Those who grew up in the WWII and Cold War eras believed “capitalism, good; fascism, socialism and communism, bad!” With recent polls showing more young Americans embracing socialism, it seems the terms are becoming confused.
Capitalism is an economic system where all or most of the means of production are owned and operated privately. Capital investment and the prices of goods and services are determined largely in a free market, generally operated for profit. However, we provide suitable regulation to restrain “animal spirits” and malfeasance. We maintain public assets (roads, utilities, ports, parks, forests), and public benefits (welfare, unemployment insurance, Social Security, Medicare, Medicaid). We are not purely a capitalist country.
Socialism generally refers to state ownership of common property and the means of production, which varies with the extent of state ownership and control. Modern capitalist countries combine elements of both capitalism and socialism.
Fascism is a system led by an all-powerful dictator who suppresses opposition and criticism, controlling industry, commerce, marked by aggressive nationalism and often racism, as we saw in Nazi Germany.
Communism embraces community ownership of property, the end goal being complete social equality via economic equality. That never works. Human beings tend to respond to either incentives or fear. In an idealized utopia where everyone shares in the same proportion with no personal profit potential, there’s little incentive to work harder, no point to taking a risk to create and innovate. To survive, communist countries revert to top-down control, fear and intimidation.
Why the civic lesson? Failure to understand the lessons of history, ignorance of the dynamics of civic and personal economics, can be ruinous to the health of our country and personal wellbeing. Ranking number one in IMF listings, with a GDP of approximately $20.513 trillion, America is the most economically dynamic country on earth. China’s GDP is $13.407 trillion by comparison, number 2.
But consider innovation and creativity, where America clearly shines. China is famous for stealing ideas and imitating. Do you know anyone clamoring to buy a Chinese designed car or smart phone? What accounts for the degrees of separation between our economy and all of those on the planet? Ease of ownership, and the opportunity to own, build and retain an incentivizing portion of the fruits of your labors.
A recent “Global Market Overview and Investment Themes” report from money manager Davis Advisors advised, “Avoid companies solely tied to Europe.” The European Union is plagued with high tax rates at all levels, corporate and personal income taxes, and Value-Added Taxes (VAT) on purchases for consumption. Essentially a sales tax, the average VAT rate of European countries is 21.3 percent. Sweden, Norway, and Denmark clock in at 25 percent. Nordic democratic socialism is applauded by some as a potential economic model for America. Sweden, for example, has a corporate tax rate of 22 percent, a personal income tax rate up to 61.85 percent and a sales tax rate (VAT) of 25 percent. The Social Security tax rate for employers is 31.42 percent, for employees, 7 percent. Yes, Sweden has wonderful government mandated and provided benefits, but are you willing, as a breadwinner, business owner, or retiree to pay taxes akin to Sweden’s?
George S. Clason’s 1926 classic book, The Richest Man in Babylon, was based largely on an ancient concept of saving 10 percent of all you earn, while showing prudence in other areas such as debt control. Sure, saving money in a bank works, but to grow your nest egg net of inflation and taxation (both of which ideally should be as low as possible), you must own things, primarily real estate, stocks, your own business.
For seniors in college, here’s your final exam question. Of the major economic systems noted herein, which one would you prefer to live under? Which one offers you the most opportunity to pursue your passions, while securing financial independence for yourself, and potentially your future family? The most opportunity to own things that can grow in value?
For those planning retirement in the next 10 to 15 years, or if you are retired and endeavoring to maintain financial security and independence, how you answer the above questions matter.
Vaclav Havel, Czech playwright and political dissident under communist rule of his country, later served as the first president of the newly liberated Czech Republic. Said Havel, “Ownership is not a vice, not something to be ashamed of, but rather a commitment, and an instrument by which general good can be served.”
You own your creativity, your level of energy. You own your goals and aspirations. You own the results of your endeavors, both failures and successes. You own the right to capitalize legally on the application of your talents. Of all of the “ism’s” that exist on Spaceship Earth, which one gives you the best shot at rewarding ownership?
Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-3553;firstname.lastname@example.org. Securities & advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis is a registered representative and investment adviser representative of SFA, otherwise unaffiliated with Capital Insight Group. He’s a Gallup Certified Clifton Strengths Coach and Certified Exit Planning Advisor.