Which Countries Are Actually Socialist?

Socialism is having another moment in U.S. politics. Politicians and activists increasingly describe themselves as socialist while their opponents use the same label as a term of condemnation. Yet both sides employ the word so loosely as to become meaningless. Sweden gets called socialist because it has high taxes and universal health care; Venezuela does because the government nationalized industries and imposed price controls. The rise of the phrase “democratic socialism”, which lumps together two unconnected words, adds to the confusion and makes debate difficult. Before deciding whether socialism works, we ought to determine what it actually is—and which countries practice it.

The traditional definition is primarily about ownership and control of the economy, not simply government spending. Under capitalism, productive assets—businesses, factories, capital—are largely private-owned and directed through markets. Socialism seeks to replace private control of this “means of production” with social ownership, be it direct government ownership, worker-owned enterprises or other collectives. A government that owns major industries and directs production is practicing socialism, while a government that leaves companies privately-owned but taxes and redistributes their profits is not. 

That brings us to a test: which countries actually embody socialism? American proponents frequently point toward Scandinavia—especially Denmark, Sweden and Norway—as evidence that socialism causes prosperity. Opponents are more likely to mention authoritarian Third World examples like Venezuela, Cuba and North Korea, pointing to shortages and economic stagnation. These examples could hardly look more different, so let’s analyze which side has the better claim.

Start with Scandinavia. Denmark, Sweden and Norway certainly have “big government” characteristics: high taxes, generous transfer payments, heavily-subsidized health care, extensive public services and powerful labor unions. Norway also has unusually extensive government ownership of its petroleum. But the underlying Nordic economic model remains substantially capitalist. Private companies employ workers for profit, entrepreneurs can start businesses, property can be privately owned, prices are overwhelmingly determined through markets and Nordic companies compete in international commerce. 

Scholars characterize the Scandinavian system as welfare capitalism, combining markets with extensive redistribution. Interestingly, countries in the region sit near the top of the Heritage Foundation’s economic freedom rankings, as their high tax burdens are offset by strong judicial and property rights frameworks.

Crucially, they themselves disavow the socialism label; former Danish Prime Minister Lars Løkke Rasmussen, responding to American leftists, said that his country was “far from a socialist planned economy. Denmark is a market economy.” 

The countries that are usually cited by socialism’s critics fit the label much better. Cuba’s constitution explicitly describes its economy as socialist, establishes government ownership of property, and makes government planning and pricing central to economic management. While some liberalization has occurred recently, these ideals have prevailed for over half a century following the Cuban Revolution. 

North Korea’s constitution, presented in 1972, is even less ambiguous. Titled the Socialist Constitution of the Democratic People’s Republic of Korea, it enforces similar top-down protocols.

Venezuela’s flirtation with socialism was more recent, but was in fact extreme, as Hugo Chavez’s United Socialist Party nationalized hundreds of private businesses and foreign-owned assets; expanded state control of oil, electricity and telecommunications; and used petroleum revenues to fund extensive social programs. 

There is also an important rhetorical difference: unlike Scandinavian governments, these governments explicitly and comfortably state their political projects as being socialist.

But even these experiments, along with prior ones from the Soviet Union and elsewhere, come with caveats. First, these countries end up developing huge informal economies, showing that makeshift capitalism ultimately rises up to circumnavigate the failures of socialism. Secondly, these experiments faced crackdowns from Western powers via sanctions, embargoes, and military intervention. Socialist defenders therefore argue that the resulting failures cannot be attributed to socialism itself, since these systems developed under hostile circumstances. This is their basis for claiming that “true socialism has never been tried.”

The larger lesson here is that almost no modern country is completely socialist—even ones that set out to be must, for various reasons, ultimately default to some degree of market liberalization. 

Nor do market-based countries become completely free of socialism. The U.S. itself contains large sectors defined by government control. National defense and intelligence are clear examples. Medicare and Medicaid socialize substantial portions of health-care financing. Social Security provides government-run retirement benefits. Public schools are overwhelmingly government-owned and taxpayer-financed. Even seemingly trivial examples, such as sports stadiums, embody a socialist or quasi-socialist (e.g. public-private partnership) model.

I’ve argued in this column that such programs do not work particularly well, encouraging overconsumption, causing distortions and amounting to redistribution to politically-favored groups. Importantly, the resources to sustain these programs come from the enormous productivity of America’s private sector. Government can redistribute resources, but must first have an economy capable of producing them.

The best exercise—whether someone hates socialism, or, especially, if they like it—is not to point at an entire country and declare victory, since no country provides a clean experiment. The best exercise is to examine socialist institutions within any country and ask whether they work compared to adjacent private ones.

For a U.S. socialist, this means examining whether your public school achieves, on a dollar-for-dollar basis, better educational outcomes than the local private school. Or asking a group of retirees whether they feel their money went further these last few decades by contributing to Social Security versus their 401k. Or even asking themselves whether they would prefer shipping an important piece of mail through FedEx or USPS. 

Advocates and detractors, alike, of socialism don’t even need to look abroad, at countries they’ve never visited nor very well understand. They can look at many isolated examples of socialism in their own communities to see if it actually works.  

Cover image license: CY BY 3.0 – BR