Chapter 23 – Comparative Economic Systems Section 2 – Socialism

What is Socialism? Socialism – the economic and political philosophy that wealth should be fairly distributed through a society. Public ownership of the factors of production Politically they may be democratic; economically they depend on the government doing the centralized planning. Reject individualism and competition for profit that underlies the capitalist system. Instead, they emphasize cooperation and social responsibility.

The Industrial Revolution Most of current socialism began in the 19th century with the spread of the Industrial Revolution. Many people upset by the 16 hour days in unsafe conditions for low pay, with small children working alongside parents. Living conditions of workers poor. Karl Marx (1818-1883) is the father of modern socialism and was the most significant critic of capitalism during the 19th century. In 1848, he wrote The Communist Manifesto along with Friedrich Engels. Told workers throughout Europe to free themselves from “capitalist enslavement.” Marx believed there was a fatal flaw in capitalism – he believed that the proletariat (workers) were treated so badly by the bourgeoisie (capitalists) that they would eventually overthrow the capitalist system. The book ended: “The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries, unite!” Socialists and Communists Communists believe that socialism can only occur by revolution Socialists believe that socialism can occur peacefully through the democratic process.

Characteristics of Socialist Economies Nationalization – placing businesses under government control. Some countries, like England, pay the former owners a fair price. Others take over without giving any compensation to the owners. Rarely do socialist countries nationalize all businesses. They usually pick sectors with lots of workers or a few dominant companies, like utilities, transportation, steel. Others remain in private hands. Many socialist governments want the workers to control the businesses. Sweden’s Social Democratic Party wants to transfer ownership of private companies to their workers. Public Welfare – providing for equal distribution of necessities and services, such as inexpensive health care, retirement pensions, free university education, housing for the poor. Countries that provide these services at little or no cost to the users are often called welfare states. People who lose their jobs or are unable to work often receive gov’t payments almost as high as their prior salaries. All people above retirement age receive gov’t pensions. Workers in Europe receive paid maternity leave and many weeks of paid vacation each year.

Characteristics of Socialist Economies, continued Taxation – in socialist countries, because of the cost of public welfare programs, taxes are generally higher than in capitalist countries, sometimes taking 50-60% of a person’s income. Graduated tax (?) so that it may be 90% of a wealthy person’s income. Centrally Planned Economy – government bureaucrats decide how an economy will develop over a given number of years. Set targets for production and direct investments into specific industries. Also called a command economy. Most modern countries have mixed economies. There is a range of being closer to a free market or closer to a socialist economy.

Socialism in Developing Countries Socialism is very popular in developing countries No tradition of locally or individually controlled industry – starting from scratch at trying to build industry Large industries often owned by foreign companies – by nationalizing them and putting local people in charge, leaders can get broad support If a leader wants to direct the economic efforts of a nation behind certain industries, easier to do if socialist than capitalist. Sometimes leaders ignore production of basic needs like food and consumer goods. This can cause unrest and political instability, which leads some governments to turn to authoritarian methods. Few developing countries have succeeded in implementing democratic versions of socialism found in the industrial world.

Pros and Cons of Socialism Fair to supply everyone basic needs like medical care Evens out inequalities that exist in capitalism Makes political democracy work better because there is economic democracy Gives workers and ordinary citizens more control over their lives – companies could not just close without consideration of the workers and community in the area. Cons Bureaucracy complicates decision making and cannot act quickly to take advantage of new technologies Invisible hand of market place is more efficient than the visible hand of central planning Individuals have less incentive to work harder because so much of their income is taken by the government and their basic needs are provided for anyway.