepting a lower wage than the union deemed acceptable.
In Das Kapital (1867), Marx says capitalism’s—free market—motivating force is in the exploitation of labor, whose unpaid work is the source of surplus value. The owner of the factory claims total right to this surplus value and is legally protected by the government through property rights.
Prior to trade unions, there were only two “horses” pulling the labor market wagon—corporations and government. With the advent of unions, a “troika” was formed. This traditional Russian harness driving combination, using three horses abreast at full speed can reach 45 to 50 kilometers per hour, which was a very high speed for land vehicles in the 17th to 19th centuries. But the horses had to cooperate.
The government protected and legally validated the unions in return for votes. The corporations contributed to the government through taxes and political contributions and retained their property rights. The unions also made political contributions and ultimately kept wage demands favorable for corporate profits.
Sometimes the cooperation failed. But for most of the early 20th century there was stability and balance that kept the labor market functioning, although it was far from “free.”
Marx believed that the only solution was collective (read government) ownership of the “means of production” that is the factories. He did not believe in the free market whatsoever. It is easy to find examples of where both the free and controlled markets failed to provide for an effective exchange and transfer of goods and services.
But is there a long-term evidence that shows which one—free or controlled—is better for humanity?
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Marx believed that the only solution was collective (read government) ownership of the “means of production” that is the factories. He did not believe in the free market whatsoever. It is easy to find examples of where both the free and controlled markets failed to provide for an effective exchange and transfer of goods and services.
But is there a long-term evidence that shows which one—free or controlled—is better for humanity?
The Chinese model should answer partly your question. Having lived & worked there for 4 years (2016-2020) as a professional ex-pat, the CPC has allowed a hybrid of the free and controlled market where the entrepreneurial spirit has been unleashed and nurtured. Contrary to ultra-socialist ideas, China now has the 2nd most number of billionaires globally with Beijing, if I’m not mistaken, the city with the most. It also has lifted millions out of poverty. The Chinese are generally entrepreneurial and innovators. A lowly clerk may work full time but hustles on the side with her own business. Some companies have the 996 system where employees work from 9 am-9 pm for 6 days. Good or bad, the work ethic is tough. They don’t usually hang around or make (tambay) after work nor do small talk (chismis). The CPC is ubiquitous and almost always has a stake in businesses and major industries. Is it good? Well, the subways, buses, airlines, communications, energy, and trains are most efficient. They now have the top 3 high-speed trains in the world. I haven’t seen vandalized buses or trains. AI, IoT, 5G (they are into 6G research now) are being integrated to create driverless cars, buses, and trains. Forget talking about manufacturing, they can probably manufacture everything.
Another model is the cooperative system where democratic ownership and decision-making are encouraged. The COOP in Sweden is a fine example with 2-3 Million members out of the 10-12 M Swedes.
We have the same experience here in the Philippines although not on a large scale yet, although many cooperatives now are registered with the CDA. A great number now have morphed into multi-purpose types engaging in various economic activities from plain credit and savings, achieving billionaire and multi-millionaire status.