Medicare for all, free public university tuition, and let’s throw childcare on top of it. These are the promises of U.S. Sen. Bernie Sanders of Vermont in his second campaign for the presidency. Other candidates have promoted similar policies, but Sanders is set apart as a self-avowed democratic socialist, a label that once was political kryptonite.
For Sanders, however, the label apparently has helped him, especially among younger generations. Capitalism is steadily losing favor with America’s youth, as they look to socialism as an alternative. A recent YouGov and Victims of Communism Memorial Foundation survey found half of Millennials and Gen Z have unfavorable views of capitalism.
Politically, the number of Millennials who said they are “extremely likely” to vote for a socialist candidate doubled.
As Millennials and Generation Z turn to socialism as a response to their woes, it can be easy for capitalists to view socialism as a threat to capitalism. After all, the systems are at opposing ends of the spectrum. However, capitalists are better served by focusing on the real menace: rampant pessimism. Capitalism is still the solution, but it must keep its promises to younger generations to regain their favor.
How did we arrive at this point of severe pessimism toward capitalism? A brief analysis of recent economic turmoil provides the answer.
Cracks Begin To Show
Millennials and Generation Z came of age during the perfect storm: the 2008 recession. If they weren’t experiencing economic pitfalls themselves, they were surely witnessing their parents and loved ones struggle. They lost jobs, houses, and retirement savings.
Responsibility for the dominos that toppled may have been hard to pinpoint. Was it the government? Big banking executives? Three years later, they were told what to blame: the entire economic system. The 2011 Occupy Wall Street movement framed the ever-growing economic divide as an “us versus them” problem. “We are the 99%” was the mantra of the day.
Even former President Barack Obama added his voice, sympathizing with the occupiers. The rally exposed “the frustrations the American people feel, that we had the biggest financial crisis since the Great Depression, huge collateral damage all throughout the country.”
Worse, Obama blamed executives for continuing to act “irresponsibly” as they resisted increased government oversight.
Study after study has shown the income distribution is increasingly shifting toward the 1%. In 2018, the wealthiest 10% of Americans accounted for 70% of all wealth in the nation. Not only are they growing richer, the bottom 50% is growing poorer, according to Forbes.
Student loan debt is another reason for Millennials and Generation Z to express anguish. More than half of university students take out loans to fund their academic endeavors, with the average student borrowing $35,359.
Cumulatively, student loan debt surpassed $1.6 trillion, with more than 10% of it in default. It wasn’t this way for their parents, so students are rightfully outraged. In 1989, only 10% of American households carried student loan debt; now, the number has doubled.
As if economic woes weren’t enough, younger generations are worried about the climate. Unlike policymakers and older business executives, Millennials and Generation Z will, by all reports, experience drastic effects because of climate change if something doesn’t change.
The Green New Deal was pitched by progressive Democrats as a solution to economic, climate, and racial injustice. Younger generations have advocated for its passage, which would provide resources for underprivileged communities, which are often predominantly composed of ethnic minorities, and raise the federal minimum wage.
Is the Pessimism Toward Capitalism Fair?
Some may argue that capitalism inherently ignores the marginalized to benefit the already wealthy, and this criticism is fair. After all, the wealthy are the landlords and business executives in control of the economy.
Critics of capitalism may point to nonprofits as an example of socialism at work, and that’s understandable. However, while nonprofit organizations and 501(C)(3)s certainly provide services people depend on, they aren’t sustainable. Relying on donations and government funding is never a desirable business model.
Nonprofits don’t allow people to feel the value of the money working in the service because they often aren’t depending on it. To me, these organizations are like giving fish instead of teaching people how to fish. There is strong opportunity for nonprofits to reorient themselves to be more incentive-driven.
For example, an organization devoted to worker reeducation could identify community needs, maybe dog grooming, for example. Instead of taking government funding, the organization could charge customers for services, which would both sustain the business and provide opportunities for worker training.
For-profit corporations are more commonly promoting themselves as socially responsible. Company X donates a certain percentage of its profit to a charity. Company Y sources its materials from eco-friendly suppliers.
Do these businesses actually care about being socially responsible? Yeah, that can be hard to believe. They are businesses that care about the bottom line, after all. However, some areas of capitalism, particularly social entrepreneurship, focus on the bigger picture.
A social entrepreneur designs his business model around solving community problems, maybe clean drinking water or sanitary toilets. In banking, microfinance organizations cater to underserved demographics. Are they still trying to make a buck? Sure, but they are also driven by the desire to help their communities.
Addressing Social Issues
Socialists like Sanders argue their system is the only one that can create the utopia we all dream of: no student debt, free healthcare, and increased wages. To them, capitalism is unable to provide these benefits and is the system holding the working class down.
Capitalists counter that socialism is not a viable system because of a lack of incentives. How can a person be motivated to do a dangerous job if the wages are not higher? And why would a doctor work for the same salary as a secretary?
Socialism has no answer for the incentive problem. Worse, it has no mechanism to make economic calculations without a pricing mechanism, wrote economist Ludwig von Mises in his 1920 article “Economic Calculation in the Socialist Commonwealth.”
For-profit companies are capable of delivering on social issues if the incentive is there. Propel, for example, is a financial tech service that can readily calculate food stamp balances with the Fresh EBT app. Customers using Fresh EBT also have access to exclusive deals. Propel is also planning to roll out a debit card to operate as a bank. A nonprofit simply could not do this.
Dave.com is another financial tech service that allows users a short-term $50 loan to avoid overdraft fees and offers interest-free cash advances. Also, through Trees for the Future, Dave plants a tree for every percentage point its users tip. To date, it has planted more than 100 million trees. How could a nonprofit company do both of these things?
Finally, Nova Credit has stepped in to offer something many people don’t consider: immigrant credit. Immigrants’ credit history typically starts from square one when they arrive in America. Consequently, they don’t have access to loans, credit cards, even apartment rentals. Nova Credit allows them to use their international credit history for services in the U.S.
Holding Bad Actors Accountable
While we should encourage for-profits to adopt more socially friendly business models and foster social entrepreneurship, we also have to hold the bad actors accountable. One very important part of making sure capitalism works is having the richest companies actually pay taxes.
Amazon and Jeff Bezos can write off massive profits to avoid paying the taxman. Last year was the first time since 2016 that Amazon had to pay taxes — still only $162 million on $13.9 billion in pretax income. Although the corporate tax rate is 21%, Amazon — and other companies, too — used tax loopholes to reduce its effective rate to a meager 1.2%. Millennials and Generation Z see these figures in headlines and have every right to question capitalism as they struggle paycheck-to-paycheck.
Capitalism can and will survive, but we as a nation need to reorient it to take a more social-friendly stance. In doing so, corporations can counter some of the ill will from younger Americans and ease their pessimism.
Socialism would not work for myriad reasons: Just look at the unsustainable nonprofits. If they would only adopt an incentive-driven profit model, how much more good could they do?
About the Author
Zach Anderson Pettet is the VP of fintech strategy at nbkc bank, a community bank in Kansas City, Missouri, that’s on the cutting edge of tech innovation. He also serves as the managing director of nbkc bank’s Fountain City Fintech, a vertically integrated partnership accelerator that provides fintech startups with compliance expertise, a forward-thinking bank partner, and a solid infrastructure for scale. Through his work, Zach is striving to level the financial playing field through groundbreaking technology.