Social capitalism
Encyclopedia
Social capitalism as a theory or political or philosophical stance, challenges the idea that the goals of socialism
and the existing system of capitalism
are inherently antagonistic. The essence of social capitalism is that market
s work best and output is maximized through sound social management of the macroeconomy. Social capitalism posits that a strong social support network for the poor enhances capital
output. By decreasing poverty
, capital market participation is enlarged. Social capitalism also posits that government regulation
, and even sponsorship of markets, can lead to superior economic outcomes, as evidenced in government sponsorship of the internet
or basic securities
regulation.
In early 2009, Australian Prime Minister
Kevin Rudd
called for a new economic approach that he termed "social capitalism" which includes "a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate."
The scholarly roots of social capitalism seem to be in Kees van Kersbergen's landmark study of European economies, entitled Social Capitalism: A Study of Christian Democracy and the Welfare State. Van Kersbergen identifies social capitalism as the "common kernel" of the European welfare state and situates social capitalism as a "middle way" between socialist collectivism and neo-liberal individualism. The text of Kees van Kersbergen's "Social Capitalism" is available on google books.
Another exposition of social capitalism is Robert Corfe's three volume set entitled Social Capitalism: In Theory and Practice. Corfe's vision of social capitalism is fully consistent with the above sources: he decries "untrammelled capitalism;" he calls for policy based upon empirical evidence instead of the ideological speculation; and he views a core value of social capitalism "to realise the full potential of those from every background according to their ability and inclination." He therefore "repudiates any measures influenced by class bias."
Concurring with the recession beginning in 2008, increased activity of the terms Social capitalism and "socio-capitalism" occurred on the internet and in the blogosphere.
Other references to Social capitalism support the essential theory that socialism and capitalism are not antagonistic theories.
Social capitalism as described in this article is not directly related to the notion of social capital
as popularized by Robert Putnam
and James S. Coleman.
" of the marketplace. The "invisible hand" should be free to the greatest extent possible to create market efficiencies for all participants in the marketplace: The Tier-one economy. However, under social capitalism, government regulation is required to protect the marketplace from manipulation. The marketplace must be protected so that the invisible hand
can work for maximum growth.
One distinction with pure capitalism that poor/indigent individuals in the Tier-two economy will not respond to market demands because they are reliant on private or government supports. Another distinction is that social capitalism embraces careful market regulation as a necessity for economic stability.
Under Social-capitalist theory, the primary distinction between classes are not incomes or a poverty line. The distinction lies in an individuals independence from government/private controls. These controls may take the form of support or restraint by the government or charities. Examples: If an individual is dependent on private or government support for basic needs like housing or food, that person falls in Tier-Two. If an individual is dependent on government restraint through the criminal justice system or mental health system, that person also falls in Tier-Two. All Tier-Two individuals are defined by an active and ongoing relationship with government controls. They are not independent/productive members of the population. As such they are an economic liability.
The two-tier approach directly contrasts with the traditional three-part economic model associated with capitalist economies: Upper class, middle class, and lower class. The importance of the distinction is that Social-capitalist theory holds that social programs are not needed or positive for the upper and middle classes. Social capitalism holds that universal social programs are harmful to economies because these large programs shrink capital markets. Many European economies built on the universal socialism model suffer from market interference across the economy. High taxation for universal social programs shrinks the overall capital market thereby shrinking the functional economy.
Social capitalism holds that the Tier-One Economy operates independently of the Tier-Two economy in many ways. It is possible and prevalent for great wealth to be accumulated in the upper tier regardless of the size of the lower tier or changes in the lower tier. However, stronger social programs aimed at shrinking the size of the lower tier lead to even greater wealth in the upper tier. A survey of gross domestic product of countries around the world easily shows that shrinking the lower tier results in exponential benefits to the upper tier.[citation needed]
Another potent advantage under Social-capitalist theory is the clear real-world distinction between individuals who fall into the two tiers. Tier one individuals have steady incomes that allow them to function without private or government support. Tier two individuals cannot meet the prevailing standard of living and rely on private or government support. The largest portion of this group includes:
High-income criminals are a small group who do not fit neatly into the two-tier model. Few economic models have a clear place for these persons
By conceptualizing modern economies in two tiers, it is possible to see large-scale social support programs for the poor as enhancing economic stability and growth. Some examples are provided below to help to provide a practical explanation of how this can work:
'This list is only illustrative of the many liabilities of the Tier-Two economy.'
(labels campaign), or by factoring in social considerations invariably create an environment more conducive to maximizing profits. People seeing advertising with a social capitalistic message link the product with the positive feelings they get from the advertising. For Aboriginal communities that are participating in business, social capitalism is a community owned business that employs community members and gives back directly to the community, building capacity and self worth. Typically capitalism as a business model revolves around exploitation of the workers and the market squeezing profits from an underpaid workforce and over charging the consumer. Social capitalism is not hostile to free markets or the private ownership of property. Instead, social capitalism recognizes the unique success of capitalism, particularly under appropriate social supervision. Social capitalism thus seeks to create a balanced approach to business and the role of the state—with a view to optimizing the business environment for maximum sustainable economic growth.
On a micro level social capitalism suggests that best business practices should cater to the needs of consumers, including the needs of workers as the bedrock of consumption. The exploitation of ever cheaper pools of labor with no regard to maintaining consumption results in market failure in the form of a tragedy of the commons
. Business will only increase collective profits as consumer and investors see responsible business actions and take it into account when purchasing goods from the company or providing capital.
Fast Company magazine now annually recognizes the for-profit companies that seek positive social outcomes in its Social Capitalism Awards. It lists 45 social entrepreneurs who are changing the world positively.
Traditional capitalism too often was designed for partial economic suitability for strong capitalists. On the other hand, traditional socialism is too focused on central planning leading to a bottleneck economy. Invariably central planning impoverishes society and prevents a rational allocation of resources. It is necessary to have a new economic system to break through problems inherent in capitalism and socialism. This is named “Social Capitalism” with both the concept of traditional capitalism and socialism underpinning a more powerful market-based system. Government should behave itself like one big firm to manage the public sector and the nation in total to create greater profit opportunities for entrepreneurs. In order for realizing the social capital system, the Government must take an initiative role of corporate management system, and invest in desirable future industry or technology for changing society toward richer and happier state.
At least one scholar has identified elements of the New Deal (at least those that facilitated and enhanced market outcomes) as the historic roots of social capitalism, even though the New Deal also included false starts and failed to institutionalize any organized and permanent effort to pursue the logical ends of social capitalism.
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
and the existing system of capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
are inherently antagonistic. The essence of social capitalism is that market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
s work best and output is maximized through sound social management of the macroeconomy. Social capitalism posits that a strong social support network for the poor enhances capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
output. By decreasing poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
, capital market participation is enlarged. Social capitalism also posits that government regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
, and even sponsorship of markets, can lead to superior economic outcomes, as evidenced in government sponsorship of the internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
or basic securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
regulation.
In early 2009, Australian Prime Minister
Prime Minister of Australia
The Prime Minister of the Commonwealth of Australia is the highest minister of the Crown, leader of the Cabinet and Head of Her Majesty's Australian Government, holding office on commission from the Governor-General of Australia. The office of Prime Minister is, in practice, the most powerful...
Kevin Rudd
Kevin Rudd
Kevin Michael Rudd is an Australian politician who was the 26th Prime Minister of Australia from 2007 to 2010. He has been Minister for Foreign Affairs since 2010...
called for a new economic approach that he termed "social capitalism" which includes "a system of open markets, unambiguously regulated by an activist state, and one in which the state intervenes to reduce the greater inequalities that competitive markets will inevitably generate."
The scholarly roots of social capitalism seem to be in Kees van Kersbergen's landmark study of European economies, entitled Social Capitalism: A Study of Christian Democracy and the Welfare State. Van Kersbergen identifies social capitalism as the "common kernel" of the European welfare state and situates social capitalism as a "middle way" between socialist collectivism and neo-liberal individualism. The text of Kees van Kersbergen's "Social Capitalism" is available on google books.
Another exposition of social capitalism is Robert Corfe's three volume set entitled Social Capitalism: In Theory and Practice. Corfe's vision of social capitalism is fully consistent with the above sources: he decries "untrammelled capitalism;" he calls for policy based upon empirical evidence instead of the ideological speculation; and he views a core value of social capitalism "to realise the full potential of those from every background according to their ability and inclination." He therefore "repudiates any measures influenced by class bias."
Concurring with the recession beginning in 2008, increased activity of the terms Social capitalism and "socio-capitalism" occurred on the internet and in the blogosphere.
Other references to Social capitalism support the essential theory that socialism and capitalism are not antagonistic theories.
Social capitalism as described in this article is not directly related to the notion of social capital
Social capital
Social capital is a sociological concept, which refers to connections within and between social networks. The concept of social capital highlights the value of social relations and the role of cooperation and confidence to get collective or economic results. The term social capital is frequently...
as popularized by Robert Putnam
Robert Putnam
Robert David Putnam is a political scientist and professor of public policy at the Harvard University John F. Kennedy School of Government. He is also visiting professor and director of the Manchester Graduate Summer Programme in Social Change, University of Manchester...
and James S. Coleman.
Social Capitalism Distinguished From Other Economic Models
Most definitions of Social democracy question the full application of traditional capitalism. Social capitalism does embrace tenets of traditional capitalist theory. Social capitalism validates traditional capitalism as embodied by Adam Smith's "invisible handInvisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...
" of the marketplace. The "invisible hand" should be free to the greatest extent possible to create market efficiencies for all participants in the marketplace: The Tier-one economy. However, under social capitalism, government regulation is required to protect the marketplace from manipulation. The marketplace must be protected so that the invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...
can work for maximum growth.
One distinction with pure capitalism that poor/indigent individuals in the Tier-two economy will not respond to market demands because they are reliant on private or government supports. Another distinction is that social capitalism embraces careful market regulation as a necessity for economic stability.
Under Social-capitalist theory, the primary distinction between classes are not incomes or a poverty line. The distinction lies in an individuals independence from government/private controls. These controls may take the form of support or restraint by the government or charities. Examples: If an individual is dependent on private or government support for basic needs like housing or food, that person falls in Tier-Two. If an individual is dependent on government restraint through the criminal justice system or mental health system, that person also falls in Tier-Two. All Tier-Two individuals are defined by an active and ongoing relationship with government controls. They are not independent/productive members of the population. As such they are an economic liability.
The two-tier approach directly contrasts with the traditional three-part economic model associated with capitalist economies: Upper class, middle class, and lower class. The importance of the distinction is that Social-capitalist theory holds that social programs are not needed or positive for the upper and middle classes. Social capitalism holds that universal social programs are harmful to economies because these large programs shrink capital markets. Many European economies built on the universal socialism model suffer from market interference across the economy. High taxation for universal social programs shrinks the overall capital market thereby shrinking the functional economy.
Social capitalism holds that the Tier-One Economy operates independently of the Tier-Two economy in many ways. It is possible and prevalent for great wealth to be accumulated in the upper tier regardless of the size of the lower tier or changes in the lower tier. However, stronger social programs aimed at shrinking the size of the lower tier lead to even greater wealth in the upper tier. A survey of gross domestic product of countries around the world easily shows that shrinking the lower tier results in exponential benefits to the upper tier.[citation needed]
Benefits of the Social-Capitalist Model
One advantage claimed by Social Capitalism is an increased stability of economies that results from careful government regulation. Regulation should be as limited as possible so that Tier-One participants can generate the greatest GDP. However, regulation is needed to ensure that individuals do not exploit markets for personal gain at the expense of market growth and stability.Another potent advantage under Social-capitalist theory is the clear real-world distinction between individuals who fall into the two tiers. Tier one individuals have steady incomes that allow them to function without private or government support. Tier two individuals cannot meet the prevailing standard of living and rely on private or government support. The largest portion of this group includes:
- Poor families dependent on government housing and food stamps
- Children who depend on public and private educations to become participants in the marketplace
- Elderly persons who no longer earn wages necessary to meet the prevailing standard of living
- Low-income criminals who require police intervention.
High-income criminals are a small group who do not fit neatly into the two-tier model. Few economic models have a clear place for these persons
By conceptualizing modern economies in two tiers, it is possible to see large-scale social support programs for the poor as enhancing economic stability and growth. Some examples are provided below to help to provide a practical explanation of how this can work:
'This list is only illustrative of the many liabilities of the Tier-Two economy.'
- Criminality resulting from poverty is a significant and under appreciated drag on the economy as a whole. Crime causes depreciated property values. Stores within a large perimeter of high-crime areas have reduced business. Fear within communities causes decreased consumption as consumers choose to stay at home rather than explore their local retailers. Leading economists estimate the crime causes a 1-3% reduction in U.S. gross domestic product. Social programs attacking crime at its roots in poverty, will result in increased economic output. Capitalism and get-tough policies linked to conservative capitalist theory have not resulted in significant reductions in the local or global crime rates.
- High poverty communities cause higher government medical costs and higher medical insurance rates. High poverty communities have high rates of obesity, disease, and other afflictions. Because the poor have little access to basic care, impoverished communities use emergency medical care at disproportionately high rates. Medical complications tend to become more serious due to overall poor health in disadvantaged communities. These costs ultimately passed on in the form of higher insurance rates and higher taxes.
- Children in high-poverty schools receive an unmarketable level of education. These children are essentially removed from the productive capital economy and become economic liabilities. By providing competitive educations to poor students the economy can trade a liability for an asset.
Social Capitalism applied
For business, social capitalism is seen as the ability for a company to have or create positive, healthy development. Corporations that give back to society, through positive message campaigns, like those done by the Canadian Dairy CommissionCanadian Dairy Commission
The Canadian Dairy Commission is a Canadian government Crown corporation created in 1966 under the Canadian Dairy Commission Act...
(labels campaign), or by factoring in social considerations invariably create an environment more conducive to maximizing profits. People seeing advertising with a social capitalistic message link the product with the positive feelings they get from the advertising. For Aboriginal communities that are participating in business, social capitalism is a community owned business that employs community members and gives back directly to the community, building capacity and self worth. Typically capitalism as a business model revolves around exploitation of the workers and the market squeezing profits from an underpaid workforce and over charging the consumer. Social capitalism is not hostile to free markets or the private ownership of property. Instead, social capitalism recognizes the unique success of capitalism, particularly under appropriate social supervision. Social capitalism thus seeks to create a balanced approach to business and the role of the state—with a view to optimizing the business environment for maximum sustainable economic growth.
On a micro level social capitalism suggests that best business practices should cater to the needs of consumers, including the needs of workers as the bedrock of consumption. The exploitation of ever cheaper pools of labor with no regard to maintaining consumption results in market failure in the form of a tragedy of the commons
Tragedy of the commons
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone's long-term interest for this...
. Business will only increase collective profits as consumer and investors see responsible business actions and take it into account when purchasing goods from the company or providing capital.
Fast Company magazine now annually recognizes the for-profit companies that seek positive social outcomes in its Social Capitalism Awards. It lists 45 social entrepreneurs who are changing the world positively.
Traditional capitalism too often was designed for partial economic suitability for strong capitalists. On the other hand, traditional socialism is too focused on central planning leading to a bottleneck economy. Invariably central planning impoverishes society and prevents a rational allocation of resources. It is necessary to have a new economic system to break through problems inherent in capitalism and socialism. This is named “Social Capitalism” with both the concept of traditional capitalism and socialism underpinning a more powerful market-based system. Government should behave itself like one big firm to manage the public sector and the nation in total to create greater profit opportunities for entrepreneurs. In order for realizing the social capital system, the Government must take an initiative role of corporate management system, and invest in desirable future industry or technology for changing society toward richer and happier state.
At least one scholar has identified elements of the New Deal (at least those that facilitated and enhanced market outcomes) as the historic roots of social capitalism, even though the New Deal also included false starts and failed to institutionalize any organized and permanent effort to pursue the logical ends of social capitalism.
See also
- Social capitalSocial capitalSocial capital is a sociological concept, which refers to connections within and between social networks. The concept of social capital highlights the value of social relations and the role of cooperation and confidence to get collective or economic results. The term social capital is frequently...
- Market socialismMarket socialismMarket socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
- Mixed economyMixed economyMixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
- Social democracySocial democracySocial democracy is a political ideology of the center-left on the political spectrum. Social democracy is officially a form of evolutionary reformist socialism. It supports class collaboration as the course to achieve socialism...
- Social market economySocial market economyThe social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...
- Third wayThird way (centrism)The Third Way refers to various political positions which try to reconcile right-wing and left-wing politics by advocating a varying synthesis of right-wing economic and left-wing social policies. Third Way approaches are commonly viewed from within the first- and second-way perspectives as...