Socialism

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The term Socialism or Socialist can refer to several related things:

  1. An ideology or a group of ideologies.
  2. An economic system.
  3. A state that exists or has existed.
  4. In Marxist theory, the society that would succeed capitalism, and then develop further into communism.

The word dates back at least to the early nineteenth century. It has been used differently in different times and places, both by various individuals and groups that consider themselves socialist and by their opponents. While there is wide variation between socialist groups, nearly all would agree that they are bound together by a common history rooted originally in nineteenth and twentieth-century struggles by industrial and agricultural workers, operating according to principles of solidarity and advocating an egalitarian society, with an economics that would, in their view, serve the broad populace rather than a favored few.

An ideology or a group of ideologies

According to Marxists (most notably Frederick Engels), socialist models and ideas are said to be traceable to the dawn of human social history, being an inherent feature of human nature and early human social models. During the Enlightenment in the 18th century, revolutionary thinkers and writers such as the Marquis de Condorcet, Voltaire, Rousseau, Diderot, the abbé de Mably, and Morelly provided the intellectual and ideological expression of the discontented social layers in French society. This included even the bourgeoisie, at that time kept out of political power by the ancien régime, but also the "popular" classes among whom socialism would later take root.

Elie Halevy claims that the term was coined independently by two groups advocating different ways of organizing society and economics: the Saint-Simonians, and most likely Pierre Leroux, in the years 1831-33, and the followers of Robert Owen, around 1835. [Elie Halevy, Histoire du Socialisme Européen (Paris, Gallimard, 1948, pp. 17-18, note); originally published 1937] By the time of the Revolution of 1848 there were a variety of competing "socialisms", ranging from the socialism of Charles Fourier to the self-described "scientific" socialism of Karl Marx and Friedrich Engels.

Depending on the context, the term socialism may refer either to these ideologies or any of their many lineal descendants. While these cover a very broad range of views, they have in common a belief that feudal and capitalist societies are run for the benefit of a small economic elite and that society should be run for the common good. "Socialist" ideologies tend to emphasize economic cooperation over economic competition; virtually all envision some sort of economic planning (many, but by no means all, favor central planning). All advocate placing at least some of the means of production -- and at least some of the distribution of goods and services -- into collective or cooperative ownership.

Historically, the ideology of socialism grew up hand in hand with the rise of organized labor. In many parts of the world, the two are still strongly associated with one another; in other parts, they have become two very distinct movements.

Branches of Socialism

Since the 19th century, socialist ideas have developed and separated into many different streams. Notable ideologies that have been referred to using the label "socialism" are:

The socio-political or intellectual movements basing themselves in the Marxist-Socialist tradition can generally be further divided into:

Several forms of "socialism" are considered by those on the far left to be reformist or revisionist. These include:

Other ideologies including the word "Socialism"

The German National Socialists (Nazis) claimed to be "socialist". However, even the subset of socialists that considers itself nationalist rejects the racialist theories and totalitarianism of the Nazis who are not considered socialist by most political theorists (see Socialism and Nazism). Similarly, the Arab Socialist Ba'ath Party in Syria and Iraq claims to be in a tradition of secular, non-Marxist socialists.

Various Catholic clerical parties have at times referred to themselves as "Christian Socialists." Two examples are the Christian Social Party of Karl Lueger in Austria before and after World War I and the contemporary Christian Social Union in Bavaria. Most other socialists would consider these two parties to be "socialist" in name only. However, there are other individuals and groups, past and present, that are clearly both Christian and Socialist, such as the Frederick Denison Maurice, author of The Kingdom of Christ (1838), or the contemporary Christian Socialist Movement (CSM), affiliated with the British Labour Party. (See main article Christian socialism; see also Christian left and social gospel.)

A note on usage

Some groups (see above) have called themselves socialist while holding views that most socialists consider antithetical to socialism. The term has also been used by some politicians on the political right as an epithet for certain individuals who do not consider themselves to be socialists and policies that are not considered socialist by their proponents (e.g. referring to all publicly funded medicine as "socialized medicine" or to the United States Democratic Party as "socialist"). This article touches only briefly on those peripheral issues.

What distinguishes the various types of socialism

There are a few questions that point up some of the big differences among socialisms:

  • Do advocates of this ideology say that socialism should come about through revolution (e.g. Maoism, Leninism, Trotskyism, revolutionary Marxism) or through reform (e.g. Fabianism, reformist Marxism), or do they view both as possible (e.g. syndicalism, various Marxisms) or do they fail to address the question of how a socialist society would be achieved (e.g. utopian socialisms)?
  • Do they advocate centralized state control of the socialized sectors of the economy (e.g. Leninism), or control of that sector by worker councils (e.g. syndicalism, left and council communism, anarcho-communism)? This is usually cast by socialists in terms of "ownership of the means of production." None of the social democratic parties of Europe advocate total state ownership of the means of production in their contemporary demands and popular press, but most contain language and ideas in their platform which state that in the event the capitalists fail to meet up to their end of the social contract, that the workers have the legitimate historical basis to assume or seize total control of the means of production, should those conditions ever arise in the future. Almost all Social-Democratic parties hold that state control of certain sectors of the economy is vital for the general public interest.
  • Do they advocate that the power of the worker's councils should itself constitute a state form as socialism in the form of a direct democracy and the use of the referendum and the proposition, or do they state that socialism entails that there should be a legislative body administered by people who would be elected as a representative or republican form of government? In other words, through what legal and political apparatus will the workers maintain and further develop this socialization of the means of production?
  • Do they advocate total or near-total socialization of the economy (e.g. revolutionary Marxism, Stalinism, Leninism, Trotskyism, Left and Council Communism, anarcho-syndicalism and syndicalism), or a mixed market economy (e.g Bernsteinism, reformism, reformist Marxism)? Mixed economies, in turn, can range anywhere from those developed by the social democratic governments that have periodically governed Northern and Western European countries to the inclusion of small cooperatives in the economy of Yugoslavia under Josip Broz Tito. In a related, but not identical, question, do they advocate a fairer society within the bounds of capitalism (e.g. most social democrats) or the total overthrow of the capitalist system (most Marxists).
  • Did the ideology arise largely as a philosophical construct (e.g. libertarian socialism), or in the heat of a revolution (e.g. early Marxism, Leninism), or as the product of a ruling party (e.g. Castroism, Stalinism), or as the product of a party or other group contending for political power in a democratic society (e.g. social democracy).
  • Does the ideology systematically say that the "bourgeois liberties" (such as those guaranteed by the U.S. First Amendment or the Charter of Fundamental Rights of the European Union) are to be preserved (or even enhanced) in a socialist society (e.g. social democracy), or are undesirable (e.g. Maoism), or have they said different things at different times (e.g. Marx and Engels), or is this a dividing point within the ideology (e.g. different strains of Trotskyism)?
  • Does their critique of the existing system center on the ownership of the means of production (e.g. Marxism), on the nature of mass and equitable distribution (e.g. most forms of utopian socialism), or on opposition to industrialism as well as capitalism (common where socialism intersects green politics)? Utopian Socialists, like Robert Owen and Saint-Simon argued, though not from exactly the same perspective, that the injustices and poverty of the societies they lived in was a problem of distribution of the goods created. Marxian Socialists, on the other hand, determined that the root of the injustices is based not in the function of distribution of goods already created, but rather that the ownership of the means of production was in private hands. Also, Marxian Socialists maintain, in contrast to the Utopian Socialists, that the root of injustice is not in how goods (commodities) are distributed, but for whose economic benefit are they produced and sold.
  • Which governments does the ideology regard as practicing or moving toward socialism and which does the ideology not regard as doing so? For example, in the era of the Soviet Union, western socialists were bitterly divided as to whether the Soviet Union was basically socialist, moving toward socialism, or inherently un-socialist and, in fact, inimical to true socialism. Similarly, today the government of the People's Republic of China claims to be socialist and refers to its own approach as "Socialism with Chinese characteristics," but most other self-identified socialists consider China to be essentially capitalist, albeit with a strong state sector. The Chinese leadership concurs with most of the usual critiques against a command economy, and many of their actions to manage what they call a socialist economy support this.

Note also that while many would say that socialism is defined by state ownership and state planning of the means of production and economic life, a certain degree of such state ownership and planning is common in economies that would almost universally be considered capitalist. In Canada, Crown Corporations are responsible for various sectors of the economy deemed to be of strategic importance to the people (for example power generation). In the U.S., a semi-private central bank with close ties to the federal government, the Federal Reserve, regulates lending rates, serving as a "bank of banks." Also, governments in capitalist nations typically run the post office, libraries, national parks, highways, and (in the case of the US) NASA. Interestingly, though, the federal government's monopoly on space travel from U.S. take-off sites is itself a thing of the past -- as of 2004 private capital is entering even that field.

State, provincial, and local governments operate and own power companies and other utilities, parks, mass transit including rail and airports, and schools including universities. Capitalist governments also frequently subsidize or otherwise influence (though do not own) various sectors of the economy, such as automotive, weapons, oil (petrol), aerospace, and agriculture.

In the post WWII political (lexicon), this sort of economic state planning (if not even ownership) became integral to stabilization of the global economy, and has come to be known as Keynesian after John Maynard Keynes.

Conversely, Chinese economic reform under Deng Xiaoping has been characterized by decreasing state ownership of the economy, the replacement of central planning mechanisms with market based ones used in Western capitalist nations, and a marked lack of governmental social welfare services found in capitalist nations. However, because the legitimacy of the Communist Party of China is based on the premise that China has already made a transition to socialism, the government insists that it is a socialist government.

An economic system

As in the realm of ideology, there is no single consensus what it means for a particular economic system to be called "socialist." Nearly all self-described socialists would agree that a socialist economy must be run for the benefit of the vast majority of the people (Marxists and many other socialists would say "the proletariat" or "the workers"; in countries where agriculture figures prominently, nearly all would also add peasant farmers to that) rather than for a small aristocratic, plutocratic, or capitalist class. In the mid-nineteenth century, when socialism first arose, many political ideologies of the day were frank in supporting the interests of elite classes. Today, this stance does not so clearly distinguish socialism from other ideologies: in a world where many countries offer a broader electoral franchise, most ideologies claim to support the greatest good for the greatest number. Still, even today, socialism is particularly forthright in advocating direct pursuit of working class interests, even at the expense of what other ideologies consider the legitimate property rights of the wealthy classes.

Many, perhaps most, self-described socialists would say that socialism also entails democratic control of that economy, although they would differ vastly over the appropriate institutions of that democracy and over whether control should be centralized or highly dispersed. Similarly, they would differ over the extent to which that economy would involve markets, and if so whether markets would apply only to consumer goods or, in some cases, to the means of production (factory and farm equipment, for example). For consumer goods, this is simply a question of efficient distribution; for the means of production, this is a question of ownership of the economy, and therefore of control over it.

Many non-socialists use the expression "socialist economy" (or "socialization" of a sector of the economy) almost exclusively to refer to centralized control under government aegis: for example, consider the use of the term "socialized medicine" in the US by opponents of single-payer health care.

There is general agreement among socialists and non-socialists that a socialist economy would not include private or estate ownership of large enterprises; there is less agreement on whether any such enterprises would be owned by society at large or (at least in some cases) owned cooperatively by their own workers. Among the few who dispute this are the leadership of the Communist Party of China, who claim to remain socialist, even while the continuing Chinese economic reform explicitly includes the concept of privately-owned large enterprises competing on an equal basis with publicly-owned ones. The adoption by China of this essential characteristic of capitalism is a principal reason why, outside of mainland China, few people (socialists or otherwise) consider present-day mainland China and its ruling party to be, in any meaningful sense, socialist.

It has been claimed, both by socialists and non-socialists, that the former Soviet Union and the Eastern Bloc had socialist economies, as the means of production were owned almost entirely by the state and the bulk of the economy was centrally controlled by the Communist Party acting through the state. Other socialists object to that label, because the people in those countries had little or no control over the government, and instead posit that these societies were state-capitalist, or as some Trotskyists would say, a "Degenerated Workers' State." Trotskyists contend that the Stalinist economies fulfilled one criterion of a socialist economy, in that it was controlled by the state, but not the other criterion, that the state must be in turn democratically controlled by the workers. Many non-Marxist socialists would agree with the general outline of this, while perhaps dissenting from the statement that state control of the economy is one of the criteria of socialism. Further, many socialists would argue that the Soviet Union and its satellite states merely replaced a capitalist ruling class with a new ruling class, the coordinator class or nomenklatura, who played an extremely analogous role, managing the economy for their own benefit, or at least attempting to do so.

During the Cold War, a common term used by the Soviet Union and its allies to refer to their own economies was "actually existing socialism" (presumably as against any number of theoretically possible socialisms, but carrying an implicit statement that their economy was, in fact, socialist). Another similarly used term was (and is) "real socialist." Typically, when these terms were or are used by anyone outside of the particular parties that ruled these countries or the 5th columns their revolutions inspired in other countries, they are placed in scare quotes and are used with at least mild irony.

A state that exists, or has existed

See main article Communist state

Most past and present states ruled by parties of Communist orientation called (or call) themselves "socialist." However, in the western world they were usually all referred to as "Communist states." Once again, whether these states were socialist or not was (and is) disputed, with the large majority of today’s socialists contending that they were not socialist, for reasons directly analogous to those just discussed for a "socialist" economy.

There are also some who dispute whether it is appropriate to refer to any state, past, present, future, or hypothetical as "socialist," preferring to reserve that word for an economy or even a society, but not a state.

The Socialist society that will succeed Capitalism

Although Marxists generally use the word "socialism" in the senses described above, another specifically Marxist use of the term is worth noting. Karl Marx, in his exposition of historical materialism, his Hegelian model of history, saw socialism as a phase of human society that would follow capitalism and precede communism. Marx is by no means clear about the expected characteristics of such a society, but he is reasonably consistent in his belief in the eventual revolutionary triumph of socialism over capitalism, and its eventual (presumably less revolutionary) transformation into communism.

According to Marx, this socialist society will be controlled by the working class (the proletariat), whose familiarity with large, collective undertakings will be reflected in the character of this society. It will be a dictatorship of the proletariat contrasted to the existing dictatorship of the bourgeoisie (the capitalists). It is worth noting in this context that Marx was not necessarily advocating or predicting "dictatorship" in the sense that word is commonly used today; he was only referring to what class would be dominant. While Leninist dictatorship is arguably consistent with this vision, so is worker democracy, analogous to bourgeois democracy. In addition, note that most Marxist models of socialism involve the abolition of the so-called "exploitation of man by man" which is presumed to exist in capitalist society. This would mean abolishing class distinctions, therefore making "the proletariat" a universal term synonymous with "the people"

Again according to Marx, eventually the state would "wither away" and this "socialist" society will be replaced by a classless "communist" society. In holding this classless non-state as the ultimate goal, Marx expressed an ideal not far from that of anarchism.

This definition of socialism is particularly important in understanding the official ideology of the People's Republic of China. The Communist Party of China states that class struggle has already pushed China into the socialist phase of social development. Because of this and Deng Xiaoping's theory of seeking truth from facts, any economic policy which works is automatically classified as a socialist policy, and hence ideology does not constrain economic decision making.

Socialism and the mixed economy

As remarked above, some self-described socialists, especially those who identify as social democrats, but also including (for example) the reform-oriented Euro-communists (Marxists, but by no means Leninists), advocate a mixed economy rather than a complete re-working of existing capitalist economies along socialist lines. These views also extend to many who would not describe themselves as "socialists."

In the most moderate formulation, collective ownership is typically limited to control of natural resources and public utilities. The rationale for prioritizing these is that natural resources are a common patrimony and that (all or some) public utilities are natural monopolies.

Others would extend a socialist approach to what they deem to be essential industries (to prevent certain capitalists from having a stranglehold on society), or those that inherently require massive concentration of capital (to keep such massive concentrations of wealth, and hence of power, out of private hands). There is also often a rationale of national defense or national sovereignty. Thus, many otherwise capitalist countries have, at least at times, nationalized such industries as steel, automobiles, or airplanes. In the U.S., for example, President Harry S. Truman nationalized the steel mills during the Korean War. They soon returned to private ownership by order of the U.S. Supreme Court.

In such states, there is a mixed economy with varying degrees of government ownership and private ownership, and with various degrees either of central planning by the government or other cooperative planning.

Most socialist thinkers argue that unrestrained free market economics generally results in profits for a few at the expense of the many. Communists, in particular, are adamantly opposed to any compromise with capitalism, claiming that any economic system that permitted the private accumulation of wealth was inherently unjust (see: labor theory of value). As noted above, this is disputed by the contemporary Communist Party of China, making China (if it is regarded as socialist or communist) an inevitable exception to much of what follows here.

While few self-described communists support any scheme upholding private ownership of the means of production (except, perhaps, as a temporary disposition on the way to something purer, and again noting the contemporary Chinese exception), other socialists are split over this, arguing over whether to only moderate the workings of market capitalism to produce a more equitable distribution of wealth, or whether to expropriate the entire owning class to guarantee this distribution. Many socialists acknowledge the extreme complexity of designing other appropriate non-market mechanisms to identify demand, especially for non-essential goods. Some have put forward models of market socialism where markets exist, but an owning class does not.

Many opponents of socialism, particularly in the U.S. and the U.K., claim that people generally prosper as a result of free market economies, which they claim to be uniquely capable of making use of otherwise scattered information. On these grounds, such people hold that private property rights benefit all, rather than merely a wealthy elite.

The extreme of this capitalist, anti-socialist ideological position is that any meddling with markets can only be to the public detriment, and that regardless of what inequities exist under capitalism, the result of any other system could only be worse for the average person.

The contemporary Communist Party of China concurs with most anti-socialists in arguing that people generally prosper as a result of free market economies. Chinese leadership claims to be developing a socialist market economy.

In practice, many aspects of the socialist worldview and socialist policy have been integrated with capitalism in many European countries and in other parts of the world to form mixed economies. Social democracy typically involves state ownership of some corporations (considered strategically important to the people) and participation in ownership of the means of production by workers. This can include profit sharing and worker representation on decision-making boards of corporations. Social services are important in social democracies. Such services include social welfare for the disadvantaged and unemployment insurance.

Likewise, market economies in the United States and other capitalist countries have integrated some aspects of socialist economic planning. Democratic countries typically place legal limits on the centralization of capital through anti-trust laws and limits on monopolies, though the extent to which these laws are actually enforced has to do with the balance of power between the actually existing or emerging monopoly firms. Ownership of stock has become common for middle class workers, both in companies they work for and in other companies (see mutual fund). Labor market pressures (see labor economics) and regulations have encouraged profit sharing. Social welfare and unemployment insurance are mandated by law in the US, UK, Canada and other market economies. There is a lively debate today as to whether the world is moving closer to or farther away from "socialism", as defined by different people. Another component of this debate is whether or not these developments are to be hailed.

Opposition and criticisms of socialism

A number of thinkers, economists and historians have raised some issues with socialist theory. These individuals include Milton Friedman, Ayn Rand, Ludwig von Mises, Friedrich Hayek, and Joshua Muravchik, to name a few. Most of their objections and critiques seem directed more at a centrally planned economy (not a part of all proposed socialisms), some at socialism and Marxism in general, but because these distinctions are relatively difficult to tease out of their writings, it is probably useful to take them up in a single context.

These objections and critiques usually fall into the following categories:

  • Freedom
  • Incentives
  • Prices
  • Profits and Losses
  • Private Property Rights

Freedom

"The socialist society would have to forbid capitalist acts between consenting adults", wrote Robert Nozick. In a capitalist society, everyone is free to by the books, subscribe to the journals, build the churches, work or trade with the people etc. that he or she wants, as long as all participants are voluntary. In a capitalist society, we may receive things from others only as a gift or through trade, i.e., through voluntarily means. In all other systems, such as socialism or feodalism, this is not the case.


Incentives

According to the critics of socialism, under socialism incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. Socialism, say the critics, is based on the theory that incentives don't matter.

The are two ways of taking this critique. On the one hand, profit and loss, including the increase or decrease of property values, gave incentive effects on the productive population as a whole, and the critique suggests that the loss of those effects would be disastrous. On the other hand, the critique has sometimes been posed in a way that takes account specifically of the incentives of central planners. The latter was essentially the point made by Slavenka Drakulic in How We Survived Communism & Even Laughed (ISBN 0060975407), where she argued that a major contributor to the fall of state communism was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machines.

In reponse, most socialists will explain that the incentives in a socialist planned economy come from the democratic nature of the system. Economic planners have an interest in doing a good job and delivering what the people need because that ensures the people will keep voting for them in elections. If the planners are doing a bad job and the economy is stagnating, the people will vote them out of office and elect a new government with a new economic plan. If they are doing a good job, then part of that good job will involve putting or keeping the right incentive effects in place for productive people. The problem is, that central planners cannot have as much information as people do, and hence the market works better when everyone is free to use his or her information in voluntary cooperation with others and not forced to obey any rulers.

The kind of system that Slavenka Drakulic and others lived under was not a democratic one, so the planners had no incentive to cater to the needs of the people. Some socialists do not even consider such an undemocratic system to be socialist at all. Of course, democracy itself is open to criticism, as is the related notion of sovereignty -- those are different, although related, inquiries.

Those socialists who advocate democracy make a careful distinction between human rights (which they see as vital to socialism and which they would preserve, even against majoritarian pressures) and property rights (which they see as illegitimate privileges, subject to majoritarian revision). Many would contend, for example, that freedom of contract is not a form of liberty but a form of privilege, and that equality requires some way to prevent or restrict the accumulation of wealth in private hands (note, however, that different socialists often hold different views on how economic equality is to be achieved: some wish to correct inequality after it develops, by using redistributive measures, while others wish to prevent inequality from developing in the first place, by emphasizing communal property).

As far as the issue of majority rule is concerned, socialists will often agree to put certain restraints on it in order to protect freedom of expression or other similar personal rights, but not in order to protect the economic "privileges" (or the "rights" -- the correct word depends on one's view of the merits) of the members of affluent minorities. Going back to the original incentive issue, it should be noted that an interesting form of socialism called Participatory Economics (Parecon) addresses the matter of incentive through other means. Parecon envisions an iterative process to match what consumers want with what producers are ready to offer, while keeping personal consumption requests anonymous. [1]

Prices

According to the critics of socialism, the price system in a market economy guides economic activity so flawlessly that most people don't appreciate its importance or see its effect. Adam Smith dubbed this effect the "unseen hand" of the market. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.

Some forms of socialism propose to abolish markets entirely. All, or nearly all, advocate some form of governmental or other "social" interference with market prices. Free-market economists argue that a controlled or fixed price almost always transmits misleading information about relative scarcity and that inappropriate behavior results from a controlled price, because false information has been transmitted by an artificial price.

Socialists opposed to the market generally argue that markets don't work nearly as well as thought. They point out that some people struggle to survive in capitalism while others have mansions. To them, this is hardly a characteristic of a system that distributes effectively. However, this critique is off the mark, since there the problem is not prices but wealth. One can redistribute wealth by taxation without controlling prices.

Obviously, a command economy tries to replace the invisible hand with a highly visible one. The claim is that a more rational result can be achieved by the efforts of economic coordinators rather than by market forces. While some socialists oppose a centrally planned economy, all advocate the overt inclusion of non-economic factors in determining economic decisions.

Socialists are sharply divided on the claim that market pricing produces allocative efficiency. There are market socialists who believe it is both possible and imperative that socialistic systems take this point into account. David Schweickart, a philosophy professor in the US, has said that socialists must endorse the market because otherwise "everything in the economy is subject to political debate -- every price, every product, every technology" and he says only two possible outcomes can result from this, "either anarchy or, more likely, the subtle or not so subtle shutting down of democratic input."

On the other hand, a Hungarian economist, Jonas Kornai, once a market socialist himself, modified his views subsequent to the fall of the Soviet system and its eastern European variants. Kornai has written that "the attempt to realize market socialism...produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible."

A capitalist opponent of socialism would argue that both Schweickart and Kornai are right -- that markets are both a necessity and an impossibility for a socialism that would be humane, sustainable, and allocatively efficient.

On the other hand, socialists who do reject the market mechanism of pricing make the following points:

  • That capitalism has a natural tendency toward monopoly, leading to distortion in prices. This is essentially the same argument used by critics of socialism, but with the terms reversed: assuming monopoly to be inevitable (although this does not seem to be the case in our world), the socialists argue that the conditions will not be present for the "invisible hand", and other means not available under free market capitalism must be found. For example, this argument is repeatedly invoked in the 2001 Program of the Communist Party of Canada, which refers to the current system as "State-monopoly capitalism" and argues, that "financial and industrial monopolies dominate agriculture, and farmers are compelled to pay high monopoly prices for seed, equipment and other inputs, while the prices they get for their produce are set by the powerful packing, milling, grain-handling and railway monopolies." [2]
  • That market systems are distorted by the unequal power of the players in the markets. Economist Anup Shah (a leftist, though not necessarily a socialist) makes this case, suggesting that the current neo-liberal order might be better called "neo-mercantilism" and applying to it Adam Smith's critique of how military power distorted trade under mercantilism.

[3] On the other hand, the supporters of free market and liberalism typically oppose the use of force.

Profits and losses

Many historical and proposed forms of socialism would not operate under a profit-and-loss system of accounting. All these forms of socialism give less of a role to competition than does a capitalist economy. According to its supporters, a profit system is a monitoring mechanism which continually evaluates the economic performance of every business enterprise. In theory, at least, under capitalism the firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.

By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the public. A competitive profit system ensures a constant re-optimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to serve the public interest or suffer the consequences.

Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, critics argue, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. Therefore, they claim that centrally planned economies do not have an effective incentive structure to coordinate economic activity.

Socialists may respond to these assertions with a variety of counter-arguments. First and foremost, they focus on the role of democracy, rather than competition, as a means of regulating economic activity and increasing efficiency. In other words, if the state runs the economy and the people have democratic control over the state, then the people can reward the state for efficient economic management (by voting for the current leadership in elections) or penalize the state for operating an inefficient economy (by voting against the current leadership in elections). Efficient planning is rewarded, inefficient planning is penalized. Thus, democracy ensures a constant re-optimization of resources and moves the socialist economy toward greater levels of efficiency. A democratic state is forced to serve the public interest or suffer the consequences.

As a corrollary to this argument, socialists claim that inefficient planned economies can only exist for prolonged periods in undemocratic conditions, where the people cannot reward or penalize the state for its performance. Historically, the socialist countries have been more inefficient and poorer than their neighbors.

Furthermore, the majority of socialists find the notion that companies serve "the public interest" outright laughable. They argue that the profit/loss motive encourages companies to cut costs and raise profits in ways that do much more harm than good to the public. For example, a company will try to deceive the public in any way it can, and as often as it can. A company will also try to get the maximum work from its employees for the minimum amount of money, keeping wages as low as it can. And shops will try to keep prices as high as they can. Yet we can buy our food cheaply and obtain much higher wages than those living in socialist countries, because of competition. If an employer pays me too little, any other employer has the incentive to offer me more etc. until some employer has offered me the pay (almost) equal to my productivity. If the employer would pay me more than that, I would cause him/her loss.

Finally, since the rich have more money than the poor (and therefore there is more profit to be made in serving the rich rather than the poor), capitalism encourages companies to cater to the interests of the rich and ignore the needs of the poor. This can be rephrased as that the rich can buy more than the poor. However, the poor in capitalist countries are much better off than the average people in socialist countries. E.g., the poor from the U.S. do not escape to Cuba, Laos, China, North Corea or Vietnam but vice versa. Thus, in a capitalist economy, the rich may be better off than the poor, but the poor are better off than in a socialist country - particularly if you compare to a country which has been socialistic for a long time.

For example, drugs companies have little incentive to produce drugs to cure diseases such as malaria, which primarily affect poor countries that cannot afford to buy them, but those same companies devote huge resources to developing drugs for the relatively trivial complaints of the rich western consumers who can pay. In a nutshell, the profit/loss motive encourages companies to serve the interests of the rich more than the interests of the wider public. However, malaria is no longer a problem in Europe but it was through the 1500-1800s when Europe was poor due to the lack of liberal market economy. The critiques of socialism claim that if the African countries would give up socialism, they would become richer as do the Aasian countries that did, and they would get rid of malaria too. Moreover, during 1900s, the capitalist countries produced roughly 50 times as many new drugs as the socialistic countries, and these drugs have caused enormous benefit also for the poorest countries in the world.

Another argument can be seen in an article published by the Socialist Party (England and Wales), claiming that the profit motive inherently puts capitalism at odds with ecologically sound policy. (http://www.socialismtoday.org/69/green.html). This claim, however, is in contrast with reality: in capitalist countries the environment is, in the average, in a much better shape and much healthier than in socialist countries, and much worse environmental crimes happened in the Soviet Union than in capitalist countries. Since many countries in the Eastern Europe gave up socialism, their people have started to enjoy a better and healthier environment.

Finally, historical data strongly suggests that socialism leads to inefficiency and poverty. For example, there has been no wide-spread famine (hundreds of thousands or millions dead) outside socialistic countries since 1918. Current examples of famine are communistic North Corea and socialistic Zimbabwe, where food production declined rapidly and caused wide-spread malnutrition when president Mugabe socialized several farms. Other recent examples include Ethiopia, Mosambique and Somalia. In China and Soviet Union, communism has several times caused starvation leading to millions of deaths.

Private Property

Another defect of socialism, according to its detractors, is its disregard for the role of private property in creating incentives that foster the sustainable use of resources. This idea is the so-called tragedy of the commons.

The tragedy of the commons, in its narrowest sense, refers to the situation of certain grazing lands communally owned by British villages in the 16th century. These lands were made available for public use (or, more precisely, the use of those with rights in that common land). According to Garrett Hardin and others, because each individual had more of an incentive to maximize his (or her) own benefit from this common land than to be concerned for its sustainability, the land was eventually overgrazed and became worthless. (However, studies by C.J. Dahlman and others have largely refuted the claim that any such tragedy actually occurred. Access to the commons in the 16th century was constrained by a variety of cultural protocols and was far from equal. See Tragedy of the commons for further discussion.)

The line of argument is that when assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property is said to create incentives for conservation and the responsible use of property, public property is said to encourage irresponsibility and waste. In other words, the argument is that if everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it.

There are several socialist counterarguments to this. First they might take a different view of human psychology, a view of motives as depending more on the specifics of nurture and education than on an underlying soulist or genetic nature. In this context they might contend that the "tragedy of the commons" is only the result of the nurturing of children in the present capitalist society, and that the nurturing of children in a future socialist society will lead to a cherishing of public property. For some reason, this "Homo Sovieticus" argument did not work in the Soviet Union nor in other socialist countries.

Socialists further point to the free will that they believe is inherent in every human being and to the variety of social structures that have existed in human history, using them to support the claim that no type of behaviour is fixed in stone. Of course, the same argument could be used for or against any social structure: "It has always worked to the opposite in the history, but it might yet work this way in a better realization".

Another socialist counterargument is that some things are almost inevitably commons, notably the quality of the physical environment. While the past and present communist states have an even worse record than capitalist states in this respect, many socialists today would argue that was due more to their non-democratic nature than to their socialist aspects and that, in principle, a democratic system of planning could achieve appropriate shared management of this inevitably shared resource. In actual practice, this is even what many otherwise capitalist societies have chosen to do , imposing government regulations to restrict air and water pollution. (Paul Burkett makes a specifically Marxist case for socialism as being better able to address the issue of managing the environment in an article "Ecology and Marx’s Vision of Communism" in Socialism and Democracy, Vol. 17, No. 2 [6].)

There exists a contrary body of theory on free-market environmentalism, arguing that the most effective direction of reform is continued privatization of the commons [7] On the level of practice, the USA, and some others, have experimented with market solutions in the form of emissions trading. Such trading has certain aspects that are more socialist than capitalist, since it uses an artificially created market in which a government decides the number of emissions credits that will be in circulation and the rules under which they may be traded.

Lastly, there is a body of thought, often linked to cultural anthropology and to modern institutional economics, that recognises that constraints must exist to prevent the private overuse of resources. However, this perspective contends that alternative institutions than private property might well be just as effective or more effective in meeting those goals and better suited to meeting social goals. This was the belief of many early Bolsheviks, particularly Georgi Plekhanov, who evoked this idea to make his case that a socialist state would need regulations. The arguments of Hayek and von Mises target this claim more directly.

Further Reading

  • Market Socialism: the debate among socialists, ed. Bertell Ollman (1998) ISBN 0415919673
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