I have lived and worked in Europe in past years, and we still visit regularly. Contrary to the views of Americans who never have traveled there, “classic capitalism” is alive and well in small communities across supposedly “socialist” northern Europe, and they are often far healthier than many U.S. communities of similar size. Small-business entrepreneurship is commonly evident and the independent shops in the “centrum” of small cities often prosper where similar small-town businesses in U.S. persistently fail, to be replaced by ubiquitous Dollar General stores just outside the historic downtown areas, which themselves are then often left empty to decay. If this small-town decay is “capitalism,” then we should all be ashamed as a nation.
There are reasons for this widely-held but incorrect perception of what goes on economically outside the United States, and they primarily have to do with a poor American understanding of what drives small-business entrepreneurship. Add to this the economically-illiterate right-wing charge of “socialist” against Elizabeth Warren, and we can see why Republicans and their captive news media have taken the economy down a very destructive path over the last few decades.
Those “Humpty Dumpty words” of socialism and capitalism
A while back I wrote about how the terms socialism and capitalism have become, in American political discourse, “Humpty Dumpty words” in the spirit of the Lewis Carroll story in which Humpty Dumpty tries to convince Alice (of Wonderland fame) that any word “means just what I choose it to mean.” Republicans tend to excuse any subsidy for big business as “capitalism” and criticize any attempt at funding programs for poor people as “socialism.”
Senator Elizabeth Warren, a former Republican and professor of business law, regularly gets criticized as “socialist.” I have not yet thrown my support to Professor Warren and we have our policy differences, but my take is that, if anything, her numerous detailed policies look more like those of the successful “social democracies” of northern Europe than any classical definition of socialism, in which by definition the government directly controls major industries. And as I noted above, you will find, with some exceptions, a healthy capitalist and entrepreneurial spirit throughout this part of Europe. Small-town commercial districts even deep in the fjords of Norway, for instance, are far more likely to have mid-day foot traffic in the stores than would be the case in towns of comparable size across the U.S. Midwest.
The key difference is that this is bottom-up capitalism, where the government incentivizes private business formation and success by making sure there are millions of “healthy consumers” ready to spend money, and most of that spending is done locally. In the U.S., by contrast, we have what I characterize as top-down capitalism, where near-zero-interest Federal Reserve money and heavy Federal subsidies to big business are granted in the assumption that the benefits will “trickle down” to the masses. And the masses, rather than spending locally, see much of their income going to large healthcare organizations and financial institutions rather than to the corner market. The masses are still waiting for the benefits of top-tier income growth.
Recognize that either at the time of Adam Smith’s capitalist bible, The Wealth of Nations (1776), or the later Marx and Engels Communist Manifesto (1848), the mega-corporation as we know it today did not exist. Rather, these aggregations of financial power have primarily grown, in my contention, by governments granting them legal preferences and “taxpayer-financed failure insurance” through evolving, ever more favorable bankruptcy laws.
In short, by focusing on the average consumer’s spending rather than mega-corporation subsidies, Nordic economies better illustrate Adam Smith’s iconic “invisible hand” of free-market capital formation than is found in the United States. New businesses form “out of thin air” where there is consumer demand, as Smith predicted. This is “bottom-up capitalism.”
The benefits of bottom-up capitalism
Please, take a trip through Sweden, Denmark, Norway and Finland, and especially get out into the small communities. Here is what you will find:
- Since every young person knows that he or she will be able to afford their family medical bills in these countries, the “medical crisis risk” of starting a new business or a new career disappears. In the U.S., this fear is a huge barrier to entrepreneurship. Americans stay in unfulfilling jobs just for the healthcare coverage for their families. This difference is a critical reason why small-business entrepreneurship remains healthy in these European countries.
- Likewise college debt. Young people in the U.S. start their work careers often weighed down by disabling college debt, forcing them into conventional jobs in big businesses. Meanwhile, Nordic graduates are more free to find creative careers, often in entrepreneurial start-ups or in teaching. In Finland, for instance, teaching in public schools has become a rewarding career both financially and personally due to aggressive support and high expectations for public education.
- Because the total cost of their healthcare systems is 40% to 50% less per capita than the U.S. “cash suck” with equal or better outcomes, much of that difference in cash burden accrues to families, either directly in lower spending or indirectly through government benefits. This money purchases food, clothing, other consumer items, homes, and countless other non-medical things that spur classically-capitalist corporate investment to meet the demand.
- Likewise lower military spending. Money not spent “blowing things up” goes to consumers, and thus consumer-oriented providers of goods and services, instead. You see the differences in the activity of local shops and the vitality of “high streets.”
Which side is more “socialist”?
If we use the classical definition of socialism, where government has substantial ownership or control over the means of production and distribution, then the definition applies much more to the U.S. “defense” sector and other “privatized” governmental services like prisons, where most of the characteristics of free-market business exchange go out the window. Government becomes “the one” customer; competition is limited; prices are often fixed in no-bid corporate-politician “handshakes”; capital costs (construction bonds, etc.) are effectively guaranteed by government rather than subject to the free capital markets.
In addition, favorable tax treatment and direct subsidies to “Big Energy” and “Big Agriculture” are more of this “top-down crony capitalism,” rewarding the richest Americans directly and granting even more power to the non-consumer end of the economic pyramid.
The other two huge pieces of the federal budget, Social Security and Medicare, on the other hand, are falsely tagged by Republicans with their “revised” definition of “socialism” to mean direct government movement of cash. However, the average person who reaches retirement age receives in cash or services pretty much the amount of money they paid into these two programs, and so the benefits of these programs are primarily focused on ordinary taxpayer day-to-day consumption (even if too much of that cash unnecessarily winds up in “Big Healthcare”).
These are not really “insurance programs” for two reasons. First, they are (despite the accounting dance of “trust funds”) mostly transfers of current revenues from one set of taxpayers to another. Second, the primary business model of insurance is the ability to actuarially differentiate “risk pools.” In Medicare and Social Security, the risk pool is “everybody,” so the focus switches more to efficiency and equity in this cash transfer (both of which admittedly could use some work). The need (and the profit) for conventional private insurance becomes unnecessary. While the insurers don’t like that, everybody else benefits. If not now, you will benefit at some point in the future.
Moving the cash from the top to the bottom
In summary, most of Elizabeth Warren’s economic plans are focused on “moving the cash” from the small, elite top of the economic pyramid to the huge consumer/taxpayer bottom of that economy. And if you are open to exploring the other economies around the world, you will find that this model is where more people, especially women and minorities, are more free to live up to life’s potential. And this is also where “bottom up” locally-focused capitalists, focusing on meeting basic consumer needs and wants, flourish. And that’s a good thing.