MaxB
19th October 2002, 18:10
The reasons why ALWAYS Socialism fails !!!
Socialism in North Korea has failed to do as well as capitalism in South Korea. Socialism in East Germany has failed to do as well as capitalism in West Germany. Socialism in Cuba is not doing well. Socialism in China is giving way to a market economy. Socialism in the Soviet Union did not do as well as capitalism in Europe.
Capitalism also SOMETIMES fails. In previous articles, I have discussed some of the reasons why Capitalism sometimes fails.
I have discussed anti-monopoly policies, corruption, rentseeking and dictatorships. Just as we study what can cause capitalism to
fail to avoid making the same mistakes, it is important to study what causes socialism to fail to avoid making the same mistakes. While Capitalism can be corrected, Socialism, by its own nature, will always fail.
Socialism has not been a "total" failure, but it could never compete with a "mixed-economy". Socialist economies have been able to produce commodity products such as steel and concrete. Socialist economies have been able to produce industrial machinery such as cars, but the quality is far below
international standards. For example, compare a Lada and a Honda.
Socialist economies have not been able to produce advanced technological products such as personal computers. Socialist economies have been able to produce some advanced weapons, but capitalist countries have been able to produce advanced weapons and advanced consumer goods. Socialist countries have not been able to produce quality services such as good restaurants.
In spite of producing less, socialist countries have used more labor. In socialist countries, women have worked more and there was no unemployment. Most of this "extra" labor was essentially wasted. If 11 people work in a store where only 10
people are needed, it is more efficient for the extra 11th person to be unemployed and looking for another job where he could be doing something useful.
The Soviet Union was one of the few countries where the population declined in peace time. When I first lived in Kiev, I was surprised that families only had one or two children. The shortage of houses for families, the small size of houses, low incomes, the lack of prepared food, the lack of household appliances, and women having to work full time all contributed to
small family sizes and the decline in population. If you don't think that socialism failed, ask someone who has been to Western Europe or America.
Economists believe that socialism failed for several reasons.
The first reason is called the information problem. In a socialist economy, a central planner needs information on (1) what products and services can be produced, (2) the monetary or labor cost of production, (3) the quality of products and services
produced and
(4) the value of the products and services to consumers.
A central planner needs the above four pieces of information for hundreds of thousand of products and for millions of
consumers. For a commodity product like steel, finding the above four pieces of information is possible. An engineer at a steel
mill could observe and calculate the needed information. This is why socialist economies were able to produce commodity products
like steel.
But for more complex products like cars, the quality is harder to observe. Every car would have to be inspected. The
factory could lie to the central planners and say that every Lada is well built. Would you tell your boss, the central planners,
that your work is bad?
For more complex products like computers or even magazines, the four pieces of information are more difficult to collect. How
can you measure if magazine articles are good? How much time and money should it take to develop a new computer? How can you
measure if a computer software program is good? Central planners
were not able to get this information. Since central planners did not know what complex products could be produced, how much it
would cost to produce complex products, or if the products would be useful, few complex products were produced. Information on
services is also difficult to collect. It is difficult for the government to determine the quality of millions of restaurant
meals.
In a market economy, there is no central planner. The consumer decides if a magazine article is well written. The
consumer decides if a computer is good. The consumer decides if a car is good. The consumer decides if a restaurant meal is good. Individual businesses decide if they can make a quality product for less than consumers will pay for it. No central planning is needed. This is a great advantage of market economies.
A second reason why socialism fails is that central planners are often selfish or corrupt. Socialism needs well informed
central planners who are not selfish and who make the best decision for the public. Usually central planners make the best
decision for themselves or the best decision for the government leaders. For example, socialist governments often value a large
military more than they value consumer goods for the public. Socialist governments often value consumer goods for the leaders
more than they value consumer goods for the public. Therefore, socialist economies usually did not produce many consumer goods
the public.
There are also selfish people in capitalist countries, but capitalism works because people are selfish. A selfish
businessman provides you with quality products because he wants you to remain his customer. A selfish socialist planner doesn't have to give you anything.
In capitalism, politicians are also often selfish, but government intervention in a market economy is small. Democracy,
just like capitalism, also works with selfish people. Selfish politicians give voters what voters want, because selfish
politicians want to be reelected. A selfish socialist dictator doesn't have to give you anything.
The third problem with socialism is that there is less incentive to work hard. With capitalism if you work hard and are
lucky, you can become rich. With capitalism if you don't work hard, you could lose your job. I do like economics, but a big
reason I spend weekends and nights writing papers is to get a better job in the future.
Suppose that you are a socialist central planner considering building a factory. How much time would you spend on the
decision? You would probably do as little work as possible. You would probably do just enough work to please your boss. Now
suppose you were a businessman who would lose $100,000 if you make the wrong decision. How much time would you spend on the
decision? You would probably work overtime gathering information and make a much better decision. Businessmen usually make better
decisions that socialist planners because businessmen are spending their own money and businessmen who make too many wrong decisions
go bankrupt or are fired.
Socialism in North Korea has failed to do as well as capitalism in South Korea. Socialism in East Germany has failed to do as well as capitalism in West Germany. Socialism in Cuba is not doing well. Socialism in China is giving way to a market economy. Socialism in the Soviet Union did not do as well as capitalism in Europe.
Capitalism also SOMETIMES fails. In previous articles, I have discussed some of the reasons why Capitalism sometimes fails.
I have discussed anti-monopoly policies, corruption, rentseeking and dictatorships. Just as we study what can cause capitalism to
fail to avoid making the same mistakes, it is important to study what causes socialism to fail to avoid making the same mistakes. While Capitalism can be corrected, Socialism, by its own nature, will always fail.
Socialism has not been a "total" failure, but it could never compete with a "mixed-economy". Socialist economies have been able to produce commodity products such as steel and concrete. Socialist economies have been able to produce industrial machinery such as cars, but the quality is far below
international standards. For example, compare a Lada and a Honda.
Socialist economies have not been able to produce advanced technological products such as personal computers. Socialist economies have been able to produce some advanced weapons, but capitalist countries have been able to produce advanced weapons and advanced consumer goods. Socialist countries have not been able to produce quality services such as good restaurants.
In spite of producing less, socialist countries have used more labor. In socialist countries, women have worked more and there was no unemployment. Most of this "extra" labor was essentially wasted. If 11 people work in a store where only 10
people are needed, it is more efficient for the extra 11th person to be unemployed and looking for another job where he could be doing something useful.
The Soviet Union was one of the few countries where the population declined in peace time. When I first lived in Kiev, I was surprised that families only had one or two children. The shortage of houses for families, the small size of houses, low incomes, the lack of prepared food, the lack of household appliances, and women having to work full time all contributed to
small family sizes and the decline in population. If you don't think that socialism failed, ask someone who has been to Western Europe or America.
Economists believe that socialism failed for several reasons.
The first reason is called the information problem. In a socialist economy, a central planner needs information on (1) what products and services can be produced, (2) the monetary or labor cost of production, (3) the quality of products and services
produced and
(4) the value of the products and services to consumers.
A central planner needs the above four pieces of information for hundreds of thousand of products and for millions of
consumers. For a commodity product like steel, finding the above four pieces of information is possible. An engineer at a steel
mill could observe and calculate the needed information. This is why socialist economies were able to produce commodity products
like steel.
But for more complex products like cars, the quality is harder to observe. Every car would have to be inspected. The
factory could lie to the central planners and say that every Lada is well built. Would you tell your boss, the central planners,
that your work is bad?
For more complex products like computers or even magazines, the four pieces of information are more difficult to collect. How
can you measure if magazine articles are good? How much time and money should it take to develop a new computer? How can you
measure if a computer software program is good? Central planners
were not able to get this information. Since central planners did not know what complex products could be produced, how much it
would cost to produce complex products, or if the products would be useful, few complex products were produced. Information on
services is also difficult to collect. It is difficult for the government to determine the quality of millions of restaurant
meals.
In a market economy, there is no central planner. The consumer decides if a magazine article is well written. The
consumer decides if a computer is good. The consumer decides if a car is good. The consumer decides if a restaurant meal is good. Individual businesses decide if they can make a quality product for less than consumers will pay for it. No central planning is needed. This is a great advantage of market economies.
A second reason why socialism fails is that central planners are often selfish or corrupt. Socialism needs well informed
central planners who are not selfish and who make the best decision for the public. Usually central planners make the best
decision for themselves or the best decision for the government leaders. For example, socialist governments often value a large
military more than they value consumer goods for the public. Socialist governments often value consumer goods for the leaders
more than they value consumer goods for the public. Therefore, socialist economies usually did not produce many consumer goods
the public.
There are also selfish people in capitalist countries, but capitalism works because people are selfish. A selfish
businessman provides you with quality products because he wants you to remain his customer. A selfish socialist planner doesn't have to give you anything.
In capitalism, politicians are also often selfish, but government intervention in a market economy is small. Democracy,
just like capitalism, also works with selfish people. Selfish politicians give voters what voters want, because selfish
politicians want to be reelected. A selfish socialist dictator doesn't have to give you anything.
The third problem with socialism is that there is less incentive to work hard. With capitalism if you work hard and are
lucky, you can become rich. With capitalism if you don't work hard, you could lose your job. I do like economics, but a big
reason I spend weekends and nights writing papers is to get a better job in the future.
Suppose that you are a socialist central planner considering building a factory. How much time would you spend on the
decision? You would probably do as little work as possible. You would probably do just enough work to please your boss. Now
suppose you were a businessman who would lose $100,000 if you make the wrong decision. How much time would you spend on the
decision? You would probably work overtime gathering information and make a much better decision. Businessmen usually make better
decisions that socialist planners because businessmen are spending their own money and businessmen who make too many wrong decisions
go bankrupt or are fired.