Branko Milanovic’s Global Inequality: A New Approach for the Age of Globalization has an aside (one of its many asides) on how socialism contributed to the narrowing of income inequality in the postwar decades:
A great leveling that was more radical than the one that occurred in the West took place in countries that, following Russia in 1917– 22, became socialist after World War II. …The socialist great leveling was produced in a simple manner. First, most enterprises were nationalized, which, as in state-owned enterprises in the West, resulted in a more compressed wage distribution…wages of low-skilled workers were relatively high and wages of high-skilled workers relatively low. Nationalization of the means of production had two other effects on income distribution. It abolished income from property, income that is always heavily skewed toward the rich, and it almost eliminated the entrepreneurial return, since private entrepreneurship was banned or pushed to the margins. …Finally, guaranteed jobs and thus the absence of unemployment (with a few exceptions), widespread pensions (often with the exception of agriculture), and subsidization of staple goods (thus ensuring that subsidies were progressive) completed this picture.
In other words, education and property ownership, the two most powerful determinants of income in market economies, were made irrelevant.
Without disputing any of these facts about income inequality, it still seems to me that this portrait omits some important aspects of socialist systems. Income inequality became less important under socialism because money income became less important. But political and/or bureaucratic position often replaced income as the driver of differential access to goods and services.
The roots of socialist inequality are well explained by Stephen Lovell in his The Soviet Union: A Very Short Introduction (recommended by Brad DeLong, and indeed a nice summary of key themes in Soviet history):
Already in the early days of the Bolshevik revolution we can see at least three different economic principles at work. The first was a powerful sense of egalitarianism born of historical injustice: the working people had been kept down by landowners and bourgeois who had enriched themselves at the expense of others’ toil, and it was now time to right the balance. …The second principle was coercive centralization along with hostility to market activity – and even to money itself. … The third principle was that of discriminatory distribution in favour of those groups in society most supportive of, or useful to, the Bolshevik regime. …These three principles sometimes contradicted each other, and in any case were hard to work practically.
This third principle turned out to be quite important. Socialism as practiced in the USSR, China, and elsewhere was a Leninist system, meaning that politics was organized around the idea of a disciplined “revolutionary vanguard” leading the country. This principle meant that some people were more important to the revolution than others, and were treated as such. Obviously this was somewhat in tension with the ideological egalitarianism of the Marxist part of Marxism-Leninism, but the Leninist component has proved to be much more enduring. In the Soviet system, political status replaced income as the determinant of inequality. One simple example was food; here is Lovell again:
From the start of 1931, a four-class provisioning system was instituted across the country. At the top of the hierarchy came workers in heavy industry in the capital cities and other major centres; at the bottom came white-collar workers. The top two classes made up only 40% of the people on rations, but received almost 80% of supplies. …
The material well-being of Soviet people would until the very collapse of the USSR depend on their workplace – namely, on the particular closed distribution system that they had at their disposal. In the hungry 1930s and 1940s, this would often be a matter of allotments or farms controlled by an enterprise that would provide its employees with a subsistence minimum. Later on, in the 1960s and 1970s, enterprise directors would establish more elaborate reciprocal relationships with shops, farms, and warehouses, thus slightly alleviating the conditions of the shortage economy for their workers.
Marty White’s excellent 2014 paper, “Soaring Income Gaps: China In Comparative Perspective,” finds a similar pattern in pre-reform China: inequality of income was indeed narrow under socialism, but income was probably not the most relevant indicator of actual well-being:
Centrally planned socialist systems do not systematically promote egalitarian distribution, but instead bureaucratic allocation, and in practice, socialist bureaucrats tend to produce societies that are quite unequal, although unequal in ways that are somewhat distinct from capitalism. …
Urban state employees were [before 1978] provided with subsidized housing and a package of benefits and subsidies that was worth more than their meager salaries, while rural commune members (then 80 percent of the population) received none of these benefits and were bound to the soil as virtual “socialist serfs,” unable to migrate and gain access to the official favoritism enjoyed by urbanites.
North Korea seems to have taken this Leninist style of bureaucratic inequality to its logical extreme with its songbun system of political classification; as in the 1930s famine in Russia, in the 1990s famine in North Korea there is evidence that the politically favored were allocated more food.
One important question about the increases in inequality in China and Russia after the transition from full-blown socialism is whether they should be understood not only as the re-emergence of income inequalities suppressed under socialism, but also as the translation of the inequalities of status under socialism into the currency of the new market economy. This in fact would be precisely what some of the leftist critics of market reforms in those countries feared would happen.