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What Socialism Is and Is Not

Socialists are at a minimum committed to economic planning that goes counter to the operation of an economy in which private firms predominate and profits are distributed among shareholders and managers. A system of this kind necessarily perpetuates the class division between a wealthy minority and a propertyless majority. A capitalist economy, moreover, can only respond to “effective demand” backed by actual purchasing power. It operates for the benefit of paying customers only and does not recognize the existence of other people. In consequence it normally fails to satisfy basic material needs except in a roundabout way that is not to everyone’s taste. To put it crudely, the logic of the system entails the production of luxury goods for the few, rather than the provision of food, clothing, and decent housing for the many.

This is not due to the bad will or imbecility of those in control: it follows logically from the operation of the market. In an egalitarian community this would not happen, since all customers would have approximately the same purchasing power, but bourgeois society is not egalitarian. The result is that social inequalities are constantly reproduced and even rendered more acute, even though society grows richer and there is some rise in real incomes. The built-in automatism is such that those who start off with material advantages (including advantages in skill, training, and education) secure a disproportionate share of the social product. “The price mechanism rewards people according to the scarcity of resources (labor and property) that they posses, but it does not itself contain any mechanism for equalizing the distribution of scarcities. For justice in distribution we clearly have to summon the forces of the state.” 1

Taken by itself this is a democratic rather than a socialist line of reasoning. The distinction is important, and its neglect leads to some confusion. The systematic correction of built-in social inequalities by appropriate public action is an aspect of what has come to be known as the welfare state. In its usual formulation the “welfare-state” doctrine leaves the wage relationship unaltered. Under optimal conditions, Social Democratic governments based on parliamentary majorities are able to make the welfare state a reality, the classic case being the Scandinavian countries. Under somewhat less favorable circumstances, as in post-1945 Britain, they can still correct the worst inequalities resulting from the unrestricted operation of a capitalist price system. The obvious means to this end are taxation of the rich and the expansion of the public sector (education, health, and housing).

However important and beneficial, such arrangements fall short of socialism inasmuch as they do not alter the status of wage and salary earners, not even if key industries and public services are nationalized or municipalized. The wage relationship is rooted in the fact that wage and salary earners do not own the means of production, i.e., the instruments of labor. If they owned them, they would still have to work, but the profits would no longer go to the owners of capital. Anything that falls short of abolishing the wage relation has no claim to being described as socialism, although it may be a station on the way thereto.

It is sometimes argued that under continuous full employment the status of wage earners loses its degrading character, since employers have to bid for labor in circumstances where the workers (unionized or not) are in a position to dictate terms. But such conditions have never existed anywhere, save for brief and exceptional periods (generally during a war), and even if they were somehow rendered permanent by appropriate monetary management, this would not alter the fact that the profits of the enterprise would still go to the shareholders, who also benefit automatically from the steady march of technical progress. It follows that Socialists (as distinct from Social Democrats) cannot regard full employment and the welfare state as their ultimate goal.

Equally they cannot be satisfied with a kind of central planning that vests all authority in the government, notably if the latter is not democratically controlled. Full employment and central planning existed under Hitler and Stalin, the latter having also done away with private ownership in the means of production. But only Fascists and/or Stalinists were satisfied with the resulting state of affairs. Even without the monstrosities associated with these two regimes, the kind of central planning that vests all control in a political bureaucracy is unlikely to be efficient, and it is certain to be destructive of freedom.

If liberal laissez-fairists had no other competition to face, they could save themselves the trouble of trying to prove that capitalism will in due course make everyone rich and happy. People who have once seen a Stalinist or Fascist regime at work will go to great lengths to avoid having one imposed on them. They will even put up with slumps and unemployment, so long as there is a reasonable chance of getting back to normal. A certain minimal degree of economic planning is after all attainable even under modern corporate capitalism, and the social injustice that goes with the system is preferable to being shot or sent to a labor camp, or at best made to queue endlessly for a capricious supply of inferior goods and services. If socialism were to become permanently identified with the kind of life imposed after 1945 on Eastern Europe, few sane people would want it.

To balance the account it has to be added that while Communists tend to confuse socialism with state ownership, Social Democrats are in the habit of equating it with labor reformism and welfare policies. Both attitudes reflect short-term political options that may be inevitable, given the circumstances, but cannot serve as a suitable definition of traditional socialist aims. These aims may be unattainable, in which case democratic socialism will have to be written off, but it is just as well to be clear as to the meaning of what one is arguing about. The term “socialism” was originally coined for the purpose of designating a society in which the producers own their tools. Since under modern industrial conditions this cannot be done individually (the common error of liberals and anarchists is to believe that private ownership can be restored, whereas in fact it cannot, apart from consumer goods which by definition are not “instruments of production”), the only reasonable description of socialism is one that centers on common or social ownership. The distinction between state property and social ownership ought to be obvious: the former vests effective control in a political bureaucracy, the latter does not. If one feels in need of a summary definition, that offered by Dickinson in 1939 still seems the best:

Socialism is an economic organization of society in which the material means of production are owned by the whole community and operated by organs representative of and responsible to the community according to a general economic plan, all members of the community being entitled to benefit from the results of such socialized planned production on the basis of equal rights.2

The objection that such a community might be so poor “that life within it might be well-nigh intolerable”3 is valid in principle, but for practical purposes it has always been assumed that one is talking about an advanced industrial society, not about a return to primitive conditions. It is of course open to individuals to settle for monastic poverty if that is what they want, in which case comparisons with wealthier communities are unlikely to bother them.

If one adopts Dickinson’s formulation as a yardstick, one necessarily parts company with Schumpeter, for whom socialism is defined as “an institutional pattern in which the control over means of production and over production itself is vested with a central authority.”4 By this standard Pharaonic Egypt and Stalin’s Russia were both socialist societies. Schumpeter expressly excludes “guild socialism, syndicalism and other types”5 on the grounds that “Centralist Socialism seems to me to hold the field so clearly that it would be waste of space to consider other forms.” His distinguished contemporary Oskar Lange, viewing the scene some years later from the opposite political pole, agreed substantially that socialism signified state control and central planning. Although he spoke of “social ownership of the principal means of production”6 he was silent on the difference between state ownership and common ownership. In practice this amounted to equating nationalization with socialization—inevitable in post-1945 Poland and the remainder of Soviet-controlled Eastern Europe, but misleading from the standpoint of socialist theory.

The consequent tensions were duly illustrated by the events in Czechoslovakia where the reformers were treated as a potential threat by the Soviet autocracy and its Eastern European satellites because they tried to convert bureaucratic dictation into genuine social control. In practice this meant introducing a measure of democracy in the shape of workers councils, so as to counterbalance the hitherto unchecked power of the political bureaucracy in charge of the central planning apparatus. The latter being the mainspring of the state-socialist systems introduced throughout Eastern Europe after 1945, it is hardly surprising that the Czechoslovak experiment in 1968 was dubbed “revisionist,” as the rather more successful Yugoslav model had already been stigmatized years earlier.

For all its inadequacy when measured by socialist standards, electorates (if they are consulted) generally prefer modern, controlled, or “post-Keynesian” capitalism to both state ownership on the Soviet model and the laissez-faire system which periodically restores its equilibrium by way of gigantic crises and the wholesale waste of human and material resources through mass unemployment. Keynes had no social vision extending beyond the England of his day, but he did have an answer to the problem of unemployment. When accused of wanting to set the unemployed to work digging holes and filling them up again, he pointed out correctly that even if they were paid for doing nothing else, they would spend their wages on food and other necessities, thereby increasing the sum of real incomes. Keynesian economics are morally neutral and can be employed in the service of capitalism, socialism, or anything else. Keynes had the candor to admit this; witness his celebrated argument that socially wasteful investments may be economically useful:

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid-building as well as the search for precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York.

This elegant cynicism (a notable feature of the Bloomsbury set and its culture, of which Keynes was the most distinguished ornament) was merely frosting on the cake of economic reasoning. The argument itself was convincing enough, and once it had sunk in the practice of digging holes in the ground (largely for military purposes) was employed whenever growth rates threatened to slacken, or unemployment rose above a level judged politically tolerable. The incidental benefits of the new system were considerable, even taking into account the unsolved problem of inflation. But there was nothing socialist about the motor propelling the machinery. It was still the old competitive nexus based on the investor’s profit expectations. The chief difference was that the state now undertook to make up for inadequate investment on the part of capital owners.

  1. 1

    W.A. Lewis, The Principles of Economic Planning (London: Dennis Dobson, 1949), p. 12.

  2. 2

    Cited by H. Smith, The Economics of Socialism Reconsidered (London, New York, Toronto: Oxford, 1962), p. 113.

  3. 3


  4. 4

    J. Schumpeter, Capitalism, Socialism, and Democracy (London: Allen & Unwin, 1950; New York: Harper, 1950), p. 167.

  5. 5

    Ibid., p. 168.

  6. 6

    O. Lange, Political Economy, Vol. I, General Problems (New York: Macmillan, 1963), p. 81.

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