What is socialism?
Socialism is an economic system in which the means of production are owned or controlled collectively, through the state, cooperatives, or worker bodies, rather than by private individuals, with output directed toward social benefit rather than private profit.
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Core tenets
- Collective ownership
- The means of production, factories, land, large-scale capital, are held by the state, by cooperatives, or by the workers within an enterprise, rather than by private owners external to the work itself.
- Planned or coordinated allocation
- Resources are directed by some form of collective decision, ranging from full central planning to negotiated coordination among worker-run enterprises, rather than solely by market prices.
- Distribution by contribution
- In most socialist traditions, output is distributed according to the work each person contributes, though the exact rule varies by tradition.
- Subordination of profit to social aim
- Production decisions are meant to answer to a broader social or public objective, rather than to the return expected by private shareholders.
How it works in practice
Socialist traditions vary enormously in how much of the economy is collectivized and how that coordination is actually carried out.
- State-owned enterprise
- Government owns and operates major industries directly, appointing managers and setting production targets or subsidies.
- Worker cooperatives
- Enterprises are owned and governed by the people who work in them, who share profits and make production decisions collectively.
- Central planning
- A planning authority sets output targets and allocates inputs across the economy, historically associated with Marxist-Leninist states.
Common variants
- Democratic socialism
- Pursues collective ownership and redistribution through parliamentary democracy and existing political institutions, rather than through revolution.
- Market socialism
- Retains collective or public ownership of enterprises, but lets prices and competition, not central planning, coordinate what gets produced.
- Marxist socialism
- Treats socialism as a transitional stage following a working-class revolution, on the way to a stateless, classless communist society.
- Utopian socialism
- Nineteenth-century communal experiments, associated with thinkers such as Robert Owen and Charles Fourier, that sought to build small, voluntary cooperative communities rather than transform an entire national economy.
What it is often confused with
Socialism is frequently used in everyday speech to mean any government program or safety net, which is broader than its technical definition.
Criticisms and debates
Criticism of socialism comes from several distinct traditions, each targeting a different mechanism.
Austrian economics
Argues that without market prices generated by private ownership and competition, a planning authority has no reliable way to know what to produce or in what quantity, leading to persistent shortages or waste, the calculation problem identified by economist Ludwig von Mises.
Response: Socialist economists have responded that market socialism, which keeps price signals and competition while socializing ownership, addresses the calculation problem directly, and that large private corporations already coordinate substantial internal activity without market pricing.
Public choice theory
Holds that officials administering a planned or heavily regulated economy respond to political incentives rather than economic ones, so collective ownership tends toward inefficiency or capture by whichever group controls the state.
Response: Democratic socialists argue that accountable, transparent institutions with real electoral checks can constrain this risk, and that private firms face an analogous problem of managers pursuing their own interests at the expense of owners.
Innovation critique
Contends that removing the private profit incentive weakens the motivation to take risks on new products or processes.
Response: Socialist economists point to substantial state-funded research achievements, and to worker-owned firms that report innovation tied to shared enterprise success rather than individual private profit alone.
Historical examples
- Nordic mixed economies, late twentieth century
- Sweden, Norway, and Denmark combined predominantly private enterprise with large public sectors, extensive redistribution, and strong labor institutions, often cited in socialism debates despite retaining substantial private capitalism.
- Yugoslav worker self-management, 1950s to 1980s
- Enterprises were formally owned by the state but managed by elected worker councils, an experiment in market socialism distinct from Soviet-style central planning.
Sources
- 1.Marx, Karl. Critique of the Gotha Programme. 1875.
- 2.Owen, Robert. A New View of Society. 1813.
- 3.Stanford Encyclopedia of Philosophy. Socialism.
- 4.Encyclopaedia Britannica. Socialism.