Socialism and Its Characteristics: Pros, Cons, Examples, and Types

What It Is, How It Works, Comparison to Capitalism, Communism, Fascism

key characteristics of strong socialist economies

The Balance / Caitlin Rogers

Socialism is an economic system where everyone in society equally owns the factors of production. That ownership is acquired through a democratically elected government or through a cooperative or a public corporation in which everyone owns shares. The four factors of production are laborcapital goodsnatural resources, and, in the modern era, entrepreneurship.

Socialists assume that the basic nature of people is cooperative. They believe that this basic nature hasn't yet emerged in full because capitalism or feudalism has forced people to be competitive. Socialists argue that the economic system must support this basic human nature before these qualities can emerge.

What Is Socialism?

Socialism is an economic system in which the factors of production are valued in relationship to their usefulness to people. Socialists take into account both individual needs and greater social needs. They allocate resources using central planning, as in a command economy. 

Examples of greater social needs include transportation, defense, education, health care, and preservation of natural resources. Some also define the common good as caring for those who can't directly contribute to production. Examples include the elderly, children, and their caretakers. 

A mantra of socialism is, "From each according to his ability, to each according to his contribution."

Everyone in society receives a share of the production based on how much each has contributed. This system motivates them to work long hours if they want to receive more. Workers receive their share of production after a percentage has been deducted for the common good.

Key Takeaways

  • Socialism is a system that shares economic output equally throughout the population.
  • It values the collective well-being of the community, rather than individuals.
  • The government distributes resources, giving it greater control over its citizens.
  • There are eight different kinds of socialism, each with their own priorities and economic styles.

Pros of Socialism

Under socialism, workers are no longer exploited because they own the means of production. Profits are spread equitably among all workers according to their individual contributions. But the cooperative system also provides for those who can't work. It meets their basic needs for the good of the whole society.

The system eliminates poverty. It provides equal access to health care and education. No one is discriminated against. 

Everyone works at what one is best at and what one enjoys. If society needs jobs to be done that no one wants, it offers higher compensation to make it worthwhile for people to take them.

Natural resources are preserved for the good of the whole. 

Cons of Socialism

The biggest disadvantage of socialism is that it relies on the cooperative nature of humans to work. It ignores those within society who are competitive and focus on personal gain. Those people tend to seek ways to overthrow and disrupt society for their own benefit. Capitalism harnesses this "Greed is good" drive. Socialism pretends it doesn't exist.

As a result, socialism doesn't reward people for being entrepreneurial. It struggles to be as innovative as a capitalistic society.

A third disadvantage is that the government has a lot of power. This works as long as it represents the wishes of the people. But government leaders can abuse this position and claim power for themselves. 

Differences Between Socialism, Capitalism, Communism, and Fascism

Attribute Socialism Capitalism Communism Fascism
Factors of production are owned by: Everyone Individuals Everyone Individuals
Factors of production are valued for: Usefulness to people Profit Usefulness to people Nation building
Allocation decided by: Central plan Demand and supply Central plan Central plan
From each according to their: Ability Market decides Ability Value to the nation
To each according to their: Contribution Wealth Need Value to the nation

Socialists believe their system is the next obvious step for any capitalistic society. They see income inequality as a sign of late-stage capitalism. They argue that capitalism's flaws mean it has evolved past its usefulness to society. But capitalism's flaws are endemic to the system, regardless of the phase it is in.

America's Founding Fathers included the promotion of the general welfare in the Constitution to balance capitalism's flaws. It instructed the government to protect the rights of all to pursue their idea of happiness. It's the government's role to create a level playing field to allow that to happen. That can happen without throwing out capitalism in favor of another system.

Examples of Socialist Countries

There are no countries that are 100% socialist, according to the Socialist Party of the United Kingdom. Most have mixed economies that incorporate socialism with capitalism, communism, or both.

The five Nordic countries—Norway, Finland, Sweden, Denmark, Iceland—have strongly socialist systems. The state, on behalf of the people, owns a large percentage of the economy. It spends a large portion on education, housing, and public welfare. A large percentage of its workers are unionized, granting them greater power. Last but not least, these countries are democracies, allowing the general population input into decision making.

But these countries also incorporate many aspects of a capitalistic economy. As a result, its inhabitants are among the happiest in the world, regularly placing among the top 10 on lists of the world's happiest people.

Communist Countries

Four countries that are self-proclaimed communist, but they have some aspects of socialism.

  • China
  • Cuba
  • Laos
  • Vietnam

China, in particular, and Vietnam have strong free-market aspects to their economies, even though their governments remain under the sole control of their country's Communist Party.

After the collapse of the Soviet Union, Russia changed its constitution to remove references to communism. It describes itself as a democratic republic.

Many traditional economies use socialism, although they may allow for some form of private ownership.

Eight Types of Socialism

There are eight types of socialism. They differ on how capitalism can best be turned into socialism and emphasize different aspects of socialism. 

  1. Democratic Socialism: The means of production are managed by the working people, and there is a democratically elected government. Democratic planning is used for common goods, such as mass transit, housing, and energy, while the free market is allowed to produce and distribute consumer goods. 
  2. Revolutionary Socialism: Socialism will emerge only after capitalism has been overthrown, although the revolution is not necessarily a violent one. The factors of production are owned by the workers and managed by them through central planning.  
  3. Libertarian Socialism: Libertarianism assumes that the basic nature of people is rational, autonomous, and self-determining. Once the strictures of capitalism have been removed, people will naturally seek a socialist society that takes care of all, free of economic, political, or social hierarchies. They will see it is the best for their own self-interest.
  4. Market Socialism: Production is owned by the workers. They decide how to distribute among themselves. They could sell excess production on the free market. Alternatively, it could be turned over to society, which might distribute it according to the free market.
  5. Green Socialism: This type of socialistic economy highly values the maintenance of natural resources. Public ownership of large corporations achieves this. It also emphasizes public transit and locally sourced food. Production focuses on making sure everyone has enough of the basics instead of consumer products one doesn't really need. This kind of economy guarantees a livable wage for everyone. 
  6. Christian Socialism: Christian teachings of brotherhood are the same values expressed by socialism.
  7. Utopian Socialism: This was more a vision of equality than a concrete plan. The idea arose before massive industrialization and would have been achieved peacefully through a series of experimental societies.
  8. Fabian Socialism: This type of socialism was extolled by a British organization called the Fabian Society in the late 1900s. It advocated a gradual change to socialism through laws, elections, and other peaceful means.