Last week’s column covered four different systems often lumped together as “socialism”: State Socialism, State Capitalism, Democratic Socialism, and Social Democracy. While our perceptions of them are shaped by how we think about freedom and fairness, the key differences among them come down to one essential element: who holds the power.
Imagine four ways to run a chip manufacturing company like Intel:
- State Socialism: The government owns it. Party leaders and federal bureaucrats decide what chips to build, how many to produce, and what to charge.
- State Capitalism: Shareholders own it, but the government owns a controlling share or exercises heavy influence through subsidies and regulations tied to political goals. This gives government officials significant say in major strategic decisions.
- Democratic Socialism: The company, which competes in markets, is owned by the workers who elect the board of directors and make decisions collectively.
- Social Democracy: The company is owned by shareholders. Workers may have seats on the board (as in Germany), there are strong labor protections, and high corporate taxes fund social programs. Shareholders get lower returns than in pure free-market systems.
Some policies that many Americans fear as “socialist” actually distribute power more widely than State Socialism or State Capitalism. Organizations like strong unions, credit unions, worker cooperatives, energy or food cooperatives, and mutual aid networks put control directly in the hands of community members rather than corporate executives or state bureaucrats.
Meanwhile, other programs embraced by many Americans, like Social Security, Medicare, Medicaid, the SNAP program, and farm subsidies, involve significant government intervention in the economy. These are not State Socialism because the government doesn’t own the means of production. They’re better understood as social insurance or industrial policy within a mixed economy.
When the government has ownership stakes in private companies or uses subsidies to pressure CEOs on political priorities, that looks more like State Capitalism. Recently, for example, the U.S. government has taken partial ownership of companies like Intel, GM, Chrysler, and AIG, demanded changes in corporate leadership, placed Fannie Mae and Freddie Mac under permanent government conservatorship, and used CHIPS Act subsidies to dictate where companies build facilities and what wages they pay.
This is not traditional free-market capitalism. Yet it’s often accepted quietly, even by those who adamantly oppose “socialism.”
I saw this dynamic first-hand when Rapid City considered adopting “home rule.” It would have brought more local control to local government. Community resistance defeated the effort in favor of keeping decision-making power with state government. Ironically, we’re skeptical of ideas that spread power to ordinary people, but we tolerate policies that centralize it in the hands of government officials and mega-corporations.
Why the confusion? Decades of Cold War rhetoric trained Americans to think “capitalism equals freedom” and “socialism equals tyranny.” The Soviet Union called itself socialist, so we assumed that’s what socialism meant. But advocates of worker cooperatives were actually critics of the Soviet model. They wanted a society built on small-scale democracy, cooperation, and shared ownership, not government control. Meanwhile, the U.S. calls itself capitalist, but many of its recent policies function more like State Capitalism than free-market capitalism.
That leads to the real question: Who do you think should hold economic power?
- Entrepreneurs, businesses, free markets, and shareholders? (Capitalism)
- Government bureaucrats? (State Socialism)
- Political insiders working with favored corporations? (State Capitalism)
- Workers in democratic organizations? (Democratic Socialism)
- Or a mix with strong regulations and taxes but private ownership? (Social Democracy)
In considering different approaches to government and economics, the word “socialism” may carry too much baggage to be useful. We might be better served to stop arguing over labels and focus on the real issue: who we want to hold the power.
