Capitalism Challenged by Socialism:
How Should We Respond?

A topic that has recently attracted attention from time to time in economic debate is whether capitalism itself needs to be reassessed. In mid-term elections in the United States, candidates advocating democratic socialism have been gaining ground, while interest in socialism has been rising, particularly among Generation Z. Since the collapse of the Soviet Union, the dominant view has been that democracy and liberalism prevailed over socialism. Recently, however, developments have emerged that appear to call this view into question.

One reason for the growing interest in socialism is the widening of inequality worldwide. Competition under neoliberalism, as advocated by the political right people, has generated inequality, while the left, although focused on protecting minority rights, has paid insufficient attention to correcting inequality among the broader population. In addition, the AI boom and concerns over employment have further heightened interest in socialism, especially among younger generations.

Japan is unquestionably a capitalist country. At the same time, it can be viewed as a “semi-capitalist” country that incorporates certain socialist elements, including mutual assistance through neighborhood associations and insurance, public assistance provided by government, and redistribution through progressive taxation and the tax and social security systems. Historical experience also suggests that socialism does not necessarily lead to an ideal society, and attention should be paid to the risk that planned economies may give rise to dictatorship or totalitarianism.

In light of the above, while it is undeniable that capitalism has problems, a direct shift toward socialism would not be appropriate. For capitalism to be maintained and further developed, it is essential to modify capitalism appropriately and strike a proper balance between capitalist and socialist elements—in other words, between efficiency and fairness. Governments need to give policy consideration to enabling the middle class to live with a sense of security and margin. Corporations, while continuing to strengthen profitability, are also expected to pay attention to social value. Specifically, they need to advance initiatives with a high degree of public benefit, such as the SDGs, or Sustainable Development Goals.

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