What the Right Gets Wrong About Socialism

Global inequality is surging at an unprecedented pace. According to Oxfam, the world’s 26 richest people currently have the same amount of wealth as the poorest 3.8 billion—down from 61 people in 2016. As the rich get richer, sea levels are rising, tribalism is flourishing, and liberal democracies are regressing. Even some of the wealthiest nations are plagued by job insecurity, debt, and stagnant wages. Ordinary people across the political spectrum are increasingly concerned that the system is rigged against them. Trust in public institutions is near an all-time low.

In response to these conditions, democratic socialism is enjoying a revival in the United States. Sen. Bernie Sanders of Vermont, a self-described socialist, is currently polling ahead of and raising more money than all the other Democratic presidential candidates except former Vice President Joe Biden. His town hall appearance on Fox News was the most watched such event of the campaign season so far. With this surge of interest has come a renewed debate, often centered on historical and international comparisons, about what socialism actually means and whether it can succeed. Sanders’s efforts to distinguish himself from Sen. Elizabeth Warren—a progressive, policy-oriented candidate who has emerged as a close competitor, and who advocates for “responsible capitalism” rather than democratic socialism—has only deepened that interest. Earlier this month, he delivered a speech presenting his vision of democratic socialism, and during Thursday night’s Democratic primary debate, he sparred with former Colorado Gov. John Hickenlooper over the viability of a socialist in the race against incumbent President Donald Trump.

In U.S. politics, “socialist” has long been a smear used to discredit progressives—a rhetorical battle-ax honed during the Cold War and wielded by Republicans against Democrats, however centrist their politics. Conservatives have applied the label to presidents from Franklin D. Roosevelt to Bill Clinton and Barack Obama.

Progressives, forced to adapt to this framework, have long tried to distance themselves from the term, even when advocating for policies that clearly lean toward it. Fear of being labeled socialist has narrowed their repertoire of policy options. Right-wing politicians tend to make full use of this leverage. That’s why many Republicans have so vociferously seized on the newfound popularity of politicians who describe themselves as socialists, including Sanders, Rep. Alexandria Ocasio-Cortez of New York, and Rep. Rashida Tlaib of Michigan.

Democratic socialists in the United States often point to Scandinavian countries for prime examples of their ideas in action. Scandinavia, broadly speaking, combines stable growth and prosperity with big governments that readily interfere in markets. The region regularly scores high marks on international rankings such as the Legatum Prosperity Index and the United Nations’ World Happiness Report.

The share of total U.S. income owned by the richest 1 percent of the population has been surging since the 1980s. It has now reached 20 percent. Scandinavia’s 1 percent bags less than half this share, ranging from 6 percent in Denmark to about 9 percent in Sweden. The Organization for Economic Cooperation and Development ranks each Scandinavian nation among the top 10 with regards to both economic equality and absence of poverty. The United States is on the opposite end of both spectrums.

Take Norway for example. According to the World Bank, Norway and the United States have nearly identical GDP per capita. Yet Norway, unlike the United States, enjoys universal health care, child care, and elder care, as well as tuition-free universities, around 12 months of paid parental leave, and a robust social safety net.

Norway’s success is inconvenient for critics of progressive, big-government economic and social policies; they’d prefer that the public associate socialism with basket cases such as North Korea and Venezuela. Norway’s and more broadly Scandinavia’s record leaves naysayers with two main lines of argument. They can dispute the region’s economic success, as Nima Sanandaji did in a 2015 report for the Institute of Economic Affairs. Or they can question whether Scandinavia really is socialist after all, as Anthony B. Kim and Julia Howe of the Heritage Foundation did last year.

In an essay that was published last year, Jeffrey Dorfman, an economist at the University of Georgia, argued that leftists who promote the Scandinavia model tend to conflate socialism with a generous welfare state. “Socialism can take the form of government controlling or interfering with free markets, nationalizing industries, and subsidizing favored ones,” he wrote. “The Nordic countries don’t actually do much of those things.”

Yet controlling or interfering with free markets, nationalizing industries, and subsidizing favored ones is precisely how the Norwegian government operates—and explains why it now owns about 60 percent of the country’s net wealth, twice the share the government owns in China.

Like all viable economic systems, Norway’s and other Scandinavian countries’ are mixed. A fully socialized economy would be just as unfeasible as a fully privatized one. Socialism, as the term has evolved in mainstream usage, does not mean a total absence of markets, just as capitalism does not imply a total absence of public ownership and regulations.

Democratic socialism simply means a democracy leaning toward the leftward bound of the private-public ownership spectrum.

Democratic socialism simply means a democracy leaning toward the leftward bound of the private-public ownership spectrum—an economy in which the government controls major corporations, while the people in turn control the government, securing de facto popular control of the economy. The government functions as an intermediary, managing state corporations on behalf of the people. The greater the control the government exerts over the economy, and the greater the control the people exert over the government, the better the democratic socialist label fits.

The Norwegian government in particular controls the levers of the economy through ownership of major industries and financial institutions. It did not achieve this control through forced nationalization but through stock acquisitions on the open market.

The first round of public acquisitions came about as part of the government’s postwar economic recovery program, in the wake of liberation from Nazi occupation in 1945. These investments, predominantly in hydropower and energy-intensive industries, were heavily financed by German war reparations, and to a lesser degree by the U.S. Marshall Plan. A second round of acquisitions began with the 1969 discovery of petroleum on the Norwegian continental shelf. Their purpose was to maximize the public’s share of the expected profits from this newfound resource wealth. A final round of acquisitions arose from the Norwegian banking crisis of 1988 to 1992. The government responded to the crisis by fully nationalizing Norway’s three main commercial banks. As trust in the banking system recovered, public ownership was steadily scaled down until the current arrangement of roughly one-third public, two-thirds private ownership was established.

While the U.S. government spent the post-World War II era ceding authority to the market, Norway’s government used the market to bolster its authority. It currently holds about 40 percent of the stocks traded on the Oslo Stock Exchange. Companies for which public ownership exceeds 34 percent (giving the government veto power over any board decisions requiring a two-thirds supermajority) constitute 56 percent of the country’s total market capitalization.

The public benefits of partially socialized industrial and financial sectors extend beyond dividends and veto power. It is also a robust oversight apparatus: A corporate culture like Enron’s, sustained on fraud and corruption, would be hard to imagine with publicly accountable government representatives present at every single board meeting, controlling a third of the votes.

The same can be said of financial institutions, whose gambling resulted in the Great Recession. When boards of directors hire CEOs, they instruct them to maximize shareholder value. For private shareholders, value mostly boils down to short-term return on their investments. Privately owned banks are thus encouraged to take on major long-term risk for the sake of maximizing short-term profits. And such over-leveraging is the reason that the U.S. housing-market correction from 2006 to 2008 brought the entire global financial system to its knees.

For public shareholders, value is a multivariate function that includes long-term, macroeconomic concerns. In the first half of the last decade, Norwegian banks went against the crowd by shunning both subprime-based bonds and Icelandic bank bonds—which the Norwegian government deemed too risky, despite their excellent rates of return. In a 2018 article for Rethinking Economics, former head of the Financial Supervisory Authority of Norway Bjorn Skogstad Aamo ascribes the development of this cautionary attitude to the 1988 to 1992 banking crisis and the subsequent public ownership of banks. As a result of such caution, Norway cruised through the Great Recession mostly unscathed. The government’s pension fund took a brief hit in 2008—due to investments in the secondary bond market, which exposed it to the toxic U.S. subprime mortgage market—only to grow 25 percent in 2009, regaining most of what it lost in 2018. More significantly, there were no domestic bailouts. Gross domestic product recovered within two years. Unemployment barely budged. Had the boards of Goldman Sachs and Lehman Brothers been chaired by government representatives, they, along with the U.S. economy as a whole, might have enjoyed a similar fate.

Many right-wing politicians and thinkers continue to cite Venezuela an example of a failed socialist economy, while refusing to call Norway a successful one.

Many right-wing politicians and thinkers continue to cite Venezuela an example of a failed socialist economy, while refusing to call Norway a successful one. “If you like Bernie Sanders, why don’t you go ahead and move to Caracas?” Republican Sen. Rick Scott asked during a recent appearance on CNBC. Vice President Mike Pence echoed that sentiment during an appearance at the Conservative Political Action Conference in March. “If you want socialism, just look at Venezuela,” he said. Yet Sanders bases his policy ideas on Norway’s, not Venezuela’s. Meanwhile, state ownership is actually more extensive in Norway than in Venezuela. And that’s not what caused Venezuela’s collapse: The fault lies with irrational policies pursued by an authoritarian government, not with socialist principles.

“For conservatives, the word ‘socialism’ does not really refer to state or collective ownership of capital, but rather poorly-managed state or collective ownership of capital,” Matthew Bruenig, the president of the People’s Policy Project, wrote last year. “From there, the claim that ‘socialism’ leads to poor management becomes tautological, as every example of well-managed collective ownership is either ignored entirely or conveniently excluded from the socialist label.”

Norway’s success has not come without costs—wealth accrued through oil and other extractive industries has had harsh ecological consequences. But students there and across Scandinavia graduate without the horrifying debt burdens of their U.S. counterparts. Those who sustain injuries in traffic accidents never have to beg bystanders not to call for an ambulance, for fear of drowning in medical debt. Norwegian diabetics don’t need to crowdsource their insulin. As seniors, they don’t spend their golden years working at Walmart or living in their vehicles. Their homes were not repossessed en masse by banks during the Great Recession. Extensive public ownership shields Norwegians from the harshest aspects of unfettered capitalism.

Whatever Norway can afford, the equally wealthy United States could afford as well—if it stopped allowing a minute fraction of the population to hoard almost all of the wealth. Many American conservatives regard the inherent evilness of socialism as an article of faith. Yet the success of Norway, along with its Scandinavian neighbors, affirms that public ownership can be a road to prosperity, rather than serfdom.