"Wisely, and slow. They stumble that run fast."

What is the difference between socialism and social democracy?

"The Red Flag" by Tim Green aka atoach is licensed under CC BY 2.0.

Thinking critically about politics can be uncomfortable at times. This week’s column will be no exception for left-wing readers. We will look at a very strange situation: Two separate groups of people have very different ideologies, but rarely acknowledge the fact in public. Both groups often claim stake a claim on the word “socialist.”

To make the discussion a little clearer, this columh will draw a distinction between socialists (also known as the far-left) and social democrats (AKA the centre-left). Socialists firmly believe that the government should run the economy, maybe as a transitionary step to full communism. Sadly - and these words are very hard for a lapsed socialist to write - this form of socialism has never worked anywhere it has been tried.

Of course, socialists will immediately say that the failed experiments from the Soviet Union to North Korea don’t qualify as “real socialism.” This is a very weak argument - not only have the experiments all failed, they have also failed in the same way. Failed socialist experiments are always characterized by shortages of basic goods in dysfunctional economies. They tend to be run as police states in the interests of party elites.

Friedrich Hayek won a Nobel Prize for economics in 1974 for his work showing that a decentralized market system based on competition and free prices will outperform a planned economy for a very simple reason: Knowledge and information is widely spread throughout society. This makes it very hard, if not impossible, for planners to get enough information to take good decisions.

To see how this works in practice, imagine that you decide to change your diet in a radical way, maybe becoming vegan or going paleo. In a market economy, you don’t need to fill out any forms to inform the planners about your new diet. Just changing your habits will feed information into the system. If enough people change their diets in similar ways around the same time, prices will change as a result and businesses should react by developing new products (such as artificial meat for vegans) and retiring increasingly unpopular ones (cheap sausages might fall out of favour as veganism becomes more popular).

Of course, Hayek can be a controversial figure. Mentioning his great insight into diffuse information isn’t necessarily an endorsement of any of his other views. Don’t shoot the messenger! If you think he is wrong, please go and study economics at a high level. If you can create a credible model that shows that a centrally planned economy can outperform a decentralized market-based economy, you will also be a candidate to win a Nobel Prize.

Many social democrats started out as socialists, but in their heart of hearts, they came to realize that they couldn’t prove Hayek wrong. They have reluctantly come to accept the realities of living in a market economy, even if they don’t want to live in a market society. Instead, they want to mostly leave free markets alone while building a welfare state on top of a capitalist engine.

Social democrats tend to favour some regulation to prevent some of the excesses of the free market. When a capitalist economy goes wrong, for example with soaring energy prices, social democrats are often more in favour of market interventions than libertarians or mainstream conservatives on the right of the spectrum, who mostly prefer to leave markets alone.

The relationship between socialists and social democrats is often very uneasy. Social democrats can be very reluctant to give up the word “socialism.” For example, former UK Prime Minister Tony Blair (a left-leaning centrist is basically a social democrat) defined socialism as standing “for cooperation, not confrontation; for fellowship, not fear. It stands for equality.” Like Blair, many social democrats are in favour of a vaguely communitarian approach that stands in contrast to the individualism of the right.

Populism is another source of tension. Socialists can be very tempted to adopt populist narratives about “the true people” (the workers) being thwarted by a malevolent elite (the owners of capital and financiers). A belief in the power of referendums can lead socialists away from the institutionalism that lies at the heart of liberal democracy, with very bad results, as we have seen in Venezuela.

Social democrats tend to be much more comfortable with the tensions implicit in liberal democracy. However, they differ from moderate liberals, who also support a welfare state, in believing that socialists can make useful foot-soldiers in the runup to elections. Socialist militants might be naive, dogmatic and unreflective, but they are good at handing out leaflets and knocking on doors. They come to all the meetings and all the rallies. Their enthusiasm, if carefully nurtured, can help elect moderate social democrat candidates.

Socialists tend to be a little more distrustful of social democrats than vice versa. However, , when faced by the multiple failures of state-run economies, socialists often try to claim credit for the success of social democratic countries in Scandinavia. This only works by turning a blind eye to the liberal economies that support the weight of these countries’ expansive welfare states.

Despite the claim on Scandinavia, socialists are often quick to point out that social democrats in their own parties are different from real socialists. Socialists often prefer being principled in opposition to testing their theories in power, which makes them distrustful of social democrats in nice suits who actually want to win the next election. At best, they see moderate candidates who have made their peace with capitalism as being slick and unprincipled sellouts. At worst, dark accusations of treachery may fly.

In reality, it is probably only a historical coincidence that socialists and social democrats often find themselves in the same parties. In the early 1980s, some social democrats split away from the Labour Party in the UK and formed the Social Democratic Party (SDP). It formed an alliance with the Liberal Party and both eventually merged to form the Liberal Democrats. This makes perfect sense, given that social democrats often have much more in common with moderate liberals than they do with dogmatic socialists.

Much later, Labour’s social democratic (or centrist) wing won control of the party from the socialist wing, which had a terrible electoral track record. Centrist leader Blair seriously considered a coalition with the Liberal Democrats before his landslide victory for New Labour in 1997.

The conspiratorial and anti-globalist far right is always keen to blur the boundaries between liberal-minded social democrats and full-blown communists and their fellow travellers. Given that social democrats and socialists are often unwilling to spell out their differences, how can we spot which tradition we are dealing with? I believe that the speed that societies are to be reformed is a big clue.

In a prophetic book published in 1998, American left-wing philosopher Richard Rorty discussed the obstacles faced by hardcore socialist candidates: “The voting public, the public which must be won over if the Left is to emerge from the academy into the public square, sensibly wants to be told the details. It wants to know how things are going to work after markets are put behind us. It wants to know how participatory democracy is supposed to function.”

Socialists realize they face an uphill battle because of the reluctance of Joe (and Jo) Public to give them the benefit of the doubt. This means that when they finally get a candidate they can fully support, like Jeremy Corbyn for Labour in the UK before he was engulfed by an antisemitism scandal*, they want him or her to promise to change pretty much everything at once.

Ahead of the 2019 election, the UK’s Institute for Fiscal Studies said that under Corbyn Labour was proposing “a very substantial increase in the role of the state, one that is even larger than the big increase offered in their last manifesto.” This would lead to a tax burden higher than any time since the Second World War. Unsurprisingly, Labour suffered its worst defeat since 1935.

On the other hand, social democrats realize that investors play an important role in a market economy tempered by a welfare state. The art of politics, in this view, is to increase public investment without scaring away private investors with sudden tax rises or large budget deficits (the government’s equivalent of an overdraft). For this reason, successive social democratic governments in Sweden have agreed to strict spending limits. The idea is to provide a predictable framework so that private investors can take long-term decisions.

The UK Conservatives recently flunked this exam, as we saw in last week’s column. The disastrous mini-budget and subsequent market chaos are gifts to Keir Starmer, Labour leader since 2020. He is the perfect example of someone who started out as a socialist and gradually evolved into a social democrat. He described himself as a socialist as late as January 2020, but was reluctant to do so again by December of the same year. More recently, he has attacked “Tory casino economics” after his team pledged “ironclad discipline” on public finances, even if it meant not being able to nationalize core industries.

A preference for fiscal conservatism means that social democrats tend to propose small, piecemeal changes that compound over time rather than changing everything at once. This is only possible with moderate and reasonable manifestos that adhere to spending limits that seem much too boring and conservative to socialists. The idea is to make a handful of small changes after every election victory, rather than betting the house on one big win.

Another big difference between socialists and social democrats lies in the contrast between what Isaiah Berlin described as hedgehogs and foxes. Socialists rely heavily on one mental model (state control of the economy to stop the ruling class exploiting workers), which makes them hedgehogs. Perceiving society as solely a question of exploitation of one group by another can make socialists tempted to form alliances with right-wing ideologists, who also divide the world into goodies and baddies. Naive anti-imperialism is often the glue that holds these ramshackle alliances together.

On the other hand, social democrats are able to switch between at least two models (a decentralized economy tempered by progressive taxation and a welfare state), which makes them foxes. The ability to hold two or more models in your head simultaneously provides social democrats with more options when it comes to grappling with difficult issues.

Environmentalism is also another area where clear differences emerge. Some of the more thoughtful socialists have realized that crashing the economy and impoverishing the population can actually be a benefit in a world battling climate change and have allied with apocalyptic environmentalists. Meanwhile, social democrats are more likely to get excited by incentives to make innovations in cleantech.

Finally. socialist candidates sometimes get tired of always losing. In an attempt to win over a skeptical electorate, they sometimes decide to play down full state control of the economy when running to be mayor of a big city. Unfortunately, though, the candidates who do this often get excited by policies like rent controls, which have never worked in the past and will never work in the future. Social democrats, who realize free markets have a significant role to play in a hybrid economy, rarely make the same mistake.

The comments are open. Of course, some socialists will be tempted to jump in and accuse me of being a conservative or a fascist. I suggest you read my posts on skepticism, the innovation society and the benefits of being a floating voter first. See you next week!

*”Antisemitism is the socialism of fools.”

Note for American readers

If you are wondering how this translates to American politics, the best way of seeing Joe Biden, Barack Obama and Hillary Clinton would be as sitting in the frontier region between moderate liberals and social democrats. Meanwhile, Bernie Sanders sits on the border between social democrats and socialists, which makes him very radical in American terms, but probably not quite so much for Europeans.

Further Reading

The City and the City by China Miélville

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