Socialism as an Economic Model

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Table of Contents

Introduction
What is Socialism
Socialism as an Economy Model
Social Democracy
Conclusion
Bibliography

Introduction

The advantages and disadvantages of Socialism are an ardently debated topic. In my opinion, Socialism is inefficient because of its failure to accept human nature. The examples of Socialist countries – the USSR, Cuba, and China – prove this statement right. Social Democracy, on the contrary, offers an effective model with the elements of both Socialism and Capitalism. The welfare of Nordic nations is evidence that supports this claim.

What is Socialism

Prior to studying the problem, it is necessary to give relevant to the term “Socialism.” In a general sense, Socialism can be determined as a way of social organization, in which main institutions, such as industrial facilities, educational institutions, and financial entities, are owned by the government and fully controlled by it rather than by individuals or private companies. Socialists consider that such measures are more beneficial for the wide popular masses than the capitalistic way of organization. The political theory and the movement that advocates such a type of organization are also called Socialism. There are, however, multiple branches and directions of Socialism as a movement; all of them are identified as leftist movements.

Socialism, despite popular belief, is not a product of the 20th century. Some thinkers claim that its origins can be traced back to the Bible. It is certain that Utopian Socialism emerged in the early 19th century, which is connected with the names of Henri de Saint-Simon, Charles Fourier, and Robert Owen. In the second half of the 19th century, Karl Marx and Friedrich Engels developed Socialism as a comprehensive political and economic theory. They presented Socialism as an alternative to Capitalism and proclaimed that a universal revolutionary wave would trigger the establishment of Socialism worldwide. Nowadays, Socialism is mainly associated with Marx and Engels, and their writings are often used to prove the benefits of Socialism.

The primary objective of Socialism is to give the means of production to the hands of the whole society instead of private hands. Socialism allows different types of ownership, except for the private one: state ownership, cooperative unions, and citizen ownership of equity, as well as various combinations of these types.

Socialism as an Economy Model

Socialism, in a sense, as proposed above, is connected with a quite deficient economy model due to the fact that it is based on wrong principles. Basically, the model offered by Socialism contradicts the principles of human nature. Socialism, because of its ban on private property, is an obstacle to incentives; blocking incentives, it loses an important stimulus to economic development. Therefore, with all its faults, Capitalism seems more beneficial for many people (Perry 1995, par. 1-10).

Aside from that, Socialism in its various senses has been tried by several countries located in different parts of the world, which were in different conditions when the Socialist model was adopted. To understand the efficiency (or inefficiency) of the Socialist economic model, it is necessary to study these examples.

The Soviet Union is probably the most popular example. It was the first country to apply Socialist principles to its economy. It is quite a notorious example, as it is known that the Soviet Union collapsed mainly because of the deficiency of the whole system. The economy of the USSR was extensive, and its flaws caused the constant lack of the most necessary products. Additionally, by the 1990-s, the country grew technically backward.

The means of an extensive economy could not solve that problem since the only means it possessed were connected with a wide mobilization of the workforce. This unprogressive measure worked in the 1930-s, but it was outdated by the times of Perestroika. Planned economy led to considerable disproportions in production: since the production was formed by state plans rather than by demand, the industry produced lots of unnecessary products while the necessary ones were limited. All these problems caused the dissatisfaction of the citizens.

Another well-known example is Cuba. The socialist economic model has adopted thereafter the revolution led by Fidel Castro. However, Socialist Cuba was supported (politically, militarily, and financially) by the Soviet Union for the most part of its existence. Due to the Socialist direction of its rulers, Cuba separated itself from the former partners and had to subsist on the oil from the USSR. After the collapse of the USSR, Cuba started a liberalization process and allowed some elements of Capitalism, particularly private property. Cuba still remains a poor country and heavily depends on Venezuela in the oil supply (Mohammed 2014, par. 1-4).

China is quite an interesting example. At first glance, it provides evidence of the benefits of Socialism since this country is among the top countries in the GDP chart. However, the situation is quite complicated. Socialist standards were adopted under the rule of Mao Zedong, the founder of the Communist Party of China. The ruling of Mao left the country in a deep economic crisis. The economy was in stagnation. In fact, China’s way of becoming an economically developed country started with Deng Xiaoping, who adopted a new kind of thinking and allowed market principles to shape the Chinese economy.

Therefore, the example of China does not prove Socialism a feasible economy, as well as the other mentioned examples. Socialism, with its government-controlled economy and a failure to motivate people, does not work to make a country economically stable and developed.

However, it is possible to use the ideas of Socialism in such a way as to make them beneficial for a country. One of such ways is called Social Democracy. Social Democracy is far more liberal than Socialism and took the best part from it – its strive for social justice and the appointment of the government as a guard of this justice. It is necessary to mention, though, that in the field of economy Social Democracy uses Capitalist principles.

Social Democracy is a kind of a peaceful union of Capitalism and Socialism. This ideology promotes the general control of the government over the economy but not to the extreme of the planned economy. Economy functions by market principles, private ownership is allowed, and the incentives are taken care of. Social Democratic principles allow creating an egalitarian, welfare society. This model was adopted in some contemporary countries, particularly by North European ones. These countries have developed their principles during the second half of the 20th century.

To understand the advantages and disadvantages of Social Democracy, it is necessary to study the examples of the countries, which adopted it. Usually, these countries are studied jointly as Nordic countries, and the model they adopted is identified as the Nordic model or Nordic Social Democracy. Among these countries are Sweden, Denmark, Finland, Iceland, and Norway.

Nordic countries promote social mobility and individual autonomy, which are included in the so-called welfare state program. In the sphere of industry, employers and employees have to negotiate about the labor conditions and governmental labor policy. The market is free, the production regulation is very little, with the allowed (and encouraged) private ownership and highly secured property rights.

Unlike most purely Capitalist countries, Nordic countries provide their citizens with free education and healthcare, as well as pensions. In each Nordic country, more than half of the workers are members of labor unions. Labor unions possess sufficient unemployment. The other side of the coin is high taxes and a high level of public spending. This is the usual characteristic for the countries where the government controls many spheres (McWhinney 2014, par. 1-12).

In any case, Nordic countries are definitely a positive example. According to the World Happiness Report prepared in 2013 by the United Nations, the happiest people in the world are the citizens of Nordic countries (Gregoire 2013). They have remarkably high levels of GDP per capita, low levels of corruption, effective and available health systems, and high levels of social security. Therefore, this evidence proves Social-Democracy, an advantageous model.

It must be mentioned that the positive characteristics of Social-Democracy do not justify the ideas of Socialism. The success of Social Democracy is due to a wise combination of Socialist and Capitalist features.

Conclusion

Socialism promotes an ineffective economic model; it blocks incentives, which hinders economic development. The examples of the USSR, Cuba, and China support the notion that Socialism is ineffective. Conversely, Social Democracy allows combining Capitalist and Social elements to form a successful economic model. The example of Nordic countries proves this right.

Bibliography

Gregoire, Carolyn. “The Happiest Countries In The World.” Huffington Post. 2015. Web.

McWhinney, James E. 2014. The Nordic Model: Pros and Cons. Web.

Mohammed, Farahnaz. 2014. “Poverty in Cuba.” Web.

Perry, Mark. 1995. “Why Socialism Failed.” Foundation for Economic Education. Web.

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