Is Capitalism or Socialism Better for South Carolina?

You know the old saying, “there are no dumb questions”?

However, given what we have seen in New York City’s 2025 mayoral campaign and elsewhere, the question of the value of socialism versus capitalism needs to be addressed and addressed head-on. The short answer is that capitalism consistently demonstrates greater capacity to generate prosperity, innovation, and long-term stability than socialism.

What are the philosophical foundations of Capitalism?

Capitalism values individuals and markets, whereas socialism involves central planning.

The latter inevitably fails because no central authority can aggregate and process the dispersed, unique knowledge and needs of individuals. F.A. Hayek, the economist, called this the economic calculation problem. Instead of a central planner, we must rely on price signals in a free market. The result is that we will allocate resources (money, effort, labor, expenditures, etc.) to the uses that suit our economy best. Furthermore, economic freedom is inseparable from political freedom. When governments control production and distribution, they must use force, and this erodes personal liberty and stifles our path to innovation and entrepreneurship.

Before we proceed further, we should state a clear definition of terms.

There are no “pure” examples of capitalism or socialism. Countries like Sweden and Denmark are often cited as examples of socialism, though this is disingenuous. Many Scandinavian countries  became wealthy under capitalistic systems and have since adopted certain socialist-leaning policies (e.g., welfare, healthcare, taxation). To further illustrate, the Gini Coefficient for inequality of wealth in Sweden is 88.1 while it is 85.0 in the USA (recall, a Gini of 0 means perfectly equal distribution of wealth while 1 means just one person has it all). Sweden, the oft-cited exemplar of socialism, is less equal than the USA.

Data on income, wealth, and inequality reinforce the fact that countries that embrace market-driven policies enjoy higher living standards, faster technological progress, and more resilient economies.

The Evidence – Income and Wealth

We can assess how capitalistic or socialistic countries are performing by using data from the Fraser Institute on the size of government (compared to its GDP), amount of government ownership (versus private), and varying levels of government regulation. Under capitalism, we expect small government, little government ownership, and less regulation.

To keep the comparison apples-to-apples, we include only countries above $20,000 in GDP per capita, and with over 5 million people. On a scale of “capitalist to socialist,” the upper quartile (capitalist) countries do better than the lower quartile (socialist) countries.

Capitalism is looking pretty good.

Other important social measures are equally telling. While not on its own a complete measure of capitalism, our level of freedom is critical. Freedom House assesses the level of civil liberties in each country. Using the same criteria, again, free countries win.

Freedom leads to prosperity, wealth, gender equality, and less economic inequality.

So, how did nations become prosperous? Much of this success is based on Property Rights (I suggest reading Douglass North) and Institutions (see recent Nobel prize by Acemoglu, Robinson, and Johnson). We have a good measure of respect for property rights at the country level from a recent report by the Heritage Foundation. Using the same selection criteria data, we see much of the same results.

Simply put, hard data clearly show that countries with market-based polices, with greater personal freedom, and with greater protection for individual property rights are more prosperous. Furthermore, while the typical criticism of capitalism is unequal outcomes, we see mostly more equal outcomes under capitalism.

How so? While capitalist countries are far from being economically equal, the non-capitalist countries are often run by dictators, have sovereign/royalty/legacy wealth, and have corrupt governments that wield central power to benefit a select group (oligarchy).

Why Capitalism and not Socialism?

• Socialist experiments:   Venezuela has leaned into socialism and has seen collapsing GDP, hyperinflation, and mass emigration. China’s movement toward capitalism has lifted millions out of poverty.
• Capitalist resilience: Nations with strong capitalist institutions weather shocks and grow.  For example, South Korea embraced markets after the 1960s and transformed itself from poverty into one of the world’s top 15 economies, while North Korea’s socialist model led to further stagnation and an actual famine.
• Wealth inequality: While some wealthy countries have high income (and wealth) inequality, it is exactly this ability to pursue and keep wealth that motivates individuals to invest, to work, and to innovate. When the government takes more, we work less.
• Technological innovation: Entrepreneurs respond to profit signals, driving inventions.
• Efficient allocation: Prices reflect scarcity and demand, guiding resources to their most productive uses.
• Dynamic adaptation: Market economies adjust rapidly to shocks, unlike rigid socialist systems.
• Wealth creation: Capitalism expands the pie, while socialism often redistributes a stagnant or shrinking pie.

Direction Forward for South Carolina

To promote prosperity through capitalism while addressing inequality, South Carolina’s elected leaders can adopt policies that reduce central planning in favor of free markets while broadening protections for freedom. This leads us directly to many of the pillars of the Palmetto Promise Freedom Agenda, including:

• Reducing barriers to work, entrepreneurship, and small business growth.
• Protecting property rights and enforcing contracts.
• Limiting government intervention and regulation.
• Promoting more education options for families.
• Maintaining fiscal discipline with a zero-based budget and a reduction in individual and corporate income taxes.
• Opening up the healthcare market.

For more specific pillars of the Palmetto Freedom Agenda, please visit PalmettoFreedomAgenda.org.

For other scholarly articles on the principles of freedom and liberty from Palmetto Promise Fellow Dr. Kevin Boeh, please visit his author page here.

You may also enjoy our interview with Clemson Professor Brad Thompson, Embracing Capitalism, here.