With just under 100 days until the midterm elections, it’s time that we dive into the details of the very controversial ideologies of the so-called “Democratic Socialists that are in the limelight in our midterm elections. We will be publishing the details of all of the principles of each major candidate throughout the election cycle. There’s too much at stake to NOT guarantee that American voters are clear regarding the “promises” of ALL of the candidates in these elections.
Some who read this and other upcoming stories we publish will disagree with some or all of what we publish. Please know that our true “Representative Republic” also needs to be explained in detail, which we WILL do in the coming days. We urge you to read what we give you, think through it with an open mind, consider the details, ask questions, and research for yourself.
Facts are impossible to be “facts” unless and until one honestly investigates these critical issues, finds the honest answers, and implements them!
Dan Newman/Publisher
What Is Socialism?
Socialism represents a populist economic and political framework rooted in the collective ownership of the means of production—such as machinery, tools, and factories—to satisfy human needs.
Unlike capitalism, where business owners control production and remunerate workers, socialism promotes shared control and ownership among the working class, envisioning a more equitable society. By examining the historical evolution, theoretical underpinnings, practical challenges, and examples such as the former Soviet Union, this article delves into the complex dynamics of socialism in both historical and contemporary contexts.
Key Characteristics of Socialism
In a purely socialist system, all production and distribution decisions are made by the collective, directed by a central planner or government body. Worker cooperatives, however, are also a form of socialized production.
Socialist systems tend to have robust welfare systems, and governments often play a major role in providing essential services such as healthcare, education, and transportation. The government determines the output and pricing levels of these goods and services.
Socialists contend that shared ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society.
Forms and Governance in Socialist Systems
Common ownership under socialism may take shape through technocratic, oligarchic, totalitarian, democratic, or even voluntary rule. A prominent historical example of a socialist country, albeit one run by communists, is the former Union of Soviet Socialist Republics (USSR), also known as the Soviet Union.
Socialist Countries
- China
- Cuba
- Laos
- North Korea
- Vietnam
Due to its practical challenges and poor track record, socialism is sometimes referred to as a utopian or “post-scarcity” system, although modern adherents believe it could work if only properly implemented.
They argue that socialism creates equality and provides security—a worker’s value comes from the amount of time they work, not in the value of what they produce—while capitalism exploits workers for the benefit of the wealthy.
Ideals
Socialist ideals include:
- Production for use, rather than for profit
- An equitable distribution of wealth and material resources among all people
- No more competitive buying and selling in the market
- Free access to goods and services
As an old socialist slogan describes it, “From each according to ability, to each according to need.”1
Important
While socialism calls for collective or shared ownership of the means of production, it does not imply that there is no private ownership of personal property. Thus, corporations and factories would be shared among the members of society, but individuals and households would still own their own personal effects.
The Evolution of Socialist Thought
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Socialism as a system of shared resources and collective production dates back to the earliest human civilizations. Tribal or clan-based societies often worked for the common good, coming together to produce enough food and supplies for the entire population.
Collective agriculture persisted for thousands of years. This was replaced in many places by a sort of feudal system, whereby landed nobility (lords) ruled over peasants (serfs) who worked the land without owning it.
Historical Foundations of Socialism
Socialism’s intellectual roots date back to “Plato’s Republic,” in which he described a collective society. Centuries later, Thomas More’s “Utopia” echoed Platonic ideals in its depiction of an imaginary island where people live and work communally.
Socialism was a direct response to the Industrial Revolution, which brought enormous economic and social change to Great Britain and the rest of the world. As industrialists grew wealthy on the labor of workers who increasingly lived in poverty, socialism emerged as an alternative to capitalism, one that could improve life for the working class.2
Socialism in Contemporary Context
Modern socialism developed in opposition to the excesses and abuses of liberal individualism and capitalism.
In the late 18th and 19th centuries, early capitalist economies in Western Europe saw rapid industrial production and economic growth. Some individuals and families rose to riches quickly, while others sank into poverty. Capitalism created income inequality and spurred other social concerns.
The most famous early socialist thinkers were Robert Owen and Henri de Saint-Simon, and later Karl Marx and then Vladimir Lenin. It was primarily Lenin who expounded on the ideas of earlier socialists and helped bring socialist planning to the national level after the 1917 Bolshevik Revolution in Russia.
Following the failure of socialist central planning in the former Soviet Union and Maoist China during the 20th century, many modern socialists shifted toward a high-regulation, redistributive system, sometimes referred to as market socialism or democratic socialism.
Comparing Socialism and Capitalism
Capitalist economies (which today are often synonymous with the free-market or market economies) and socialist economies differ by their logical underpinnings of the structures of ownership and production.
Socialists and free-market economists tend to agree on fundamental economics—the supply-and-demand framework, for instance—while disagreeing about how to adapt it and how commodities should be produced.
Functionally, socialism and free-market capitalism are often divided on two core issues: property rights and control of production. In a capitalist economy, private individuals and enterprises own the means of production and have the right to profit from them. Private property rights are taken very seriously and apply to nearly everything.
In a purely socialist economy, the collective owns and controls the means of production; personal property is allowed, but in the form of consumer goods. Essential services like healthcare, education, and public transportation are provided free of charge by the government and funded through taxation.
How Power is Distributed Under Socialism
In a socialist economy, public officials known as central planners may control the behavior of producers, consumers, savers, borrowers, and investors by taking over and regulating trade, capital flows, and other resources. In a free-market economy, trade is conducted on a voluntary, or nonregulated, basis. However, there are many other ways to coordinate production in a collectivist fashion without such dominating control and loss of personal autonomy.
Individual Autonomy and Central Planning in Socialism
Market economies rely on the separate actions of self-determining individuals to determine production, distribution, and consumption. Decisions about what, when, and how to produce are made privately and coordinated through a spontaneously developed price system, and prices are determined by the laws of supply and demand.
Proponents say that freely floating market prices direct resources toward their most efficient ends. Profits are encouraged and drive future production.
Socialist economies rely on either the government or worker cooperatives to drive production and distribution. Consumption is regulated, but it is still partially left up to individuals. The state determines how major resources are used and taxes wealth to fund redistributive efforts.
Socialist economic thinkers consider many private economic activities to be irrational, such as arbitrage or leverage, because they do not create immediate consumption or use. Still, Marx saw that capitalism was rife with contradictions, class conflict, and self-destructive competition. As a result, he saw socialism as the logical next phase of human political economy.
Fast Fact
Several philosophical questions also lie at the heart of the debate between socialism and capitalism: What is the role of government? What constitutes a human right? What roles should equality and justice play in society?
Socialism vs. Communism
Similarities
Communism and socialism are umbrella terms referring to two left-wing schools of economic thought. Both oppose capitalism, but socialism predates the “Communist Manifesto,” an 1848 pamphlet by Marx and Friedrich Engels, by a few decades.
They are both economic philosophies that advocate for public ownership, particularly of the means of production and of the distribution and exchange of goods in society.
And both philosophies run contrary to free-market capitalism, which, they contend, exploits workers and creates a widening gap between rich and poor.
Differences
There are differences between socialism and communism, however. In fact, communism can be thought of as a strict and all-encompassing version of socialism.
Under communism, all property is communally owned; private property doesn’t exist. Under socialism, individuals can still own private property.
Marx predicted that a violent worker uprising against the middle and upper classes would bring about the communist state, whereas socialists tend to seek change and reform without overthrowing the prevailing social and political structure.
And, according to communist theory, workers should be given what they need, while under socialist theory, they are to be compensated for their level of contribution to the economy.
Debating the Merits of Socialism vs. Capitalism
Socialist Claims
There are many points of contention between socialists and capitalists. Socialists consider capitalism and the free market to be unfair and possibly unsustainable. Most socialists contend that market capitalism is incapable of providing enough subsistence to the lower classes. They contend that greedy owners suppress wages and seek to retain profits for themselves.
Capitalist Claims
Proponents of market capitalism counter that it is impossible for socialist economies to allocate scarce resources efficiently without real market prices. They claim that the resultant shortages, surpluses, and political corruption will lead to more poverty, not less. Overall, they say, socialism is impractical and inefficient, suffering in particular from two major challenges.
A main challenge for socialism, known as the “incentive problem,” is that few people want to take on unappealing jobs such as sanitation work. That is, socialist planners cannot incentivize laborers to accept dangerous or uncomfortable jobs without violating the equality of outcomes.
More critical is the calculation problem, as argued in Ludwig von Mises’ 1920 article, which holds that socialism can’t perform economic calculations without market prices. Socialists, wrote Mises, are unable to perform any real economic calculation without a pricing mechanism. Without accurate factor costs, no true accounting may take place. Without futures markets, capital can never reorganize efficiently over time.4
Can a Country Be Both Socialist and Capitalist?
While socialism and capitalism seem diametrically opposed, most capitalist economies today have some socialist aspects. Elements of a market economy and a socialist economy can be combined into a mixed economy.
In fact, most modern countries operate under a mixed economic system, in which government and private individuals both influence production and distribution.
Economist Hans-Hermann Hoppe stated there are two economic archetypes: socialism and capitalism, and real systems combine both.
But because of the archetypes’ differences, there is an inherent challenge in the philosophy of a mixed economy, and it becomes a never-ending balancing act between predictable obedience to the state and the unpredictable consequences of individual behavior.
Fast Fact
The Great Recession and the COVID-19 pandemic have increased interest in the government creating more opportunities and increasing the social safety net for all Americans. These are hallmarks of socialist policy, and not everyone agrees with such ideas.
How Mixed Economies Develop
Mixed economies are still relatively young, and theories around them have only recently been codified. “The Wealth of Nations,” Adam Smith’s pioneering economic treatise, argued that markets were spontaneous and that the state could not direct them or the economy.6
Later economists, including Jean-Baptiste Say, F.A. Hayek, Milton Friedman, and Joseph Schumpeter, would expand on this idea.
However, in 1985, political economy theorists Wolfgang Streeck and Philippe C. Schmitter introduced the term “economic governance” to describe markets that are not spontaneous but have to be created and maintained by institutions.7 To pursue its objectives, the state needs to create a market that follows its rules.
Frameworks for Mixed Economies
Historically, mixed economies have followed two trajectories:
The first trajectory assumes that private individuals have the right to own property, produce, and trade. State intervention has developed gradually, usually in the name of protecting consumers, supporting industries crucial to the public good (in fields like energy or communications), providing welfare, or other aspects of the social safety net. Most Western democracies, such as the United States, follow this model.
The second trajectory relates to states that evolved from pure collectivist or totalitarian regimes. Individuals’ interests are considered a distant second in importance to state interests, but elements of capitalism are adopted to promote economic growth. China and Russia are examples of the second model.
Examples of Socialist Nations
China
Today, very few countries are close to pure socialism. Perhaps China is the most prominent example, with a communist government that effectively nationalizes many of the nation’s key industries.
State-owned enterprises dominate China’s economy, but capitalist steps like Shanghai’s zones allow private companies to compete.8
Cuba
Cuba remained closer to a Marxist-Leninist socialist economy, following its communist revolution in 1959 and the installation of Fidel Castro as its leader. After Castro’s death, however, Cuba, too, saw some liberalization.
In 2019, Cubans voted for a new constitution that granted private property rights and greater access to free markets, while preserving the socialist political system.9
North Korea
The last remaining Marxist-Leninist socialist economy that has not seen any reforms is that of North Korea. The country remains ruled by a communist dictatorship and a closed command economy governed by strict central planning.
Laos, another country in Asia, is also a socialist state, but is more open than North Korea.
Transitioning From Socialism
A nation needs to transfer the means of production to transition from socialism to a free-market economy. The process of transferring functions and assets from central authorities to private individuals is known as privatization.
Privatization occurs whenever ownership rights transfer from a coercive public authority to a private actor, whether it is a company or an individual.
Different forms of privatization include contracting out to private firms, awarding franchises, and the outright sale of government assets (divestiture).
Contracting Government Control
Sometimes, privatization isn’t true privatization. Case in point: private prisons. Rather than completely ceding a service to competitive markets and the influence of supply and demand, private prisons in the United States are actually just a contracted-out government monopoly.
The scope of functions that constitute the prison is largely governed by government laws and implemented through government policy. It is important to remember that not all transfers of government control result in a free market.
Privatizing a Socialist Economy
Some nationwide privatization efforts have been relatively mild, while others have been dramatic. The most striking examples include the former satellite nations of the Soviet Bloc after the collapse of the USSR and the modernization of the post-Mao Chinese government.
Required Reforms
The privatization process involves several different kinds of reforms, not all of them completely economic.
- Enterprises need to be deregulated, and prices need to be allowed to flow based on microeconomic considerations.
- Tariffs and import/export barriers need to be removed.
- State-owned enterprises need to be sold.
- Investment restrictions must be relaxed.
- State authorities must relinquish their individual interests in the means of production.
The logistical problems associated with these actions have not been fully resolved, and several different theories and practices have been offered throughout history.
Pitfalls of Change
Should these transfers be gradual or immediate? What are the impacts of shocking an economy built around central control? Can firms be effectively depoliticized?
As the struggles in Eastern Europe in the 1990s show, it can be very difficult for a population to adjust from complete state control to the sudden loss of political and economic freedoms.
In Romania, for example, the National Agency for Privatization was tasked with privatizing commercial activity in a controlled manner. Private ownership funds, or POFs, were created in 1991.
The state ownership fund, or SOF, was tasked with selling 10% of the state’s shares each year to the POFs, allowing prices and markets to adjust to a new economic process.
But initial efforts failed as progress was slow and politicization compromised many transitions. Further control was given to additional government agencies, and over the next decade, a bureaucracy took over what should have been a private market.12
These failures indicate the primary problem with gradual transitions. When political actors control the process, economic decisions continue to be based on noneconomic justifications.
A quick transition may cause the greatest initial shock and displacement, but it also leads to the fastest reallocation of resources toward the most valued, market-based ends.
Explain It Like I’m Five
Socialism is a system in which major businesses and industries are owned by everyone, usually through the government, rather than by private owners.
The idea is that if everyone shares ownership, then wealth and resources can be distributed more evenly, and basic needs like healthcare, education, and transportation can be provided to everyone.
In contrast, capitalism is a system in which individuals and companies own businesses and keep the profits, and prices and production are mostly determined by the market.
Most countries today use a mix of both systems.
Is There Socialism in the U.S. Today?
Yes. Although the U.S. is a capitalist economy, it includes some socialist-style programs, such as Social Security, Medicare, unemployment benefits, and public education, as well as institutions like credit unions and worker cooperatives.
What’s the Difference Between Social Democracy and Democratic Socialism?
Social democracy supports a capitalist economy but uses government programs and regulations to reduce inequality and provide social protections. Democratic socialism, by contrast, seeks to move beyond capitalism by promoting social or public ownership of major industries while maintaining democratic governance.1314
Is Socialism Better Than Capitalism?
Whether socialism is better than capitalism is widely debated. Capitalism is associated with innovation and economic growth, but can produce inequality, while socialism aims to reduce inequality but may limit efficiency and individual economic freedom. Most countries today use a mix of both systems.
Which Countries Are Socialist?
Today, most countries in the world feature some aspects of socialism—even in the United States, but especially in countries found in Europe and Asia. Only a few are full-blown pure socialist (Marxist-Leninist communist) economies: the People’s Republic of China, Cuba, Laos, Vietnam, and North Korea. (The USSR also was, but the Soviet Union collapsed in the 1990s.)
The Bottom Line
The economic and political system of socialism has been a part of human existence, in theory or practice, for many centuries. It espouses the collective ownership of the means of production and places the importance of state control above that of the individual.
Proponents believe that it creates equality and provides workers with security. Critics claim that it neglects essential human behavior. Socialism contrasts with capitalism, a system based on a free-market economy and private ownership.
