How Socialism Works

True socialists advocate a completely classless society, where the government controls all means of production and distribution of goods. Socialists believe this control is necessary to eliminate competition among the people and put everyone on a level playing field. Socialism is also characterized by the absence of private property. The idea is that if everyone works, everyone will reap the same benefits and prosper equally. Therefore, everyone receives equal earnings, medical care and other necessities.

As we've learned, socialism is difficult to define because it has so many incarnations. One of the things socialists agree on is that capitalism causes oppression of the lower class. Socialists believe that due to the competitive nature of capitalism, the wealthy minority maintains control of industry, effectively driving down wages and opportunity for the working class. The main goal of socialism is to dispel class distinctions by turning over control of industry to the state. This results in a harmonious society, free of oppression and financial instability. Some of the other forms of socialism include these goals:

So who came up with these ideas?

Thomas More coined the term "utopia" in 1515 in his treatise titled "Utopia," but utopian imaginings began long before his. Plato described a similar environment when he wrote the philosophical work "Republic" in 360 B.C. In 1627, Francis Bacon's "New Atlantis" advocated a more scientific approach, rooted in the scientific method. Bacon envisioned a research-institute-like society where inhabitants studied science in an effort to create a harmonious environment through their accumulation of knowledge. In addition to these landmark works, more than 40 utopian-themed novels were published from 1700 to 1850, cementing its status as a very popular ideal [source: Foner]. Because many social injustices -- such as slavery and oppression -- were running rampant, the theme was quite popular among embittered and dispirited populations.

While a French revolutionary named François Noël Babeuf is credited with the idea of doing away with private property to create equality and is often considered the first socialist, the concept wasn't popularized until the late 1700s, when the Industrial Revolution caused some drastic changes around the world.

The revolution marked a shift from agricultural societies to modern industries, in which tools were eschewed in favor of cutting-edge machinery. Factories and railways sprung up, resulting in tremendous wealth for the owners of these industries. While they profited from these changes, workers were thrown into sudden poverty due to a lack of jobs as machines began to replace human labor. Many people feared that this discrepancy in income would continue to spread, making the rich richer and the poor poorer.

This fear created unrest among the working class. Poor housing, coupled with bad working conditions and slave labor (which was still rampant in the United States and other countries), contributed to the desire for a more equal society. As a result, socialist ideals quickly became popular among the impoverished workers. Communes such as Brook Farm and New Harmony began popping up in the United States and Europe. These small communities abided by socialist principles and worked to avoid the class struggles that controlled the rest of the world. New Harmony was considered a center of scientific thought and boasted the United States' first free library, public school and kindergarten.

­Despite the presence of small communes and the spread of socialist thought, socialism remained largely an idea, rather than reality. Soviet dictator Vladimir Ilyich Lenin was the first leader to put socialism to the test. Though he was a communist (a branch of socialism that used militant action to overthrow the upper class and government to achieve a utopian society), Lenin implemented many socialist initiatives in the Soviet Union after his takeover in 1917. These included forced nationalization of industry and collectivization of agriculture. Lenin's programs were not profitable, and he eventually resorted to a mixed economy. Communism is sometimes referred to as revolutionary socialism for its aggressive tactics. Although there are fundamental differences between the two theories, communism and socialism both aim to eliminate class struggles by encouraging government or state control of production and distribution.

The post-World War I era saw a rise in democratic socialism in Europe. Socialist parties became active in the governments of Germany, Sweden, the Netherlands, Belgium and Great Britain. Socialism also became popular in portions of Africa, Latin America and Asia.

By the early 1900s, the disparity of wealth in the United States was growing even more obvious, and socialist ideology was on the rise. In 1874, a group of socialists formed the Workingmen's Party, later known as the Socialist Labor Party. The group advocated the reform of social abuses, labor issues and other equality concerns.

The Socialist Labor Party merged with the Social Democratic Party in 1901 to form the Socialist Party of America. By 1912, the party had more than 100,000 members. But the party's growth in the United States was massively hindered in 1917 when the government enacted the Espionage Act. The Espionage Act originated out of the government's fear of the communist way of life -- fear incited by the bloody Bolshevik Revolution in Russia, which resulted in many millions of deaths and the complete overthrow of the Russian government. The Espionage Act encouraged patriotism above all else and made it illegal to publicly oppose involvement in World War I.

Supporters of socialism became wary of associating with the controversial communist system, and the Socialist Labor Party's membership in the U.S. plummeted in the 1950s. The fear of association with socialism and communism continued through the McCarthy Era (1950 to 1954), during which Senator Joseph McCarthy fingered suspected communists. Many people feared that they'd be targets of McCarthy and kept a low profile by discontinuing their involvement with the party. (You can read more about it in How McCarthyism Worked.)

But even despite these attacks on communist and socialist ways of life, socialists still existed in the United States, often supported by respected thinkers of the time. For example, noted scholar Albert Einstein penned a paper titled "Why Socialism?" in 1949 in which he described the need for a socialist economy to eliminate the "evils" of unemployment and a competitive economy. He emphasized the need for an educational system to achieve socialist goals. And, he advocated a planned economy to ensure the livelihood of every citizen. Other famous socialists include John Lennon of Beatles fame and Susan B. Anthony, a suffragist leader.

After World War II, socialist parties took control in more nations. Many countries nationalized major industries, such as coal and steel. These countries also encouraged government planning to spur economic growth. Societies that took socialism out of its theoretical context and put it to the test found flaws and successes in the system. We'll examine two of them.

One of the most famous examples of socialism in practice took place in New Lanark, Scotland. The village was founded in 1786, but it wasn't until 1800 that it became world famous as a socialist experiment of sorts.

Robert Owen was a philanthropist, successful businessman and dedicated social reformer who made his fortune during the Industrial Revolution. Known for his benevolence, Owen longed to create a village in the utopian socialist ideal. He turned the cotton mill-based town of New Lanark into a cooperative society in which everyone abided by the socialist premises of equal work, equal pay and no ownership of private property. In addition, Owens instituted progressive labor reforms: reduced work hours, safer working conditions and minimum age requirements for child labor (although he mandated age 10 as the appropriate age, which is still very young by today's standards).

Roughly 2,500 people called New Lanark home, including about 500 children whose lot in life Owen was determined to improve through education and better labor policies. In fact, in 1816, Great Britain's inaugural pre-school was opened in New Lanark. Owens' society was so successful that it generated substantial profits and attracted the world's attention -- tourists flocked to New Lanark to see what, exactly, it was like.

Owens' vision became a successful reality in New Lanark but didn't spread throughout Great Britain as he had initially hoped. In 1824, Owen decided to throw in the towel on what he considered a closed-minded environment and sailed to the United States. He purchased land in New Harmony, Indiana, where he established a commune with similar standards to New Lanark's. Owens made even more progressive strides at New Harmony by putting forth the radical idea of equal rights for women. Around the height of New Harmony's success, 15 other socialist communities sprang up. However, none stood the test of time and they all collapsed. New Harmony itself folded when one of Owens' business partners left and took the community's profits with him.

In the end, Owen lost much of his personal wealth due to his forays in utopian socialism. He returned to England in 1829, where he helped establish Britain's first trade unions. Though this visionary's villages can't be considered completely successful, they certainly paved the way for labor reform around the world.

Another example of applied socialism began just after World War II. Great Britain's storied leader during the devastating war, Prime Minister Winston Churchill, shockingly was defeated in re-election by Clement Atlee, a virtual unknown outside of Britain. Atlee was the head of the Labour Party, a democratic socialist party established in 1900, while Churchill was head of the conservative party, also known as the Tory Party. After World War II, much of Britain was fed up with healthcare concerns and labor problems, and many people didn't believe that Churchill's Tory party would effect any change. Atlee's socialist party addressed these issues by nationalizing industry and creating a free healthcare system.

The Labour Party nationalized Britain's main industries, including coal, electricity, steel and the railways. Nationalization occurs when the state takes over the means of production and distribution. The idea is that any profits generated will then benefit the country, rather than a wealthy few. Some improvements resulted from nationalization in Britain. For example, coal miners were given paid vacation and sick leave, and their safety became a greater concern. But nationalizing industry turned out to be trickier than anyone initially thought. Industries became inefficient and unprofitable because no competition existed to motivate workers to perform better on the job.

The new government also established the National Health Service (NHS) in 1948, which provided free medical care. The system was extremely popular -- to a fault. Funds allocated for the NHS were used up quickly, having been far under budgeted. But because the program was so popular among the people, it was kept in place, despite the debt it incurred. It remains even today as the only major change implemented by Atlee's Labour Party. Unfortunately, getting medical care under this free system can be a very tedious process with a long waiting time.

Although nationalization and free healthcare aimed to help its people, Great Britain began to suffer steep inflation rates -- as high as 24 percent in 1975 -- and high unemployment rates [source: PBS]. Welfare costs were also draining the economy. The period of December 1978 through January 1979 became known as the Winter of Discontent (an expression that originated from Shakespeare's play "Richard III"), thanks to the many members of the public sector who went on strike, including truck drivers, medical personnel and teachers. To the British people, the Labour Party seemed incapable of controlling the strikes that were affecting the public. Due to this strife, the Conservative Party came back into power when Margaret Thatcher was elected the first female prime minister in 1979.

Thatcher worked to improve the economy through reduced spending in areas like education and healthcare. Although inflation went down, unemployment continued to rise. Under Thatcher's leadership, Britain's government denationalized many important companies, starting with British Telecom. By selling it off to shareholders, the company's profitability and efficiency increased. Thatcher also reduced the power of trade unions to decrease the number of economically devastating strikes.

Though many of her policies may not have been popular, Thatcher managed to resolve some dicey economic situations in Great Britain. Her election was seen as a great victory for capitalism and prompted the beginning of a capitalist revolution of sorts. Countries such as Spain and France began to steer away from socialism and suddenly, the world's socialist population began to shift. While at the end of the 1970s, socialist and communist regimes were in control of 60 percent of the world's population, things were changing --fast [source: PBS].

Socialism suffered major setbacks due to the collapse of communism in the Soviet Union and other Eastern European states. And many other societies followed in Great Britain's footsteps and denationalized their industries. However, some socialist-inspired programs exist today. In fact, any program that calls for the redistribution of wealth can be considered socialist. For example, the tax that the United States imposes on citizens to support the welfare system, which provides aid to financially unstable citizens, can be considered a socialist program. Healthcare systems like Medicare and Medicaid fall in the same category.

Another example of a socialist program is Canada's healthcare system. Proponents of this system argue that it provides free healthcare to those who would otherwise be uninsured or underinsured. They also point to the rising cost of health care in places like the United States, which some believe is caused by profit-driven insurance companies, for-profit hospitals and pharmaceutical companies.

But the grass isn't always greener on the other side. Canada's free healthcare system often delays important medical procedures and treatments simply because it doesn't have the manpower, space and time to handle them. One highly publicized example of this untimely delay is the case of identical quadruplets born in Montana. The quadruplets had to be delivered in Great Falls because no hospital in the entirety of Canada, where their parents reside, could handle their delivery. Every hospital was at capacity at the time. Other inconveniences include the average waiting time for a standard Magnetic Resonance Imaging (MRI): three months [source: Fraser Institute]. Critics of the system insist that while the residents may not pay much up front, they seem to pay for it in terms of delayed care and poor quality of service. The system isn't even actually free -- roughly 22 percent of Canadian tax dollars are used to fund the healthcare system [source: Lehr].

Socialist groups around the world continue to push for reform in their societies. However, they're often counteracted by critics, including the Future of Freedom Foundation, the Cato Institute and Sons of Liberty, many of whom point to what they consider to be the fatal error in socialist thought: How could any truly socialist society succeed without the incentives of profit and constraints of competition to motivate workers?

At any rate, the que­st for a purely socialist -- and for that matter, a purely capitalist -- society has eluded economists thus far. After all, the United States, considered one of the most successful capitalist economies in the world, utilizes a number of socialist-inspired programs to help its financially encumbered citizens. For the time being, at least, it seems that mixed economies, featuring both socialist and capitalist elements, are much more realistic.