In their arsenal of campaign rhetoric, Republicans affix the "Socialism" label to the candidates of the Democratic Party and their policies. This stratagem is a lazy substitute for thought but it has the added advantage that it works. The assertion is repeated so frequently that many voters have come to regard it as the truth, and so it is an effective vote-getter. And, in a curious way, the Democrats seem defenseless in the face of this scare tactic, even though readily-understood economics would provide a rigorous and vigorous response: the economic distortions commonly attributed to socialist systems are also produced by unrepresentative government in service to the donor class, as here in Wisconsin.
The Socialist Label is Powerful
It works because some socialist countries have failed in spectacular ways to address the economic wants and needs of their populations. For those who have immigrated here from socialist European countries, as well as those who remember 1950s cold war newsreels, "Socialism" carries with it a particularly powerful imagery. The label brings to mind long lines for food, involuntary job assignments, and gulags and disappearance for those who complain too much. More recent immigrants from Venezuela or Cuba react viscerally to the label.
The core definition of socialism is advocacy for social organization around public ownership of the means of production and distribution, and centralization of their management. This is in stark contrast to the market system in which decentralized management is guided by a price system. Confusion arises when Socialism is conflated with government activity. This is odd since capitalism requires a well-functioning public sector. Capitalism must provide those goods and services that the market system needs but does not produce well or does not produce at all. The modern economy can be thought of as comprised of the public and private sector, sectors that must work together to optimize overall economic performance.
Brief Look at the Private Market Sector
The United States economy is at its core a highly successful market system. (For an earlier essay in this series on market economics, see https://www.grassrootsnorthshore.com/20220722_mt). One of the great strengths of a market system is its responsiveness to individual willingness and ability to spend money according to one’s preferences. People earn money in the "job market" and spend their income according to their preferences in the "goods and services market." In the standard conception, all these exchanges are guided by decentralized prices and wage rates, and are made without coercion, prompting Adam Smith to refer to the market as a "system of perfect liberty."
But this market responsiveness to consumer preferences does not always work; there are important preconditions. Chief among these is competition which imposes on sellers the incentives to serve informed buyers. This interplay between buyers and sellers independent of government is labeled the "private sector." In important and familiar sectors of the economy, those preconditions for market efficiency do not exist.
Brief Look at the Public Sector
The absence of these preconditions leads to two roles for government. First, the public sector has the responsibility to regulate markets that are non-competitive but still produce very important products. Examples include the public utilities that produce and distribute electricity, natural gas, and cable television. Also included are firms that produce valuable products but which, if unregulated, would impose the spillover costs of pollution, noise, or danger, e.g., carbon dioxide emissions.
Second, if, through representative government, the people express a preference for certain goods and services that the market will not provide, some level of government – – state, local or federal – – could step in and provide it. Examples include national defense, police and fire protection, health insurance, essential insurance programs such as Social Security and disaster relief, as well as the legal system that enforces contracts, addresses crime and adjudicates accident costs.
To best serve society, a capitalist system requires the right mix of private and public activities. The ideal combination of public and private rests on the simultaneous achievement of efficient prices guiding exchanges in the private sector and representative government guiding decisions in the public sector. In the private sector, the price system is the mechanism for responsiveness to constituents by coordinating the incentives of buyers and sellers in the market. In the public sector the mechanism for responsiveness to the constituents is representative government. Distortions from this ideal combination -- for example by producing in the public sector products better left to the market -- diminish the income and wealth of society.
In his defining work, The Road to Serfdom, Friedrich Hayek further warned that inefficient concentration in one sector would spread to other sectors, and with each step down this "road" increasing centralized political control, diminishing economic performance and personal liberty. In the paradigm case, Vladimir Lenin foresaw the spread of political power through the spread of economic power. He envisioned certain vital sectors that could have been served by the private sector, including agriculture, utilities and transportation, banking, and communications as "commanding heights" of the economy; control these and you control the society generally, leading to the "serfdom" that Hayek feared.
So the fundamental problem of socialism is not that there is a public sector -- public sectors are a requirement of any economic system including capitalism -- but the distortion away from the right mix of reciprocal complementary public and private sector activity.
Just as the private sector is weakened when decentralized prices are distorted, a public sector is weakened when representative government is distorted by a gerrymandered non-representative legislature or discriminatory limits on voting rights. Donor-driven legislative decision-making combined with gerrymandering that leads to non-representative government yields economic distortion comparable to Socialism.
We see one of the worst examples of this distortion right here in Wisconsin where voters gave Democrats 52% of their vote count but received only 39% of the legislative seats. In other words, the people with a slim majority preference are relegated to a powerless minority position in the legislature. That means that their preferences for public goods and services are bypassed in favor of the preferences of a donor-driven minority among the citizenry.
This distortion by nonrepresentative government plagues decision-making of all kinds. For example, should the state build new roads or repair existing roads; rural roads versus suburban roads versus urban roads; cut taxes versus increase spending on math education; reproductive rights versus the 1849 law that banned those rights; convenient voting in numerous polling places and drop boxes versus restricted access to voting and relentless unproven claims of voter fraud.
Unrepresentative government was on full display on October 4th when they refused to hear a proposal to place a referendum on reproductive rights before the voters to permit them to express their preferences. The effort to put the referendum on the ballot was made in reaction to the overwhelming vote in Kansas to reject a change in the state constitution that would have banned abortions. The referendum would test whether the voter preference in Wisconsin is about the same as in Kansas.
The gerrymandered legislature prevented Wisconsin residents from voting on the matter. Instead, after the governor convened the non-representative legislature to consider the matter, it "gaveled in" the beginning of the session and then immediately "gaveled out" the end of the session without considering the motion. This voter by-pass is little different from that in a socialist state.
A Republican foray into actual socialism is the Foxconn fiasco that taxed successful business and residential economic activity in order to subsidize a private foreign firm that has proven to be notoriously incapable of fulfilling promised product and jobs on the valuable land cleared for the purpose. It is amazing that the Dems have not applied the socialist label to this misplaced Republican investment.
William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.
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