Pros and cons of socialism

There are different forms of socialism but for this blog will use the form of democratic socialism advocated by Socialist parties in Western Europe. For example, Nordic countries where government spending is between 40-50% of GDP. This brand of socialism believes in:

  • Redistribution of income and wealth through a progressive tax system and welfare state.
  • Ownership of key public sector utilities, such as gas, electricity, water, railways.
  • Private enterprise and private ownership of other industries.
  • Free health care and free public education provided by direct taxation.
  • Support for trade unions / minimum wages/labour market regulations to protect workers
  • Government regulation of monopolies, housing market, environment.

democratic-socialism-pros-cons

Pros of socialism

  • Reduction of relative poverty. A welfare state which provides a minimum basic income for those who are unemployed, sick or unable to work maintains a basic living standard for the poorest in society and helps to reduce relative poverty.
  • Free health care. Free health care at the point of use means everyone is entitled to basic health care. This increases the living standards of those who cannot afford to pay private doctors. By improving the nation’s health it also contributes towards increased labour productivity and higher economic growth in the long-term. In the US, there is no universal health care and uninsured workers can slip through the net and either not be entitled to health care or go bankrupt trying to pay bills. According to CNBC (2019) ‘[in the US], An estimated 530,000 families turn to bankruptcy each year because of medical issues and bills.]
  • Diminishing marginal utility of income. From a utilitarian perspective, a redistribution of income and opportunity from the very rich to the very poor can increase total utility [happiness] in society. A millionaire who pays a marginal income tax rate of 50% still has the ability to buy most goods they need. If an unemployed person gains an extra £50 it leads to a very large increase in utility because they can afford to buy basic necessities. See: diminishing marginal utility of income/wealth
  • A more equal society is more cohesive. A society which has equality of opportunity and limited inequality is likely to be more cohesive. If people perceive they live in a very unequal society – exploited by monopsony employers and earning significantly less than their bosses, it can lead to frustration and resentment. If everyone feels they have a fair stake in society, it can help create a more harmonious society where workers are committed to the success of the firm which they work.
  • Socialist values encourage selflessness rather than selfishness. Capitalism encourages attitudes to make profit – even if it is at the cost of other individuals or the environment. A socialist society does not pursue profit as its highest goal, but social cohesion and the common good.
  • Benefits of public ownership. The benefit of public ownership is that companies can be run in the public interest rather than just for the benefit of shareholders. For example, industries like railways and water have significant externalities, which are ignored in a profit-oriented company. Public ownership of water and the railways allows the companies to target goals such as long-term investment, low prices for the consumer and improved safety.
  • Environment. An economy which is regulated to work towards the long-term welfare will place a higher value on environmental concerns, such as limiting pollution – even if it lowers profit.
  • Reduced hidden taxes. An economy with no public health care will have lower tax rates. However, individuals and firms will pay for health care in a different form. In the US both firms and individuals pay significant sums for private insurance. Therefore, although there is less tax, there is the ‘hidden’ tax of private health insurance. Furthermore, because the US health care system is for-profit with fewer constraints to limit spending, the US pay significantly more on health care (17.6% of GDP) than other countries (e.g. UK 9.6% of GDP) (See: Health care spending)

Cons of socialism

  • Lack of incentives. If an economy has high rates of progressive taxation, it could cause disincentives to work and setting up business. Entrepreneurs may feel that if the government is taking a high percentage of their profits, they would prefer not to take the risk or work abroad. In the modern world, it is easier for the super-rich to live abroad in tax havens and free-ride on others who pay tax. If tax rates are too high, they can be self-defeating and fail to significantly increase tax revenues. The Economist states that:
    • “Ms Ocasio-Cortez has floated a tax rate of 70% on the highest incomes, but one plausible estimate puts the extra revenue at just $12bn, or 0.3% of the total tax take” – Millenial socialism, (2019)
  • Government failure. In an ideal world, the government would be successful in regulating firms, labour markets and running public industries. However, government intervention is prone to government failure and an inefficient allocation of resources. For example, labour market regulations such as high minimum wages or maximum working week could lead to unemployment and a lack of flexibility which firms need to deal with a sudden increase in demand. If firms are highly regulated, it is an extra cost which may discourage investment and lead to lower economic growth.
  • Welfare state can cause disincentives. If a welfare state is too generous, it is argued it may create a disincentive to get a job and therefore it can reduce the labour force and individual effort. See more: Poverty trap
  • Powerful unions can cause labour market antagonism. Ideally, socialism aims at a more harmonious society. However, if the socialist policies are geared towards strengthening trade unions and aiming for perfect equality, it can lead to antagonistic labour relations with a ‘them and us’ mentality – workers against owners. This attitude can cause time lost to strikes and unproductive factories. For example, in the 1970s, the UK labour market was characterised by poor labour relations due to distrust between unions and owners of companies. Even public ownership is not guaranteed to solve industrial relations. The ownership doesn’t matter to workers if they feel they are getting a bad deal from their government employers.
  • Rationing of health care. In a publically-funded health care system like the UK, doctors usually face greater financial constraints, some non-urgent operations will be rationed and there are longer waiting lists than in a private system.

Related

Tejvan Pettinger, Oxford, UK, www.economicshelp.org, 13 Sep 2019

29 thoughts on “Pros and cons of socialism”

  1. I agree with Michael. The positives were exaggerated. Socialism has not worked anywhere in the world.
    We must not allow it in our country. Please remember this when you vote. Do not allow socialism in the United States of America. Please Keep America great. Thank you.

    Reply
        • Well, a majority of democrats that I know don’t believe in extreme-socialism. But there are several factors we agree with. A healthy mix of capitalism and socialism is the best solution for our country which is not as great as you make it seem. Several economic safety nets for those who need it will benefit greatly, so I suggest thinking about the greater good of EVERYONE, not just yourself.

          Reply
          • Spoken like a true “Socialist”! If you have a “safety net” you don’t walk the rope as carefully-or not at all. Nobody would need it if everyone worked to provide for themselves!

      • Free market economies
        And most people in those countries have seoerate health care from the state provide due to inefficiencies
        Grass ain’t always greener, don’t believe everything you read

        Reply
    • There is nothing great about a country where there is high unemployment, high rates of poverty and homelessness in addition to a very large percentage of the population that can’t afford reasonable health care.

      Reply
      • Yes!!! You are absolutely correct. We are now a third world country, as there is nothing great about homelessness, filth, hunger, and lack of medical sickness care. I believe in the Robinhood philosophy. Take it from the extremely rich, and redistribute it to the poor, and lower middle class. Nobody should be forced to suffer in poverty, and there are those who have way too much, and their money is just sitting in the bank, or wherever they hoard, and stash it.

        Reply
        • I might add that they worked for it too! I stood on my feet for 33 years….day after day and taught school. I put myself through college too get a decent job. I don’t feel that I owe ANYTHING to the guy who is sitting on his butt with his hand out! Sorry!

          Reply
          • That was a very poor, very exaggerated statement, given the facts and actual discussion at hand.

  2. The best way to learn about socialism/communism is to talk with those who’ve emigrated to The USA. There’s a reason that people from all those so-called wonderful socialist countries want to come to our evil capitalist society.

    STAY WELL, SAFE, FREE & BRAVE!

    Reply
    • please don’t migrate from socialist countries, They migrate from dictatorships, poverty, ever increasing taxes, poor health care and homelessness.

      when folks migrate to the USA, we give them benefits that the middle class cannot afford. tuition for college and healthcare, subsidized housing and food.

      The middle class can barely afford health care and private business owners have reduced benefits so much that health insurance and retirement are only a dream.

      I suppose we wont need retirement if we can not get healthcare.

      Nice plan Washington!!

      Reply
  3. Denmark is a lot smaller than the U.S. so can be managed better under Socialism. Their citizens are basically non-diversified in national backgrounds, race, religion, etc. as here in the U.S. so they pretty much think along the same lines as each other. America is a diverse nation with many different levels of how each individual wants to live his/her life. Venezuelans are suffering under Socialism: no jobs & digging for food in garbage trucks.

    Reply
  4. This nation was founded on people having freedom! The idea that the government knows best is scary. We already have a problem with politically curropt and self serving politications who think they are above the law. Keep America free and government out of our lives.

    Reply
  5. Plain and simple. Socialism weakens a country. Forget about corrupt politicians, unions, or any of the 900 other negatives. Look at Venezuela and how different countries like China and the USA have complete and utter control over their industries. I’d love for it to be successful but checks and balances won’t work when it comes to socialism.

    History tells us that.

    Reply
  6. I have no clue really about this subject matter but trying to understand it better . I hate politics . But I believe there are way to many rich people- executives i call them and I believe there are way too many people who work their ass off and don’t get paid well at all . Government is too controlling . But some of those are paid well and earned good money because of their higher education . But their should NEVER be any jobs that pay so low that you can’t afford a place to live ( WRONG ) . We need more middle class

    Reply
  7. I’m about as broke as you can get and still get by and may be its just the American in me but no one owes me anything you work hard to make your way in life and just cause someone has made a big money in his life why should he have to give any of that to someone who hasn’t?? Plz make me understand that!!!!

    Reply

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