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.

State socialism may be regarded as a perversion of authentic social ownership. State capitalism differs from it principally in that it retains private ownership of the means of production: typically in the form of corporate monopoly. Unlike private capitalism it acts systematically to promote employment, if necessary through the wholesale waste of public funds on armaments and other unproductive forms of expenditure which (unlike public housing) have the advantage of not competing with the private sector.

It avoids the waste of the free market, and it does not permit investments to be misplaced in the stage of development or to become obsolete in the stage of saturation. It can direct investments toward ventures which create new demands—Keynes’s “pyramids,” Tugan-Baranovsky’s tower of equipment, a huge defense establishment, or a “New Frontier”—and it may even balance inefficient production units against overproductive units.7

Although wasteful, the system is superior to “free” capitalism in that its built-in stabilizers enable it to even out the fluctuations of the trade cycle. Like state socialism it works best if there is little or no democratic control, although the formalities of constitutional rule may be preserved. Unlike state socialism it is burdened with the irrationality of having to conceal its planning apparatus behind a phraseology inherited from the age of “pure” market-economy capitalism. It also operates against the public interest by making the great monopolies the final arbiters of the key decisions which are invariably taken behind closed doors. Moreover, for all the rhetoric in which it is typically enveloped, the system functions most effectively if there is a moderate degree of unemployment, so as not to give undue bargaining power to the unions. Alternatively it may take the strongest unions into partnership, at the cost of steady wage-price inflation, the effects of which are mostly felt by the elderly, the unemployed, the unskilled, and the non-unionized sections of the salariat. This is what modern neo-liberalism amounts to in practice, which is why its social achievements rarely match the enthusiastic verbiage of its sponsors.

If one abstracts from the rather hollow phrase-mongering that surrounds it, the neo-liberal system is a capitalist economy which retains the market mechanism but employs the “countervailing powers” of state intervention to ensure a rate of growth substantially higher than the normal expansion achieved under a “free” system in which the propertied class retains full control over the economy and the government. Ideally the adoption of the “new economics,” by permitting a relatively rapid growth and near full employment, also makes possible a steady expansion of the social services. In practice this goal is usually sacrificed to other aims, unless political pressures become sufficiently strong to secure some diversion of resources to public sectors such as health and housing.

Under Social Democratic rule the balance of power shifts from the side of private enterprise and corporate management to organized labor. This is the justification for describing an economy of this type as “laborist,” even though the ownership of the means of production remains wholly or predominantly private. Much of the verbal confusion surrounding the British and Scandinavian variants of this system is due to the habit of equating laborism with socialism. What actually happens under Social Democratic management is a more or less steady expansion of welfare-state services designed to equalize the distribution of incomes. This process may, but need not, be accompanied by the nationalization of a significant sector of the economy.

Conversely, both nationalization and the expansion of social services may occur where Social Democratic control is lacking: witness the record of France and Italy since 1945. The same applies to central planning, which has indeed come to play a more important role in France than in Britain: the main impetus behind it being the long-established Saint-Simonian tradition of the French political and bureaucratic elites. This bias became important in an environment where state intervention to speed economic growth had been rendered respectable by the failure of classical liberalism, the rise of the wartime Resistance movements, and the temporary break-through achieved by the labor movement in 1945. Contrary to popular misconceptions, Keynesian theorizing had nothing whatever to do with it.

Neither has it accounted for the superior performance of the French economy compared to the British since about 1950. It would be truer to say that the French were favored both by their national tradition and by the fact of not having to bother about the “new economics.”8 The upshot has been to place centralized economic planning in the forefront of public debate in France, Italy, Britain, Holland, and Austria, where Communist or Social Democratic pressures were strong. Yet no one would describe the resulting pattern as socialist, save in so far as there has been a growth in the importance of central planning. The system in some respects now departs from the classical model of a society in which state intervention occurs only to facilitate the maximizing of private profit. The government, by enlarging the public sector, may set itself non-economic goals such as the equalizing of incomes, the financing of public health and housing, or the provision of cultural amenities. But in all essentials the economy still operates in accordance with market criteria, and it does so in the public sector no less than in the private. Budgets must be balanced, investments must be planned in accordance with profit expectations, and human needs for the most part are still satisfied in relation to the “effective demand” of paying customers. In a socialist economy, welfare services would be equally available to all at zero prices, the wage relation would gradually disappear, and claims arising from capital or property would not enter into the reckoning at all. Whatever falls short of such an arrangement is not socialism, even though it may be socially progressive in the sense of substituting social for economic (profit-and-loss) criteria.9

What has been said so far relates to production and to the social relations arising from the production process. This is the “classical” approach, common to liberals and Marxists alike. Historically, it is the outcome of a situation in which wealth-creation takes precedence over all other considerations, as it must do in a scarcity economy. Today this is still the case in most developed countries (let alone the undeveloped ones), which is why the topic of economic growth tends to be debated in terms of competing capitalist and socialist models. It is also the reason why “communism” of the Russian variety has become a misnomer for a system of state-enforced capital accumulation. In economically backward countries, capital creation and the efficient use of labor are overwhelmingly the most important issues. Even in a fairly advanced industrial society such as Japan it would be eccentric to discuss socialist aims without reference to economic scarcity.

The same, more or less, applies to most European countries and to the Americas, North and South. But in a theoretical excursion we are not obliged to confine ourselves to what is politically relevant. We can abstract from short-term considerations and inquire what a socialist economy would look like under conditions where the production process is taken for granted. We assume then that the economy, or the greater part of it, is socialized, i.e., that the principal means of production are publicly owned. On these assumptions, which are of course quite arbitrary, how does socialism work as a system of distribution?

If a socialist system of distribution is defined as one in which consumption is divorced from capital, so that all citizens have an equal claim upon the provision of goods and services, irrespective of property ownership, then clearly no such system is in existence in any industrially advanced country. It is sometimes alleged that such an arrangement corresponds to the higher stage of socialism (described as “communism” by Marx in 1875) when society will have become sufficiently wealthy to permit everyone to draw upon the common pool according to his needs. But a moment’s consideration will show that even at the lower stage, where people still have to be paid in accordance with their labor, it is possible to provide a number of basic services on the principle of equal distribution to all, irrespective of ownership or social status or personal merit. Even the most fanatical laissez-fairist will grant that criminal justice can and must be so dispensed, and he may also make a grudging acknowledgment to that effect in regard to public transport, sanitation, or the post office.

That this is in fact practicable, without any undue strain on the public sector, is taken for granted not only in Europe, but also in Canada, Australia, and New Zealand. If it appears problematic in the United States, the explanation has to do with the political system, not with lack of resources. When it comes to matters such as education, public and private claims may indeed conflict, in that freedom of choice may be endangered by uniformity arising from demands for equal access to all types of learning. Genuine equality is in fact possible only in a homogeneous community where cultural standards do not conflict so violently as to render social intercourse intolerable. This is among the reasons why relatively small and stable countries such as Denmark and Sweden have been pacesetters in education and in the equal provision of social services generally. But the relatively smooth and peaceful integration of hundreds of thousands of immigrants in contemporary Britain, France, and Holland can serve as proof that—up to a point determined by public sentiment—a democracy is capable of digesting an influx of newcomers without having to establish “separate but equal” treatment. If economic conflict as a source of political antagonism is ruled out, as on our assumptions it would be, the residual cultural tensions in such a society need not and doubtless will not fall to zero; but they can be held down to a tolerable level.

Let us now consider why even under relatively favorable external conditions—e.g., in Western Europe since the end of World War II—progress in the direction of socialism has been slower than was originally expected. The main reasons can be summarized under two heads: continuing economic scarcity, with the resulting pressure to place rational economic calculations first; and the reluctance of the electorate (including a majority of the industrial working class) to press on more rapidly toward genuine social equality.

As to the first, it needs no great effort of the imagination to conceive a state of affairs where noneconomic considerations have become paramount because all reasonable economic demands have been met or are in process of being satisfied. Unfortunately, such a state of things is not yet sufficiently general, even in the richest and most civilized countries, to remove the topic of economic growth from the agenda. And nothing less will do. Unless and until a majority of the electorate in a democratically governed country is prepared to do without a continuous rise in living standards (as conventionally interpreted), economic considerations will take precedence over social and cultural claims. In such an atmosphere the expansion of welfare services out of taxation is all that can be done by governments dependent on public opinion.

Genuine equality—the distribution of the “national dividend” according to criteria of need alone—cannot be attempted if the result is likely to be a significant decline in economic efficiency, a slowing down of growth, loss of export markets to foreign competitors, and a consequent fall in living standards and in the funds available for private and public consumption. For of course international trade enters into the matter. How should it not? If the balance of external trade acts as an economic pacesetter, any decline in relative efficiency will promptly make itself felt in the form of stagnation, unemployment, and other disagreeable consequences. The smaller and more highly specialized a country, the more likely it is to suffer from fluctuations in world trade, unless it manages to keep ahead of its competitors.

Success in this field is always uncertain, some countries benefiting from temporary advantages at the expense of others. If we stay with Western Europe after 1945, the outstanding success along neo-liberal lines has been the expansion of West Germany’s external trade, a performance paradoxically helped along by military defeat and the resultant ban on heavy and wasteful arms expenditure. That similar results can be obtained under Social Democratic government is attested to by the case of Sweden, once more a combination of good luck and good management, aided by specialization in the newer industries. One might also cite the corresponding examples of Austria, Denmark, Holland, and Switzerland, where the labor movement has contented itself with being a partner in a rapidly expanding capitalist economy, wage rates rising on an average no faster than output per head, so that prices have been kept relatively stable.

Under less favorable circumstances, e.g. in Britain, wages have risen appreciably faster than productivity, thus driving prices up more rapidly than among some of Britain’s main competitors. Apart from the inevitable damage to the country’s share of world trade (not to mention the stability of its currency), the result has been to associate laborism with inflationary price rises from which people living on fixed incomes are notoriously the chief sufferers. In the political vocabulary of the welfare state, laborism is equated with socialism, so that socialist theory is made to take the blame for the typically capitalist behavior of employers and unions alike. The appropriate moral was drawn in 1966 by an eminent British economist who combined socialist convictions with longstanding adherence to the Keynesian school:

The proposition that, in an industrial economy, the level of money-wage rates governs the level of prices was an essential element in the analysis of Keynes’ General Theory of Employment; Interest and Money, published in 1936. The part of his argument which concerned the need for government policy to maintain “a high and stable level of employment” was accepted into the canon of received orthodoxy in this country even before the end of the war in 1945, but the part which concerned wages and prices was resisted much longer. It was easy to predict that if we stumbled into near-full employment with institutions and attitudes unchanged, the balance of power in wage-bargaining would tip in favour of the workers, so that a vicious spiral of wages and prices would become chronic. Yet it took about fifteen years of experience for the point to really sink home. 10

It seems probable that the British economy had by the 1960s reached an “awkward corner” for historic reasons quite unconnected with the current behavior of employers and unions, but this does not invalidate the theoretical part of the argument: in a capitalist economy, whether or not administered by a Labor government, the attainment of even relatively modest welfare-state goals depends on growth rates which in turn depend, in part at least, on competitiveness in the world market. International trade takes place predominantly among industrially advanced countries and only marginally between them and the “underdeveloped,” which is why the loss of their colonies did no economic harm to the West European countries, or to Japan, which was likewise stripped of its colonial possessions in 1945. Since the industrially developed countries outside the Soviet bloc are for the most part governed democratically and since their electorates are predominantly salaried, any advance toward socialization hinges upon the willingness of the labor movement to back long-term planning at the expense of short-range economic gains.

This applies with particular force if reformist rather than socially conservative parties are in political control. It also applies to the hypothetical case of a completely socialized economy. In such an economy the quarrel would be over the distribution of the social dividend as between the state and the producers, with politics resolving itself into a tug between the central planning bureaucracy and the more or less autonomous workers councils representing all those engaged in the production and distribution of goods and services.

Needless to say, none of this has any relevance to the backward countries, with their rising populations and stagnant incomes per head, or to the Soviet orbit, where socialism performs the historic functions normally associated with the earlier stages of capital accumulation. We are solely concerned with regions which have passed beyond this phase and have become sufficiently rich and productive for something like equality to be attainable. There is no point in debating the question whether wealth should in all circumstances be equitably divided, even if the result is economic stagnation (as it certainly would be in any poor country lacking the necessary capital equipment).

Nor is there any need to waste time and energy over frivolities such as the demand that the “consumer society” be abolished. This kind of talk commonly issues from people who do not have to work for a living. The crisis through which the contemporary socialist movement is passing has not been brought about by the corruption of the working class through excessive rise in money incomes or the desire to possess consumer goods. It is due to the unresolved cleavage between short-term and long-term aspirations, the socialist parties having failed to reconcile their ultimate aims with the pressures arising from the normal political process in a democracy where wage earners have become a majority of the electorate. The gap between socialist rhetoric and laborist performance measures the difficulty of making social equality relevant to people overwhelmingly concerned with simple economic issues: specifically, guaranteed full employment and a steady rise in living standards.

When one says that even in the most highly industrialized countries of the Western world the transition from a “mixed” to a socialist economy still lacks adequate popular support, one is not just saying something about the power of conservative ideology or the relative failure of Social Democratic (or for that matter Communist) parties to expand beyond their traditional base in the industrial working class. One is also saying something about the inherent conflict between two quite different and possibly irreconcilable goals: economic growth and social equality. The former may occur under capitalism or socialism alike, but a socialized economy devoted to the aim of keeping up with the fastest growth rates achieved in the capitalist world must give preference to economic rationality at the expense of other considerations.

Conversely, if a democracy is to opt voluntarily for a greater degree of social equality than even the best managed capitalist system can permit, the voters may by the same token have to opt for a slowdown in economic growth. A conscious choice to this effect is conceivable, but not very likely in the short run. At their present political and cultural level even the most advanced democracies are unlikely to forego the advantages accruing from rapid technological change, higher production, rising money wages—and the inequality that goes with it. If a socialist society is defined as one in which the wage relation has been abolished, the producers placed in control of their tools, and the cleavage between physical and mental labor overcome through an all-round development of the human personality, we are still far from the attainment of such goals.

The inner logic of the production process does indeed favor socialization, inasmuch as the “post-industrial” development of automation gives rise to a new hierarchy of functions no longer measurable by the cruder standards of an earlier epoch. Social conflict assumes new forms, the steady growth of monopoly and the expansion of a bureaucratically controlled public sector driving the private entrepreneur out of business and producing novel confrontations dimly foreshadowed by the strikes and factory occupations of recent years. If theoretical development does not lag too far behind, socialism as a movement may transcend its class origins and come to represent the aspirations of the intelligentsia, as well as those of a working class in process of acquiring new skills and higher levels of education and awareness.

These hopeful factors must be weighed against the inherent problem of making equality rhyme with the requirements of a culture shaped by the recent speed-up in the rate of technological change. The goal of a classless and conflict-free society is not easily reconciled with the drive toward ever higher levels of economic performance in a competitive world, most of which is still desperately poor. The prospects of socialism in the classical sense are brightest where economic pressures are negligible and people can envisage an egalitarian way of life on the basis of social ownership of the means of production. In this sense the preconditions of a socialist order do not at present exist anywhere. Much of the world is still going through the early phases of the industrial revolution, while the advanced countries are taken up with the attainment of higher living standards.

Socialists will find plenty to occupy them during the coming decades, if only because liberalism has disintegrated both as a philosophy and as a way of managing the political system. But if they are honest they will not pretend that the kind of society they would like to see is inscribed in the logic of the immediate future.

This Issue

April 9, 1970