What is the Difference between Capitalism and Socialism? — October 18, 2019

What is the Difference between Capitalism and Socialism?

Some aspects of the American style of competition become more clear when placed in a broader context, in this case the underlying socio-economic system, so let’s take a quick look at the difference between capitalism and socialism. For at least the past 100 years Americans have been taught to hate and fear socialism and socialist governments, without ever understanding what they were really against or why they were against it.
The situation is not different today, where any mention of socialism produces a flood of moral condemnation, yet few Americans could likely provide any coherent explanation of socialism or an intelligent discussion of its many presumed failings. Americans equate socialism with despots and tyranny, with fear and hunger in a brutal military dictatorship, a testimony to the power of propaganda and ignorance. US corporations were in the vanguard of this propaganda onslaught, but it was heavily supported by the government and media and, certainly not least, by the educational book publishers and America’s schools and universities.

For a century, US corporations, government agencies, and the media, filled the minds and hearts of Americans with fear of socialism and, having stoked that fear, defined for them the signs of socialism to be avoided at all costs. These signs included the government fulfilling its responsibilities in areas like health care, social security and education and providing national needs like electricity, transportation and communications, all presented to the people as “giving up your life and letting the government run it for you”. Government involvement in any segment of society or industry where big business and the elites could make a profit was defined as either socialism or communism and therefore treasonous to the basic religion of multi-party political Christianity.
The propaganda was so powerful that it became virtually impossible for an average American to be a Christian socialist or a believer in both democracy and social security, or to be any of these and simultaneously against big business, free-market capitalism or privatisation. To have an American identity is to accept all chapters of the Bible of Freedom. One cannot pick and choose which of God’s laws one will follow. Ideological uniformity is a prerequisite for those living in a black and white world and practicing an all-or-nothing religion.
The brainwashing begins early in life, in elementary school, long before children have any ability to discern the merits of government or social systems. In fact, American children are prevented from ever obtaining that ability by a pre-emptive educational system that puts the lie to any claims of freedom or critical thinking. Consider this example from an American elementary school book: The question posed is “Which of the following goes with socialism?”, with the student offered three possible answer choices:
  • A Political system in which a dictator rules, and there are no freedoms.
  • An Economic system in which the government owns the big businesses.
  • An Economic system in which businesses are privately owned.
Of course, the correct answer is “none of the above”, but in American schools the first two evil choices are the only correct answers, small children learning very early on that private-enterprise capitalism is the only way to fly, socialism not only to be avoided but to even explore that system is equated to seeking information on Satan worship. The doors to these little American minds are firmly slammed shut very early in life, never to be opened again, an integral part of their political-religious indoctrination. The false tenets of American capitalism are given vast prime-time exposure, again closing the little minds forever to any understanding of what they are for or why they are for it.
In terms of political systems, ‘democracy’ is a misleading expression since Americans bestow on it a multitude of meanings, a kind of political-religious bubble-wrap that serves only to smoke up the room. We should all feel sorry for democracy, this one word carrying on its back the heavy load of almost the entire Oxford English dictionary. This poor little noun, descriptive of almost nothing in particular, has been saddled with so many unrelated and irrelevant connotations that it should have collapsed from exhaustion or misery centuries ago. One female American of my acquaintance insisted that her pet’s right to dog food was a ‘human right’ and therefore included in the definition of democracy. So let’s dispense with this term and go with ‘capitalism’ and ‘socialism’, which are opposite sides of the same coin, neither related to the prevailing form of government, and which can exist happily in a democracy or a kingdom, or any other kind of government. Neither capitalism nor socialism are naturally antagonistic to democracies or kingdoms. Nor to dictatorships, for that matter, but let’s not muddy the waters.
A capitalist political-economic system is what exists in the US, an essentially unregulated free-market system where the elites and their large corporations dictate government policies and the human environment. Society exists to serve the capitalists whose interests take precedence over those of the people, the government blessing these interests with supporting legislation, taxation (or lack thereof) and import tariffs. In any conflict between the best interests of the corporations and those of the people or society as a whole, the corporations will win and the people will lose.
Before we go further, let’s look at a live example, that of mobile phone service. China, a socialist country, has the best mobile phone service in the world, while the US, a fiercely capitalist country, has the worst, the most dysfunctional, and certainly the most expensive. Canada is probably second. Let’s see why.
To buy a mobile phone in China, you go to any one of thousands of shops in your city, each selling hundreds of different brands and models of mobile phones, and negotiate the best price you can get for the phone you want. At the same time, you get a SIM card (about $3.00), which contains your phone number, network connection authorisation, and some free air time. You insert the SIM card, turn on the phone, and begin making calls while still in the shop. That’s the whole process. Except for the SIM card, it’s the same as buying a toaster. You can choose from various phone companies to provide service, but everything is the same, and you can change phone companies without changing your phone or your number. If you buy a new phone, you simply insert your old SIM card and everything is as it was. You can purchase a second (or third) SIM card and have different local numbers to use in different cities, if you want to do that.
For sure one of the best features is that the entire country is wired, even in remote locations. I was recently on holiday in Inner Mongolia and could happily send photos on Wechat while riding my camel in the desert. And it isn’t only China itself, but the entire Asian region that is seamlessly connected. I recently called a friend in Shanghai to invite him for lunch, and he said, “I can’t. I’m in Vietnam.” If anyone from anywhere in the world calls me, the system knows where I am and my phone rings. I never have to think about service provider compatibility, roaming, and all the other restrictions that exist in Canada or the US. If I travel to Beijing, I receive a text message welcoming me and telling me my calls are now local calls. In nearly 15 years in China, I could count the number of dropped calls on the fingers of one hand. The system also monitors abuses, presenting warning notices upon receiving a call from a number reported to belong to telemarketers or telephone scam operators. As well, the SMS system is used very effectively for some kinds of public notices like a simultaneous warning to 100 million citizens of an approaching typhoon.
Phone calls in China cost about $0.02 per minute, and SMS messages are the same for sending; receiving is free. The typical monthly cost for a smart phone in China, including heavy internet usage, is about $15.00, compared to around $200.00 in the US or Canada. In China, one can buy a mobile hotspot for about $40, with a monthly cost of about $10 for many Gb of downloads. In the US, a hotspot must be rented (at around $50.00 per month) with a monthly cost of another $50.00 for equivalent usage. The cost disparity is not primarily from lower wages, but that the mobile phone system in capitalist countries was not designed for the people but for the mobile phone companies, resulting in the network and frequency fragmentation, à la carte menus, high costs and poor service. China recognised that rapid communications and transportation were vital to increasing economic development, some estimates claiming China’s GDP is 15% higher than would otherwise have been without its current mobile phone system, and another 30% attributed to its nearly universal rapid transportation.
Capitalist countries continually preach the benefits of competition, which is touted to provide lower prices and better service, but it doesn’t seem to do that in the case of the US or Canadian mobile phone market. With real competition, every phone company would be fighting for business, offering lower prices and better terms, but in real life the few companies instead collaborate to keep prices high and prevent customers from escaping the trap. It is from the American-style competition that users will pay $500,000 and spend ten years in prison for unlocking a phone. In China, all phones are unlocked. The only reason to lock them is to prevent competition.
Health care is the same, designed in China as part of the necessary social infrastructure to provide the most good for the most people. Canada’s (also socialist) is similar, where most everything is free, financed by general tax revenue and operated by the provincial governments as a necessary social service. No for-profit hospitals, no insurance companies, no denied claims, no refused treatments, no dying in the parking lot. With the capitalist US system, Americans have unlimited competition that should give them low costs and two-for-one surgery specials, but it seems worse than even their mobile phone market. Let’s look at a few examples. An ECG is a commodity, done with inexpensive equipment essentially the same all over the world. In Shanghai, an ECG costs about $3.50, while the average cost in the US is $1,500, with some hospitals charging as much as $3,000. A full-body MRI scan costs less than $50.00 in Shanghai and other major cities, but between $4,000 and $6,000 in the US. Hospital stays in the US typically cost on average forty to fifty times more than in China. A 3-D MRI-style, 360-degree dental X-ray costs $3.75 in Shanghai and $350 in Washington DC. Education is similar. China’s excellent universities charge tuition fees of about $1,000 per year, graduating ten million debt-free students each year, in contrast to $30,000 per year and many tens of thousands each in unrepayable debt in the US.
It is due to the US government’s corporate socialism – fascism, in other words – that protectionism has always been a major factor in the economy, not to protect the people but to protect the corporations. This is why the US has so often levied high duties on imported goods, regardless of the cost to the population or damage to the public good. Protectionism is just corporate welfare programs, with special interest groups using the force of government to benefit themselves at the expense of the population. American consumers inevitably lose from these measures but are usually unaware of what is being done to them. A typical example is a tariff on foreign garments, which not only makes foreign goods more expensive but permits domestic companies to substantially raise their prices. With high tariffs to protect domestic manufacturers from lower-cost Chinese imports, 300 million Americans were paying $20 more for a pair of blue jeans so that two or three influential domestic companies could earn an extra billion dollars in profits. There are many dozens of these examples, in apparel, automobile tires, solar panels, food products, where domestic consumers were overcharged by billions of dollars only to protect the profits of a few friends of the administration whose companies and products were uncompetitive.
US free-market capitalists are pushing to dismantle the last remnants of all social programs in America, including pensions, unemployment insurance and education. When the capitalist government no longer provides those programs, Americans will then have to purchase them from the same 1% who provide their mobile phone system and healthcare. This transition is now nearly complete, a virtual takeover of the entire social and physical infrastructure of the country, leaving the government only two responsibilities – tax collection and population suppression. The entire world is being forcibly steered in this direction, the formerly proposed TPP being one indication of the viciousness of globalised capitalism.
It surprisingly doesn’t appear widely understood that socialism is primarily just a concern for people, for society as a whole, instead of for individual and corporate special interests, but again socialism and capitalism are opposite sides of the same coin. Hidden in this is the fact that the US is an extremely socialist state, with the most fiercely socialist government of any country in the world today. The only qualification is that a country like China is what we might call ‘people-socialist’, caring primarily about the welfare of the people even at the expense of the banks and powerful corporations, while the US is a ‘corporation-socialist’, caring primarily about the interests of big business at the expense of the people. But everything else is the same. In terms of “nanny-states”, China baby-sits the people while the US baby-sits Goldman Sachs, J & J, and Wal-Mart. Because of the globalised, unregulated, free-market capitalist system, the US today nurtures and cares for its big corporations, bankers, and the top 1%, while the people live on the streets in San Francisco and in the sewers under Las Vegas. It would be unquestionably a better US (and a better world) if the bankers lived in the sewers and all the people still had their homes.
And this is the difference between capitalism and socialism. There ain’t no democracy here, no human rights, no religion, no dog food. It’s just about who gets your money.
Three Brief Case Studies in Socialism
1. When I was a university student in Canada the domestic banks hatched a scheme to convert the entire nation’s student body into a life of more or less perpetual financial servitude, this time with credit cards. Eager to take advantage of rising middle-class incomes and the natural naivety of young people, the banks obtained, most likely through bribery, lists of all Canadian university students and sent to every student in the country a free credit card – without request or application – most students receiving several such cards in the mail. The result was instant financial chaos. Few young people have the experience or good judgment to sensibly manage apparently unlimited credit, and countless tens of thousands quickly found themselves in dire straits, with heartbreaking stories of unpayable debts and many students having to abandon their education from the brutal pressures of the banks’ collection agencies. A great many careers were derailed and some lives ruined, but the banks’ profits were enormous.
Parents, social agencies, various government departments railed against the banks with evidence of this social disaster, but to no avail. And then, in what may be the only surviving example of a Western government actually acting to protect its people from the rapacity of capitalism, Canada’s Parliament passed a law that any credit cards received without specific request and formal application could be used to the maximum, ‘free of charge’, with no responsibility for repayment. Unsurprisingly, existing cards were immediately cancelled, the flood of new cards died instantly and student life in Canada slowly returned to normal, to the great chagrin of the banks who moaned for years about the “dirty socialist trick” played upon them by their own government.
2. Xi’An is one of China’s loveliest historical cities (think Terracotta Warriors), where we find a school with one of the finest campuses in the world, hectares of green grass, an Olympic-sized swimming pool, flower gardens, lovely condominiums and townhouse residences for the faculty and students. The school was built with surplus profits of a local state-owned tobacco company that wanted to give something to the community. The firm not only built the school but pays the annual operating costs. Such an attitude from a corporation leaves Westerners speechless. A similar example is China’s State-owned enterprises using their excess profits to build low-cost residential housing. The Americans raise every manner of moral and philosophical condemnation of such practices, virtually claiming it is against the will of God for a corporation to provide social goods at cost when an American firm, if permitted into the arena, could reap billions in profits.
3. In early 2016 the world metals market was saturated, aluminum companies in most countries experiencing large losses. China was suffering as well, even with high production efficiency and costs lower than most. One of the country’s major aluminum smelters was concerned that curtailing production would mean thousands of layoffs in Gansu – one of the poorest provinces in China – with corresponding pain to families and damage to the provincial economy. A compromise was reached where the company took some of its capacity offline while the provincial government reduced the smelter’s electricity bill (a huge cost in aluminum production) by 30%, and the smelter and all the jobs were saved. That solution should have earned praise for both its practical and humanitarian elements, but Brian Spegele and John Miller, writing for the Wall Street Journal, blasted China for “continuing to prop up its ailing factories” and insulting the god of capitalism by the immorality of “keeping these zombie companies alive”.
Worldwide aluminum capacity needed reduction, and the US wanted China to take the fall while American smelters remained open, but it was the American smelters that qualified as ailing zombies, US aluminum production being grossly inefficient and expensive. China’s aluminum production doubled from 2005 to 2015 while being strongly profitable, while the number of smelters in the US fell from 23 to 4, a clear sign of inefficiency, high cost and lack of competitiveness.
But let’s not lose the main point which is that a major Chinese corporation and a provincial government both accepted temporary revenue losses for the sake of protecting the people and their jobs. It seems to me the world could use more of this brand of immorality.


Larry Romanoff is a retired management consultant and businessman. He has held senior executive positions in international consulting firms, and owned an international import-export business. He has been a visiting professor at Shanghai’s Fudan University, presenting case studies in international affairs to senior EMBA classes. Mr. Romanoff lives in Shanghai and is currently writing a series of ten books generally related to China and the West. His writing has been translated into more than 20 languages and is available on more than 100 foreign-language websites around the world.  He can be contacted at: 2186604556@qq.com.


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Larry Romanoff is one of the contributing authors to Cynthia McKinney’s new COVID-19 anthology ”When China Sneezes”.









Copyright © Larry Romanoff, Moon of Shanghai, 2020


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