First, a few definitions:
Communism. A one-party state controls economic production and provides basic necessities including food, housing, medical care, and education. There is no such thing as private property, and individual effort and innovation are not rewarded.
Socialism. A democratically elected government controls economic production and provides basic necessities. Individuals can own private property, and individual effort and innovation are rewarded.
Democratic socialism. Workers control economic production, rather than the government or free market. Individuals can own private property, and individual effort and innovation are rewarded.
Social democracy. The free market controls economic production, but wealth is redistributed through democratic processes. Individuals can own private property, and individual effort and innovation are rewarded. This is most aligned with Bernie Sanders’s ideology and proposals (although he often refers to himself as a Democratic socialist).
Capitalism. The free market controls economic production and there is no redistribution of wealth. Individuals can own private property, and individual effort and innovation are rewarded.
There are some caveats to these terms. It is important to recognize that these are merely ideals, not inherently good or evil. The implementation of these ideals can be functional or dysfunctional. Furthermore, it is nearly impossible to successfully implement any of these ideals in their purest forms, and indeed, no country has done so. The vast majority of countries are a mix of capitalist and social democratic systems. The success of the systems depends largely on the wisdom and foresight of leaders to recognize and prepare for the potential pitfalls with the appropriate checks and balances, and this requires a deep knowledge of where power is concentrated.
Soviet Union
Shortly after the Bolshevik party seized power in Russia in 1917, the War Communism measures were enacted, which nationalized all means of production, abolished money (reinstated shortly thereafter in 1922), and introduced compulsory labor. Peasants were ordered to surrender surplus grain at nominal prices. This led to frequent civil wars, and the government resorted to intimidation tactics through mass executions of political prisoners and former regime officials. A censorship office was set up, which held absolute authority over printed materials and the performing arts. Schools were nationalized and churches all but abolished.
Because of the requirement to turn over excess grain to the government, peasants kept reducing their sown acreage which led to a drastic reduction in productivity. This was further compounded by droughts which led to the famine of 1921. Nonetheless, there was an initial period of rapid growth, with an annual gross national product (GNP) of 5.8% between 1928 and 1940, as Western technologies were adopted and the centralized government facilitated mobilization of resources. As the Soviets caught up with the Western world and remained limited in the ability to produce and innovate, reforms were introduced by Khruschev in the 1950s to create a market system, essentially a second economy. The reforms were modest and he was forced to withdraw some of them as this new economy was perceived as a threat to the central government. Annual GNP continued to decline to 2.6% between 1975 and 1980. Bolder reforms by Gorbachev in the 1980s with an aim of decentralization, referred to as “perestroika,” served to expose the corruption of the central government, threatening the foundation of the society and tearing it apart. When superimposed on a longstanding centralized state, the reforms led to soaring government spending and inflation, as the formerly subsidized agricultural sector was all of a sudden for-profit. This is believed to have led to the collapse of the Soviet Union in 1991.
The public was stripped of many freedoms and all semblance of power, and the government held absolute control. Censorship and intimidation left many ignorant and thus even more powerless. While redistribution of wealth may reduce inequality and combat corporate greed, and pooling of resources may optimize efficiency, in this situation the people had no say in the process and there was little room to evolve but plenty of room for exploitation. Furthermore, a society where the people are not empowered and incentivized to produce will ultimately fail to do so. With regard to the fall of the Soviet Union, the dueling market economy and centralized government was ultimately divisive and destabilizing, whereas a more balanced and integrated approach from the start would have been more optimal.
China
The Chinese economy is the second largest in the world after the United States. It is considered to be a socialist market economy, where state-owned enterprises and private enterprises coexist and individuals can own private property. Following 1978 market-based reforms by Xiaopeng actively encouraging private enterprise, its annual gross domestic product (GDP) frequently exceeded 10%. As the economy matured, this dropped to 6.6% in 2018. Private businesses now contribute to more than half of China’s GDP and most of its exports. This raised 800 million people out of poverty. Nonetheless, the state retains some control over the economy, making broad decisions on economic priorities, maintaining tight control over important resources, and buying farm products and controlling surpluses in the agricultural sector. Some have criticized China for unfair trade practices, including undervalued currency and domestic subsidies to flood U.S. markets with low-cost goods while failing to take action against theft of intellectual property rights. In recent news, H&M, Nike, and Burberry criticized alleged forced labor camps in Xinjiang and stopped using cotton from the region to manufacture their products. This resulted in these companies being removed from Chinese e-commerce platforms, crippling their presence in China. Many companies, likely fearful of losing business, subsequently removed their forced labor policies from their websites.
The government is structured as a hierarchy. The Chinese Communist party controls all branches of the political system, and the president of the party has full authority. Below him is the 25-member Politburo committee. There is a National People’s Congress consisting of delegates belonging to different political parties, as well as a military branch, state council (essentially the cabinet), and court system. The public elects the congressional delegates, who in turn elect the president. However, the ruling party has been known to override the law, as was done in a 1983 crackdown on criminal activity where thousands were arrested and executed in violation of the law, which was subsequently amended to conform with practices during the crackdown.
China has a national health care system that provides basic coverage to 90% of its population, with an option to purchase private insurance for improved coverage. Chinese citizens are legally obligated to care for elderly parents. All urban schools are state-financed, while rural schools tend to rely on their own financial resources, and the education system has been increasingly geared toward technical training to fulfill the needs of the economy.
Mass surveillance is particularly high in China, with 18 of the 20 most surveilled cities in the world and 54% of the world’s CCTV cameras. Taiyuan, which topped the list, had 1 camera for every 8.3 individuals. The ruling party maintains control of news reporting by direct ownership and control over accreditation of journalists. China has been widely criticized for its censorship, having blocked thousands of websites including the New York Times, YouTube, Twitter, and Facebook. According to the Committee to Protect Journalists (CPJ), 48 journalists were jailed as of December 2019, and foreign journalists have been physically abused and detained.
Despite China’s massive economic successes, there is a potentially problematic concentration of power in the upper echelons of government that allows officials to evade accountability and threatens civil liberties. Due to its hierarchical structure, the success of the society is contingent on its ability to retain well-meaning individuals in top positions.
Venezuela
The Venezuelan government has an executive, bicameral legislative, and judicial branch. Reforms by Hugo Chavez in 1999 through a constituent assembly gave greater power to the president and reformed the legislature to a unicameral body. There is free public education with an option for private education, but students received half the mandated education days on average due to frequent strikes. There is free public health care as well as an option for private health care. Public hospitals have been plagued by budget and management problems resulting in strikes by doctors and poorly maintained hospitals.
The Central Bank of Venezuela sets interest rates, regulates money supply, issues currency, and grants loans to commercial banks. As an economy dependent on oil, Venezuela experienced severe economic problems in the 1980s and 1990s brought on by fluctuating global oil prices, as well as mismanagement and overborrowing from the Central Bank. Stabilization measures were implemented in 1996 that removed some financial controls and privatized several industries, and by the early 2000s the economy had rebounded enough to pay off all loans to the IMF and World Bank.
Hugo Chavez was elected in 1999 and led the Bolivarian Revolution, a program of reforms that aimed to end corruption, increase spending on social programs, and redistribute oil wealth. He was massively popular with an approval rating of 80%.
As the country with the world’s largest oil reserves which has also challenged the U.S. dollar, Venezuela has long been a target for regime change. In 2002, the U.S. supported a military coup that ousted democratically elected president Hugo Chavez and established an interim government led by Pedro Carmona. He immediately dissolved most of Venezuela’s democratic institutions and suspended the constitution so he quickly lost support and Chavez was reinstated. After Chavez’s death in 2013, Nicolas Maduro was elected. The right-wing opposition led by Juan Guaido and backed by the U.S. has demanded mass privatization of government assets (including its oil fields) and a return to a capitalist economic system. In 2017, the Venezuelan government declared the creation of a Constituent Assembly to rewrite the constitution. The opposition remained in control of the National Assembly and decided to run it as a separate parallel legislature, and it has also chosen to boycott elections.
Venezuela is heavily dependent on foreign imports of food and medicine, which it pays for through oil sales which generate 98% of export earnings according to OPEC. The U.S. has been imposing sanctions on Venezuela since 2002, including on PDVSA, the largest oil company in Venezuela. This resulted in the nation’s lowest oil production in 70 years, even pre-pandemic. Sanctions have effectively crippled Venezuela’s ability to obtain sufficient food and medicine for its people, laying the groundwork for a civil war. They have been estimated to have caused at least 130 billion dollars of damage to the economy between 2015 and 2018 alone, as well as the loss of a total of 100,000 Venezuelan lives.
Venezuela is a nation in turmoil. Contrary to mainstream views that its unrest reflects an organic rejection of socialist policies, many of its internal challenges have been exploited and magnified by U.S. intervention, likely driven by corporate greed.
Cuba
The Cuban economy was built largely on its sugarcane, grown by more than 600,000 African slaves imported during the 19th century. In 1830 it produced nearly one third of the world’ sugar. Slavery was abolished in 1886. After many years of war, Cuba finally gained independence from Spain in 1898 following the Spanish American War, but this was followed by a period of U.S. occupation.
The U.S. backed a coup in 1933 to overthrow Cuban President Gerardo Machado y Morales and replace him with Fulgencio Batista. Cuba developed one of the leading economies in Latin America. However, economic disparities were high, with most rural workers earning one fourth of the average income and the majority of people leaving in poverty. Furthermore, the U.S. and other foreign investors gained control of much of the economy, owning 75% of arable land, 90% of essential services, and 40% of sugar production.
In 1959, there was a revolution led by Fidel Castro and Che Guevara after which Cuba became a socialist republic. It had a single party, the Communist Party of Cuba, which controlled 90% of the economy, rationing workers’ salaries in exchange for free health care, education, and low cost transportation and housing. State-owned enterprises were the largest employers of Cuban citizens, but there were private enterprises as well. The U.S. imposed a full trade embargo with Cuba in 1962 out of fear of growing ties with the Soviet Union. The Soviet Union then became a strong ally and main trading partner, investing billions of dollars into Cuba’s infrastructure, industry, and military and trading fuel for Cuba’s sugar. With the collapse of the Soviet Union, Cuba naturally also suffered and was thrust into an economic depression. It also suffered from loss of support from another key trading partner, Venezuela, due to sanctions.
Cuba’s fate, like Venezuela’s, has been heavily affected by external influences. Despite these challenges, it has had its share of successes. It implemented the most successful HIV/AIDS program in the world. There was a systematic program of quarantining HIV-positive individuals in sanatoria with food, housing, medication, social services, and education on HIV transmission provided. Quarantining was eventually relaxed but there continued to be widespread HIV testing with contact tracing. A 2003 study demonstrated that the U.S. had 35 times as many AIDS-related deaths and 10 times as many HIV infections as Cuba. Its health care workers are on the front lines around the world, having sent the largest contingent of any country to Liberia, Sierra Leone, and Guinea during the Ebola crisis and with 50,000 workers operating in 66 countries around the world. Its murder rate is 4.6 per 100,000, the lowest in the Caribbean and South America and even lower than the U.S.
Sweden
From 1946 to 1950, Sweden had a period of social reform during which comprehensive laws on old-age pensions, child allowances, health insurance, rent allowances, and education reforms were adopted in order to achieve widespread wealth distribution. It is often hailed as a model of the Nordic system of social democracy. Its GNP is among the highest in the world. Most enterprises are privately owned, but roughly 60% of GDP passes through the public sector. Women earn more than 90% of full-time pay for men, and 75% of working age women are in the workforce. It is well known for its employee benefits, with 5 weeks vacation time per year and 13 months maternity leave at 80% pay. About 80% of workers belong to trade unions. Personal income tax rates are relatively high, ranging 30 to 60%. All residents are covered by national health insurance, and life expectancy is high. Schooling including higher education is free, and universities are public but have full autonomy.
In the 1990s, in an effort to stimulate economic growth, there was a shift away from taxing personal income and capital gains, instead targeting goods and services and social security contributions. Marginal tax rates, as well as taxes overall, were reduced. Rigid state monopolies were deregulated in an effort to promote competition. As a result of these changes, however, state resources were depleted and social programs cut. The school system was privatized such that private schools can legally receive public funding and turn it into a profit. Sweden even partially privatized pensions, with 2.5% of worker salary going to a privatized investment account. Steel and nuclear power industries began intense lobbying efforts, and industrial groups hired hundreds of members of the Swedish Social Democrat party, which largely abandoned the working class and unions. It saw a rapid surge in income inequality, increasing by one third from the 1990s to 2012, faster than any OECD country during this time. Between 2008 and 2016, the percent of the population with low disposable income increased from 13% to 16%.
Switzerland
Switzerland, with a $700 billion economy, ranks in the top 20 economies in the world. It is also the second richest country in the world after Luxembourg, with an average income of $84,000. It is home to 13 of the top 100 European companies. Additionally, it is ranked among the ten happiest countries in the world. Its health care system requires all residents to buy insurance from private providers, while at the same time subsidizing those who can least afford it. Its top income tax rate is the lowest in Western Europe at 36 percent. By these accounts, it is considered a model of capitalism.
However, there is significant wealth inequality. The richest 1% enjoys 40% of the wealth. This is offset by a relatively low poverty rate of 8.7% in 2019. Although more stringent than most other countries with providing government assistance, Swiss cantons (local governing bodies) provided $2.8 billion in welfare in 2018. The aid is tied to an expectation of participating in a jobs program, withholding of citizenship until a minimum of 3 years off welfare, and repayment of the money only if the individual’s financial situation improves substantially. In this way, the Swiss elegantly incentivize productivity and self determination while, interestingly enough, upholding the basic socialist principle of “from each according to ability, to each according to need.” A staunch, blind commitment to capitalism would instead have left 4 times as many people in poverty, likely putting a significant dent in the nation’s productivity.
United States
Our Founding Fathers had established an elegant system of checks and balances that has served as a model for many countries, and the United States has grown to be the largest economy in the world. Yet massive inequalities and unrest now plague the country. Where did we go wrong?
The pitfall in the U.S. is not so much in its balance (or lack thereof) between capitalist and socialist policies, but the internal threats to democracy itself. Although lobbying exists in the EU, industry wins approximately as often as citizen groups and foundations, with success rates of 57% for trade associations, 61% for lobbying firms, 56% for citizen groups, and 67% for foundations. By contrast, in the US, while 89% of corporations and 53% of trade associations lobby successfully, only 40% of citizen groups and 37% of foundations achieve their goals. Unlike the policymakers in the EU who do not stand for election, US policymakers depend on corporations to provide the massive funding needed to secure a position. Rather than the degree of power held by either industry or government, it is the inextricable link between corporations and government that has proven to be a danger. This has led to a government that increasingly caters to a privileged few while abandoning many, with tax loopholes serving the billionaire class, a dysfunctional criminal justice system serving private prisons, destructive foreign policy serving the defense industry, anti-worker trade policy serving corporations bent on outsourcing to maximize profits, and tolerance of price gouging by pharmaceutical industries among many other things. The political will to implement necessary social reforms is severely lacking.
There are multiple roads to a successful society. The key appears to lie not so much in the specifics of who should control what, or how high taxes should be. Rather, it is dependent on an even distribution of power, and not just at conception. There needs to be a continued reassessment of power dynamics to prevent long-term overconcentration of wealth and power.
Circumstances are also important to consider. Centralization and wealth distribution can be an effective strategy during crises such as a pandemic or terrorism threats by allowing for efficient distribution of resources, as was seen in the early days of the Soviet Union. Long-term and taken to an extreme, however, this strategy has the potential to hamper productivity, as was seen in later stages. Capitalism can be effective in allowing an impoverished country to generate wealth and gain standing in the world and could have potentially allowed a country such as Venezuela to develop other economies while reducing its dependence on oil profits, but when left unfettered can lead to massive public exploitation for corporate profits, a phenomenon all too familiar for people living in the United States.
Written by Ramya.
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