What’s it: Socialism is a social, political, and economic philosophy that advocates for collective ownership of the means of production. Socialism and communism are two philosophies that are currently considered left-wing economic thought as opposed to capitalism.
Unlike communism, under socialism, the government recognizes private ownership, but only in less strategic sectors to the economy. Meanwhile, for strategic sectors, the government controls them. Long story short, under communism, the government had absolute control and intervention over economic resources, whereas, under socialism, control was looser.
Meanwhile, such intervention does not exist in the capitalist system. While private ownership of property is fully recognized, the government has a limited role to play. In fact, for its purest form, Laissez Faire, the government did not intervene at all.
A brief history of socialism
Socialism developed as a critique of the negative excesses of individualism and liberal capitalism in Western Europe. During the late 18th-19th centuries, they operated under a capitalist economy and experienced rapid industrial production and economic growth. It created several wealthy individuals and families.
On the other side, those who are less fortunate fall into poverty. As a result, economic inequality is growing.
Early socialist thought stems from thinkers such as Robert Owen, Henri de Saint-Simon, Karl Marx, and Vladimir Lenin. The last one, Lenin, then implemented his socialist ideas by encouraging the Bolshevik Revolution of 1917 in Russia.
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Today, the failure of the socialist system of the past is starting to produce a new paradigm. Its implementation was less rigid following the failure of socialist central planning in the Soviet Union and Maoist China during the 20th century.
Many modern socialists have adopted some market principles which we call market socialism. An example is China’s current economic system, which combines the state and private sectors. Unlike other market systems such as in the United States, China government still has a dominant role. It is the highest command in the economy.
Apart from China, some examples of socialist countries are Cuba, Laos, and Vietnam.
Characteristics of socialism
- The government makes all production and distribution decisions under a purely socialist system. Individuals depend on the state for everything, from food to health care.
- The government determines the level of output and the prices of goods and services. Not only in production, but the government also takes over and regulates trade, capital flows, and other resources.
- The state recognizes private ownership, but in part, that is not economically strategic. In contrast to capitalism, the private sector has the means of production and the right to make a profit in various sectors of the economy.
- Socialism allows shared ownership of resources. And, central planning provides for a more equitable and fairer distribution of goods and services. Socialist goals are not for profit, but for a fair distribution of wealth and material resources among all people.
- Markets tend to operate less competitively. Low level of competition due to government control.n Also, the motive of some businesses is mutual benefit, not shareholder profit.
Two types of socialism
Within the concept of economics, socialism falls into two main categories:
- Planned socialism
- Market socialism
Planned socialism combines central planning with public ownership and co-management of the means of production. In this case, through the central planner, the government makes decisions regarding the production and distribution of goods and services.
Market socialism combines co-ownership with market mechanisms. The economy relies on market mechanisms to make decisions on the production and allocation of goods and services. The private plays a significant role in the economy, together with the state sector, instead of depending on the central planner.
The government takes a strategic role in the political aspect. On the economic aspect, the government forms a state company and operates like a private capitalist company. They usually focus on strategic sectors such as banking and utilities. China and Vietnam are two examples of countries that have adopted the market socialism model.
Pros and cons of socialism
Proponents view socialism as containing several advantages such as:
- Promoting equity. This contrasts with capitalism, where the system is unable to provide sufficient subsistence for the lower classes. They argue that the owners of capital are trying to keep profits for themselves. It leads to the oppression of those who are economically weak.
- Reducing worker exploitation. According to their respective contributions, workers have the means of production, so they are entitled to production profits.
- Equal economic access. Socialism provides equal access to health care and education for all without discrimination. The government also creates an equal playing field for everyone.
- Eliminating poverty. Mutual benefits become the primary motive for carrying out economic activities, providing higher opportunities for those who are economically weak.
On the other hand, the supporters of market capitalism oppose socialism because it contains the following weaknesses:
- Inefficient allocation of resources. The economy does not produce the best way to allocate resources because of weak competition.
- Ignoring human nature. This system assumes that all people have the same thoughts and goals, namely the common good. Of course, that ignores the reality that not everyone is good; some are evil and greedy.
- Raising political corruption. Bureaucrats are often concerned with the benefit of themselves and their colleagues. It leads to abuse of position, resulting in political corruption. Instead of producing equity, this situation produces more poverty.
- Low innovation. Socialism does not give more credit to one’s success or entrepreneurship. That reduces the incentive to be more innovative and produce better.
Socialism and capitalism seem contradictory. However, most capitalist economies today have some socialist aspects. Likewise, some socialist countries have also adopted several capitalist concepts.
The combination of the elements of a capitalist economy and a socialist economy forms a mixed economic system. And today, most modern countries operate with mixed economic systems; the private sector and the government both play a role in the economy. Some countries may be more inclined towards socialism, such as China and Cuba. In contrast, others take a larger portion of capitalist concepts such as the United States and Britain.