Why Socialism Fails: A Parable

This is a parable that succinctly illustrates why socialism fails. It fails because of one fundamental feature of human nature: people respond to incentives. Actually, the most important lesson one learns from a study of economics is just that – incentives matter. Here’s the story.

An economics professor said he had never failed a single student before but had, once, failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

But, as the second test rolled around, the students who studied only a little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied less than what they had. The second test average was a D! No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else. All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.

[I am not entirely sure which source to credit for the story. It seems that this could be it but I don’t know.]

The idea of sharing stuff equally is not a bad idea, actually, if it is confined to a small closely-knit group of people who all care for each other deeply – as in a family. The usual problems associated with interactions among large anonymous groups of people, problems identified as “prisoner’s dilemma”, or “the tragedy of the commons”, don’t usually arise in such small persistent groups. In any case, free-riders in small groups can be easily identified. Also, most people value the welfare of their own family members more than they value the welfare of strangers. That curbs any impulse to free-ride.

Indians need to understand why socialism fails. That is a necessary, although not sufficient, condition for India to get out of poverty.

36 thoughts on “Why Socialism Fails: A Parable

  1. The experiment you described is very likely from Dan Ariely’s book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (Ariely 2008).

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    1. Kaffir wrote:

      The experiment you described is very likely from Dan Ariely’s book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (Ariely 2008).

      Thanks, Kaffir.

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  2. I think the problem with Socialism is not that it does not provide incentives. It provides some sort of a perverse incentive.

    The incentive is to get as close to the median (actually average in this case would be better).

    This is probably one reason why Socialism as an idea will remain long after we are gone despite clear evidence of its failure. It rewards a lack of merit. And since the majority would like to get something for nothing, they prefer Socialism. Of course you know this, but this point should have been brought out in your post.

    This is also the reason why India remains, at its heart, a socialist nation. It is very difficult to convince someone with minimal knowledge of economics (which even our most “educated” people have) that competition and choice is good. We are hardwired to believe that there is always one single pie and more competition means that one’s own share of the pie will be reduced.

    And the only way, we can challenge this is by making people (and I mean the ones who vote) very clearly understand that Govt. handouts and doles are simply a way of making them progressively and increasingly dependent on these. Again, the typical Indian would rather look at short term benefits rather than long term ones.

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  3. This was a very good example, indeed.

    Another good, but longer and more elaborate illustration of how socialism fails, which you anyway must know, comes from Ayn Rand’s Atlas shrugged, where in she’d described the policies of a motor-making unit, and the psychological impact it had had on workers and their family members. That example was so perfect, I can’t understand how sane people could disagree with it, and yet bat for socialism/communism.

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  4. I am a staunch believer in incentives too, but your analogy is childishly naive. Infinitely more sophisticated material abounds for and against socialism.

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  5. Incentives are ok. But upto a certain point. Just ask what compelled mathematicians, physicist, writers, etc to work much harder, to burn the midnight oil. It wasn’t fame/material riches/facilities. They did so because of their love for specific fields. They were in pursuit of knowlegde.

    In scriptures, it is mentioned that there are 3 kinds of happiness or pleasures. First is material pleasure like having a 46-inch 3D-LED TV to watch HiDef Avatar movie :). Second is mental/emotional pleasure. Best example would be tendency of lovers to give gifts to each other or the love of child in the heart of mother. Third is intellectual pleasure. Scientists working for pure knowledge. No amount of material satisfaction could match up for the “Ahhh” moment which Einstein had when he discovered Relativity.

    Just have a look at Scandinavian countries. They have around 50% taxes but still people are happy and not cribbing about high taxes. Because government provides for all the basic facilities at a very low cost. Housing, public transport, free education, etc are almost free to all the citizens.

    Maybe your definition of Socialism of everything should be strictly equal is what causing you to think that way.

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  6. Dinesh,

    Responding specifically to your point on scientists not requiring monetary incentive, I’ve few things to say:

    1. Not everyone fits the bill. The idea that only those who are willing to contribute to science despite hardships are dedicated scientists is not a good one. Let, knowledge be an incentive, but we can still have additional incentives. That would attract even those who love research but abhor hardships. Remember, mere dedication does not equal brilliance. And more the number of scientists involved better would be the odds of new discoveries/inventions.

    2. Incentives are not required only for those who do research, but also for those who finance them. The days when research could be carried out merely by tinkering with toys in dingy laboratories are over. Almost no real research can be done with just pen & a paper.

    3. Those who’re happy with other spheres of life are likely to contribute with greater enthusiasm for longer periods.

    4. Monetary incentives is not merely a tactic, but ethically speaking, is a return from the society to innovators for bringing new ideas into the world. A doctor might be interested in social service, but that’s not to mean he must not be paid for it (though, that’s what government seems to be thinking)!

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  8. Hi Ketan,

    Thanks for responding but I think you misunderstood me. I am not against incentives. But I disagree with the author about Socialism being a failed system. We have a working model right in Scandinavian countries.And those countries have employed incentives in ways that has helped society on the whole. Foods with additives are highly taxed while green vegetables, natural foods are subsidized. Public transport is encouraged while 100% tax is levied on luxury cars.

    Maybe we disagree on what constitutes Socialism. I don’t go by the book definition. I can give you a personal example. My sister developed a very complicated condition in her stomach. She required an operation which would have cost 2 lacs in private hospitals but because my father is in Indian Railways, we could do the operation at a very nominal cost at one of the Railway hospitals.

    My point is if government is making sure that all its citizen receive basic needs at a nominal cost then it is socialist government.
    To rephrase, all I am saying is that government should make sure that all its citizen are above a certain established baseline. Above that baseline “inequalities” can flourish so to say. And from time to time those baselines should be revised i.e raised. For example, Finland makes having a 1MBPS broadband connection to every citizen as a legal right.

    As a rule I never believe in ultimate applicability of stories/analogies/morals, because all of these are context dependent. You will find the reason why in my blogpost
    http://dineshdharme.blogspot.com/2010/07/morals-and-their-context.html

    Let me tell you another story (albeit an extreme one) about the same class. The teacher is very cruel. He announces anyone getting below D will be stoned to death ( stoning is in fashion these days so yes why not). Naturally, every student will try his best to do in studies. But unfortunately some students are not able to clear it (may be because of medical reasons). These students are now facing death. But there is another rule which the teacher announces after the test i.e students can trade grades. i.e they can give grade points to weaker students (to make it more than D) so that they avoid death penalty.
    I end my story at this point. You could guess what could have happened.

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  9. What that parable describes is not socialism.

    “Socialists advocate a method of compensation based on individual merit or the amount of labour one contributes to society.” – wikipedia

    Socialism isn’t about everyone gets equal benefits, it’s quite the opposite, it’s based on the idea of those who CREATE the wealth, the working class, should be the ones receiving it, rather than having it passed up the ladder to the “owners.” But it doesn’t mean that everyone gets paid equally, or that everyone benefits the same, it isn’t “lets all work together for the common good and then well divide all the results equally amongst ourselves.” That would be COMMUNISM, which has a different name for a reason.

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  10. what is your opinion about Unemployment benefits given out by the Capitalistic countries? Isn’t that a crude form of socialism?

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  11. @kaffir that experiment is not part of ariely’s book. besides, i doubt any american university (esp duke/mit where ariely has worked) would take kindly to such an endeavor.

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  12. Hi Atanu,

    Your story seems a bit farfecthed. But more that, the conclusion that you’ve drawn from it. The best of students (I’ve been one a point of time, and have studied among and seen quite a few in any case), invariably study for the sake of knowledge. In any case, socialism here would mean that the university enforcing particular courses to be taken by particular number of students, enforcing research in particular strictly pre-decided areas only, etc. I do not see any logical connective linking socialism to equal grades being given to students irrespective of merit.

    You have hypothsized what would happen in case equal grades were given to all students. In ‘Zen and the Art of Motorcycle Maintenance’, Pirsig has described a similar case where NO grades are given to students. The results, i.e. the increase in knowldedge content of the students are poles apart in both cases. See http://techforschools.com/handouts/zenartofmotorcyclemaintenance.pdf
    Pages 8-11.

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  13. To add to Aniket’s comment:

    I think the word “socialism” has become so debased that nobody understands what it meant or what was its objective.

    The CORE component of socialism is not “distribute everything equally no matter what”, the core component is “worker’s control over means of production”, or in other words “those who work in the factory ought to own it”.

    The equivalent here would be students deciding amongst themselves what the course curriculum should be, how much and what they should study. They should organize themselves into groups (the equivalent of trade unions and local chapters of trade unions). The “professor” here would be somewhat like a graduate school advisor – helping students discover new stuff.

    Nothing in the principle says that people are allowed to slack off and not do any work. Of course there are many other things a “socialist” class must implement which I’ve not mentioned.

    To come back to the real world…how many factories in India were owned by the “workers”? Did they run the day-to-day activities of the factory or did some government beuraucrat or manager do? Did the trade unions

    To also come back to the real world, there are indeed many schools where grades are not given and students manage to succeed in later life, however you define “success”.

    The main point in this story is that there never was “socialism” in India. It was some form of statism.

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  14. I lived in East Germany for a while and one of their jokes was:

    “Capitalism is the exploitation of man by man. …under Socialism, of course, it is the other way around.”

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  15. Has Atanu bothered to ask why socialism is required or why it arises?

    Socialism is required or it arises when capitalism fails to do its job, when the usual downstream flow of rewards is clogged by cartelisation, cronyism,and assorted diseases.

    But then people like Atanu are blind optimists, not only are they blind to structural defects that creep into capitalism and cripple it, but they are also like the proverbial ostriches who think that dunking their head in sand will make problems vanish.

    Nobody is crying for socialism per se, they are only asking for equitable distribution of rewards and when that fails, some kind of socialism is going to rise, like what has been witnessed in Latin America, where capitalism was blamed for many recent economic ills.

    Socialism is a corrective, and needs to be taken in that aspect. And the ideas that underlie it,like the equality of man are not bad, they are worthwhile, and are uplifting.

    Just because one asserts something does not mean one is right. and analogies, they get one only that far.

    And Atanu has been in this mode since time immemorial, so no point contesting him. It might be worth our while if he exits this mode and does a little deeper thinking about issues.

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  16. I agree.. Socialism fails.. Just few questions to those who go ga-ga over socialism:
    i) Would you like a less educated doctor to perform your surgery or the one who studied a lot..
    ii) Why you want to buy a car which is best… not any one..
    iii) Why you want to marry a beautiful and sarv gun sampan girl.. Why not the one who is ugly (???)
    iv) Why people run to US or countries which are capitalist..
    V) Why China labors are the most ill-treated… many journalist are murdered and farmers are killed if they don’t give land to goverment.. ???
    vi) Why West Bengal failed as a state.. after being ruled by COmmunist ??

    Reasons why it fails:
    i) People study hard because of competition.. yes many people study for their own.. but most of us study only when their is pressure.. Why students from Middle class or lower class study most of time.. Because otherwise they cann’t survive.. Why our Rahul baba failed.. even when he has gene of best (who ruled our country.. specially when someone still consider Nehru to be Chacha 😉 )….
    ii) We want best.. this is our nature.. so than how we can be lazy… Communism also means marrying not beautiful girl.. but how many of you will do this when you have a choice between beautiful and not beautiful.. Specially when you don’t know their nature ??
    iii) Those states which were under quotas/communist are the most poor… because they were not able to invite companies and eventually.. there were no jobs… no jobs.. no good teachers.. no good teachers.. no education.. I have meet many people from these states.. who are now well educated.. they talk about socialism but they don’t want to go back to their states…. why ?????????

    There is one famous saying.. the people who are weaker.. when given power.. are the most dangerous.. Only those people should have the power who are strong…. A weak teacher.. A weak doctor… A weak bureaucrat.. A weak Businessman.. A weak student.. A weak Engineer.. A lazzy worker.. All are the perfect combination to stop a country from progress.. This is what communist/quota has given to us… Human nature is bad.. who so ever.. get power get corrupt.. I agree capitalist is bad.. but socialism is worse.. because.. it takes freedom and pay nothing……. Capitalist make unequal rich… while Socialism make equally poor…

    Also, when government use to control petrol price.. there were long line for petrol and people never get LPG.. but now.. everyone get.. and with this.. our pay also increase… I still remember.. when there was ration.. people use to stand in long line for rice/ wheat/ floor and most of time it was sold already or was of bad quality… but when government end her control.. quality increased and there was no shortage… I have many examples to give just from my 27 years life.. that Socialism is totally failure…

    Regarding the grade system.. I don’t agree.. getting D or F grade is just like failing…. it will do no wonders… Also, for suicide.. I blame parents.. not the competition…. We should teach the kids to take failures like a winners… and also we need to have attitude that education is important but marks don’t mean education.. Many educated person can’t use their brain.. while many uneducated are more intelligent..

    Sorry for long comment.. but I was hurt when I see so many thinking socialism as their future.. COme on guys.. don’t do the mistake which our politicians did to our society……….. Just think.. we were able to afford cars, good grains.. good life only when capitalism arrived…….

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  17. First, let me say that I support a form of market socialism. I basically believe that companies should be run collectively by their workers, but that those companies should still function in a market. I also believe in some principles of social democracy, such as that healthcare should be run by the government. I support socialism because it is the only fair way to run society. It’s a system in which people don’t make money on the work of others. Lots of people (specifically USA) will try to twist that around and say that socialism is making money on the work of others, and that capitalism is about succeeding on your own merits, but that is just blatantly false. When a lower-level worker gets paid very little, and an executive gets paid excessive amounts of money, that’s not fair. I’m not saying that everyone should be paid equally, but what I am saying is that when one guy in a company makes minimum wage, which is not nearly enough to live on, and another guy gets a $50 million bonus, that is exploitation, and that is making money off of other people’s work. First of all, that is morally wrong. Secondly, that makes it impossible to climb the “social ladder.” Once again, people will try to twist that around and say that in socialism there is no social ladder or incentive to succeed because you can’t move up in the world. On the contrary, it is much more possible to advance in a socialist economy than in a capitalist economy. A minimum-wage worker in a capitalist economy has few or no rights in his company; he could be laid off at any moment in the name of profit. Additionally, without a decent wage, he can’t live a decent life, and he can’t get a good education. Without a good education, how can he expect to get higher level employment? Capitalism is wrong in every way. Socialism is morally right, and ensures that everyone can have a good standard of living and has a chance to succeed.

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    1. Kindly ask socialist Russia and China why millions of their people died when they were following socialist policies and how morally right socialism was for them. Also, kindly ask them why they moved away from socialism if it was so very wonderful.

      There are free market solutions to whatever problems you have mentioned. They are not inherent to capitalism. And, countries like USA are not capitalist anymore. Crony capitalism and creeping socialism are problems that it is suffering from. One must differentiate between those conditions vs capitalism per se.

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      1. Socialists believe in the principles of Social Justice and egalitarianism, by which peoples’ Socio-Economic backgrounds – their money situations – are levelled to create a totally equal Society. They pursue this end through substantial State intervention in the Economy, (taxing Business and the wealthiest of Society considerably) and re-distributing the money levied to Society as a whole. This re-distribution mainly occurs in the construction and improvement ofPublic Services, such as (State) Schools/Hospitals/Emergency Services, and in Benefit payments for the most vulnerable of Society – e.g. the Disabled, (who cannot work), single parents on low incomes, the unwealthy elderly (Pensions, Travel discounts) and the unwealthy Young (Higher Education Fees, Travel discounts). Instead of a ‘Free Market’ economy, Socialists often advocate a ‘Planned economy’, by which the State has full reins over the workings of the economy, and advocate the Nationalisation of much business to this end. Socialism is the belief in a large State, with substantial intervention in the Economy in order to ensure Social Justice within Society. Socialists take the view that Human Nature is only corrupted to selfish ways by immersion in the greed and exploitation of Capitalism, being fundamentally co-operative and compassionate and only polluted and distorted at the hands of a Capitalist environment.

        In Soviet n China as we all know wat happened is it turned out to be a communist dictatorship type government. Its not the fault of socialism. Socialist Parties especially leaned towards “centre left” exists through out the countries of europe. Even in Britain Labour party has being ruling many times whose last PM was Tony Blair. In a country like india where society is divided with all worldly possible discriminations based on caste, religion, gender, creed, linguistic , regionalism , financial ability – right wing and capitalistic ideology cannot bring speedy n comprehensive social development. By the way i need not have to check Russian or Chinese system for that as i live in Kerala. It is the most socially advanced state in India. It was first 100 % literate state , where there is more equality , gender bias is not so accute n girl infanticide s nil. Health system s more universal. No riots happens like in other parts of india ( especially north) caste discrimination is nil. Why you think naxalisim still exists in north india and in some parts of east india eventhough those states are never ruled by left. But kerala being ruled by left many times , naxalisim have never found its roots in kerala eventhough it showed signs in 60’s n 70’s. If we go to interiors of north india, we see how backward
        those regions are and how poor people are exploited in the name of religion , caste and development. Companies ( MNCs )
        exploit the farmers land promising jobs and never keep their word, resulting them to migrate to cities and live in slums. Still men of high caste thinks its their birth right to rape a low caste girl or women. Still children of high caste n low caste dont study in same schools. Sanitation is almost nil and they go to fields to empty their bowls n even for that there exists caste based fields. People of one particular caste or religion lives on one side of road or river and other groups on otherside. Religious riots happen if a automobile accident happens between a hindu and muslim.

        Comparing to all this one can see how much advanced society is kerala. Thanks to socialism and first democratically elected Leftist govt of World under the leadership of E.M.S who laid the foundation stone for such a humanistic society and i am not saying its perfect but who is perfect ? Altar of capitalism U.S itself is not perfect. Recent economic recession n rising unemployment and poverty proves that. Even in 2009 recession indian economy didn’t crashed as US, only because of its strong socialist foundation ( thanx to nehruvian policy ) . Same was the case with European countries with a strong “centre left” policy but once European Union enacted Euro see whats happening to European economy. Now only Germany is holding tight , Spain, Italy , France , Portugal ,Netherland all are facing heat. Unemployment has risen upto the marks of great economic depression of 1940s. If we talk about effects of crony capitalisam on society of USA , its falling day by day. Schools have become places where student learns to shoot, importance of familiy and marriage is lowest in world, condition of elderly is limited to oldage homes, ethnic discrimination is widening , Immense fast food culture has made obesity a major problem in society. Immense relying on loans and credit card culture has made many americans life long debtors. Why is this happening , because people are bound to give more importance to making money and thus can only spend less time for humanistic values. Once a canadian sociologist said “people of america has been chasing only money for decades and many realized its side effects and is returning to its roots but then Eastern world is repeating the same mistake”. In polls conducted by UN on happiness indexes of people every year, USA always comes after 10th or 15th positioin but its the Scandinavian countries who gets top ranks. Scandinavia (Sweden, Finland, Norway, Denmark and Iceland) enjoys a strong economy and high standard of living despite high taxes and a cradle-to-grave welfare system. Below are some points.

        Scandinavian countries rank high in the UN Human Development Index.
        Scandinavian countries rank among the top in various quality of life indexes.
        Everyone gets free healthcare and education.
        Scandinavia has low crime rates.
        Scandinavia is a shining example of how successful socialism can be if implemented correctly.
        Scandinavian countries rank well on happiness indexes.

        So countering socialism with Chinese and Soviet experience is not a matured way of comparison as socialism is only a economic system and communism is a economic and political system which existed in Soviet n existing in China n North Korea which is dictatorship nature and not democratic.

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      2. I don’t agree with any of that. Equality of outcome is morally wrong as it does not recognize differences in effort. Equality of opportunity is what one should strive for and capitalism does allow for it. Crony capitalism, socialism do not provide equality of opportunity and are morally wrong. Dictatorship or democracy has nothing to do with socialist economic policies – your long diatribe makes no sense whatsoever. Its pointless to explain when you have so many mistakes!!

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      3. Its amusing that you reference Scandinavian countries as examples of socialism. That is highly inaccurate as those countries are vibrantly capitalistic in organizing business.

        Yes, they do have a welfare model but those are supportive to the main economic model which is capitalism. Furthermore, there are many problems that they are dealing with due to excessive welfare. Minimal levels of welfare are necessary in a capitalist society too, but that is miles away from socialism.

        Socialism is highly immoral. It is idealistic, which is why it appeals to the educated but it fails due to its impracticality. Equality of people is morally wrong. Equality of opportunity is the best one can hope for. But, guaranteeing welfare irrespective of effort and ethics is despicable in moral terms.

        Capitalism is the best way to organize business. The social impact of providing livelihood to the largest proportion of population is a very high moral achievement (as compared to socialism) that is often ignored, which is extremely surprising.

        I don’t know much about Kerala, but from what I see Kerala is doing good due to good education and good levels of employment of the population in other capitalist endeavors and repatriation of money from such capitalist endeavors.

        I am in favor of free education, education support for all in the interest of equal opportunity for all. That is not antithetical to capitalism. But, it is not morally right to ask that everyone be employed irrespective of whether they have any skills or not, whether they are hard working or not.

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      4. I just checked. Scandinavian countries have more business freedom and lesser regulation than the USA. It is a shining example of how capitalism works despite some socialistic welfare. In fact, the welfare system is arguably the weak point of its society and they are considering reforms.

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      5. My friend again you are making mistake, dont confuse socialism as a political system but consider as economic and
        social system. Thats the reason i told many European countries had adopted centre left socialistic economy policies to uplift the society even though as a
        whole they are capitalist. Scandinavian countries were leading in front to adopt those policies that is why their society is most advanced in europe. All
        the major countries in europe including England , France , Holland etc have socialist parties and they adopt socialistic economic policies over the years. They dont completely rely only on capitalist economic policies.They encourage capitalism but with considerable government intervention to stop concentration of wealth in the hands of few unlike in US and blindly going to be followed in India.

        You should also note here a historical fact that its the socialistic revolution which swept Europe in 19th n 20th century including French revolution which helped to transform European society to whatever we see today.
        It helped the people of Europe to come out of the clutches of over intervention of religion in society , exploitation of labors after industrial revolution ,class n money based inequality , feudal and fascist systems. That is the reason
        why third world countries including India and Brazil inspite of making good rate of development lags behind in social and comprehensive development. That is the reason why we see less exploitation and high standard of living among
        masses in europe which is less in U.S ( of course US has more millionaires ) .

        Socialism is a system of social organization in which the means of production and distribution of goods are owned and controlled collectively or by the government. However,
        in its European form, socialism is more a matter of equal redistribution of wealth and creation of a welfare state. In order for a welfare state to be created, taxes must be higher so the government can cover its expenses.

        For your understanding I am taking France and Germany below to make you understand how they took socialistic
        economic and social policy which resulted in better results than 100% capitalists ideology following in US.

        Americans say that universal health care cannot be provided because of its cost; all of the states of Europe have universal health care, and all of those countries are poorer
        than the U.S. The difference between Europeans and Americans, then, is the political culture; Europe is more oriented towards welfare state building than foreign intervention. Europe would never spend as much on defense as the U.S.For Europeans, it is more important to be able to enter a hospital and get served, for children to attend college at the reasonable rate (maximum tuition at one of the most prestigious universities in France, 9500 euros), receive pensions,and enjoy the opportunities that more organized welfare state provides. Building roads, hospitals, infrastructure, and providing public education is part of the
        European “socialist” program. When France is ruled by
        socialist, it does not mean the country is no longer a capitalist country.Trains will still work; there will still be gas and electricity. However, the socialist party will help redistribute wealth and afford greater opportunities
        for the poor.

        Germany is 1/5 the size of the US and yet has the second highest trade surplus in the world (after China). They’ve accomplished this while having higher rate of unionization and higher pay. Interestingly, the US economy was also doing better when unionization and pay was higher in the US. Unions in the US are considered socialists even though they represent the working class. In Germany, it’s
        required for worker representation to be half of board members of companies. In Germany, the industrial and financial sectors are highly regulated keeping jobs
        from being outsourced and ensuring main street benefits rather than just wall street ( share market). According to right wing ideology, this kind of socialist practices and union power should destroy the economy and destroy innovation and yet the complete opposite is the result in European countries.

        Presently, Germany has less than half of the income
        inequality seen in the US. The US has a much higher average income than Germany, but because most of US wealth belongs to the upper class whereas most
        of the German wealth belongs to the middle class. Also, Germany has high social mobility and the US has low social mobility (most wealth coming from privilege and inheritance which is interesting to put in context of Americans working on average more hours and have less vacation time than Germans.

        What this means in terms of social problems is that
        Germany has lower rates and the US higher rates of the following:

        Mental illness, imprisoned per capita, drug use, homicides, infant mortality, obesity,teen pregnancy, and children’s experience of conflict. And Germany has higher rates and the US has lower rates of the following:
        UNICEF index of child well being, longer life expectancy,
        happiness, and recycling.
        In US, children have a lot of aspiration and yet have less opportunity to fulfil that aspiration (because of income inequality and low rate of social mobility).
        In Germany, children have less aspiration and yet are
        more likely to achieve further beyond the socio-economic status they were born into.

        Americans like to believe they live in a meritocracy, like to believe that if you dream big enough anything is possible. However, this has a dark side in that idolizing the wealthy leads American society to demonize the poor. To be working class in America and never striving to better yourself means that you aren’t living up to your potential and therefore are in some sense a failure. To be working class in Germany, on the other hand, is considered worthy. The American ruling
        elite told average Americans that working class jobs were undesirable and so sent most of our manufacturing jobs overseas, but Germany maintained its manufacturing jobs and through unionization made sure those jobs had good benefits.

        So my friend, don’t get over ga ga over capitalism and
        try to understand socialism as an economic policy with immense benefits in any society.

        I would seriously suggest you to read the, The New york Times 2014 bestselling book “ CAPITAL – In the 21st century by renowed French Economist Thomas Piketty. The core of the book is that when the rate on return on capital is greater than the rate of economic growth over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. He proves that inequality is not an accident but because of capitalism and can be reversed only by state intervention. He says when rate of growth is low then wealth is accumulated from labor to economic growth and then accumulates among few upper level people resulting inequality. He dismisses the fact that just because
        we have technological advancement we will have high economic growth in future. He cautions us from becoming
        eccentric on technological advancement. So try to learn and accept benefits of socialism and don’t become over confident on capitalism.

        The mistake you are continually making is that you are confusing socialism as a political system. . Don’t confuse socialism is something which only exists in communist dictatorship countries like China and North Korea. I am not advocating iron curtain economic policy of erstwhile
        Soviets or East Germany but of centre left economic policy with good share of socialistic ideology. As you can see all the European countries are democratic and capitalist as a whole still socialistic economic policies find considerable share. Everything is not decided by market as you say in a capitalist economy. State intervention are visible in big way , Unions plays an important role and most important society doesn’t run solely on money making hysteria and give more importance to humanistic values in society. When you are debating on a subject don’t keep a “frog in a well” attitude. But you are becoming arrogant in nature by saying my points are mistakes. Dont follow any ideology blindly. We can grow our knowledge when we are not rigid and have an attitude to analyse what other person is saying. After all we are not some illiterates sitting under banyan tree discussing Sharuk khan is better actor or Aamir Khan!! By the way on lighter note I feel latter to be better. lol .

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      6. “Socialism is a system of social organization in which the means of production and distribution of goods are owned and controlled collectively or by the government. However,
        in its European form, socialism is more a matter of equal redistribution of wealth and creation of a welfare state.”

        I consider only the first definition to be socialism.

        But, ok, even taking the second definition, there are plenty of issues.

        Redistribution of wealth without regard for merit is immoral. Equality of wealth outcome is immoral. Equality of opportunity and temporary safety nets from cyclical downturns is what welfare should focus on.

        There are numerous problems with the welfare systems in Europe and there are massive problems of corruption in every country. That is the problem with welfare. It promotes unethical misuse. As is the experience in India too since independence. There have been no shortage of govt welfare schemes but the problem always is the corruption that always, always creeps in. Idealistically, social welfare sounds great, but it never works in practice, in any country. For a brief period when the debt can be allowed to build up, it might look fine, but economic collapse has almost always followed. The gradual increase in debt burden eventually ends choking the capitalist wealth creation engine.

        I don’t even agree that Europe is doing better than USA at the present moment as they have a far more serious debt problem (much of it because of their excessive welfare policies) and they have much more serious social problems as witnessed by frequent riots in France/Sweden, etc not just in the peripheral Greece and Spain.

        The USA debt problem coming up in the future is also due to socialist entitlements which need reform.

        Germany trade surplus is not a good thing. It is because of a common currency with weaker economies like Spain/Greece and the dark side of that surplus is the unemployment in Greece/Spain which have to bailed out by Germany anyway. So, what good is that surplus?

        Inequality in a developed country is not as big a problem as it is made out to be. If the median income is sufficient to live a good life, what does it matter how much the top 1% make? Isn’t additional wealth a curse anyway?

        There are many reasons why I didn’t pick up Piketty’s book to read, because I don’t consider inequality to be as big of a problem as it is made out to be. It is an issue that needs a fix in the interest of societal stability (because humans are hard-wired to be envious and suffer from the keeping up with the Joneses problem) but there are other policy measures that can address it without requiring socialistic redistribution.

        And, there are glaring problems with the way Piketty treats statistics. For example, he assumes that the top 1% of the US is the same cohort over time, when tax records show that there is significant mobility in virtually all levels of wealth and it makes no sense to talk about the 1% as a fixed cohort.

        You can reference this, as an example of some of the points: http://pragcap.com/thoughts-on-thomas-pikettys-capital

        There is no rigid class structure in the US as the composition of every income group changes very rapidly. In fact, almost everybody is almost guaranteed to experience both poverty and wealth during their life time! So, I don’t agree with your points on inequality and mobility in the US.

        http://www.nytimes.com/2014/04/20/opinion/sunday/from-rags-to-riches-to-rags.html?smid=pl-share&_r=1

        ——–
        Winston Churchill: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

        I would rather have an unequal sharing of blessings than an equal sharing of miseries. Thank you.

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      7. But ok, generally speaking, I can probably come around to accepting your point about the positive role of some welfare spending.

        But, I don’t agree with points about inequality and mobility as pointed out in my previous comment.

        And, I don’t agree that current models of welfare spending in Europe/US or elsewhere are good examples. Maybe, the original versions in the Scandinavian countries were good models (I don’t know much about the German or Kerala model), but the Scandinavian models have been corrupted over time, and if reformed back to their initial, minimal state, might represent the ideal form of welfare state. That much I can agree with.

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