All material human needs and desires are satisfied by two forms of production—agriculture and manufacturing. In the economies of North America, Western Europe, and Japan, these two means of production are mostly privately owned. When Communism dominated Eastern Europe and the Soviet Union, most of the means of production in those countries were owned and operated by the state. A theory that advocates state ownership of the means of production, or a system based on such a theory, is called socialism.

Historical Background

The control or management of economic functions by the state is as old as human societies. From ancient times until well into the 19th century, most people were subjects, not citizens, of their states. Their persons and property could be put into the service of government at any time, and wealth tended to travel from producers to nonproducers—government, the military, and religious leaders.

Socialist ideas have appeared in writing since the time of Plato (see Utopian Literature). The modern doctrine and practice of socialism has, as its aims, economic, political, and social justice for all people. The possibility of achieving these aims was first envisioned in the last quarter of the 18th century, a time of extraordinary social and political upheaval. Socialism grew out of the French Revolution and its intellectual ferment and demand for equal rights, absolute democracy, and the redistribution of property.

To understand socialism it is first necessary to appreciate the revolutionary impact of capitalism on European society. From its emergence late in the Middle Ages through the Industrial Revolution, capitalism (or the market economy) broke all the social bonds that had been forged during the Middle Ages. The class structure, in which everyone had a fixed position and individual responsibilities, was demolished (see Feudalism). For the first time a large class of factory workers emerged whose livelihood depended on wages. They were, in all other respects, propertyless in that they owned no means of production. The value of their labor was commandeered by the capitalists for profit, while wages were kept as low as possible. (See also Capitalism; Industrial Revolution.)

Socialists saw the possibility of class conflict in this new economic structure—a conflict between the masses of exploited workers, who were called the proletariat, and their capitalist exploiters. Socialists predicted the eventual transfer of the ownership of private property—the means of production—from the owners to the workers.

Types of Socialism

Socialism originated in France and England at about the same time, but it took different courses in each country. The most complex development was in France, where several different schools emerged. From France the doctrines spread into Germany, where they were absorbed by Karl Marx. In time he came to dominate the whole movement. After him socialism would always be defined as either Marxist or non-Marxist. (See also Communism; Marx.)

It is believed that the word socialist was first used in the radical British journal Co-operative Magazine in 1826. The origins of the doctrine, however, were in the 1790s; and, as ideas about economic justice began to spread, they developed along different lines. Most forms of socialism could be classified as either reform or revolutionary socialism. The chief reform movements were utopian socialism, Christian socialism, and democratic socialism. These movements called for the gradual evolution of the economy from capitalist production to a system of worker or state ownership. Revolutionary socialism, on the other hand, was uncompromising. It predicted and demanded a violent overthrow of the capitalist system.

Crisis of 1848 and Aftermath

Despite all the socialist enthusiasm in Europe during the 19th century, no nation adopted the economic system. Socialist parties were in the minority but were regarded as a serious threat by both government and capitalists. The year 1848 was a critical point in socialist history. A series of revolts broke out against European monarchies, beginning in Sicily and spreading to France, Germany, and the Austrian Empire. The revolts failed, and all liberals and socialists were disillusioned by this failure. From 1848 socialism made no great gains until the Russian Revolution.

Socialism itself persisted in a variety of national political parties. In the early years of the 20th century socialism became a powerful parliamentary force throughout Europe, and it was this force that would eventually undermine revolutionary socialism everywhere. Governments—seeing the threat proposed by socialists, Communists, and anarchists—began to adopt programs of social reform that would in time create welfare states throughout Europe and in North America (see Welfare State).

Socialism, however, did persist. After 1848, the year in which Marx and Friedrich Engels published their ‘Communist Manifesto', the movement came to be dominated by Marx. In 1864 the International Working Men's Association was formed to unite socialist groups in all countries and to create a feeling of solidarity among workers everywhere. Although Marx was not one of the organizers, he soon became the leader of the association. This organization, usually remembered as the First International, dissolved in 1876 because of internal dissension. The Second International was founded in 1889. Its purpose was to build a united class feeling among workers and to use this solidarity to prevent war. If hostilities threatened, the workers might prevent the struggle by refusing to serve as soldiers.

This thesis, when put to the test at the onset of World War I, failed completely. Socialism proved far weaker than nationalism, and workers eagerly joined the armed forces of their respective nations and marched off to do combat. The war also brought a definite separation between the Marxists and other socialists. Within the Marxists there was a further division, with Lenin leading one of the factions. He rejected both nationalism and pacifism and urged the transformation of the war into a worldwide class war. Once Russia had become a Marxist state, a Third International was set up with its headquarters in Moscow. It purported to speak for all socialists, but its uncompromising advocacy of revolution everywhere alienated other socialists. (See also Lenin.)

After World War I

Outside the Soviet Union socialism made significant but peaceful gains in other nations, notably in the Scandinavian countries. But its further advance was held back by the appeal Communism had for workers in several nations. It was also halted in Italy by the rise of fascism and in Germany by Nazism. (See also Fascism; Hitler.)

After World War II, socialism made steady advances around the globe, mostly in its revolutionary forms. All of Eastern Europe became Communist. Coalition governments of socialists and other parties were set up in Italy and France. A Communist revolution succeeded in China in 1949. Many newly independent nations in Africa turned to socialism as a means of economic development. Wars of national liberation brought Cuba and Indochina into the Communist fold.

In Great Britain a non-Marxist type of socialism was installed by the Labour party after its victory in 1945. The government nationalized several industries including coal, railways, road transport, and steel. It also passed a variety of social legislation, including a national health program. For the first 30 years after World War II, it seemed as if socialism was on the march. Even nonsocialist nations—such as West Germany, Japan, and the United States—adopted wide-ranging social programs.

Then, very quickly, the tide turned, and socialism was on the defensive everywhere. Three unrelated events pointed to the change. In 1976 Mao Zedong died in China; in 1979 Margaret Thatcher became prime minister of Great Britain; and in 1985 Mikhail Gorbachev became the leader of the Soviet Union.

Great Reversal

By the mid-1970s the verdict on socialism was in: it had not lived up to its promise; it had not worked well anywhere. The Soviet Union, which was to have become a workers' paradise, had an economy that was falling farther and farther behind those of Western nations. China, under Mao, was in an economic tailspin. Its levels of productivity kept it an underdeveloped nation. The standard of living in Eastern Europe was far lower than in Western Europe. In African nations that had adopted socialism, the economies were foundering at best. The economy of Great Britain was severely depressed. Socialist experiments in France in the 1980s under François Mitterrand were proving unworkable, and unemployment was increasing. In comparisons of standards of living between market-oriented economies and socialist economies, the market economies consistently achieved far better results in spite of periodic crises. This situation led to an attack on certain socialist practices, both from those who were always opposed to those practices and from socialists themselves.

The first major assault was launched in China after Mao's death. Under the leadership of Deng Xiaoping, private enterprise was encouraged, and the results greatly improved China's productivity (see Deng Xiaoping). In Europe the new breed of socialists, such as Bettino Craxi in Italy and Felipe Gonzalez in Spain, rejected the old doctrines of nationalization of industry and central planning. Instead, they tried to revitalize their economies through more traditional market-oriented approaches.

Most surprising of all was the undermining of socialism in the Soviet Union by Gorbachev. His drastic programs of economic reform and social openness—glasnost and perestroika in Russian—were beginning to undo 70 years of rigid state planning. A law making companies responsible for their own profits or losses went into effect in January 1988. It freed companies from the daily supervision of central planners. (See also Gorbachev.)

In spite of the remarkable changes in the socialist world, the most serious attack on socialism came from Margaret Thatcher in Great Britain. She became the Conservative prime minister in 1979 and was reelected in 1983 and 1987. During her terms of office the government denationalized major industries, including British Airways, Rolls-Royce, and British Petroleum. She also weakened the power of the labor unions. Yet Thatcher kept and supported the social-welfare programs legislated by previous Labour and Conservative governments. Thatcher's programs had mixed results. Unemployment continued to be a problem, and the distribution in incomes became more unequal; however, industries that were languishing were turned around, and British productivity increased dramatically. (See also Thatcher.)

In the Far East the weakness of socialist economics was glaringly apparent in comparison with the enormously successful market economies of Taiwan, Hong Kong, Singapore, and South Korea. The socialist regimes of Vietnam, Cambodia, Burma (now Myanmar), and North Korea were struggling to prosper.

There are several reasons for the failure of socialism. Primarily, the prediction by Marx that the working class would sink continually deeper into poverty and misery proved untrue. Social legislation, much of it passed out of fear of socialism, gradually improved the lot of workers in the industrialized nations. Market economies consistently raised the standard of living for the workers, and prosperity lessened their desire to undermine their governments. Another reason for failure lies in the fact that the interdependent world economy is a market economy. Socialist nations engage in trade on a market basis—buying and selling for whatever prices commodities will bring. There is no international central planning.

While socialism has persistently sounded the call for economic justice, it had no economic means for achieving its goal. State ownership and central planning made economic calculation impossible, as Austrian economist Ludwig von Mises demonstrated as early as 1920. With no price mechanism to indicate the relative costs of labor, resources, machinery, and other factors of production, everything was planned on the basis of guesswork. Individual choice played no part. All prices for goods were simply set by the government and frozen there. No proper allocation of resources was ever possible. Yet socialism was responsible for the emergence of the welfare state in Europe and North America. Even where the welfare state has been most actively introduced—Sweden, Great Britain, Germany, and North America—it has proved a severe financial strain on societies, while failing to realize its goal of economic equality through redistribution of wealth. Useful books on socialism are ‘The Communist Manifesto' by Marx and Engels, in many editions, and Warren Lerner's ‘A History of Socialism and Communism in Modern Times: Theorists, Activists, and Humanists' (Prentice, 1982).