Update > Socialism-influenced Economic Systems

Socialism-influenced Economic Systems

2022-08-29

Socialists argue that free market systems are unfair because systems based on liberal capitalism will always lead to exploitation of the poor by the rich. They say that in most countries (and especially in developing countries) employers will be able to pay whatever they want to workers because the workers need a job much more than the employer needs an employee. In this situation, the rich (employers) continue to get richer while the poor (workers) continue to be poor. Socialists claim that economic activities need to be controlled to promote social justice.

Socialists say that taxes should be used to redistribute wealth

Socialist economic systems try to stop this exploitation by redistributing resources and opportunities to the poorest members of society to achieve greater equality. This is achieved by “progressive taxation” where the proportion of tax that people must pay increases based on how much income they receive. This means that people who can afford education, health care and other services are taxed more to support people who are too poor to afford them. The government uses the money from taxes to provide social services to people who cannot afford them. Progressive taxation is not only found in socialist economic systems, but the amount of tax that rich people have to pay can tell us something about how “socialist” a government is.

Case Study: The Nordic Model

The Nordic countries, such as Iceland, Sweden, Norway, Denmark, and Finland which employ a system known as the Nordic model. The Nordic welfare model refers to the welfare policies of the Nordic countries, which also tie into their labor market policies.

While there are differences among different Nordic countries, they all share a broad commitment to social cohesion, a universal nature of welfare provision, providing protection for vulnerable individuals and groups in society, and maximizing public participation in social decision-making. It is characterized by flexibility and openness to innovation in the provision of welfare. The Nordic welfare systems are mainly funded through taxation.

The Nordic welfare state aims to work together with the market economy, not against it. The Nordic countries attempt to balance the fact that international openness is the only guarantor of material wellbeing; but, in contrast to many other countries, they also have understood that the continued success of premarket policies requires popular consent. This means that the fruits of openness must be shared between citizens. They aim to use the global economy to become wealthy, but they also pool the risks and share the fruits of this inherently risky undertaking.

“The Nordic Model Embracing globalization and sharing risks” characterizes the system as follows:

  • A social “safety net” to protect citizens from poverty in addition to public services such as free education and universal healthcare. Strong property rights, contract laws, and laws that make it easy to do business.
  • Public pensions
  • Low barriers to free trade combined with social programs and institutions to protect workers from the risks associated with economic openness.
  • Little product market regulation.
  • Low levels of corruption.
  • A partnership between employers, trade unions and the government, whereby these social partners negotiate the terms to regulating the workplace among themselves, rather than the terms being imposed by law
  • The large number of public employees.
  • Public spending in social transfers such as unemployment benefits and early retirement programmes is high.
  • High public expenditure for health and
  • The Nordic countries received the highest ranking for protecting workers rights on the International Trade Union Confederation’s 2014 Global Rights Index.

Source: The Nordic Model: Embracing Globalization and Sharing Risks

Socialists say that economic planning focuses on the needs of the people, not the needs of businesses

“Economic planning” is when a government makes plans about what goods to produce, how to produce them and who to produce them for. The goal of these plans is to manage the economy based on the needs of the people and also on economic goals that aim to develop the country. Economic planning is a very complicated process. It requires thousands of government workers to carry out all of the calculations that are needed to plan and manage an economy. Nationalisation is an important part of many planned economies. Nationalisation is when businesses or industries are controlled by the government, not by private individuals or companies. The government tries to make sure that the country’s wealth goes to the people of that country, not to foreign companies or domestic citizens who are already very rich. Many governments also use regulation of private companies to achieve these goals (McLaughlin 2013: 46-49).

Case Study: The Norwegian Oil Program

Norway is generally considered to be a country that has managed to harness the petroleum resources for the benefit of its people. Norwegian petroleum management has been characterized by strategic state ownership, strong and competent institutions, a continual build-up of technical knowledge, an advanced regulatory system with high respect for the environment and HSE (Health, Safety and Environment), and perhaps above all: society’s determination to secure control over the petroleum resources.