What Is Socialism?

Socialism is a populist economic and political system based on collective, common, or public ownership of the means of production. Those means of production include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs.

In contrast to capitalism, whereby business owners control the means of production and pay wages to workers to use those means, socialism envisions shared ownership and control among the laboring class.

Essential Features

In a purely socialist system, all production and distribution decisions are made by the collective, directed by a central planner or government body. Worker cooperatives, however, are also a form of socialized production.

Socialist systems tend to have robust welfare systems and social safety nets so that individuals rely on the state for everything from food to healthcare. The government determines the output and pricing levels of these goods and services.

Socialists contend that shared ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society.

Understanding Socialism

Common ownership under socialism may take shape through technocratic, oligarchic, totalitarian, democratic, or even voluntary rule. A prominent historical example of a socialist country, albeit one run by communists, is the former Union of Soviet Socialist Republics (U.S.S.R.), also known as the Soviet Union.

Due to its practical challenges and poor track record, socialism is sometimes referred to as a utopian or “post-scarcity” system, although modern adherents believe it could work if only properly implemented.

They argue that socialism creates equality and provides security—a worker’s value comes from the amount of time they work, not in the value of what they produce—while capitalism exploits workers for the benefit of the wealthy.

Socialism as a system of shared resources and collective production dates back to the earliest human civilizations. Tribal or clan-based societies would often work for the common good and work together to produce enough food and supplies for the entire population.

Collective agriculture persisted for thousands of years. This was replaced in many places by a sort of feudal system, whereby landed nobility (lords) ruled over peasants (serfs) who worked the land without owning it.

Socialism's Deep Roots

Socialism's intellectual roots date back to Plato's Republic, in which he described a collective society. Centuries later, Thomas More's Utopia echoed Platonic ideals in its depiction of an imaginary island where people live and work communally.

Socialism was a direct response to the Industrial Revolution, which brought enormous economic and social change to Great Britain and the rest of the world. As industrialists grew wealthy on the labor of workers who increasingly lived in poverty, socialism emerged as an alternative to capitalism, one that could improve life for the working class.2

Modern Socialism

Modern socialism developed in opposition to the excesses and abuses of liberal individualism and capitalism.

Under early capitalist economies during the late 18th and 19th centuries, western European countries experienced industrial production and compound economic growth at a rapid pace.

Some individuals and families rose to riches quickly, while others sank into poverty. Capitalism created income inequality and spurred other social concerns.

The most famous early socialist thinkers were Robert Owen and Henri de Saint-Simon, and later Karl Marx and then Vladimir Lenin. It was primarily Lenin who expounded on the ideas of earlier socialists and helped bring socialist planning to the national level after the 1917 Bolshevik Revolution in Russia.

Following the failure of socialist central planning in the former Soviet Union and Maoist China during the 20th century, many modern socialists adjusted to a high regulatory and redistributive system sometimes referred to as market socialism or democratic socialism.

Socialism vs. Capitalism

Capitalist economies (which today are often synonymous with the free-market or market economies) and socialist economies differ by their logical underpinnings of the structures of ownership and production.

Socialists and free-market economists tend to agree on fundamental economics—the supply and demand framework, for instance—while disagreeing about its proper adaptation and how commodities should be produced.

Functionally, socialism and free-market capitalism are often divided on two core issues: property rights and control of production. In a capitalist economy, private individuals and enterprises own the means of production and have the right to profit from them. Private property rights are taken very seriously and apply to nearly everything.

In a purely socialist economy, the collective owns and controls the means of production; personal property is allowed, but in the form of consumer goods. Essential services like healthcare, education, and public transportation are administered for free by the government and funded through taxation.

Differences in Control

In a socialist economy, public officials known as central planners may control the behavior of producers, consumers, savers, borrowers, and investors by taking over and regulating trade, the flow of capital, and other resources. In a free-market economy, trade is conducted on a voluntary, or nonregulated, basis. However, there are many other ways to coordinate production in a collectivist fashion without such dominating control and loss of personal autonomy.

The Individual vs. the Central Planner

Market economies rely on the separate actions of self-determining individuals to determine production, distribution, and consumption. Decisions about what, when, and how to produce are made privately and coordinated through a spontaneously developed price system, and prices are determined by the laws of supply and demand.

Proponents say that freely floating market prices direct resources towards their most efficient ends. Profits are encouraged and drive future production.

Socialist economies rely on either the government or worker cooperatives to drive production and distribution. Consumption is regulated, but it is still partially left up to individuals. The state determines how main resources are used and taxes wealth for redistributive efforts.

Socialist economic thinkers consider many private economic activities to be irrational, such as arbitrage or leverage, because they do not create immediate consumption or use. Still, Marx saw that capitalism was rife with contradictions, class conflict, and self-destructive competition. As a result, he saw socialism as the logical next phase of human political economy.