For my first post, I want to tackle one of the most misunderstood terms of modern American history, socialism.
Socialism is a term which gets thrown around a lot, especially by the political Right but without any real idea of its meaning.
Now in this past year, there has been a sudden surge in curiosity about the concept of socialism thanks in no small part to Bernie Sanders, the independent senator from Vermont who is running for Democratic Presidential Nomination of 2016. Sanders describes himself as a “democratic socialist” – a dubious term given the policies he has proposed, which is a topic for another post perhaps – which has driven many to research the term. Mother Jones recently reported socialism was the most searched word of 2015 with a 169% increase in searches on the Merriam-Webster website since 2014. One problem I have is that this is the worst resource one could possibly use to learn about socialism. Their inaccurate definition reinforces many of the misconceptions people have on the topic. It’s as though folks at Merriam-Webster never bothered to do any research and made no effort to capture at least of the nuance the term. Merriam-Webster’s definition is full of inaccuracies and missing information. Let's take a look.
Merriam-Webster simple definition:
“a way of organizing a society in which major industries are owned and controlled by the government rather than by individual people and companies.”
The first half of the definition is accurate in that government ownership is one form advocated by socialists. The second half is completely wrong.
Merriam-Webster full definition:
1: “any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.”
Again, only half right.
2a: “a system of society or group living in which there is no private property.”
Close, but not exactly; it matter how you define private property here.
2b: “a system or condition of society in which the means of production are owned and controlled by the state.”
This is basically restating of the simple definition minus the collective part.
3: “a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done.”
Definition 1 is a little more on the nose, but the emphasis on government ownership here is misleading like the simple definition since government ownership is also collective in a democracy. A more clarifying term is public ownership. 2a, again, is leaving out a lot of information and private property is not what you think it means. When we talk about the abolition of private property, we are not talking about your possessions, we talking about property such as a land and resources specifically used for production. And no one is really talking about the abolition of private property until we get to communism. 2b again emphasizes state ownership when that is not the case that socialists advocate only state ownership, they advocate collective ownership. First part of 3 is accurate, but the second part is not. While Marxist theory does consider socialism as a transitional system between capitalism and communism, the distribution is not necessarily based on the labor theory of value, although some argue that it should be but then those people likely don’t understand the labor theory of value.
Before we dive in, a couple things when need to disentangle from the discussion: First, many Americans think socialism and communism are the same thing, they are NOT. They are really separate beasts. The confusion is understandable given the long history of propaganda by the U.S. against these ideologies during the Cold War. They also tend to be nebulous terms as they have evolved over a great deal of time and have many off shoots of thought and debate which can be confusing, but this is true of the concept of capitalism as well (a term coined by Karl Marx himself). If you asked average Americans: “can you define capitalism?” you would no doubt get an incoherent definition also.
Second, abandon any notions of socialism - or communism for that matter - based on what you think you know about the political and economics structure of China, Cuba, and the former Soviet Union. These countries were socialist (communist) in name only and have never effectively practiced a true form of socialism (communism). One could argue that the Soviet Union was some form of state socialism, but, as you will learn, democracy is a central component of socialism. The totalitarian tendencies of the Soviet regime under Stalin obliterated any democratic component of their political system, which is a central component of a communist society. Understand that if communism had truly been achieved, you would have seen a "withering away of the state" as Marx and Engels said in the Communist Manifesto, not the centralization of power we witnessed instead.
Finally, one should shed any conception of socialism as being purely about central planning. Although central planning is an important concept in socialist debate about how best to allocate resources more equitably, it is a means to an end and is not necessarily requirement to achieve a socialist economy. The reality is that there is a level of central planning practiced by every country, even in the U.S. For example during World War I, the Federal Government used centralized resource allocation and created a number of new agencies, such as the Food Administration and Railroad Administration, to direct economic activity in certain sectors to help the war effort. Even today, the government uses directs significant amounts of funding into R&D through the Department of Defense and through the Food and Drug Administration. Many of the products sold in the private sector are the result of federal R&D allocation which is responsible for half of all R&D conducted in the U.S. It is possible to take central planning to an extreme where is is counterproductive, but most countries fall on spectrum. It is not a binary choice between market allocation and centrally planned allocation. Most stable, especially developed economies, have a healthy mixture of both.
An economy that is 100% centrally planned means all resources, production, and distribution are planned out by a single institution, usually the government. However, since central planners are not omniscient, the practice tends to be inefficient due to a mismatch of needs and wants resulting in waste. And the larger the population you are planning for, the more waste there tends to be. As you divide the population into fractions which are centrally planned, you move down the spectrum until eventually you get to the point where every individual is deciding for themselves what to produce and what to consume. As you move down the spectrum, markets start becoming useful. Individuals then seek out through markets the resources, goods, services, they want or require. If one has a demand for a good or service and another is willing to supply it, then you have a market.
However, you rarely have individuals producing separately. Being the social species we are we learned to work together to produce goods collectively, which requires a modicum of planning does it not? Assuming there is a sufficient number of individuals who desire the intended product to be produced, which is more or less what we think of as the market today. Think about it, Apple has to centrally plan how to produce its iPhones and iPads for consumption. Lucky for them they have a strong collective demand for their products, so there is not a lot of guesswork required when planning how many to produce; it’s more a matter of not having enough resources since they seem to sell out with every new model. The point here is the U.S. economy is still centrally planned, it just is far less centralized than what we have seen in other countries.
When we talk about capitalism vs socialism, what we are really talking about the distribution of the means of production. In a capitalist economy, the means of production (capital and resources ) are owned by individual capitalists who invest and take risk with their own or another’s wealth to form an enterprise engaged in producing goods and or providing services. Capitalists keep profits from such enterprises and pay workers only for their labor. Since capitalists get to keep the profits, inequality is a natural result of the system without redistributive intervention. Fundamentally, what we are talking about when we discuss socialism is broadening the distribution of ownership of the means of production. This is the central element of all socialist thought. Where the various iterations of socialism diverge is on how best to achieve this end. Do you achieve it through a revolutionary Vanguard Party which takes over the state and forms a dictatorship which establishes a socialist state? Do you achieve it through solely democratic means? Should the state be involved at all? How do you incentivize the transition? And what about after you have socialist economy. Do still have markets? What concentration of central planning is needed if any? Do we still use money or some other form of exchange? These are questions where the various forms of socialism begin to branch out. So it is entirely possible to have socialism and a complete market-based economy, they are not mutually exclusive. It is possible to still have money and possible to have no central planning by the state. The only distinction between capitalism and socialism is the distribution of social ownership.
Social ownership comes in a variety of forms which includes, but is not limited to, worker ownership, cooperative ownership, state/municipal and public ownership. I think there are few who would argue against employee ownership or cooperatives, and most understand how they work. Employee ownership is pretty self-explanatory. In a cooperative, stakeholders typically pay into the enterprise and all profits or gains are shared equally among them. State ownership and public ownership is where there is the most controversy and misunderstanding take place.
In a totalitarian regime or state, it is possible for you to have state ownership, but not public ownership. Public ownership means it is for the benefit of the public and accountable to the public in some democratic fashion. Public utilities are accountable to the municipality that they service. In Cuba, for example, all utilities are owned by the government controlled by the Castro regime, a dictatorship. The utilities exist for the benefit of Cubans to provide them power, but they are not accountable to the people. If the utility is not being run properly or there is corruption or price gouging, there is nothing Cuban people can really do except appeal to the dictatorship and hope it will be benevolent. They can complain to the regime, or local governor of the municipality, and maybe they will take some action to rectify the situation, but ultimately Cubans do not have any control or recourse. That is not the case for public utilities in the U.S. In the U.S. our public utilities are accountable to its municipality and the constituents of the municipality. Indeed, Americans don’t seem to grasp just how much of our economy is socialist already.
According to the American Public Power Association, publicly owned utilities account for 60.9% of the total of electricity providers. Cooperative owned utilities own 26.5%. Only 12.3% can be considered private providers. Employee-owned businesses as of 2013 accounted for 12% of the private sector businesses, and are expected to continue to grow in the next decade. They have demonstrated resilience even in the face of recession with over 66% either growing or staying the same in 2009, the worst year of the Great Recession. According to a 2013 report by the National Cooperative Business Association, there are 29,000 cooperatives in the U.S. and 1 in 3 Americans are members of a co-op. It's worth noting every financial institution that calls itself a credit union or mutual company (e.g. Liberty Mutual Insurance, Mutual of Omaha, State Farm Insurance, Nationwide Mutual Insurance Company, etc.) is technically a co-op since customers are shareholders in those businesses. 92 million people bank with credit unions and 233 million were served by co-op owned and (or) affiliated insurance companies. Employee ownership, cooperative ownership, public ownership, these are ways to expand ownership.
The expansion of the ownership of the means of production, or socialism, has been happening since the inception of the United States. The only thing that has really changed is what we define as the means of production, which should be really thought of as any component(s) of an enterprise engaged in providing a service or good for consumption.
Aaron Medlin is a PhD student at the University of Massachusetts Amherst studying macroeconomics of private debt, monetary economics, international finance, and comparative economic systems.