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)
    • Another example is the experiment of French President Hollande, who imposed a top rate of income tax of 75% on incomes over €1m, however, the tax raised only meagre sums as many sought to avoid paying and it was later dropped (1).
  • 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.
  • Difficult to remove subsidies/government benefits. Milton Friedman argued that that “nothing was so permanent as a temporary government subsidy”. A good example is farming subsidies. In the late 1920s and 1930s, US agriculture was in crisis so the Federal government agreed to give temporary support. However, over the years, government subsidies to farming in US has continued to grow. In 2019, US farmers got a record $22.4 bn in subsidies (NPR) Farming subsidies are not really seen as ‘socialism’ but it is a form of big government intervention giving money to a certain group.

 

Related

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

57 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.

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          • 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

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      • Comming from a European country leaning more on soscislism than the US for instance I want to say this. There is no magic solution. There are pros and cons. All these countries also have parties that are more capitalist or more to the left or mixtures that fall in between. We need that variety to keep ourselves in check and make us halt every once in a while to see how we are doing. To keep the tools in our toolbox variable so to speak, to be able to find common ground that helps run a country in a best way possible, both for the people and the economy. As soon as you start to believe that you have the magic solution you are in trouble. Flexibility and open mind as a whole is more likely for success. In my opinion anyway

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    • 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.

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      • 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.

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        • 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!

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

        • Yea well they also worked for that money!! And we’re motivated to get to where they are at .. how will it ever work by taking others hard earned money and savings and give to others who aren’t motivated to become better or motivated to work and save and find opportunities to rise to the top ??.. Because yea that’s going to help the greater good of the country right ?? Having lower class/middle class people showing no drive , motivation, eagerness etc to work and better themselves and family bc they have a govt. Always there to receive handouts .. where is the economic growth in that ?? Also do we want a country with a bunch of humans with no dignity , work ethic ,sense of pride knowing they got what they got because of their own doing and hard work .. I am far from rich and and grew up middle class and was taught you can have anything you want through hard work and dedication.. Remember no matter what your are upper or lower class , no matter how much money you have , the individual always has the tools to write or dictate how or where you want to be in life . It’s that some choose not to use educate themself or drive them self to be the best they can be .. It’s easier to blame others rathar than to put in time to get the same outcome

          Reply
          • Mario, I’m sorry but I disagree with most of your response, especially your statement, “Remember no matter what you are upper or lower class, no matter how much money you have, the individual always has the tools to write or dictate how or where you want to be in life.” That is simply not true.

            I am college educated. I’ve done research and presentations on this very topic. I also have learned that not everyone is given the same tools to get ahead in this life. Schools in impoverished neighborhoods are often given old text books with outdated materials and less funding for educational tools, such as tablets, learning software, and computers. I know a lot of lower/middle class people who are motivated, eager to work, and try to better themselves only to find themselves swimming in a sea of debt or just getting by paycheck to paycheck, while they work extremely hard everyday. When your student loans are so outrageous that your income is significantly decreased in order to pay them, and it takes many more years to pay off than it should for what you are earning, there is a big problem.

            Some people do not have the opportunity to rise to the top because they are taking care of sick loved ones or have some kind of life circumstance that severely hinders them from achieving monetary success. That does not mean they are not driven. It does mean that they have to work a lot harder than others to get there. Also, everyone is not afforded the same opportunities based on the color of their skin. White privilege is a very real thing.

            Another thing to think about is that we are not all entering life from the same starting point. What about the rich people who didn’t work hard to get to the top, but rather had a large inheritance? Do you just assume they were hard working or motivated? What about how Lori Loughlin tried to bribe her daughter’s way into college?

            I realize these are exceptions, as not all successful people are like that and not all poor people are motivated. My point is that the outcome is not the same for everyone, because the circumstances are different and the starting point is not the same.

            It is much more difficult to achieve success coming from poverty because there are many more hurdles to get through. In addition, poverty is generational and something that is extremely difficult to overcome. People are more focused on survival rather than success. That is also why you see so much crime in impoverished neighborhoods. Most of the lower and middle class people are not looking for a free handout, but rather the same opportunities and tools that are given to upper class and rich.

        • Are you serious!! Take money from people who have worked hard, saved their money & made something of themselves to give it to ppl who want to sit on their asses & live off the system!!! Wake up! Everyone has opportunities in this countries & if you don’t use the opportunities available to you then that’s your problem.

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          • Agreed, I feel like when people let the government pay all their checks it is contradictory to the ideals America was founded on.

          • I do understand where you are coming from but you will be surprised that most poor people given the opportunity will seek betterment. There are studies out there that show things like universal income would both help poverty and boost the economy. The reason why we tend to view poor people as lazy and undetermined is due to being taught the American Dream and that “anyone can make it”. While this is true to a extend those who start off with money are given an incredible lead. Also the other big reason why people view poor people as lazy is the fact our welfare programs are flawed because they encourage them to stay where they are at or lose those benefits.

            Also that most of the money that would be taken would be from people who earn millions or even billions of dollars a year. This allows them to assert control over are very own government due to them being able to throw millions to billions of dollars at people to make the common person’s life hard. I am noting say take all their money but people should have this kind of money at there dispose.

        • That’s the problem. How can you take hard earned money from a rich person who worked hard their entire life, and just hand it over to someone who doesn’t work and is a burden to society? If you take from the rich and give to the poor then the poor don’t have any incentive to better themselves. Before you know it everyone becomes “poor” so they can get the hand outs. Once the money runs out, there are no more rich people, we’re all poor and the economy is crushed.

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        • Agreed!!!! Deborah, I like the way you think. There is no reason why we should have the poverty level like we do in the U.S.

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  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.

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  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.

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  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.

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  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
    • I don’t understand why people demonize the rich. If it weren’t for the people who take risks and sacrifice their lives to build businesses provide jobs and an economy that would not exist without them. They do more for the country than the government does. Why do they owe you anything?

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  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!!!!

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  8. People who make millions in business do so because of tax loopholes that average citizens are not able to take advantage of. People should be allowed to benefit from hard work and ingenuity but tax laws should not unfairly benefit the rich while being overly burdensome on middle class and poor. Biden’s plan talks about raising taxes on the super rich not to redistribute wealth but for them to pay their fair share. They are benefiting the most from a capitalist system and percentage-wise paying the least because of unfair loopholes in the tax system.

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  9. I disagree with Constance, he or she is only thinking about themselves. Most homeless or poor people have tried to get jobs and worked hard to get a better life. But people like you want to keep their money all to themselves and not help the poor. Those poor people might even work harder than you for less pay. They should be given the correct amount needed to get back on their feet.

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  10. People care more about a freaking dog then they do human life. Sickening! There are people that have not been provided the same opportunities as you. I believe everyone that is able to work should work and contribute to society. The average person labor and support the top businesses, why the heck do I have to pay more taxes then a millionaire does. Look at AMAZON, PEOPLE buy and work for this company, so what is wrong with the owners to pay their fair share of taxes?

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  11. Well there are obviously more arguments for both sides, but he did put more information into the paragraphs about the negatives, he also listed more facts about them. Yall give off some small brain energy ngl. I mean bickering online, i would never

    Reply

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