In claiming these labels, politicians are obscuring rather than illuminating the essential political divides of 2018. The problem is that both “capitalism” and “socialism” — familiar relics of the Cold War — are misunderstood today. Modern definitions distort their actual meanings and disconnect us from our nation’s history of democratic reforms.
“Capitalism” is the term that socialists and communists used for a century to denounce profit-oriented economic systems as unstable, unjust and doomed to fail. As late as the 1960s, it was a phrase of derision used mostly by the far left. Those contending for political power preferred to describe the United States as committed to “free enterprise.”
This changed in the 1970s when conservative intellectuals led by Irving Kristol — himself a former socialist — saw the advantage of co-opting the word “capitalism” to extol the power of an economic system that is unchanging and unchangeable, and whose inner logic must be obeyed.
The idea was best expressed by conservative British Prime Minister Margaret Thatcher, who argued that, when it comes to capitalism, “There is no alternative.” She meant that one must accept all of the defects of capitalism — the inequality, the injustice, the environmental destruction — because the only alternative was some kind of socialist system that could not provide prosperity. Her argument aimed to disqualify virtually any reforms that reduced inequality or that protected citizens from corporate power.
From the 1980s on, conservatives have used this conception of capitalism to block progressive reform proposals with remarkable success. The 2010 Patient Protection and Affordable Care Act is the only major domestic reform initiative passed since 1973, and conservatives are working intensely to cripple it. Other efforts at enacting programs like subsidized child care, universal health care or paid parental leave have gone nowhere.
The right has also used this capitalist-socialist dichotomy to claw back previous progressive reforms. They have dramatically reduced the progressive nature of the tax system, made it extremely hard for employees to be represented by unions, undermined the effectiveness of regulatory agencies, slashed spending on programs like public housing and gutted the Voting Rights Act. The result has been a catastrophic increase in income and wealth inequality, with the share of income taken by the top 1 percent of households more than doubling.
This rightward turn goes against the reform trajectory in American history that has increasingly provided people with more benefits and rights. During the Civil War and Reconstruction, government eliminated chattel slavery, extended the franchise to African Americans, passed the Homestead Act to give away Western lands, facilitated the construction of the intercontinental railway and created the Department of Agriculture that provided considerable assistance to farmers — then the largest occupational group.
The Progressive era saw major antitrust action to break up corporate monopolies, the creation of a progressive federal income tax, the establishment of the Federal Reserve System, women’s suffrage and the Farm Credit Act that significantly increased the availability of affordable credit for farmers.
Government initiatives in the 1930s and 1940s helped workers unionize, created the Social Security System, established the framework for a vast expansion of home mortgages, expanded the public sector’s role in providing housing and new hospitals and fueled the growth of colleges and universities with the G.I. bill that gave World War II veterans access to higher education.
The reform era of the 1960s and early ’70s included Medicare, Medicaid, the Civil Rights Act, the Voting Rights Act, consumer protection and the creation of the Occupational Safety and Health Administration and the Environmental Protection Agency.
Virtually every one of these reforms was denounced at the time by conservatives as dangerous and socialistic, but most of us now see them as part of our democratic tradition of expanding rights and opportunity. We also recognize that these reform initiatives strengthened the American economic system rather than undermining it.
But in the past 50 years, this reform impulse has been stymied. For a brief moment, it appeared that the Obama administration might be the beginning of another reform era. In 2009 and 2010, there were redistributive measures in the American Recovery and Reinvestment Act of 2009, the Dodd-Frank legislation created the Consumer Financial Protection Agency and the Affordable Care Act expanded the share of the population with health insurance. But the Republican victory in the 2010 elections dashed any hopes for additional reforms and reinvigorated the defense of capitalism against these alleged “socialist” programs.
This exceptional half-century with very little reform explains a lot about our current politics. It helps make sense of the populist rage that led to Donald Trump’s election; millions of people are angry because the political and economic system is not working for them, and they have given up on establishment politicians.
It also explains why the word socialism has reappeared not as a demonic other feared by conservatives, but as an agenda for reform. Conservatives are reaping the consequences of their redefinition of capitalism. In a moment when many Americans feel that the system isn’t working for them, a system defined as immutable naturally leaves some thinking that we need an alternative system that is not rigged to benefit the millionaires and billionaires.
Nor does socialism mean what it once did. When you look closely at what today’s self-proclaimed democratic socialists are advocating, it is not state ownership of the means of production. They are simply proposing another reform epoch like the New Deal or the Progressive era that would include major legislative steps to reduce inequality of income and wealth, provide citizens with new ways to contain the power of large corporations and expand the services to which all citizens are entitled.
In short, they are calling for a reconnection with our progressive history, one that is not at all a threat to our political and economic institutions.
The right won the rhetorical battle, and market principles have triumphed over the reform tradition. But economically, the citizenry has lost. The economy is now less productive because giant corporations can make bigger profits without bothering to make better products. Today, the fastest route to a stronger economy runs through those “socialists” who want to reduce inequality, constrain the power of corporations and provide people with greater access to quality health care, higher education and affordable housing.