People over profit: What is Socialism?

By Mike Tudoreanu

Flickr/401(K) 2012

“Socialism” is one of the most misused political terms in the world, especially in the United States. The second column of my three-part series on it was dedicated to addressing some common misconceptions. In this third and final column, I wish to answer the question I get asked most often in emails: “You keep writing about what socialism isn’t. So, what is it, then?”

As I wrote before, socialism abolishes profit, along with all other unearned income (rent and interest). Thus, it must also abolish the market economy and private companies. To be more exact, socialism abolishes private ownership over the means of production – workplaces, natural resources, and all the machines and equipment used to produce goods and services – and places them under public ownership. They become the property of society, collectively owned by all citizens so that each citizen becomes a kind of “shareholder” in the national economy. In other words, all firms and companies are placed under the collective authority of the people. The people will then be able to decide, democratically, how their new property is to be used. Socialism is economic democracy.

Since there are no separate groups of owners who may compete with each other, the socialist economy cannot be driven by markets. Instead, it is a planned economy. Every year, or every few years, people will vote to decide a new economic plan for the next period. Decisions such as the number of schools and hospitals to build, whether or not to create a high-speed rail network, the number of old factories to close and what to put in their place – all these will be made democratically by the people, instead of being left up to corporations and investment banks. There will be political parties, or something like them, campaigning for different economic plans. Some may think that healthcare should be the priority, while others would like to build green power plants, and so on.

Like all types of democracy, the economic democracy of socialism may be direct or representative. People may vote directly on economic questions – such as the next economic plan – or they may elect representatives to make decisions. The day-to-day running of factories and offices will most likely have to be left to such representatives. This is where the idea of state ownership comes in. Socialist companies may be considered to be owned by the state, in the sense that the state is elected by the people to take care of the day-to-day management of such companies.

It is absolutely essential that the state must be very democratic so it can be a genuine representative of the people. Elections need to be free and fair, they need to happen often, and there cannot be any private money involved. If the state does not represent the wishes of the people, then we don’t have economic democracy, so we don’t have socialism.

I mentioned the closing of old factories as a possibility. In capitalism, this means firing the workers there and creating unemployment. But in socialism, there will be no unemployment. If we have an economic plan, then we can require it to follow a rule saying that for every job eliminated somewhere, a new one must be opened somewhere else. People will be able to decide when and where to close factories and workplaces, so that such closings can be put off until we make new jobs available in the area. Contrary to popular belief, unemployment is not merely bad for the unemployed. It actually makes everyone else poorer. If a person wants to work but cannot find work, that is one person who could be helping society but isn’t. Unemployment is a waste of labor, and it is one of the greatest inefficiencies of capitalism.

There is a very common myth about socialism, which says that socialism would give everyone the same wage, and therefore no one would have a reason to work hard. This is false. First of all, capitalism survives just fine without paying most people according to how hard they work. Most jobs come with a set wage, not with a wage that goes up or down depending on your performance last month.

More importantly, the majority of socialists do not advocate a system of equal wages. Socialism does promote equality of wealth, but it does this by getting rid of profit, interest and rent as opposed to by equalizing wages. Most of the inequality in capitalism does not come from different wage levels, but from the fact that a few people own companies, banks or vast tracts of land, while most people don’t. In socialism, inequality of wages may remain, but that will be the only inequality. Everyone will have a job and work for a wage and some wages will be higher than others, but the highest paid person will only get five or 10 times as much as the lowest paid – not hundreds or even thousands of times more. In addition, the income that currently goes into the pockets of the 1 percent would be distributed equally, so the lowest wages would be much higher than they are today.

There are a number of socialists who do advocate equal wages but they always propose some other type of incentive to replace wage differences. For example, people who work hard could be promoted into jobs that are more enjoyable or more desirable, so that job satisfaction plays the role of an incentive. Or the people who work hard could get the jobs they like best, while people who don’t make an effort are stuck with the jobs that no one wants.

Money would continue to exist under socialism, but its uses would be more limited. You would get paid for your work and use that money to buy consumer goods – anything from food to cars to computer games – but companies and workplaces, being the collective property of the people, would not be for sale. Thus there would be no investment banks, no stock exchange or financial markets … and no financial crises. There would be no need to take on huge loans, either. Education would be free, and the economic plan could include the construction of houses and their sale at low prices. So the two largest sources of debt in America – mortgages and college loans – would no longer exist.

There are many more things that could be said about a socialist society, but ultimately it all comes back to economic democracy. Socialism is a kind of society where people get to vote on what is produced and how it is produced, where income is distributed much more equally than today (but not absolutely equal) and where the laws prevent anyone from getting rich off the labor of others.

Mike Tudoreanu is a Collegian contributor. He can be reached at [email protected]