The Delusion of Moderate Capitalism

Moderate Capitalism happened due to Socialists not due to proponents of moderate Capitalism

Erik Engheim
4 min readMar 4, 2019

There is a rising interest in socialism among America’s millennials and other places in the west. It is something that has been gaining momentum since the 2008 downturn which made apparent the weakness in present day western capitalism. Since then millennials have seen how their standard of living is falling below that of their parents despite getting education and the general economy growing. Something isn’t working.

Many people acknowledge this fact. However many object to the new socialist trend with arguments such as: We don’t need to reject capitalism, we just need to reform it.

It is true that reforms of capitalism has been quite successful. Personally I think the moderate forms of capitalism in Nordic countries have been very successful. We have managed to spread the benefits of economic growth to a large portion of the population.

Does that mean we can simply get behind moderates to create moderate capitalism? There is a big problem with this idea. There is actually no historical record of that ever working.

Otto von Bismarck’s Health Insurance Scheme

Consider Nordic countries and e.g. Germany. The the moderate capitalism of these nations did not happen because some sort of “moderate capitalism” political party took the stage and pushed for various reforms to make capitalism nicer. Quite the contrary eight hour work day, unemployment benefits, pensions for the old, abolishment of child labor etc, the great majority of these reforms happened because they were pushed by die hard socialists. They were pushed by people who were seeking the destruction of capitalism. They were not saying: “hey, we think capitalism is pretty neat, but we like to see a few adjustments to make it nicer.”

That never happened. Instead what happened was that socialist pushed these reforms through. Or as often happened in the beginning, they forced the hand of established political parties. The world’s first welfare reforms was made by Otto von Bismarck in 1883. It introduced mandatory government monitored health insurance. This would later be expanded to accident insurance and disability insurance.

However Bismarck was a staunch conservative. He did not want any of this, so why did he do it? He did it because socialists were becoming a major political threat. They were getting more votes, popularity was surging and in France there had been violent socialist revolts. In his view, the survival of the German state was at risk if he did not do something to please people.

First Unemployment Benefits

It was the same in Britain when the first unemployment benefits were introduced in 1911, by the Liberal Party:

The popular measures were to combat the increasing influence of the Labour Party among the country’s working-class population.

Like Bismarck, British conservatives hated it:

…while employers and tories saw it as a “necessary evil”.

The 8-hour work week by Utopian Socialist Robert Owen

The eight hour work week taken for granted today, was originally pushed by Robert Own under the slogan:

Eight hours’ labour, Eight hours’ recreation, Eight hours’ rest

Own was textile manufacturer and a champion of Utopian socialism, and experimented with building socialism from the ground up through worker cooperatives.

Capitalism Only Works When Under Threat

All of this points to an important dynamic: The capitalist establishment has really only reformed itself to benefit the general population, when facing existential threats from socialism.

The cold war served much of the same purpose. The existence of communist states such as the east block and the Soviet Union which made rapid economic progress until the early 70s pressured western capitalist countries to not ignore the working class.

However as the communist states started to rot from within in the 70s and their economies started stagnating, only to get the death blow from the oil crisis, the groundwork for a right wing populist wind was laid. When the wall came down and the Soviet Union collapsed at the end of the 80s, capitalism no longer had an alternative ideology to keep it moderate or accountable. We saw the rise of the third way and a further dismantling of the welfare state and the end of many redistribution policies in many western countries. Inequality started rising.

For a while, people were content. Liberalization of the banking sector brought lots of cheap loans. People could keep going on borrowed money, deluding themselves into thinking they were economically better off. That all came crashing down in 2008. It was as if people had suddenly and collectively swallowed the red pill and been exposed to the true horrors of the Matrix. Property prices don’t keep rising indefinitely. And you could not keep borrowing on your house indefinitely to make up for the wages increases than never came.

Britain’s Margareth Thatcher thought she could trick the working class into becoming pro-capitalism, by making them all home owners. The idea was that by letting the working class enjoy the economic benefit of growing houses prices they would be won over to the wonder of capitalism and reject the old labor party ideas. It was quite brilliant and for a long it worked. Baby boomers saw their fortunes swell as house prices skyrocketed.

Except now we have come full circle. The young offspring of the working class trying to enter the housing market find that they are locked out of it. This explains a rising interest for socialism among millennials.

They can see for themselves that the promise given by the likes or Ronald Reagan and Margareth Thatcher does not hold true. They argued that it does not matter how the pie is sliced as long as the pie grows larger. The problem is that despite the pie growing, the smallest slices are in fact getting smaller. There is no tide that raises all boats. That is an illusion.

Final Remarks

I want to sum up my points as they are easily misunderstood. Despite the title, I am not against moderate capitalism. In fact I favor a mixed system with elements of both capitalism and socialism. My argument is about how to get there. I have doubts that you can rally support and bring about change by championing a moderate goal. History suggests pushing a more extreme goal is more effective at getting to a moderate result.



Erik Engheim

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.