Socialism is an economic theory that stresses the ownership of means of production by society instead of private individuals. The core essence or principle in socialism is to shape society based on cooperation and welfare rather than on free market capitalist competition and “exploitation”. This is the textbook definition of socialism. In practice however, it is not clearly defined, is subjective and encompasses a whole range of different economic policies and even exists parallel to capitalism in some countries through what can be described as a pragmatic approach to socialism.
Socialism is thought to impede innovation because it is thought to take away the incentive to innovate as society loses its competitive edge due to collective ownership of means of production rather than individualistic and private ownership. The assumption rests on Adam Smith’s treatise: An inquiry into the nature and causes of the wealth of nations, where capitalism traces its roots. The assumption stresses that human beings are rational actors who want to make wealth and multiply it and are primarily driven by this impulse. This results in supposed benefits for a free market economy as well as society in general when individuals compete to make wealth and innovate in their respective niche to get ahead of their competition.
Capitalists believe that western advancements in technology and other sophisticated services are primarily a result of capitalism. However, people in some western countries, especially the US, are becoming alienated with this predominant economic philosophy. According to a Pew survey from 2010, only 29% of Americans had a positive reaction to the word ‘Socialism’ but as of 2019, 42% of Americans have developed positive views about socialism according to the most recent pew survey. These surveys also show that Democratic Party voters, the bulk of whom are young, form the majority of people who view the socialist theory positively.
The arrival of Joe Biden in the White House also heralded an era that is expected to have left-friendly policies, including strict restrictions on major corporations and giants like Amazon.com, Inc. (NASDAQ: AMZN), Facebook, Inc. Common Stock (NASDAQ: FB), Alphabet Inc Class A (NASDAQ: GOOGL), Tesla Inc (NASDAQ: TSLA), Twitter Inc (NYSE: TWTR) and Apple Inc (NASDAQ: AAPL). President Biden’s choice for FTC head — Leena Khan, a harsh critic of tech companies, who believes markets in the US are “controlled by a very small number of companies” — point to the policies tech companies should expect in the new government.
When the surveyees who viewed socialism positively were asked the reasons of their preference, most said that socialism ensures equitable distribution of resources and gives rise to equality. Although the majority of Americans still prefer capitalism according to these surveys, the majority has become rather thin. The growing alienation with capitalism in the US is attributed to a number of factors including the increasing wealth inequality, job insecurities and inadequate social safety nets.
According to an inequality.org report, the top 1% of Americans have 4 times more wealth than the bottom 50% of Americans. The same report also points out at Covid-19 pandemic effects on wealth disproportionality in the US with the 1% seeing their wealth grow by 29% while millions of people lost their jobs in the first 6 months of the pandemic alone.
But do socialist policies solve these problems? And if they do, is it at the cost of innovation? Can a capitalist economy, modified with principles of socialism do away with the ills of both? The answer isn’t a clear yes or no. A lot of countries have experimented with different versions of socialism with different degrees of policy with mixed results.
No country has ever experimented with pure socialism because of structural and practical reasons. The only state that had come the closest to socialism was Soviet Union and it had both dramatic successes and dramatic failures in terms of economic growth, technological advancement and welfare. In the end however, the state collapsed. Other experimenters like Cuba improved only in very narrow areas like healthcare. On the other hand, some countries are prospering with highest scores in happiness indexes like Sweden and Norway through Democratic Socialism.
Democratic Socialism stresses the need for a democratic society that retains a competitive capitalist market but is complemented with the “ethical” economic ideals of Socialism and while the term Democratic Socialism is interchangeably used with Social Democracy due to identical socio-politico-economic frameworks, the latter theory argues in favor of transitioning to socialism through reform of existing societal structures gradually rather than revolutionarily. (O’Hara, 2003)
Most people believe that China is a purely socialist country which is not true. China practices state capitalism but has integrated their model with some socialist and some experimental policies. However, the Chinese President Xi Jinping has stated that China will have fully transitioned into socialism by 2050. Most countries have simply adapted or modified socialist policies to work with their economic model. So we’d be analyzing different countries with their different models that have adapted to socialism in their own ways.
A successful socialist oriented country could be defined as the one that adopted socialist policies and gained from it without losing anything. In this instance, that means the economic growth was not stunted, the welfare system experienced improvement and the wealth gap was reduced. Below, we outline a list of 15 ‘socialist’ countries that have succeeded and also analyze the extent of socialism in their economic models.
Photo by Egor Myznik on Unsplash
Our Methodology
For our list of 15 socialist countries that have succeeded, we define 4 metrics: innovation index, social progress index, Global Competitiveness and Gini Coefficient index. Innovation, as discussed above, is how much countries’ markets are involved in innovating products and services to solve novel problems and thereby growing the economy. The higher the innovation score, the higher the levels of innovation in the economy. This however, is only possible in free markets so our focus is on free market socialist countries.
Social progress index measures the state’s policies in response to the social and economic welfare of its citizens which include services like healthcare, minimum wage and parental leaves etc. A high score in the social progress index means a socialist oriented welfare system in the state. Global Competitiveness Index measures how competent and competitive an economy is at the world stage.
Gini Coefficient index on the other hand measures income distribution across a population and wealth gap. The higher the Gini Coefficient score, the higher the inequality. This Coefficient was developed by Italian Statistician Corrado Gini. So for successful socialist oriented countries, there needs to be a high innovation score meaning unimpeded innovation, a high social progress score, a good score on global competitiveness and a low Gini Coefficient score. These scores are scaled from 0 to 100.
For innovation, we’d be using The Global Economy scores for different countries. To measure social progress, we’d be using Social Progress Organization results. For Global Competitiveness, we’d be using scores from the Global Competitiveness Report and finally for the Gini Coefficient index of different countries, we would be using the results from World Population Review. However, as socialism relates to low wealth gap, we’d be using the Gini Coefficient as the key metric.
This is a purely research-based article for education purposes. Insider Monkey has no political affiliations and we don’t use our content to promote any political ideology.
With that said, let’s move down to the 15 socialist countries that have succeeded.
Socialist Countries that Have Succeeded
15. Moldova
Gini Coefficient: 25.7
The least significant on our list of 15 socialist countries that have succeeded is Moldova. Moldova was a socialist republic in Soviet Union but after the Soviet collapse in 1991, Moldova became independent and joined the world economy. It started liberalizing its economy and privatized a lot of state companies. However, it didn’t completely do away with the socialist experiment which is still running in parallel to its liberal free market. Its top exports include fine liquor.
According to Heritage’s Index of Economic Freedom 2021, Moldova only scores 50 out of 100 in financial freedom while government spending and tax burden stand respectively at 71 and 94. This implies that the government is spending extensively on public services like healthcare and education while increasing taxes on private wealth and it seems to be working in its favor.
Moldova has a high score of 72.58 in social progress but only 33 in innovation. It ranks 86th in global competitiveness.
14. Armenia
Gini Coefficient: 25.7
Armenia is another former Soviet Republic on the list. The country became independent in the wake of Soviet collapse and followed the path of other former Soviet republics that were part of the Warsaw Pact. It started liberalizing the market and started the privatization process. However, generally the economy still remains somewhat centrally planned. Armenia had developed a robust industrial sector during the Soviet era but after its collapse, Armenia switched back mostly to agriculture.
Armenia hasn’t tapped its true potential due to the ever looming threat of conflict with Azerbaijan with which it has historical disputes that has resulted in border hostilities and outbreak of two wars with one fought recently in 2020. Armenia scores high on social progress at 76.46 but has an innovation score of 32.60. It ranks at 69th in global competitiveness.