Socialism vs. the Welfare State

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By John Pearson
July 16, 2018

The difference between socialism and the welfare state is really like the proverbial difference between lighting and the lighting bug. There are enormous differences between these two ways of organizing the economy and public administration.

By socialism, I am referring to the traditional socialism exemplified by the former Soviet Union, in which the government owned and operated most organizations within the economy. There was a high degree of centralized planning. There was only a very small private sector.

In today’s world, traditional socialism is practiced only in a very few countries. The overall trend for decades has been for governments of all types to privatize socialist enterprises and rely more on market forces.

The Central Intelligence Agency’s World Factbook analyzes the economy of every country on the planet. Only a few continue with heavy government ownership of enterprises and central direction of the economy. North Korea is described as, “One of the world’s most centrally directed and least open economies.” Algeria’s economy “remains dominated by the state, a legacy of the country’s socialist post-independence development model.” The Cuban government “continues to balance the need for loosening its socialist economic system against a desire for firm political control.” In Venezuela, the MADURO government “has given authority for the production and distribution of basic goods to the military and to local socialist party member committees.”

More typical is Laos, which has followed the liberalization model: “The government of Laos, one of the few remaining one-party communist states, began decentralizing control and encouraging private enterprise in 1986.”

People can assign any meaning to words they want to. They can call the “welfare state” socialism. But there is a drastic difference in practice between socialism in the historic sense and the modern welfare state as practiced in the U.S. and other well-off countries.

The U.S. has a few socialist institutions that have been around for decades or even centuries – e.g., the Post Office, Amtrak, VA hospitals, and the Tennessee Valley Authority (TVA). These organizations fill niches in areas where Congress felt direct government production of services was necessary. TVA is an example of a socialist type organization that fully duplicates the services of private utility companies. It’s really an aberration in the U.S. economy. At the local level, public schools and bus transit systems are examples of socialist-type organizations that have been long been part of the U.S. system. There has been no recent increase in such organizations.

Despite the growth of progressive income taxes, dozens of welfare state income redistribution programs and over 185,000 pages of regulations (as of the end of 2017), the U.S. continues to be overwhelmingly a capitalist, market-based economy. The U.S. is nearly as far from socialism as you can get.

Look at the list of Fortune 500 companies. They are all privately owned. (Fannie Mae and Freddie Mac are “government sponsored.” During the recent recession, the government did invest temporarily in a very few companies such as General Motors and American International Group (AIG), but the government has since divested its interest in such companies.) The CIA puts it this way: “In the US, private individuals and business firms make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace.”

France, by comparison, is also a strongly capitalist country, but there is a stronger welfare state than in the U.S. and greater government involvement in some sectors. Here’s how CIA describes France:

“The government has partially or fully privatized many large companies, including Air France, France Telecom, Renault, and Thales. However, the government maintains a strong presence in some sectors, particularly power, public transport, and defense industries. France’s leaders remain committed to a capitalism in which they maintain social equity by means of laws, tax policies, and social spending that mitigate economic inequality.”

CIA describes Denmark as a “thoroughly modern market economy.” “Danes enjoy a high standard of living, and the Danish economy is characterized by extensive government welfare measures and an equitable distribution of income.”

In the 2008 election, President Obama’s opponents hurled the socialist charge against him with no basis in fact.

After eight years in office, the U.S. was no more or less socialist than when he took over. Obama believed in income redistribution through welfare state programs and the tax system. Obamacare was a major social welfare program enacted during his presidency. It added to dozens of welfare-type programs that were already on the books when he took office.

Why U.S. politicians like Bernie Sanders and Alexandria Ocasio-Cortez refer to themselves as socialists is puzzling because clearly, they are not referring to socialism in the traditional sense. They are social democrats who want an expansion of the welfare state and greater government regulation of business.

It’s not accurate to claim the U.S. is drifting toward socialism if we mean the traditional understanding of socialism. There has been a long-term trend toward more regulations, income taxes that are more progressive, and more welfare state programs although the current administration has been pushing against these trends to the best of its ability.

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Author: John Pearson recently retired from a lengthy career in the federal government where he was a program analyst. He has an MPA and a bachelor’s degree in economics. He now writes columns reflecting on his experience in government. His email is [email protected].

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