Why *NOT* Socialism?

Recently, my roommate asked me to come up with a relatively concise set of reasons why Socialism is a poor economic & political system. Perhaps this will be followed up with, "Why Capitalism!", but I'll save that for another time. The version sent to her is a little more condensed, but in the interest of having some of the major objections in one place, here's what I have written (p.s. check the links for the full effect):

1. What is Socialism?

First, it’s important to fundamentally understand exactly what Socialist philosophy actually is. Webster’s defines the term as such:

1 : any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods

In essence, it is an economic (and political) system in which private property is partially or entirely eliminated and resources are controlled by the collective “society”. Practically speaking, this means that everything – especially the factories, machinery, land & resources used in production – is owned or controlled by the government. The goods and services people need and use every day are provided not by independent entrepreneurs who succeed or fail based on their ability to produce things which are valuable to their customers, but instead by a government or other central authority. As opposed to a market system, where the price – and thus distribution - of various goods & services is the natural result of individuals bidding for and accepting trades with each other, a pure socialist system rejects prices altogether or sets them arbitrarily through centralized planning agencies and thus distributes resources via top-down (non-price) rationing.

At root, the most important thing is that under a socialist system, the distribution of goods is controlled by government - this can happen in Fascist societies like WWII era Italy or Spain, under National Socialism like Germany, within Communist systems like the U.S.S.R., China, North Korea, or Cuba, or even in limited forms in welfare states such as modern-day United States, Canada, Europe, Australia and many others.

Even if private property still exists, as it does under Fascist/Corporatist economies (contrary to common perception Fascism is one form of Socialism - see Walter Block for a more detailed explanation on this point), centralized control of the use of that property results in a de facto Socialist society - again, the key point is whether or not resources are controlled by individuals or by the collective society or government, ownership without actually being allowed to make decisions about the use of owned goods cannot truly be defined as a system based in private property rights.

2. The Appeal of Socialism

The appeal of this system is in some ways understandable for a few reasons. First, there is the simplicity and directness of top-down problem-solving – that is, if you believe there is a “problem” with society such as a disparity in wealth for example, it is certainly easy enough to envision the solution being to simply take money or resources from the rich and give to the poor. On the surface, socialism appears to provide the means to correct what many people perceive as social injustice, but it comes at the extreme cost of personal security and liberty.

Secondly, while markets may be seen as somewhat “chaotic” and develop through spontaneous (bottom-up) order, socialism appears to be more controlled and even “scientific”. Because the distribution & production of the things we need are planned by political leaders and academics, this position makes sense, except that it rests on the false assumptions that the planners can have knowledge of individuals' needs & wants. In reality, this is knowledge which they cannot possibly obtain within a socialist economy.

Often, without thinking very far in depth about all of this or considering the long-term effects of these ideas, and without an understanding of the economics involved, many people are tempted to believe that socialism will provide a better society. It's not uncommon to hear people say something to the effect of; "Socialism/Communism works well 'on paper'; the theory is great, but it just doesn't work in practice." A theory that doesn't work in reality is hardly a good theory at all... And in truth, the results of socialism are virtually the opposite of what its stated intentions appear to be.

3. The Problems with Socialism

Human Beings & Central Planning:

The most immediate, and obvious problem with socialism rests with a single, quite simple question, which few ever actually bother to ask... If all resources, goods, labor & production is to be controlled, planned & distributed by a central authority, then:

Who gets to decide who gets what?

The people in charge of resource distribution have an immense amount of power over the lives of individuals in a socialistic society. Even in the most simplistic arrangements, if we are to expect equitable (not to mention, beneficial) results from central planning, the planners must be counted on to be ultra-benevolent, completely unbiased and be perfectly altruistic. Needless to say, this is rather unrealistic - indeed, as Milton Friedman once quipped; "Who are these angels...?"

All resources in the universe are finite – although this seems like a basic point, it’s quite important to understand clearly in any discussion of economic theory. At any given moment, some people will be able to get a particular good, and some will not, so we have to figure out how best to distribute scarce goods. Under a socialist system, the determination of who gets what is necessarily handed over to a single human being or a small group who are as likely to base their decisions on immediate self-interest giving the best or highest quantity of goods to themselves, their families and friends or to more powerful and better connected people, hoping for an improved social position as they are to base their decisions on principles of equality. Unfortunately however, even if the planners did want to distribute goods on the basis of need, ultimately, there is no way of obtaining the knowledge of others' needs for this to be possible (which I will explain in more detail momentarily).

Though the intention of a socialist system may be to provide an equal standard of living to all people, human nature does not change. And indeed, in all historical examples of socialist societies, such as the U.S.S.R., India, China, or East Germany, and modern examples such as Venezuela, Cuba, or North Korea, the people who control the distribution of resources primarily enrich themselves while neglecting the rest of the population. As a result, in every one of these societies, often the only way to keep from starving, not to mention obtaining a high standard of living, is through bribery and making connections with the men & women in charge of distributing goods. Additionally, as in any political system, those who obtain authority are typically the individuals who most desire it. So granting incredible power to a single person, or a group of people, invariably winds up rewarding not the most altruistic & noble, but the most ambitious and selfish – and in fact, that has proven to be exactly the case in each of the aforementioned nations. Tyranny is the inevitable result of such a system.

As Lord Acton famously quipped;

“Power tends to corrupt, and absolute power corrupts absolutely.”

Thus in fact, while paying lip-service to basing society on cooperation, sharing, brotherhood, camaraderie and social justice, the concentrated power necessary to lead and manage a socialist state - or even an intentionally anarchic socialism like a commune - rewards just the most greedy, the most strategic & conniving, and those who desire power the most.

The “New Socialist Man” & Socialist Labor:

In a free market economy, individuals may choose which career suits them best, or even which they would like to try their hands at regardless of aptitude. People who like the goods & services being produced and find them to be beneficial purchase those services, and other people who do not will not; thus the producers' contributions to the well-being of fellow human beings will determine their relative success or failure judged based on profits or losses. Higher profits (in this case "wages") then encourage other individuals to become employed in those highly demanded industries. This is easy enough to see in any market economy. For instance, one modern example is the dramatic rise in computer programmers throughout the late 1990's - increased demand for such services resulted in employers bidding up wages which then encouraged more people to join the field.

There is no central planner, and thus no one person determining what occupations are “needed”, and what individuals "should" do with their lives - instead; wages, prices & personal choice are the determining factors. In essence, markets offer individuals the opportunity to use their talents as they see fit, and thus leaves individuals with the freedom to control their own lives.

This is not the case under a socialist system. Because the means of production are controlled by the state, all workers are effectively state employees – and because the central planners must decide which goods & services society has enough or too much of at any given time, it is the planners who ultimately determine which job individuals are allowed to have. So people's jobs are fundamentally not self-determined.

Additionally, there are no competing firms or private ownership, there is no opportunity for entrepreneurs to start their own businesses. So if you are dissatisfied with the position you’ve attained, you have virtually no option to change. To make matters worse, because the focus of a socialist society is on “equality” and goods are distributed by a state official, there is little to no incentive for individual workers to work more than is required of them, and in fact a great incentive to do the opposite. The quality of life you receive working hard is, in theory at least, identical to the quality of life you receive by not working at all. This means that in order for the state-run factories, farms & businesses to produce enough goods, they need to use other means of convincing workers to actually work hard. Karl Marx understood this, and envisioned a socialist society completely changing human nature, and believed that an entirely new type of “socialist man” would develop – a man who worked purely altruistically, only for the benefit of his comrades. No such man originated in Russia, or China, or anywhere else, and so the rulers of those nations instead resorted first to endless propaganda campaigns and moralistic preaching, explaining that workers’ duty was to produce as much as possible, and then to jail and other punishments for failing to comply with the leadership.

The Economic Calculation Problem:

The most significant, and catastrophic problem with socialism is actually that even if there was no corruption, and even if the central planners were completely benevolent, completely just, completely fair, and distributed resources only based on need and made no biased, personal decisions and were completely unaffected by bribes or promises of favors… And even if every worker was perfectly happy with the station he had been assigned, and was willing to work at his full potential every day purely for the betterment of the general society, there is no functional feedback or information gathering mechanism in a socialist state for the central planners to actually know what needs to be produced, or in which quantities. This is what Ludwig von Mises & F.A. Hayek refer to as the “Economic Calculation Problem”.

In a market economy absent government-manufactured distortions such as special taxes or corporate bailouts, freely shifting prices are packed with information for both producers & consumers due to their relationship to supply & demand. For instance, high prices simultaneously encourage consumers to limit their consumption while pushing producers to step up production and increase supply until demand has been met. Profits & losses also provide incredibly important signals and feedback on the relative success or failure of different firms’ production efforts. Prices incorporate the local, dispersed and often very specialized knowledge of individual consumers & producers – from mining or growing raw materials through producing final goods and on to the preferences of individual consumers.

Socialist systems have no such mechanism for obtaining information about the highly dispersed needs & wants of individuals in a society - and thus no way of efficiently producing or distributing goods & services. A central planner must instead decide which goods to produce in what quantities, and that requires not only superhuman benevolence and prescience, but also that they perform the impossible task of calculating what millions of individual people’s wants & needs will be over a sustained period of time. Pricing allows markets participants the information they need to make decisions about the best usage of scarce resources – central planning simply cannot do this. So while it may seem more scientific and intelligent to have experts determine the way resources are used, in reality it winds up being possibly the least scientific way of distributing goods as it lacks any way measure success or failure, and has no feedback describing the needs & preferences of real people.

Amusingly, the central planners in the U.S.S.R. actually resorted to using the Sears catalog in order to determine prices of many goods.

4. Socialism in History

The end results of socialism throughout history have been exactly what one might expect when reasoned through carefully. A state-owned means of production, the rejection of private property & free price systems, and the centralization of power in the hands of a small oligarchy has, and will always, lead directly to corrupt totalitarianism, dictatorial police states, famine, democide and poorer living standards for all citizens. Any time a government is used to take goods from one person and give to another, these actions must be accomplished through the initiation of force. Sometimes they start out small, such as collecting higher & higher taxes as seen in various welfare states, but they ultimately lead to bigger and more significant abuses until liberty is destroyed and the welfare of individuals (even lives themselves) are subjugated to the whims of the autocrats. Thus, such nations have been responsible for the deaths of well over 100 million of their own citizens (not including war casualties) just in the 20th Century, and have consistently seen the worst economic conditions found anywhere in the world.