Is Socialism Consistant With Investor Goals?

​I try to avoid political topics, but quite often politics and investing cross paths and it’s part of my job to warn my clients when the one might negatively affect the other. One current issue I found interesting were the stories of this year’s Black Friday protests. Apparently, some individuals who take issue with our capitalist society, organized protests over the Thanksgiving weekend against Black Friday shopping, which some referred to as “Capitalism run amok.”
 
The rising popularity of socialism in America, combined with a growing disdain for capitalism should be a concern for investors. Some basic definitions of the two political thoughts would be useful. “Capital” is another word for money, or wealth. A key element of Capitalism is the private ownership of property. In a capitalist system, the owner of wealth is free to use it wherever they feel it will provide the most use. 
 
Black Friday actually represents an excellent example of the benefits of capitalism. On that day, producers bring their products to market in a very competitive event designed to draw in consumer dollars. Whichever business produces the most desirable product at the lowest price will attract the most dollars. Businesses are rewarded for quality and efficiency and the consumer is rewarded with better products at lower prices. Wealth is not determined by how many dollars you have but by what you can do with those dollars. Therefore, a capitalist system tends to enrich all consumers by making their dollars, regardless of how many they have, more valuable.
 
A socialist system is defined as one where the means of production and distribution are managed by a central government. In the purest sense, all property is publicly owned and shared according to each person’s needs and abilities. On paper it may sound good, but in countless examples worldwide the system results in inefficiencies, lower quality and higher costs. Think, allowing the DMV to run all businesses. In practice, socialism destroys the motivation and ability to create better products at lower prices.
 
As I watched video of the Black Friday protests, I noticed an irony. Just about every person I saw was recording and posting the event on social media using their cell phones; the amazing and ubiquitous cell phone, a device created by capitalism.
 
The opportunity to improve their lives drives people to work, take risks, and invest their private resources in the future. Take away that motivation and people, society and economies stagnate. My Polish grandparents sacrificed everything and took great risks to come and participate in the great American freedom experiment. I and my large extended family have benefited immensely from their decision to do so.
 
It is my belief, as a lifelong student of economies and investing, that the current socialist movement in America may be one of the greatest threats to our personal and national financial well-being. For that reason, I consider it a matter of “Common Sense Investing” to encourage those interested in controlling their own financial destiny, to not take this risk lightly.