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Social capitalism (Socio-capitalism), as a theory or political or philosophical stance, challenges the idea that the capitalist system is inherently antagonistic to the goals of socialism. The essence of social capitalism is that private markets are the most effective allocation mechanism, and output is maximized through sound state macroeconomic management of the economy. 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."
Social Capitalism distinguished from other economic models
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Most definitions of Social democracy question the full application of traditional lassiez-faire capitalism. Social capitalism does embrace tenets of traditional capitalist theory. Social capitalism validates traditional capitalism as embodied by Adam Smith's "invisible hand" 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. Some European economies built on social market or social democratic models 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.
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
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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 Commission (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.
- Christian democracy
- Free market
- Keynesian economics
- Market socialism
- Mixed economy
- Regulated market
- Rhine capitalism
- Social democracy
- Social market economy
- Third way
- Welfare capitalism
- R. Jagannathan, Socio-Capitalism Set to Become the New Economic Doctrine, May 10, 2009, available at http://www.dnaindia.com/report.asp?newsid=1254764
- Steven A. Ramirez, Fear and Social Capitalism: The Law and Macroeconomics of Investor Confidence, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1088436
- Kevin Rudd, The Global Financial Crisis, The Monthly, Feb. 2009 available at http://www.themonthly.com.au/node/1421
- Kees van Kersbergen, Social Capitalism: A Study of Christian Democracy and the Welfare State (Routledge 1995) available at http://search.barnesandnoble.com/Social-Capitalism/Kees-Van-Kersbergen/e/9780415116701.
- Id. at 4 and 190.
- Id. at viii, xii, 270.
- Steven A. Ramirez, The Law and Macroeconomics of the New Deal at 70, 62 Maryland Law Review 515 (2003) available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1655025.