On one end of the socio-economic spectrum are the principles of a market-driven economy, with private ownership of the means of production; on the other end, the ideals of economic inclusion of all through public ownership and government influenced market prices to hold. The age-old debate between capitalism and socialism has only intensified with time, and heated arguments over the superiority of one over the other are omnipresent in all discussions on the social and economic structure of a nation.
Somewhere in between these two extremes lies a middle ground, a no man’s land, a system of ideas that incorporates features of both capitalism and socialism. ‘Compassionate Capitalism’ encourages some degree of government intervention in the market, to ensure equitable distribution of rewards among all workers, depending upon their contributions, but it does not support public ownership of means of production. In fact, there are few, if any, countries today that are completely capitalist or socialist, and this is because it is possible to achieve better results with a correct combination of the elements of both.
Prioritizing efficiency over equality under capitalism creates inequalities in income distribution, with the rich becoming richer and the poor becoming poorer, leading to economic instability. Socialism evolved as a response to this discriminative regime, hoping to bring about inclusive growth for all, by ensuring equitable distribution of income through state ownership of resources; however, it failed to take into account the inefficiency and complacency that is bound to emerge when economic agents are sure to get a certain level of remuneration, irrespective of their contributions. Socialist economies could not compete with capitalist growth rates, but if capitalism were to prevail everywhere, the world would soon run out of all resources. There is a need for a system that effectively captures the best elements of both, and blends them to form a regime that maximizes efficiency without compromising on welfare.
In citing an example of a near-utopian system, the Nordic model is often mentioned, and rightly so. Their comprehensive welfare state regime, with efficient unionization of workers, dominant public sector and strong social safety net with society-wide risk sharing, have helped Scandinavian countries achieve what most other countries aspire for: free education and healthcare benefits, generous pension schemes, fair income distribution and the highest ranks on Global Peace and Happiness indices. Many attributes these successes to the socialist policies followed here, but the same people fail to notice how the Nordic model started off as a group of small entrepreneurial countries all facing the same set of problems and realizing that the benefit of anyone country will benefit all others. They recognized the advantages of a free-trade system and utilized it efficiently to make themselves rich.
Opponents of the Nordic model criticize the unrealistically high tax rates, but they very conveniently ignore the question of why citizens agree to pay such high taxes. The collective mentality of mutual benefit that Scandinavian citizens possess made them support a free economy with free trade, which created a vast pool of wealth, and everyone put their trust in governments that were run by citizens with the same mentality, seeking to undertake ventures that would benefit everyone. This atmosphere of similar mindsets and all-inclusive profitability encouraged citizens to trust their governments completely, and governments to introduce tax-funded social programs by imposing high tax rates.
Undoubtedly the social services provided are based on the ideals of socialism, but nevertheless, it is important to acknowledge the role that capitalism has played in making the model what it is today. A dynamic system which keeps evolving, coping up with new opportunities for making profit; this version of capitalism, reliant on the principles of creative destruction, is used flawlessly by the Nordic countries, and rightly so because killing the goose that lays the golden egg (by asking it to share it with others who cannot lay even a normal egg) is not a very clever thing to do. Nordic markets are free from government intervention, with decentralized unions to negotiate wages. They have done away with the concept of minimum wages, which allows businesses to pay less to unskilled workers, and helps small entrepreneurs to go beyond their break-even point and become profitable.
However, completely pushing socialism behind the curtains is not completely fair either. Building upon a base of capitalism, effectively making use of public faith in institutional efficiency by introducing (highly successful) programs of tax-funded free education, public health and other schemes have been the icing on top. These schemes have not only contributed to reducing income inequalities, but have also minimized inequalities in terms of gender, and ensured greater participation of women in the workforce. Consequently, nation-wide inclusion of all in the economic prosperity driven by a profit-centric system has made the Nordic model an example of an ideal system.
The example of Compassionate Capitalism, a blend of capitalist and socialist ideals, as followed in the Scandinavian countries, highlights a very important point about the socio-economic spectrum. No country can sustain by blindly following any one of the two, and indeed, there are few countries today that we can call capitalist or socialist. All nations have adopted some mixture of the two that they have found to their liking, keeping with the saying, nothing is completely black or white, everything comes in shades of grey. Depending upon the historical background and public mentality, nations can choose what degree of market freedom and government intervention they would like to introduce that would maximize the welfare of all. Such estimates are not easy to make; coming to a final decision on this matter is a grave task with lasting consequences. There is no set formula or mathematical derivation for arriving at a conclusion in this regard, it is a subjective matter that requires a lot of research, and very difficult to get right in the first try. It is a lengthy and tedious process, but one that, performed successfully, will reap immense benefits for the nation at large.