We're Not Heading to Socialism

Socialism has become our new scare word. It is not yet the major bugaboo that communism became during the Cold War or terrorism became after 9/11, but this “ism” has been getting a lot of nervous attention of late. Some politicians warn that the government’s stimulus package and aid to financial institutions could put the country on a road to socialism. Newsweek’s editors summed up the concern in a recent cover story: “We Are All Socialists Now: The Perils and Promise of the New Era of Big Government.”

Warnings about a swift American turn in the direction of socialism are mistaken. Current efforts by American leaders to intervene in the troubled economy have nothing to do with the pursuit of socialism. We need a better term that succinctly characterizes Washington’s efforts to rescue troubled American businesses.

During the presidential race of 2008, Republicans often invoked a fear of socialism. John McCain warned about the danger in his speeches, and his campaign ad suggested Barack Obama’s economic plan “sounds a lot like socialism.” Crowds at Republican rallies chanted “Socialist!” when they heard Obama’s name mentioned.

In the days since Obama took the oath of office pundits on the right have amplified this theme. Broadcaster Sean Hannity characterized Obama’s stimulus package as “the European Socialist Act of 2009.” Columnist Cal Thomas said the stimulus will transform America into “a socialist system.” Some conservatives expressed worry that the U.S. government took a stake in the financial institutions it aided. They warned that Democrats aim to nationalize banks. A few detected socialist goals in legislation that limits the bonuses of top executives at companies receiving TARP funds.

The leading socialists of earlier American history, such as Daniel De Leon and Eugene Debs, would be surprised to hear that the emergency measures advocated by Obama and leaders in Congress constitute socialism. De Leon and Debs differed vigorously on details but agreed on essentials. Capitalism, said Debs, was a “monstrous system.” As socialists, they wanted to make the government (or powerful organizations representing the “people” or the “workers”) owner and manager of some of the great corporations. Socialists aimed to nationalize large businesses, because they judged capitalism exploitative. They believed socialism would provide better treatment of workers and fairer distribution of society’s goods.

Today’s advocates of strong federal action do not share that enthusiasm for replacing capitalism with socialism. They understand that the free enterprise system is vastly superior to one based on state-run industries. And they are not enthusiastic about investing public funds in failing businesses to give them temporary protection from a meltdown. Socialists, by contrast, eagerly sought a permanent role for government as owner and manager of the great industries.

Obama, the Democrats, and some Republicans agreed to let the government take a financial stake in AIG, auto companies, and troubled banks as well as a larger commitment to Fannie Mae because those institutions were teetering. Eventually, some banks may need to be nationalized (temporarily) so that collapse can be prevented, toxic assets can be removed from their balance sheets, and depositors are protected.

We have been here before – in the 1980s -- when the government managed temporary rescues of the savings and loan associations.

Leaders in Washington are pouring public money into troubled institutions in order to save them for capitalism, not to transform them into socialist enterprises. When the crisis passes and, hopefully, these organizations become solvent again, government leaders will happily free Uncle Sam from the financial commitments. Leaders in Washington are not happy with an arrangement that socializes losses and privatizes profits, but they see no alternative in the crisis.

Since “socialism” fails to identify the government’s controversial initiatives, how can those actions best be characterized? Revival of an old concept, Welfare Capitalism, can throw light on the situation. In the past, historians employed this term to identify a capitalist society that offers welfare programs for its citizens, and they used it, also, to describe businesses that provide welfare-like services to their employees. In a related way this term suggests the main idea behind current measures.

Washington’s rescue efforts are providing welfare for businesses. The federal government is assisting huge corporations so that they can avoid collapse, much like the government sometimes helps individuals who confront a temporary economic crisis. Leaders in Washington certainly do not wish to keep AIG, Citicorp, and General Motors on the dole. They want these organizations to take full responsibility for their affairs once they “find a job” – that is, return to profitability.

Let’s recognize the new situation for what it is: Welfare Capitalism. Americans are not happy about the program’s huge cost, and they are disgusted that some of the business titans whose actions contributed to the financial mess may benefit if the rescue works. But Americans remain committed to the free enterprise system, and most of them understand that in an emergency government has an important role to play in saving capitalism from its excesses.