Socialism vs. Redistributive Policies

 One of my readers asked what the difference was between socialism and what I have called "redistributive policies," and perhaps others are not clear about the distinction. So, here goes.

What is Socialism?

"Socialism" has been given many meanings, but as I see it, the core idea is that economic production must be organized around the public welfare rather than around the profitability of companies. In its most extreme form, socialism involves the central planning of most production. In less extreme forms, it involves the public ownership of major parts of the economy that are deemed to be important to the public welfare. The problem with socialism is that it has never worked very well on a large scale, and in its extreme forms, it has been extremely oppressive. 

In a capitalist system, companies plan their work to maximize their profits, and, while that is not morally attractive, it actually promotes the public welfare pretty well most of the time. But not all the time and not in every way. The purpose of redistributive policies is to counteract the bad effects of capitalism while allowing it to continue to do what it does best, which is to promote economic efficiency. 

Redistributive Policies

There are two types of redistributive policies. One type is to subsidize needed services so that people can obtain them at an affordable cost. A subsidy for childcare would be an example. Everyone agrees that there is no way for the market to provide childcare at a price that is affordable, that allows childcare workers to be paid a reasonable wage and that allows childcare companies to make a profit. A redistributive policy might provide subsidies either to the childcare companies or to the consumers of childcare. Our government had such a policy for a while. It was intended to allow the childcare companies to avoid failing during the pandemic. 

Healthcare provides another example. Many people believe that no one ought to be denied adequate healthcare, but no country has ever found a way to provide healthcare to everyone without government support in some form. In healthcare as in childcare, the government uses part of its revenue to pay part of the cost of these services in order to make them affordable for everyone.

The other type of redistributive policy is more general. Its goal is to limit the increasing concentration of wealth that is inevitable when the rate of return on capital investment is greater than the growth rate of the economy. To limit the concentration of wealth, we need things like progressive income taxes, wealth taxes or inheritance taxes.  Again, the point of the tax would be to allow the economy to be run according to capitalist principles while avoiding the extreme concentration of wealth. The point of redistributive policies is to preserve capitalism while making it consistent with representative democracy. The point of socialism is to supersede capitalism.