Economics

Types of Capitalism

July 7th, 2012 // 8:52 pm @ Oliver DeMille

There are two major types of economies: market and command.

Within these two branches there are a number of subtypes, including various command-style economies such as socialism, communism, fascism, collectivism, authoritarianism and totalitarianism.

The market-economy subgroups are sometimes more confusing to people from free societies, because most of us have been trained to evaluate politico-economic issues in binary mode where we narrow any debate down to only two sides (e.g. socialist or capitalist, democratic or totalitarian, good or evil, free or not free, etc.).

That said, we live in an era where the various subtypes of market economics are in conflict.

During the Cold War the world was divided between two great camps, with market economies of all types firmly allied against all command economies, but in the post Cold War and post 9/11 world this has dramatically changed.

There are forces supporting each of the various subtypes of market economy, and often these are pitted against each other in ways unthinkable before 1989.

Differentiating between these subtypes is important for anyone who wants to accurately understand what it happening in today’s world:

• Mercantilism: the law gives preference and special benefits to the sector of the economy owned by the government.

• Corporatism: the law gives preference and special benefits to the sector of the economy owned by big corporations within the nation (sometimes referred to simply as “Big Business”).

• Capitalism: the law gives preference and special benefits to the sector of the economy owned by big capital (including big corporations like in Corporatism, but also wealthy foreign and multinational corporations and non-corporate institutions, wealthy foundations, wealthy trusts, non-profit entities, wealthy families, monied foreign investors, and others with mass amounts of capital).

• Keynesianism: the law gives preference and special benefits to companies and institutions (corporate but especially non-corporate) that are so big that they care more about their public image for societal responsibility and promoting social justice than about profit(s), market share or stock value.

• Free Enterprise: the law gives no special preference; it protects equal rights for all individuals and entities and leaves initiative and enterprise to private individuals, groups, businesses and organizations that are all treated equally and with minimal legislation by the legal code.

All of these subtypes are market-based, though according to Keynes himself Keynesianism “seeks the goals of socialism through market means.”

For the last three generations these five subtypes of market economics have all been lumped together under the label of “capitalism.”

While this is technically inaccurate—because capitalism is a subtype rather than the whole of market economics—it is the way the word “capitalism” has been used by most people.

By this definition, capitalism is synonymous with “market economics” and is a label for the entire market-style model.

So we have two definitions of “capitalism” in the current usage: one a title for the whole market field of economics (we’ll call it capitalism Type 1), and the other a specific type of market economics where preference is given to those with large amounts of capital (capitalism Type 2).

These are frequently confused in our contemporary language.

Supporters of freedom get understandably frustrated when anyone questions the superiority of Type 1 over command economies, but it is vital to understand how Type 2 differs from free enterprise.

Adding to this confusion, corporatism is not the same as Type 2 capitalism.

Corporatism doesn’t include capitalism Type 2 at all, but capitalism Type 2 always includes corporatism as part of what it calls “capitalism.” (Corporatism is to Type-2-capitalism what apple is to fruit.)

In short, Type 2 capitalism is much broader than corporatism, as shown in the definition above.

Again, this is confusing to most people, but understanding the details and nuances of how these words are used is extremely important.

Note that the American founders dealt with many similar language challenges, such as when Madison spent Federalist papers 10 and 14 explaining the important differences between democracies and republics, or when he used papers 18, 19 and 20 to elucidate the differences between federations, confederations, national and federal government.

Without such clarity, the Constitution would have been confusing to many Americans who were deciding whether or not to ratify it.

There are numerous similar examples, and part of being a free people is taking the time to understand the nuances of economic and political freedom.

And note that few things are more essential for free people than clearly understanding what type of economic system they want.

Based on the definitions above, consider these three conclusions:

1. All of the market subtypes are better than all types of command economies. Even the market approaches with the least freedom (Keynesianism and mercantilism) are significantly better (with more freedom, opportunity and prosperity for more people) than the command system with the most freedom (collectivism).

2. On the subject of the five subtypes of market economy, free enterprise is significantly better (with more freedom, opportunity and prosperity for all), than mercantilism, corporatism, capitalism Type 2, and/or Keynesianism.

3.  The United States today has far too much mercantilism, corporatism, Type 2 capitalism, and Keynesianism and not enough free enterprise.

Category : Blog &Economics

A Third Power

June 25th, 2012 // 9:33 pm @ Oliver DeMille

Michael Strong wrote, in his excellent book Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems:

“A short history of twentieth-century economic and political thought might be summarized as:

“Market Failure! Markets don’t work as well as the classical economists thought and therefore we must control them (1900-1960).

“Government Failure! Governments don’t work as well as democratic theorists thought, and therefore we can’t depend on them to do the right thing either (1960-2000).”

Markets are excellent for what they are for! Free markets create more wealth and distribute it more widely than any other economic model.

Under free markets we always witness a large middle class.

But the market doesn’t solve all problems in society.

Nor does government.

Neither markets nor governments solve everything.

Markets create more affluence and involve more people in prosperity than any other system, and governments are the most effective entity in protecting inalienable rights and maintaining laws that allow markets to flourish.

But there are a number of things governments should not do and markets will not naturally do, and these tend to be precisely the major challenges our society faces (and seldom solves).

If we are to effectively address society’s main ills (beyond a quality standard of living for most people and the protection of our rights and freedoms), people need to voluntarily take on the world’s ills and find ways to address them.

Charity, philanthropy, volunteer service, service project and social entrepreneurship (the creation of companies or projects with the specific goal of addressing societal problems) is vital.

Government is great for what it is for, but it becomes dangerous to all when it goes beyond its proper role.

Markets are fabulous for creating affluence and helping spread it to a large middle class, but they are not focused on fixing the various societal ills.

It is up to people to improve our world beyond the natural roles of government and markets.

The discussion nearly always centers around how government should do everything versus how government should do less and leave more to markets.

But those arguing for markets too seldom go out and really implement needed solutions in our communities and nation.

It’s time to get past the old Cold War argument.

Of course government should be limited, of course markets can do many things better than government, and of course markets depend on good government policy for safety and the rule of law.

But there is another piece to fixing the world: the non-governmental, non-market driven action of individuals who see a need and set out to make a difference.

***********************************

Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.

He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Culture &Current Events &Economics &Featured &Government &Leadership &Mission &Statesmanship

Capitalism vs. Capitalism

March 20th, 2012 // 11:19 am @ Oliver DeMille

An Essential Debate for the Future of Freedom

There are two major types of economies: market and command.

Within these two branches there are a number of subtypes, including various command-style economies such as socialism, communism, fascism, collectivism, authoritarianism and totalitarianism.

The market-economy subgroups are sometimes more confusing to people from free societies, because most of us have been trained to evaluate politico-economic issues in binary mode where we narrow any debate down to only two sides (e.g. socialist or capitalist, democratic or totalitarian, good or evil, free or not free, etc.).

That said, we live in an era where the various subtypes of market economics are in conflict.

During the Cold War the world was divided between two great camps, with market economies of all types firmly allied against all command economies, but in the post Cold War and post 9/11 world this has dramatically changed.

There are forces supporting each of the various subtypes of market economy, and often these are pitted against each other in ways unthinkable before 1989.

Differentiating between these subtypes is important for anyone who wants to accurately understand what it happening in today’s world:

• Mercantilism: the law gives preference and special benefits to the sector of the economy owned by the government.

• Corporatism: the law gives preference and special benefits to the sector of the economy owned by big corporations within the nation (sometimes referred to simply as “Big Business”).

• Capitalism: the law gives preference and special benefits to the sector of the economy owned by big capital (including big corporations like in Corporatism, but also wealthy foreign and multinational corporations and non-corporate institutions, wealthy foundations, wealthy trusts, non-profit entities, wealthy families, moneyed foreign investors, and others with mass amounts of capital).

• Keynesianism: the law gives preference and special benefits to companies and institutions (corporate but especially non-corporate) that are so big that they care more about their public image for societal responsibility and promoting social justice than about profit(s), market share or stock value.

• Free Enterprise: the law gives no special preference; it protects equal rights for all individuals and entities and leaves initiative and enterprise to private individuals, groups, businesses and organizations that are all treated equally and with minimal legislation by the legal code.

All of these subtypes are market-based, though according to Keynes himself Keynesianism “seeks the goals of socialism through market means.”

For the last three generations these five subtypes of market economics have all been lumped together under the label of “capitalism.”

While this is technically inaccurate—because capitalism is a subtype rather than the whole of market economics—it is the way the word “capitalism” has been used by most people.

By this definition, capitalism is synonymous with “market economics” and is a label for the entire market-style model.

So we have two definitions of “capitalism” in the current usage: one a title for the whole market field of economics (we’ll call it capitalism Type 1), and the other a specific type of market economics where preference is given to those with large amounts of capital (capitalism Type 2).

These are frequently confused in our contemporary language.

Supporters of freedom get understandably frustrated when anyone questions the superiority of Type 1 over command economies, but it is vital to understand how Type 2 differs from free enterprise.

Adding to this confusion, corporatism is not the same as Type 2 capitalism.

Corporatism doesn’t include capitalism Type 2 at all, but capitalism Type 2 always includes corporatism as part of what it calls “capitalism.” (Corporatism is to Type-2-capitalism what apple is to fruit.)

In short, Type 2 capitalism is much broader than corporatism, as shown in the definition above.

Again, this is confusing to most people, but understanding the details and nuances of how these words are used is extremely important.

Note that the American founders dealt with many similar language challenges, such as when Madison spent Federalist papers 10 and 14 explaining the important differences between democracies and republics, or when he used papers 18, 19 and 20 to elucidate the differences between federations, confederations, national and federal government.

Without such clarity, the Constitution would have been confusing to many Americans who were deciding whether or not to ratify it.

There are numerous similar examples, and part of being a free people is taking the time to understand the nuances of economic and political freedom.

Note that few things are more essential for free people than clearly understanding what type of economic system they want.

Based on the definitions above, consider these three conclusions:

1. All of the market subtypes are better than all types of command economies. Even the market approaches with the least freedom (Keynesianism and mercantilism) are significantly better (with more freedom, opportunity and prosperity for more people) than the command system with the most freedom (collectivism).
2. On the subject of the five subtypes of market economy, free enterprise is significantly better (with more freedom, opportunity and prosperity for all), than mercantilism, corporatism, capitalism Type 2, and/or Keynesianism.
3.  The United States today has far too much mercantilism, corporatism, Type 2 capitalism, and Keynesianism and not enough free enterprise.

Many moderns say we are a “capitalist” nation or vote for the “capitalist” candidate and conclude that all is well, when in fact free enterprise is under attack from socialism but also just as strongly from mercantilists, corporatists, Keynesians and Type 2 capitalists.

Voters and citizens must know what to look for when a policy or candidate claims to promote “capitalism.”

***********************************

Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.

He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Blog &Business &Economics &Featured &Government &Liberty &Prosperity

What to Look for in 2012

January 3rd, 2012 // 11:26 am @ Oliver DeMille

Here are some things to consider in 2012, several possible trends which could make significant changes in our world by the end of the year ahead:

1. Barring major events, the news of 2012 will most likely be all about the election, especially the presidential election.But the real potential for election change will be in the Congress.The most important determinant of how America will run after the 2012 election will be whether Congress remains split or if one party gains control of both houses—regardless of what happens in the presidential race.This won’t be the media focus, but those who understand American politics will keep their eye on the coming changes in Congress.
2. More Democrats are arguing for less government spending.[i]This shift in thinking is getting very little press because the election story is so dominant in the current media.Since few Democrats are using this frustration with government spending as a reason to vote for non-Democrat candidates, it receives sparse coverage.But it is a significant change, regardless.Many Republicans and most independents and moderates believe that Washington spends too much already.

   If more Democrats continue to adopt the same view, it may become a major story in the years ahead.

3. The credit rating agencies that downgraded the U.S. credit rating in 2011 are still very closely watching the U.S. economy and some indications are that further downgrades could be ahead if the economy continues to struggle.Along with this, for the first time in many decades, U.S. securities are less stable than some other investments,[ii]and money flow away from the U.S. is increasing—especially since the middle of 2011.If these trends continue, U.S. economic challenges could drastically worsen in the next twenty months.
4. Some leaders in Saudi Arabia have voiced concerns about how the U.S. handled Egypt, especially President Mubarak, during the 2011 Arab Spring.[iii]As the popular uprising grew, the Obama Administration eventually suggested that Mubarak step down.Regardless of whether or not this was the right approach, the sentiment among some Saudi and other Middle Eastern leaders goes something like this: “If that’s how the U.S. treats its allies, do we really want to trust Washington for anything?”Ironically, many in Israel are feeling the same emotion.Add to this the under-reported influence of Saudi investors in major European and U.S. businesses and banks, and this trend may be the most impactful in years to come.

   Western economic dependency on Middle East oil is well known, but the bigger danger may come from direct investment in businesses and banks.

   If massive sums of Petro Dollars were pulled from Western banks, for example, the term “too big to fail” would take on a whole new meaning.

5. We have been warned about cyber terrorism for some time now. Is 2012 the year?
6. Will Israel bomb an Iranian nuclear facility?[iv]If so, how will the Obama Administration react?
7. Ironically, a focus on jobs may finally become a focus in Washington during the election year of 2012. The bad news is that the parties are unlikely to work together to make real changes.Hopefully, this turns out to be untrue, but if current trends continue little will actually occur.

The good news in all this is that a relatively few changes would bring a drastic positive change in momentum and infuse the nation with positive innovative energy.

For example, four changes could establish a massive change of direction and rebirth of American success (like the shift in American perspective which occurred when Reagan took over leadership from Carter).

The four include:

1) a rollback of all federal policies since 2000 that have hurt small business and dis-incentivized innovation, growth and hiring

2) an effective long-term policy to fix the problem with entitlements, balance the budget and get control of our national debt

3) a restructuring of American education funding to support technical training, community colleges and other non-traditional methods to increase the competitiveness of our workforce

4) a move away from international invasions and wars abroad while maintaining a strong national security presence

I am not predicting that these will occur, but they would be greatly beneficial to the nation if they did.

Finally, each year brings its share of surprises.

For example, who could have guessed in 2010 that the year ahead would bring the death of Osama bin Laden or the refusal of the White House to take leadership in a serious jobs plan?

Whatever comes in 2012, America needs to get its financial house in order and re-incentivize business growth and hiring.

These are vital priorities.

***********************************

Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.

He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Current Events &Economics &Entrepreneurship &Featured &Government &Leadership &Politics

The Amazing (Ironic/Tragic) Debate

November 19th, 2011 // 2:15 pm @ Oliver DeMille

There is a truly amazing debate happening right now in the United States. It would actually be comical if it weren’t so potentially tragic for America’s future. This debate is not any—or all—of the Republican Presidential Debates. Nor is it some formal debate taking place on television, the Internet or a university campus.

It is a cultural debate, a large-scale argument playing out in millions of discussions online, thousands of opinions and rants from the talking heads in the media, and – most dramatically – fought indirectly between the Tea Partiers and the Occupy Wall Street crowds.

Most of this debate is taking place in emotional and passionately charged ways, rather than in clear, concise intellectual dialog. Still, a quick look at the two intellectual arguments is instructive.

Some say that the divide between the rich and the rest is increasing each year. More to the point, the structural division between the upper classes and the other classes is becoming less porous and less elastic. Social mobility—which was once the American keynote—is steadily eroding.

A majority of Americans now feel that their children will have a lower standard of living than they did; many feel that the rising generation in China will have more opportunity than our American youth. The American Dream is over in this view, and things seem likely to get worse before they get better—if they ever get better.

I wrote about this reality a few years ago in my book The Coming Aristocracy, and it remains one of the most significant challenges of our time. It is presently a major catalyst of current trends and of our evolving future. Unless things change direction, an aristocracy is coming to America. Indeed, it is already almost entrenched.

In a typical debate, the opposing view would argue that such a divide is not occurring, or that it is a good thing for America – or even that it is a minor trend that will be offset by some larger reality. But this is no typical debate. In an interesting twist, all sides of the current amazing debate accept this truth—the divide between the rich and the rest is real, and it is a major challenge in our century.

The debate is about how to fix this problem.

One side of the debate wants government to solve the problems, the other side wants government to get out of the way so the people can resolve things. It’s More Government against More Free Enterprise.

The More Government side argues for higher taxes, more government relief, increased government spending, more government jobs programs, increased government training options, improved government education, and more regulations. It is summed up in the title of Thomas Frank’s recent article in Harpers: “More Government, Please!”

In contrast, the More Free Enterprise side promotes fewer government regulations, reduced or at least no hikes in taxation, lower corporate rates to boost America’s competitiveness in the world economy in the, decreased government spending, less government borrowing and printing of money, and smaller government.

This side wants the era of big government to truly, finally, be over,[i] or, at the very least, for us to realize that our government must stop shutting down or undermining the free enterprise incentives that are the basis of all historical prosperity and freedom.

The More Government side tries to convince the nation that the Free Enterprise side “Hates Government,” or “Hates the Poor.” Too many on the Free Enterprise side characterize the ideas of the More  Government side as “Hating Freedom” or “Hating Small Business.” Both of these characterizations are flawed.

Many who argue mainly for government solutions also feel deeply the need for government to be checked and balanced, while many who support answers mainly by private enterprise feel great pride and trust in the potential for good by our government and consider its success vital to society. Most people on both sides care about freedom and also want to help the underprivileged and struggling. Most people on both sides want government and business to be successful. Most people from both sides want the government to be fiscally responsible. They just have an honest disagreement about the best way to do these things.

Some want to label one side of the debate Democratic and the other Republican, but this simply isn’t the case. Government spending, government programs, and the regulatory load increased drastically—drastically!—under the Republican administrations of Eisenhower, Nixon, Ford, Bush and Bush and also under the Democratic leadership F. Roosevelt, Johnson, Carter, Clinton and Obama. Note that these things also increased under Truman, Kennedy and Reagan, but at least these three presidents made a loud and energetic case for proper limits on government. In short, both political parties have proven effective supporters of the More Government side of the debate.

The one big difference, the most fundamental divide, between the More Government and More Free Enterprise sides is this: one believes we need more government force right now, the other that we need more freedom and incentives right now.

For this reason, I am on the side of free enterprise.

The government has a vital role to play in our society. Without it, none of our freedoms will last. But government power must be wisely limited, and the best articulation of the right level of limits on our government is found in the U.S. Constitution. More to the point, the government today may or may not be too big, but its massive regulatory load and anti-business policies are clearly hurting the economy and fueling an increased class divide in society. They are keeping our economy down because they don’t incentive economic innovation or growth.

The reason I call this debate “amazing” is simple: It is both surprising and indeed shocking that anyone who has read history can believe that force is a more effective way to freedom than free incentives. One side of this debate seems committed to using government force to fix our economic problems, even though all through history free economies, minimal regulation and limited governments have consistently been the forerunners and partners of economic success and high economic mobility.

It is simply amazing that we still haven’t figured this out. Perhaps the most astonishing thing about this debate is that anyone still argues that more government force in our current model will spread more freedom, prosperity, or social mobility. There is no historical evidence for this, and overwhelming evidence of the opposite.

Freedom works. Why is anyone arguing that we give more support to government force? If the Republican Presidential Debates, and the ongoing responses from the White House, are about real solutions, they will be all about the government effectively incentivizing free enterprise. If the Tea Party and Occupy Wall Street events are about real solutions, they’ll promote ways to more effectively incentive free enterprise.

As long as government force is the dominant factor in our economy, things are going to get worse. The Bush-Obama economic environment we live in combines stifling regulations with massive government spending and uncertainty about what Washington will do next. This dis-incentivizes growth, hiring, and investment in the U.S.; meanwhile, business moves to foreign economies with better incentives.

Unemployment lingers above 9%, and the real number when we include all who are underemployed is pushing 20%. The mortgage bubble may not have reached its lowest collapse, and inflation or deflation appear imminent. In response, the White House now recommends more government spending, regulations and programs.

This is a truly amazing debate. The more the government regulates and spends, the worse the economy fares. As a result, the government seeks to spend more. And a lot of the American people think this is a good idea.

Many Americans were shocked into political activism by the Great Recession, where the average household lost 3.2% of its income.[ii] Since the Great Recession ended, during the so-called Recovery, the average household has lost an additional 6.7%.[iii] Are we simply scared into submission? Are we crying out to the government to fix things, because we are deeply terrified that nobody else will? Is that why so many people believe that government force is more likely to boost our economy than free enterprise?

The amazing question remains: Given all of history, how can anyone take the Force side of the current great debate?

Seriously?

***********************************

Oliver DeMille is the co-founder of the Center for Social Leadership, and a co-creator of Thomas Jefferson Education.

He is the co-author of New York Times, Wall Street Journal and USA Today bestseller LeaderShift, and author of A Thomas Jefferson Education: Teaching a Generation of Leaders for the 21st Century, and The Coming Aristocracy: Education & the Future of Freedom.

Oliver is dedicated to promoting freedom through leadership education. He and his wife Rachel are raising their eight children in Cedar City, Utah.

Category : Aristocracy &Blog &Current Events &Economics &Entrepreneurship &Generations &Government &Prosperity