Socialism is a political and economic system often discussed in opposition to capitalism, but what is it exactly? In this article, we’ll explore the history and meaning of socialism, the most important facts, and examples of socialism in action.
Socialism is an economic and political theory that calls for the public production, ownership, and distribution of goods and services. There are different branches of socialism, as well as various strengths and weaknesses. Many countries weave socialist systems and policies into their societies.
Where did socialism come from?
In socialism, there’s no private ownership. There’s evidence of ancient communities and cultures practicing public ownership, as well as writings from philosophers like Plato that described collective societies. Utopia, which Thomas More wrote in 1516 England, describes an imaginary island that doesn’t use money. This never became a reality, and during the Industrial Revolution, unchecked capitalism wreaked havoc. Owners of factories and businesses got rich off the backs of workers, who were subjected to 10-12 hour work days, low wages, dangerous equipment, child labor, and exposure to unregulated toxic substances. Not shockingly, workers were unhappy that their labor made the rich richer. In response to brutal inequalities and ruinous poverty, socialism emerged as a theory to tame the excesses of the upper class, redistribute wealth, and make society equal.
How does socialism differ from capitalism? With capitalism, the government has a very limited role when it comes to production and distribution. Capitalist societies use a free-market economy, which runs on supply and demand. Increased demand equals increased prices unless production can keep up. Private (not government) producers must make enough products and services to meet demand, make money, and keep their prices competitive. In socialist economies, the people (or government) own the means of production and set the prices for everything. Other major differences include:
- Healthcare – With socialism, the government provides free or subsidized healthcare. With capitalism, the private sector provides healthcare.
- Income – With socialism, income is set by the government and distributed according to need. With capitalism, the free market determines income.
- Taxes – With socialism, taxes are higher and used to pay for public services, like healthcare. With capitalism, taxes are based on an individual’s income.
What three key facts should everyone know?
Countless books and articles have been written about socialism, but what are three things you should know right now?
#1. There are different types of socialism
One of the most important facts about socialism is that it doesn’t refer to one thing. There are different branches, such as utopian socialism, Marxist socialism, and democratic socialism. The first kind, utopian socialism, is based on the belief that everyone can commit to the common good. The state doesn’t need to assume control of production; owners will voluntarily share with workers. The socialism of Karl Marx is not so hopeful. It instead argues that only a worker revolution can overthrow capitalism. Along with Friedrich Engel, Marx’s ideas paved the way for the development of communism, which gives power to the state. What’s the difference between socialism and communism? Socialism is technically an economic system while communism is a political system.
Democratic socialism argues for a democratic and decentralized socialist economy. There is a lot of disagreement among democratic socialist groups, but all want to weaken capitalism or abolish it entirely. Some promote mixed economies where the state controls things like energy, healthcare, and education, but private ownership in other industries is allowed.
#2. Socialism has strengths and weaknesses
Like every system, socialism has its pros and cons. The two biggest advantages are economic equality and poverty reduction. The whole goal of socialism is to make society more equal through fairer redistribution. Rather than fill their own pockets off the labor of workers, companies and wealthy individuals have to pay high taxes, which pay for the public services provided to everyone. Generous welfare systems and high wages set by the state also help reduce poverty and encourage equality. Healthcare, which in countries like the United States is a major cause of bankruptcy, is also free under socialism.
What about the weaknesses? When there’s no private ownership, critics say there’s no incentive for entrepreneurs. High taxes on privately-owned businesses can also discourage innovation. Wealthy companies and individuals may just move away from the socialist society, which weakens the country’s ability to fund public services. States are also not necessarily good at owning and controlling the means of production. They’re still made up of people.
#3. Welfare benefits are key to socialism, but not all welfare benefits are socialist
The United States, which for decades has been aggressively anti-Communist and anti-socialist, has some practices people might call “socialist.” Social Security benefits are a good example. The state runs the Social Security system. Just about everybody (there are a few exceptions, like the Amish community) has to pay into Social Security. A certain portion gets taxed and put into the Social Security pool. How much you pay depends on your earnings and type of employment. You can’t start collecting benefits until you’re 62 years old, at which time you get the lowest benefit. If you wait to retire until you’re 70 years old, you can collect the highest benefit.
Is this socialism? According to Investopedia, it’s similar since money gets pooled and distributed by the state. It can’t truly be called socialism because not everyone pays the same amount or gets the same amount. There’s also a cap on income, which means those with higher incomes pay a much smaller percentage of their earnings into Social Security. If Social Security was more socialist, there would most likely not be a cap and everyone would receive the same benefits.
What socialism can look like in practice: Cuba and Scandinavia
Academics, political scientists, and philosophers talk about socialism all the time, but what does it look like in practice? Here are two examples:
This article isn’t the place for a detailed history of Cuba, so here are the highlights: in 1492, Christopher Columbus claimed Cuba for Spain. In 1898, Spain ceded Cuba to the United States. The Socialist Party was established in 1925, and in 1938, the Communist Party was legalized. From 1952-1959, Fulgenico Batista, who was supported by the Democratic Socialists Coalition, was elected president. He suspended the Constitution and became a US-backed dictator. In 1956, Fidel Castro began guerrilla warfare with the help of Marxist revolutionary Che Guevara. Castro became prime minister in 1959, and in 1961, Castro announced that Cuba was a Communist state and allied with the USSR.
Cuba is one of the world’s last one-party socialist republics. All power rests in the hands of the Cuban Communist Party (PCC), which was put into the Constitution by referendum in 1976. Life in Cuba has been challenging, especially right after the Soviet Union collapsed in 1989. The country has allowed some market-style reforms to try to prevent economic crises. The universal healthcare system, which was one of the biggest victories following the revolution, suffered. There’s also a long history of government suppression and human rights violations. In its 2023 World Report, Human Rights Watch listed issues like censorship, arbitrary detention, and poor prison conditions. For these attacks on freedom and democracy, Cuba’s style of socialism is heavily criticized. Many cite Cuba as a reason to believe socialism can’t work, but it’s also important to recognize the negative impact of U.S. sanctions.
Remember democratic socialism? It’s also called “the Nordic model” because Scandinavian countries (Denmark, Norway, Sweden, Finland, and Iceland) use it. The Nordic model has features of capitalism – like a market economy – with a strong social safety net like income distribution, free education, free healthcare, and state pensions. This safety net is funded by very high tax rates. According to the OECD, the tax-to-GDP ratio in Sweden (2021) was 42.6%. In Denmark, where university is free for all EU citizens in the country, the ratio was about 46.9%. When people talk about the benefits of socialism, they often point to Scandinavian countries.
You can find countless articles on why the Nordic model can’t work in countries like the United States, why capitalism is actually the reason for these countries’ success, and why these countries aren’t even that successful. It’s important to note most of these criticisms come from the political right, entrepreneurs, and other supporters of big business. Scandinavian countries consistently rank as the happiest in the world. Experts point to the quality of government institutions, progressive taxation, and high levels of trust as reasons why.
Where else can you find socialism?
There are very few socialist (or communist) countries in the world today. Here are the most famous ones still around and a few that have since broken up or switched systems:
China (People’s Republic of China): China has been a communist state since 1949 when Mao Zedong established the PRC.
North Korea (Democratic People’s Republic of Korea): North Korea has been communist since 1949 following the end of WWII and the surrender of Japan.
Vietnam (Socialist Republic of Vietnam): Vietnam has been a one-party socialist state since 1975 after the Fall of Saigon.
Laos (Lao People’s Democratic Republic): Laos has been a one-party communist state since 1975.
The Soviet Union (1922-1991): The Soviet Union was a huge one-party state made of fifteen national republics. Its origins sprout from 1917 and the end of the Russian Empire. Vladimir Lenin then established the world’s first constitutionally guaranteed socialist state.
Democratic Republic of Afghanistan/Republic of Afghanistan (1978-1987): Afghanistan once had a one-party socialist rule supported by the Soviet Union.