American political discourse is populated by many falsehoods. On of these is the decision of some prominent persons to describe European countries or certain American politicians as ‘socialist’. They do this because they feel that these countries have outrageously high taxes and numerous business regulations. In reality, countries such as Denmark who often find themselves victims of this misuse of the word are actually quite capitalist. The correct word to describe capitalist countries such as the aforementioned ones is ‘social democracy’. All social democracies are fundamentally capitalist and thus, it is wrong to classify them as socialist.
A thorough examination of the difference between these words will require a comparison of their definitions as well as practical examples of each system. Socialism refers to the system in which the means of production (businesses,natural resources etc.) are collectively owned instead of being the property of a select minority. Most socialists advocate that the state should act as a trustee for the public and assume ownership of the means of production on its behalf. Thus, it has been established that under socialism, there is no private ownership of companies and everything is collectively managed by the state. Social democracy shares the egalitarian aim of Socialism but it attempts to promote societal equality within the context of a market economy. In a social democracy, large welfare states exist to facilitate the achievement of such goals but private enterprise is not abolished. In fact, private enterprise continues to constitute a greater portion of the economy than the public sector in these countries. Thus, large welfare states and regulations do not merit the description of ‘socialist’. These things exist in capitalist societies as well. The true metric of whether or not a country is socialist is the percentage of its economy contributed by the public sector. Ignorant pundits outraged by high levels of taxation and expenditure should engage in a cursory google search before making fools of themselves by mislabeling a country. In order to fully illustrate the differences between the aforementioned systems, I have selected the Soviet Union as my socialist template and modern Denmark as the social democratic candidate.
In the USSR, all large businesses were under the control of the state. They were managed by the Soviet central planning agency, Gosplan. The private sector was tiny and its contribution to GDP was dwarfed by that of state enterprises. Additionally, the USSR also instituted a cradle-to-grave welfare state in pursuit of the egalitarian goals of its ideology. (Note: I am neither writing in favor of command economies nor dismissing Soviet human rights violations. The fact of the matter is that the goals of socialism at its inception were to raise the living standards of an exploited proletariat.) Under this extensive social service system, the state used its resources to meet the basic needs of all citizens. The Soviet system promised a right to health services, social security, education and most significantly, it guaranteed employment to all workers. Thus, we can clearly establish that in the Union of Soviet Socialist Republics, the state controlled all businesses through centralized planning and guaranteed numerous social services to its citizens.
Denmark’s public sector is one of the world’s largest today when measured in terms of percent of all workers employed by the government. In Denmark, this number is a staggering 29.1 percent (which dwarfs both the United States and Canada who rank at 15.3 and 18.2 respectively). However, there is another way to view this number which paints a different picture about the country. 29.1% public sector employment implies that 70.9% of working people work under the private sector. In other words, despite the state’s massive economic presence, the private sector contributes vastly more to the economy than the government sector. Under socialism’s definition, collective ownership of the means of production does not exist in this country. Since the primary employer in the Danish economy is the private sector, it would be correct to describe Denmark as a fundamentally capitalist country. However, Denmark and many of its European neighbhours fall under the more specific label of social democracy because their approach to economic life is not entirely the laissez-faire path advocated by classical liberals. As mentioned earlier, the state’s direct influence in the economy is quite large. Additionally, the Danish state provides a plethora of social services such as free education(up to the collegiate level) and healthcare. It also has laws mandating a 37 hour work week and a year’s worth of paid parental leave. However, there are no extreme policies like guaranteed employment and thus, the Danish welfare state is not as expansive as that of the Soviet Union. In spite of these differences, foreign commentators in the United States still see fit to call the country ‘socialist’. Clearly, their use of the term is incorrect. Denmark is capitalist at its core and they should recognize this. In fact, it will come as a surprise to some people that Denmark(12th) is actually ranked higher on the Index of Economic Freedom than the United States(18th). One point to remember is that Denmark is a member of the European Union and thus, the twenty seven(soon to be twenty six) other member states have tariff free access to Danish markets while Denmark is given this same access to their markets. Delving further into the Economic Freedom Index, we discover that Denmark is ranked as ‘mostly free’ under the category of regulatory efficiency as is the United States. How can a country with a small regulatory burden and free trade policies be ‘socialist’? States like Denmark prove that welfare states can be established without destroying ease of doing business for private enterprise.
Socialism is well-intentioned but impractical as demonstrated by the failure of the command economy in the USSR and China(under Mao). In contrast, unregulated capitalism can produce massive economic growth but it is the natural tendency of a market economy to generate disproportionate gains for a minority while the majority is left to envy and resent this capitalist class. A social democracy strives to achieve the best of both worlds. It synthesizes the power of capitalism to generate prosperity and socialist wealth redistribution to ensure that the greatest number of people in society can enjoy the fruits of economic growth. The instrument of redistribution is high taxation to fund welfare states. Let it be known that a welfare state does not constitute ‘socialism’ alone. A socialist state is one in which the government has ownership of all businesses and private enterprise is non-existent. Socialist countries are few in number nowadays. North Korea might be considered the last one while China and Vietnam seem to have abandoned the egalitarian aim and have become proponents of state-sponsored capitalism instead. Meanwhile, social democracy is thriving(ex:Scandinavian countries, Germany, France) and shows few signs of unraveling like Soviet-style socialism.