Labeling a political opponent a “socialist” is a common attack ad tactic. The “S” word, like “L” word (liberal) or the “T” word (taxes), creates a Pavlovian negative reaction with some voters.  Words like “freedom,” “democracy, ”welfare state,” “socialism,” and “free enterprise” are often used inaccurately for political effect. The lack of common understanding of these terms creates more heat than light in our political discourse. With the election season coming up, some understanding of these terms is needed.  

Capitalism, socialism, and communism are ways to organize economic activity. They are alternative economic systems. Democracy, oligarchy, monarchy, dictatorship, and tribal chieftains are ways to organize power sharing and decision making in a society. They are alternative political systems. It is not accurate to equate political systems with economic systems. Capitalism and democracy are not synonymous. Many dictatorships have been capitalistic. Many democracies and some monarchies are socialistic. It is quite possible to have a democratic political system and a communist economic system. 

A common falsehood is associating “freedom” with capitalism. But our civil liberties are not the result of any economic system. Even though capitalism is often called “free enterprise” it is not inherently “free.” Nor are socialism and communism inherently not free. Civil liberties are established and maintained through social, moral, and political action. They are achieved with  an effective rule of law. We do not have a free press, freedom to worship, trial by jury, or voting rights because of capitalism. 

The repressive communism of the former Soviet Union lacked civil liberties because it was a totalitarian dictatorship not because it was communistic. Our own history shows that a capitalist society could also foster human slavery, exploit immigrants, exterminate native ethnic groups, repress women, and deny basic civil liberties to its own citizens. Even well functioning democracies can exhibit tyranny and deny civil liberties to minorities. So “freedom” is not the result of any economic system.  

Simply defined capitalism is one way of organizing an economy based on private ownership of productive activities. The primary goal pf capitalism is personal profit and is characterized by individual control and decision making. Modern capitalism is linked with large corporations and is dominated by speculative stock, commodities, and currency trading “markets.”  However, corporations and stock markets are not necessary to a capitalist economy. About 80% of businesses in the U.S. are small. They can be organized as sole proprietors, partnerships, or corporations. Even when organized as a corporation, these small businesses often are not publicly traded and have nothing to do with the stock markets.    

Free enterprise is simply the ability to engage in economic activities without excessive government restrictions or interference. People are free to choose occupations, start businesses, or engage in commerce based on personal preferences and not societal mandates. This is in contrast to restrictions imposed by government, social norms, or class that limited a persons options in the past. Again free enterprise does not have any direct connection to other civil liberties. 

Socialism involves collective ownership of of the primary means of production and collective  control of the economy. Under socialism the public good replaces profits as the guiding principle. Socialism has many forms and degrees of social control. It can take the form of publicly owned enterprises or privately owned cooperatives. These operate to provide needed goods and services to the public rather than create profits for the owners.  European democratic socialism often includes direct public ownership of the major industries with free enterprise allowed for small business. Sometimes public ownership involves the government being a stockholder in major corporations. 

Democaratic socialism involves the combination of greater public ownershop with democratic public control typical of the European countries. It is contrasted with Marxist-Leninist socialism which involves extensive central planning and governement ownership of production.  Government planning can play a larger role in economic decisions but in many “socialistic” countries ”market” forces still have a role.  

Communism takes socialism farther to produce a system dominated by government ownership and control with extensive central planning of the economy. This is sometimes called “state capitalism” because the public good is often subordinated to the needs of the state. This is similar to capitalism. Capitalism promotes profit rather than the public good and communism promotes government imposed production goals, or other objectives, over the public good. 

The total picture is complicated by the fact that no societies have pure economic systems.  The U.S economy is not purely capitalistic. We are an amalgam of capitalist, free enterprise, non-profit, and cooperative arrangements. Non-profits organizations are a large part of our economy. Cooperatives are represented in so many industries that it is not possible to put a number on the extend of cooperative efforts in our economy. Mutual insurance companies, credit unions, agricultural co-ops, rural electric and telephone co-ops are everywhere. Employee owned companies and worker coops also exist. Huge organizations like Ocean Spray, Land of Lakes, and Sunkist are co-ops. Cooperatives produce 85% of our milk. 

Similarly most European countries do not have purely “socialist” economies. In fact most of them have capitalist economies but with greater public control and more robust social safety nets. They have large segments of their economy that are privately owned. IKEA, BMW, Siemens, Royal Dutch Shell, Michelin, Bayer, and Nestles are just a few of the many examples of European capitalist multinational corporations.  

People also incorrectly equate socialism with social programs. Although many of our current social safety net programs (unemployment, workers compensation, Social Security, and medical insurance) were advocated by early socialists, they are compatible with a capitalist economy. They may even be essential to the survival of capitalism. By its very nature capitalism is self-destructive. It tends to boom and bust cycles, inequality, environmental and worker exploitation that are not sustainable. Social insurance programs are necessary to smooth these rough edges and keep the system working. 

The simplistic socialism-is-bad-capitalism-is-good narrative does not serve us well. We have discovered through centuries of trial and error that regulated mixed economies work best for most people most of the time. All of us are better off because of the mix of “socialism” in our economy. What is important is what WORKS for the majority of the people. We need to reject the “S” word fear mongering and demagoguery.