Wow, there sure was a lot of feedback on this (interesting for a dharma forum!) Way before I began practicing dharma I devoted a great deal of time to studying Marx, Marxism, and all of its many derivatives.
What gives one group of people the right to establish a rule of law, to govern over others?
Socialists believe that the existence of the state is inseparable from the production of wealth, and that the right to rule is derived from being the one who produces the wealth (a worker). "National Socialism" is not a form of socialism at all, but is a type of fascism.
Communists believe that the state has no function once the division of owner/worker ceases to exist.
Fascism is the belief, based on the theories of Giovanni Gentile, that sheer, brutal force is what gives one the right to rule over others and to force others to obey one's laws. Genghis Khan also believed in the right to rule by force, but he was much more lenient. He didn't really care what you believed in or did, as long as you accepted him as ruler and paid tribute.
Until the founding of the United States of America in the late 1700's, most rulers derived their power from Heaven, from God. England, Japan, China, all share this history. What the American Colonies did, in declaring their independence from England, was to establish that the right to govern came directly up from the people who are governed.
In The Communist manifesto, Marx begins by explaining that Society has always been divided between those who own land or some other means of livelihood, and those who do not own the means of livelihood, yet contribute the labor required to make those means productive. He postulates that as long as this division exists, those who labor will always be at a disadvantage. In Das Kapital he explains in greater detail how being able to accumulate wealth (capital) gives one the advantage of being able to invest, and to live purely off the investment of one's wealth. But those who create that wealth through their labor do not share in this opportunity. The role of the government, Marx said, is always to serve the interests of those who own the means of production. It is a function of the economic structure. If an economic structure is established whereby those who do the work also share equally in the profit and the investment of that profit, then the division between owner and worker becomes obsolete. When that division no longer exists, the function of the government as a function of that 'class' division also becomes obsolete (the 'withering away of the state'). When a society is no longer divided by class economically, and the function of the state no longer exists, that is Communism.
Socialism is a bit more complicated. It describes a transitional period purposefully aimed at eliminating the division of economic class. Whether this is done gradually or quickly, peacefully or violently, democratically or through coercion, in an agricultural country or an industrial one, these are all things that various factions and movements have agreed and disagreed about. It is a bit misleading to suggest that any action taken by the state for the benefit of the population in general (under a capitalist economic system) which does not reflect the interests of private business is 'socialist'. Every capitalist country has traffic lights, but this does not make them a socialist invention.
An individual who runs his or her own business using his or her own labor may acquire enough money to invest, without having ever exploited another person (directly). A company which pays its workers not only an hourly wage, but also in shares of the company stock also crosses the line of class division. There are a lot more fuzzy areas today than there were when Marx described the problems of the mid 1880's! Global technology has changed everything except for the fact of the division between haves and have-nots that he addressed.
Regarding some other comments,
Concerning democracy, I once heard a talk by the former President of France, François Mitterrand, a Socialist. He said that when discussing democracy, one needs to look at economic democracy, social democracy, and political democracy. In the United States, technically we have political democracy. With some exceptions, every citizen of legal age has a right to vote. Technically we have economic democracy. Anyone is allowed to own shares of a "publicly held" company (such as Coca Cola). Technically we have social democracy, or at least fairness. According to the Constitution, the individual is protected from the will of the majority in many things. So, for instance, your neighbors can't stop you from living amongst them because you are a Buddhist and they are against Buddhism. However, there are many areas where there is still social inequality. Women still earn less than their male counterparts. In spite of all this, and inspite of the statistical suggestion (espoused by the Occupy movement) that 1 out of every 100 Americans is super wealthy, there is still some sense of class division. So there isn't really much economic democracy, and all sorts of dirty tricks are played to keep people from voting.
Aside from that, The United States is really not such a bad place.
Profile Picture: "The Foaming Monk"
The Chinese characters are Fo (buddha) and Ming (bright). The image is of a student of Buddhism, who, imagining himself to be a monk, and not understanding the true meaning of the words takes the sound of the words literally. Likewise, People on web forums sometime seem to be foaming at the mouth. Original painting by P.Volker /used by permission.