Socialism VS Capitalism (blamonkey)

Thanks for the debate! Let us make this a good one. I will post my case here, and if my opponent has a problem with the round structure since he missed his first round, I encourage him to PM me.

I offer the following observations, framework etc.

The Intercollegiate Review best sums up the term “capitalism”:

“…capitalism is only the private ownership of the means of production (1).”

The Balance offers the definition of the word “socialism”

“Socialism is an economic system where everyone in the society equally owns the factors of production.”

Most societies have a mix of both economic systems. Even the US, what many consider to be the epitome of capitalism, has aspects of socialism. The government of the US operates public transportation, schools, prisons, and national parks. These examples could technically be considered the US owning land, capital assets, and natural resources, which happen to be factors of production (3). There are no modern examples of a completely socialist society, or a capitalist one. Ergo, we need to be discussing not only the societies that primarily subscribe to an economic system, but we also need to discuss how the economic system plays a role in creating harms/benefits to link to the resolution.

For example, if I were to bring up the failures of Venezuela, I would need to show that the reason for this is partly or wholly because of socialism.

It is neither the burden of the pro or con side to show that a society should subscribe to capitalism or socialism completely. To claim that an economic system works 100% of the time is ludicrous, as demonstrated by the fact that there exists no known government that is completely socialist or capitalist in the modern day. Instead, each side ought to show that on average, their economic system is superior most of the time.

When private entities, such as corporations, hold the factors of production and are in direct competition with other companies, both are forced to lower prices. This is empirically demonstrated by research from the Inter-American Development Bank in 2014. They measured the impact of bringing 70 new stores into multiple markets in the Dominican Republic. Six months after implementation, prices decreased by 6% while product quality was not affected (4). This allowed more of the poor within the Dominican Republic to afford necessities such as food, medicine, and water. In the US, we see examples of innovation lowering prices all the time. Fracking is one of these innovations which revolutionized the way that the US gets oil. Oilprice recounts the story as to how the expensive process of using high-pressure water to shatter the shale rock beneath the earth to extract oil and natural gas became a mainstream success after years of innovation. It wasn’t until George P. Mitchell combined horizontal drilling with hydraulic fracturing that the word “fracking” was introduced into the lexicons of millions and that its commercial use started (12). Despite environmental concerns, fracking is ultimately a success for consumers as they pay less for their energy bill because of how much energy fracking produces at such a limited cost. The Brookings Institute demonstrates this, showing that consumers saved $13 billion in gas bills due to an increase in fracking, and all types of energy consumes saved over $70 billion dollars due to a decrease in prices from the years 2007-2014 (13). This helps the poor who are more likely to spend their hard-earned money on energy expenses i.e. heating their homes. Online newspaper CityLab illustrates the divide between the rich and the poor, showing that the bottom 20% of income earners in the US pay roughly 10% of their income on energy, which is nearly 7 times the amount that the top quintile of earners make (14). The poor should not have to decide between heating their homes or going to the doctors. Thankfully, innovation in the free market alleviates some of the issues faced by poor Americans every day. The reason that competition is stifled in socialism is simple:

The means of production are not in the hand of companies, they are in the hands of the people, or more likely, the government. The government chooses to invest in whatever companies they want, regardless of product quality. The Institute for Energy Research illustrates the danger of allowing the government, and not the free market, decide what is a good company, and which one will fail. Companies like Solyndra and First Solar received millions of dollars, only to go bankrupt and lay off over 2,000 people. Other solar-power generators, such as the Ivanpah Solar Electric Generating System in California, produced 25-40% of original expected energy generation (15). This is not to suggest that clean energy programs are necessarily bad but interfering with the free market to deliver an inferior product is a bad idea. I am going to reiterate this later, but let me be clear:

The government is a bad investor, and politicians are not economists.

The free market is instrumental in lowering prices, but government interference props up bad companies and eschews competition in favor of faulty investments.

Socialism requires the community to own the means of production, arising to more monopolies that hamper competition. The “community” is usually either a democratically elected government, or a dictator. The effect is usually nationalized industries. Russia is a good example as to why this is a bad thing. Russia heavily subsidizes their nationalized oil companies. These companies are a large component of Russia’s economy, and contributes to half of Russia’s federal budget according to the Energy Information Agency in 2012 (5). It is not hard to imagine what occurs when oil prices dropped in 2014. The World Economic Forum explains that because global demand for oil fell, and the US started producing more oil, the price of oil faced drastic decreases, leading to economic peril at home (6). Frequent bank runs occurred, forcing the Central Bank of Russia to nationalize 2 major banks in under one month (7). Moreover, The Guardian reported that 13.4% of Russia was in poverty as of 2016 (8). The reason for this can be explained by the Russian ruble depreciating in value. Investors sold off Russian assets, and Foreign Direct Investment (FDI) decreased by 40% in 2014 alone (9). Without the investment, companies faltered, causing lay-offs.

Another country relying on oil exports, Venezuela, also suffered as well. The Council of Foreign Relations notes that the nationalized oil industry within Venezuela could not bring in expected revenue, contracting the budget. Moreover, the collapse of Venezuela’s currency, the bolivar, has led to hyperinflation. Professor Steve Hanke of John Hopkins University estimated Venezuela’s inflation to be at about 40,000%, causing a humanitarian crisis from within (10). 87% of Venezuelan citizens are impoverished due to the ensuing fiscal chaos (11).

While corruption plays a role in both Russia’s and Venezuela’s crises, socialism is a major factor. In socialism, the society owns the means of production, which is usually the government. While the private industry is driven by profit margins and innovation to reduce prices and beat their competition, the government does not have that incentive. Government officials are not economists and are prone to making mistakes that ruin their economies. It should be no surprise that the lack of incentive or “profit motive” means that encroached corruption becomes worse. After all, if there is no drive to save money or make a functional product for a consumer, then government officials are more likely to waste money and perhaps use some for personal enrichment. It should also be no surprise that the lack of diversification in these countries’ investments occurred. Also, realize that nationalized industries are vulnerable to competition due to their lack of innovation. One of the primary reasons behind the economic crisis was the invention of fracking by the US, which allowed for cheap production of a lot of energy which lowered the cost of energy to the American consumer and caused Russia and Venezuela to lose a buyer of their oil.

However, if the factors of production are left in the hands of companies, they work to create a product that consumers want at a more affordable price. Innovation occurs more frequently, and the people can afford basic goods.

1. https://home.isi.org/read-you-ever-debate-capitalism-again

2. https://www.thebalance.com/socialism-types-pros-cons-examples-3305592

3. https://www.thebalance.com/factors-of-production-the-4-types-and-who-owns-them-4045262

4. https://www.povertyactionlab.org/sites/default/files/publications/811%20Competition-Prices-Quality%20February%202015.pdf

5.https://web.archive.org/web/20140308072712/http://www.eia.gov:80/countries/analysisbriefs/Russia/russia.pd

6. https://www.weforum.org/agenda/2016/05/why-are-oil-prices-so-low/

7. https://money.cnn.com/2017/09/21/investing/russia-bank-bailouts/index.html

8. https://www.theguardian.com/world/2016/mar/22/millions-more-russians-living-in-poverty-as-economic-crisis-bites

9. https://themoscowtimes.com/articles/russian-foreign-direct-investment-dropped-40-in-2014-46649

10. https://www.businessinsider.com/venezuela-inflation-hits-more-than-40000-investors-dump-currency-2018-6?r=UK&IR=T

11. https://www.cfr.org/backgrounder/venezuela-crisis

12. https://oilprice.com/Energy/Crude-Oil/The-Real-History-Of-Fracking.html

13. https://www.brookings.edu/blog/brookings-now/2015/03/23/the-economic-benefits-of-fracking/

14. https://www.citylab.com/equity/2016/04/electricity-bills-by-city-low-income-costs/478155/

15. https://www.instituteforenergyresearch.org/renewable/solar/obama-subsidizes-u-s-solar-energy-promises-india/

 

https://www.youtube.com/watch?v=9o6Ga3Nad3s Muse - Plug In Baby

https://www.youtube.com/watch?v=hTWKbfoikeg&list=PLX_x9w1pLQ_xnabsz_xmOEFqTIVN74m0X Nirvana... just as a band. (Lithium, Come As You Are, Spank Thru, and Dumb are all great songs. 

https://www.youtube.com/watch?v=crOZk88eCcg Foo Fighters - Everlong

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https://www.youtube.com/watch?v=4aeETEoNfOg Smashing Pumpkins - 1979

...

Oh, and vote for me.