Why Capitalism and Socialism Are Failures

Social conditions seem very mysterious when you can’t see that particular forest because you live in the middle of it. Nor do most people even try to figure out why they are dissatisfied with their lives, because they are too busy trying to support themselves and live their lives to afford the luxury of contemplation and study of economic abstractions.

But in my opinion both capitalism and socialism have failed—for everyone but the 1% who got crazy rich under either system—and both systems have failed because they are theories about money and work that don’t account for the actual nature of humans. They fail especially because they don’t account for one particular innate characteristic, but they fail for nearly opposite reasons.

Neither accounts for the actual nature of humans.

But wait! How can you say capitalism has failed, when we enjoy all these benefits of the riches of capitalism? Well, aside from the record levels of inequality we currently “enjoy” in the US, these benefits have come at someone else’s expense, which is something we don’t readily see. I’ll explain shortly. But first: socialism.

Socialism fails to understand that humans, and other animals too, for that matter, attend to their own interests before those of others. That’s the crux of it, the primary reason. Altruism and compassion do exist, in both humans and other animals, but in a fire, you save your family first. You work primarily to support yourself and your family, not your neighbors.

Failure to allow for this natural self-interest is the reason for the dismal condition that characterizes every example of state socialism I ever heard of. State socialism is a nice sounding idea: everybody works to the best of their ability for the common good, and everybody gains the same benefit, and all live happily ever after. All state socialism systems try to pretend everyone has the same intelligence and ability. Special skills, talents, or smarts, or simply working harder, are not rewarded. You get the same bucks as everyone else, and work demanding high achievement, such as medicine or higher education, is often actually punished with low pay. Castro’s pay for doctors is dismally low.

It doesn’t take long to become dispirited by lack of recognition. Plus, there are always a few people who will work as little as possible, but they still get the same pay you do. That means that everybody gets a bit less than they would if everybody worked equally hard, so the whole society slips into a downward spiral that ends in universal poverty except for corrupt leaders. Remember that classic Soviet joke, “We pretend to work; they pretend to pay us”? That was the bottom of the spiral.

In socialism you are not rewarded
for anything extra you bring.

Cuba is a perfect example of this failure, but when we discuss Cuba we have to remember its history of inhuman slavery, brutal crime, terrible racial inequality, and gross corruption at every level in virtually every period until La Revolución of 1959. The revolution changed much of what was most wrong with Cuba, and brought impressive improvements to the lives of ordinary Cubans, especially in the early years. Everybody has a home, everybody has basic education, everybody has health care.

But those things didn’t develop and improve over the years. Instead, they stagnated, and they are no longer adequate. It wasn’t long after the revolution before the downward spiral began. Half a century later, several housing units literally collapse every day because the state doesn’t maintain them, and the residents can’t afford to. Basic education is far too basic for the modern world. Health care tends to lean toward the elementary, and looks a bit shabby these days. The computer revolution is a quarter century behind in Cuba.

Cuba is a large island surrounded by outstanding stocks of fish. Yet there are virtually no fish on the Cuban menu. Why? Because the unelected rulers know that people would use the boats for a 90-mile one-way trip to Miami, so boats aren’t allowed. The obvious thing, that no one would leave if it was the paradise they claimed, apparently never occurred to the Castros. Cuba is a wonderful place, but its citizens are prisoners who cannot travel freely, and many would leave if they could. After half a century of the Castros’ repressive socialism, everyone’s income is inadequate and few opportunities are available. The official discouragement of entrepreneurship is only now being changed. Raul Castro seems to be slowly improving things, but it took 50 years under his brother before he could get started.

Most Cubans are prisoners who cannot travel.

This imprisonment and lack of opportunity characterizes every state socialist enterprise. If state socialism were what its apologists say it is, it would not be necessary to forbid travel, because people would always return to their families and the homeland they love. And Cubans do love the place. The most frequent subject in Cuban music (after love and sex, of course) is love for the island, a longing like no other. And as someone who knows the music and visited (only briefly), I understand that longing.

Capitalism fails for a reason that is the same, the desire to improve life for oneself and one’s family, but the mechanism of failure is quite different. People should be rewarded for their contributions. Striving for financial success is heartily encouraged, but too easily becomes unchecked greed and disregard for the common good, and capitalism has no braking mechanism, especially in the US during recent decades. As every Buddhist knows, greed is infinite. Those who have a lot of money quite often devote their entire lives to pursuit of wealth and power. Nothing else matters, and the filthy rich are too often indifferent to the suffering of the poor. The pursuit of wealth itself becomes the end, and power is exercised to worsen the resulting inequality.

That wealth is not created from thin air. There is a finite quantity of money in an economy at any moment. When it moves to the wealthy it is extracted from people who have less money. That’s the only possible thing that can happen. In a global economy, the money not only moves from the poor to the rich, but from poor countries to rich countries. If this were not so we would not see multi-billion-dollar industries like McDonald’s and Walmart paying wages no one can live on, denying workers full time work, and all the rest.

The greedy rich have no interest in the effect their activities have on everyone else. In fact, many claim that their greed brings affluence to everyone, which is nothing more than a conscience-salving fairy tale. The falsity of this claim is most obvious when you study the global effects of capitalism, but at home it is obvious in our falling wages, increasing inequality, and declining wellbeing at the lower end of the income scale, while wealth among those who need no more of it skyrockets.

The desire for “more” seems to be a natural part of the human makeup. It’s the same striving that socialism squashes by not allowing anyone to earn additional income if they contribute more. Capitalism fails to manage this desire at the opposite end of the economic spectrum. It’s hard to say which causes more pain and suffering.

Capitalism has no braking mechanism.

Inherent in the system of capitalism is the trait that capital must grow. Capitalist enterprises can never reach an optimum status, do their job well, and simply stop growing. The inevitable result of this trait is that capital must forever be in pursuit of increasing profit. Profit is increased most readily by reducing the cost of production, so there is always a downward pressure on wages. Globally, this growth imperative means that there must be an ever-increasing population of desperately poor people who have no choice but to work for lower pay. That’s why global capitalism regularly folds its tent and moves to places with still worse poverty. It also means that there must be ever-increasing purchase of the products of this exploitation, which is why billions are spent on advertising to convince us in the wealthier countries to buy things we don’t really need. It’s why tons of clothing donated to charitable organizations cannot be sold and must be regularly disposed of.

Capitalism’s eternal pursuit of increasing profit compels exploitation of the poor, and weak controls gives rise to flagrant inequality. This is because lower wages translate directly to higher profit for capitalist owners. Worldwide, this becomes exploitation of the global south. It also compels environmental exploitation, which means rapid extraction of the earth’s irreplaceable resources as well as disregard of the cost of environmental degradation.

We in the capitalist West (and North) are not easily able to understand that capitalism has in fact failed, because our lives are not literally destroyed by capitalist exploitation, and we benefit from the general level of wealth that capitalism has moved from south to north. Capitalism needs us to have enough money to buy stuff.

The capitalist imperative compels exploitation.

In neither capitalism nor socialism does systemic failure automatically occur because of these internal contradictions, and in neither case are these contradictions readily evident. They can only be discerned by stepping back and questioning how and why these systems function. This is something you will not do if you believe that all is well, as both capitalists and socialists would have us believe. If you believe that either system functions satisfactorily, you will be unable to analyze it with dispassion. You will see their failures as temporary setbacks, like Cuba’s catastrophic “special period” following the collapse of the Soviet Union, when they no longer had a captive market for their goods. Or as an “anomaly”, like the 2008 Wall Street crash-of-unchecked-greed, that cost some $14-trillion and nearly collapsed the entire world economy. Like a cruel joke at everyone else’s expense, capitalists proclaimed it was over in 2009, and CEOs and Wall Street bankers began to receive multi-million-dollar bonuses again.

Both capitalism and socialism fail to provide for the common good because of flaws that are inherent within them. One of the most compelling tasks in the coming age is defining more equitable ways for economies to function.

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9 CommentsLeave a comment

  1. Trying to call capitalism a failure based on exploitation theory is a fairly weak argument. States that have been able to elect stable democracies and use a somewhat capitalistic system have seen the standard of living increase exponentially over the last century.

    Take Mexico and Canada for example. Mexico enjoys more natural resources than Canada, but cannot elect a stable government. Mexico’s problems are internal. Exploitation isn’t the source of Mexico’s problems.

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    • I was trying to make the point that capitalism has an inherent characteristic that requires exploitation. Mexico has many problems, and among them are exploitation by monopolies set in place by the Spanish, and external exploitation via NAFTA and corporations. Perhaps the worst tendencies of capitalism can be controlled, but the tendency is always toward exploitation. Another point I wanted to make is that this exploitation is not always obvious.

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  2. Using Cuba as the example for failed Socialism is another piece of weak evidence. Cuba’s “failure” can never be discussed convincingly without acknowledging the crippling effects of the USA’s embargo against Cuban trade.

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    • The US’s idiotic half-century of embargo has certainly done nobody any good, particularly the Cuban people. However, Castro and his brand of communism quite capably ruined the country even without the embargo’s effects. The embargo has not prevented Cuba from trading with the rest of the world, but individual initiative has been largely stamped out. Everything is difficult there, because everything is over-controlled by the government.

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      • I like much of what you wrote, but some of it was shite, and now I see why. You are one of the many who confuse Socialism with Communism or Socialism with Social Democracy and so on

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  3. Fantastic article sir, we are in the minority with this opinion unfortunately. I think capitalism would be a valid system if people would suppress their greed. CEO’s and business owners very well deserve much higher compensation than the average employee, yet the wage differentiation we see today is outlandish. Maybe an optimal system is where employees own a certain percentage of the business, I do not know.

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  4. Great article! It puts into words what I’ve long suspected in thought. That is, with either one of these socio-economic systems, the human frailty factor eventually becomes an unfortunate consequence. Any just and moral system of government must guard against rampant greed and the acquistion of unbridled power. Moral men must make decisions on the behalf of a moral people.

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  5. The only way to fix the world’s politics is to be non-polarised, inviting all schools of thought when the time suits with the overarching principle being Social Democracy , but at the lower-end being anarchy (I mean true anarchy where everyone does their part, not propaganda version which means chaos).

    Part of it must be the complete purge of all legal systems as none have been created for justice, they have been created to benefit elise and the generate more revenue/taxes.

    Crimes should be based upon actual impact on other people and beings other than the being that caused the crime.

    Next, the financial system needs to be completely disassembled, as well as forex and stock trading & speculation. In other words, people that have nothing tangible to offer (like bankers) will in many cases have an unprosperous life, but people who apply their intelligence or work hard should always do ok.

    Finally, we need to remove laws that treat humans as exceptional, and instead apply sensible rights to all living things as well at the environment thus making the laws mentioned above have some teeth based upon the impact of crimes.

    With these foundational changes, everything else should fall into place including over-consumption, pollution and exploitation.

    The world is not that difficult to fix.

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  6. Very good article.

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