Socialism FAQ's
Isn't socialism at odds with human
nature?
Isn't socialism contrary to human nature? Aren't people
inherently selfish?
To my mind socialism is more in line with human nature than
capitalism. Part of our human nature is the possession of needs that can only be
met through cooperation and reciprocal relations with others. These include both
emotional needs and the need to self-actualise or achieve. So 'enlightened
selfishness' requires cooperation and mutual regard.
It is certainly true that socialism would be impossible if
people were to continue behaving in the anti-social ways that they do at the
moment. However, this behaviour is mainly driven by conditions that are far from
permanent and would be eliminated under socialism. These include the following:
- Capitalism generates dog eat dog behavior. Your interests
are set unnecessarily at odds with others. You have to be a bastard to get
ahead in your career or business. Your success is someone else's failure.
Because socialism is based on cooperation rather than competition, it
removes much of the conflict between our needs and those of others.
- Socialism not only removes the incentives to act against
the common good, it generates the motivation to actively serve it. Work is
transformed into a desirable activity performed for its own sake and people
feel part of society rather than alienated from it.
- In developed countries it is now possible for everyone to
live a reasonably affluent life and be free of long hours of routine toil.
This creates a better basis for cooperation and mutual regard. Historically,
where equality would have meant shared misery, scarcity made a necessity out
of the plunder, enslavement and exploitation of others. And there was no
room for an 'enlightened' attitude. If you were not on the delivering end,
you were on the receiving end. Freed slaves felt no compunction about
enslaving others.
- Any desire to harm others is not part of human nature but
rather something neurotic and self-destructive. The same goes for the
complementary desire of some people to be treated as door mats. Such
disordered behaviour is fostered by capitalism. Firstly there is the direct
effect of the dog-eat-dog workings of the system and the alienated nature of
labor. Then there is the indirect effect through the impact of other
people's neurotic behaviour, particularly that of parents, who have been
deformed by the system.
Doesn't the Soviet Union show that socialism doesn't
work?
The lesson that is generally drawn from the experience of
places like the Soviet Union is that socialism inevitably becomes an
economically inefficient police state and the old capitalist ruling elite is
simply replaced by a 'socialist' one.
There are three points I want to make in response. I'll go
through them briefly and then discuss them in more detail.
Firstly, I think it would be more accurate to describe it as a
defeat rather than a failure. Socialism was defeated by the extremely
unfavorable social and economic conditions in the countries involved. Or to put
it another way, the socialism that was defeated was not very developed. In fact
what was defeated was scarcely socialism at all but something far more
embryonic. The conditions were so unfavorable that virtually none of the changes
I have referred in my discussion of
ownership were achieved. What was achieved can at best
be described as prerequisites for socialism or a few steps in the general
direction. These measures included expropriating the old capitalists, the
collectivisation of agriculture and a degree of unified control of the economy.
None of the individual changes in the position of the individual worker were
achieved. And the reason for this is that they can only be achieved on the basis
of fully developed capitalism and not on the basis of the backward, feudal
conditions that prevailed in those countries.
The second point to make is that the defeat of socialism
happened well before 1989. The regimes that collapsed around that time had long
ceased to be socialist in any sense and would be better described as state
capitalist. So the failure of these regimes was not the failure of socialism.
The third point is that change is often a long and tortuous
process and the transition to socialism is no exception. Although, hopefully
this transition won't be as protracted and painful as the one from feudalism to
capitalism. In Europe that transition took about 500 years and today is making
hard work of it in the Third World.
Now returning to the first point. The social and economic
backwardness of places like the Soviet Union and China meant that it was
impossible to do without an elite stratum or to move beyond the
old division of labor. This was due to
the fact that most people were peasants or ex peasants with no education or
knowledge of anything much beyond village life and therefore weren't equipped to
take on the tasks of management or other more cerebral forms of mental labor. So
these tasks were performed by a minority of managers, engineers and officials.
Also the elite had a lot to lose from any move towards
socialist transformation. Because of the economic backwardness there was a large
difference in the position of a member of the elite and an average worker - in
terms of status, income and freedom from manual labor. So they had an interest
in protecting and preferably extending their privileged position.
This not only placed an obstacle in the way of workers
gradually improving their individual ownership position as their education and
abilities improved but also undermined the collective side of ownership. This
was due to the fact that productive assets were converted into quasi private
property from which both legal and illegal profits were extracted and also to
the perverse effects of careerism which can divert people from working for the
common good. These effects include such things as patronage, deception,
secretiveness and backstabbing. Furthermore, the lack of democratic culture and
the working class's demoralisation and total exclusion from decision-making,
made rank and file supervision impossible.
For workers the benefits of this embryonic socialism were
fairly limited - their living standards were low and work was manual toil. Those
with special abilities or talents would be more interested in joining the ranks
of the privileged than working to extend the horizons of the rank and file.
Besides, the undemocratic conditions made resistance difficult.
Returning to the second point, not only were the achievements
of socialism limited, but at a certain stage the little that was achieved was
completely wound back. This was the case even though those in charge still
claimed to be socialist, and often still believed themselves to be so. Beyond
this stage, it is not a question of the failure of socialism but rather the
defeat of socialism and then the subsequent failure of the system that replaced
it. In the case of Post-Mao China, the reversal was obvious. His successors
repudiated all his policies. The communes were scrapped, one person management
and the profit motives was reintroduced into the factories and foreign
capitalists were invited in. In Russia, the reversal took a less obvious form.
It involved a refusal to advance beyond the minimal transformation achieved in
the Stalin period (including clearing away the various obstacles he had placed
in the way of further progress) and to leave unchecked an already existing
tendency for state ownership to become a system of state capitalist exploitation
and semi-feudal patronage.
The regimes that resulted from these reversals should be
described as state capitalist tinged with feudalism rather than as a form of
socialism, even a deformed version. By considering them a kind of socialism we
would be implying that something that is obviously inferior to western
capitalism is still socialist. We would be suggesting that there is or was
something worth defending and that the demise of these regimes is regrettable.
And in fact this is a position that the
fake left has taken. They make much of
the fact that the demise of these regimes is in many cases associated with a
continuing economic collapse, increased income inequality and the disappearance
of the old welfare system. However, economic conditions will be better served by
the establishment of normal bourgeois property law and markets relations rather
than a return to the old system of semi-feudal patronage and kleptocracy.
Also the new political freedoms are extremely important. They
are important in their own right and also because they provide room for a
genuine socialist movement to re-emerge one day in these countries. Furthermore,
a genuine socialism can only benefit from the demise of a regime that
discredited the word and also from giving western capitalism a chance to show
its limitations.
The demise of these regimes is also of benefit to socialists
internationally. These regimes were an acute embarrassment. They palpably
defined what socialism was regardless of protestations to the contrary. And it
was so easy be labelled the agent of an unsavoury foreign police state.
As to our third point, change is always long and tortuous. In
the case of the transition from feudalism to capitalism in Europe, we are
looking at a process that took about 500 years. At the moment Third World
countries are still having a lot of trouble crawling out of the Middle Ages and
embracing modern capitalist society. So it is a bit much for supporters of
capitalism to carry on about the failure of socialism in the Third World when
these countries have a lot of trouble carrying out the far simpler transition to
capitalism.
Also an interesting parallel can be drawn between the demise
of the state capitalist regimes and the demise of Napoleon in 1815. Just as we
are now told that communism is dead, people were told then that democracy was
dead. According to the reactionaries of the time, the experience of the Terror
and Bonapartism showed that the democratic aspirations of the French Revolution
were futile, that overthrowing legitimate authority simply meant replacing it
with illegitimate and even more tyrannical upstarts. In the same way we are now
told that socialism will simply replace capitalists with a new lot of
exploiters.
While backwardness made socialism virtually impossible in
countries like Russia and China, economic and social development makes it
possible in the advanced capitalist countries of North America, Western Europe,
East Asia and Australasia. (This is explained in
Prospects for Socialism)
Doesn't socialism suppress individuality and economic
freedom?
If socialism suppresses individuality and economic freedom it
is only the individuality and freedom of capitalists as they trample on the
individuality and freedom of everybody else. They will no longer have the
freedom to control and exploit others by monopolising the means of production.
Capitalism is premised on economic freedom being confined to a
minority. Everyone else has to follow orders. If workers went to work tomorrow
morning determined to show initiative and creativity, they would immediately see
how the system gets in their way.
Capitalists want their cake and to eat it too. On the one hand
they want workers to accept their subordinate position but at the same time to
show a bit more initiative within their cramped area of responsibility. Success
is limited because people who accept their subordination tend to lack initiative
while those who don't accept their subordination are hard to motivate.
Certainly a worker under capitalism is freer than a serf under
feudalism. They are not obliged to stick with one boss. And also, the capitalist
is freer than the guild master bound by guild rules. However, you can't keep
dining out on that for five hundred years. Being better than feudalism loses its
power to impress. It's about as impressive as a middle aged couch potato
outpacing an octogenarian with a walking frame.
Socialism takes individuality and economic freedom further.
Socialism enables the average person to control their own labor and be a full
participant in society. See
Socialist Ownership and
Society and the Individual under Socialism for further
discussion of these two points.
Doesn't socialism mean political dictatorship?
Ultimately, the full development of socialism is impossible
without extensive democracy. Being able to speak your mind and have an equal say
in decisions is an indispensable part of individual liberation - the primary aim
of socialism.
It's importance extends also to socialist production. To be
able to control your labor you have to be able to have a say in how production
is to be carried out and your role in it. And the efficient running of a
socialist economy requires supervision from below which must mean extensive
freedom of speech and participation in decision-making including control over
people in leading positions. While a capitalist economy, relying as it does on
market incentives, can function without economic democracy, a socialist economy
cannot. So if socialism is unable to achieve freedom and democracy in both the
political and economic spheres, it is a failure.
What about the experience of places like the Soviet Union and
China? Socialism in those countries wasn't very democratic was it? Well, no. But
conditions were rather unusual. Communists were trying to stay in power and
begin a socialist revolution where support was tenuous. They had come to power
by hitching themselves to the peasant demand for land reform, and there was
virtually no working class and very little support for socialism. Furthermore,
economic backwardness meant a program of industrialisation was needed before
socialism could become more than a formality; and this period was bound to be no
great joy for either peasants or workers. Inevitably it was mainly a revolution
from above rather than below.
Even aside from their lack of mass support or acceptance, the
legacy of feudalism meant that the notion of democracy and individual rights
were fairly alien to both those exercising power and those subjected to it.
Was it wrong for the communists to impose themselves? No. The
alternative was not some nice bourgeois liberal regime but a fascist semi-feudal
one. The communists created the basis for modern societies in these countries
and the Soviet Union was decisive in defeating the Nazis, so allowing human
history to continue moving forward. A right wing regime would not have been able
or willing to achieve this.
As for Eastern Europe, where socialism was more or less
imposed by the Soviet Union, it is harder to point to any benefits. All one can
say is that it was pretty much the unavoidable consequence of the Soviet victory
over the Nazis and the ensuing Cold War with the West. As discussed
above, the supposedly socialist
countries ceased heading down the socialist track decades before the fall of the
Berlin Wall and so their failings beyond a certain point are/were not the
failings of socialism.
Engels anticipated the dilemma for communists in countries
that were not ready for the socialist revolution.
- "I have a presentiment that, thanks to the perplexity and
flabbiness of all the others, our Party will one fine morning be forced to
assume power and finally to carry out measures that are of no direct
interest to us, but are in the general interests of the revolution and the
specific interests of the petty bourgeoisie; on which occasion, driven by
the proletarian populace, bound by our own printed declarations and plans -
more or less falsely interpreted, more or less passionately thrust to the
fore in the party struggle - we shall be constrained to undertake communist
experiments and perform leaps, the untimeliness of which we know better than
anyone else. In so doing we lose our heads - only physically speaking, let
us hope - a reaction sets in, and until the world is able to pass historical
judgement on such events, we are considered not only beasts, which wouldn't
matter, but also b�tes (stupid - Ed) which is much worse. I do not quite see
how it could turn out otherwise. In a backward country like Germany, which
possesses an advanced party and is involved in an advanced revolution with
an advanced country like France, the advanced party must get into power at
the first serious conflict and as soon as actual danger is present, and that
is, in any event, ahead of its normal time... (Letter to Weydmeyer, April
12, 1853).
Of course opponents of socialism would say that it can never
receive overwhelming and sustained support because it is fundamentally flawed
under all conditions. So, any initial support that may get socialists into power
will evaporate and they will inevitably have to resort to repression. There is
no short answer to that. All I can do is to invite readers to look at what is
said elsewhere in this site about the merits and feasibility of socialism.
No discussion of democracy should pass by without a reference
to the hypocrisy of the bourgeoisie. One must question whether they would
recognise the right of a majority to elect a socialist government. They would
even justify repressive measures as defending democracy, on the basis that a
majority do not have the right to elect a government that in their view would
abolish freedom by suppressing them and taking away their right to monopolise
the ownership of the means of production.
The bourgeoisie has both official and unofficial means of
repression at its disposal. The official means include the introduction of
emergency powers to suppress dissent and the staging of a military coup.
Unofficial means include violence and frame-ups by 'rogue elements' in the
security forces and the activities of privately run death squads. In turn, a
revolutionary government would have to adopt repressive measures against its
opponents. Any counter-revolutionary rebellion would have to be crushed. Then
acts of sabotage and attempts at organising a comeback would have to be
suppressed. This would at least in some degree involve limitations of freedom of
speech and the use of emergency powers. And known opponents of the regime would
have their civil rights restricted in various ways.
The basic point to grasp is that where society is polarised
between those who support capitalism and those who support socialism, there is
not much room to compromise. There is a fundamental difference over what kind of
society we should have. Each finds the choice of the other utterly abhorrent and
may not accept the right of the other side to impose its preferred society.
Tranquil and tolerant democracy is only easy to achieve where
there is a general consensus over the big issues. This is what we have at the
moment where almost everyone supports or accepts capitalism and differences of
opinions are confined to secondary matters. Only a small minority want to
restore feudalism (ie the greens) and virtually no one wants to introduce
socialism. In the same way, once socialism ceases to face serious opposition, it
would be equally relaxed towards the rare weirdo who pined for an earlier
society that was obviously inferior in every respect. How long this will take is
hard to say. Initially, a significant group of people will not only have an
ideological aversion to socialism but will actually find themselves worse off as
they lose their high incomes and position of authority and prestige. (A policy
of granting compensation to well behaved ex-capitalists and shareholders may
reduce the problem, but only partially.) Eventually socialism will be so
attractive that no one would want to be a capitalist let alone a capitalist's
lieutenant or NCO.
Not only is political democracy a necessity for socialism, it
is also superior to its capitalist counterpart. First of all, as discussed in
Society and the individual under socialism,
liberated workers are going to be better informed about society's affairs and
have more opportunity and ability to participate in the political process.
Secondly, a socialist government will ultimately be open in a way that doesn't
seem possible under capitalism. I say 'ultimately' because openness will
initially be constrained at least in some respects by internal and external
security concerns.
One reason for lack of open government under capitalism is the
presence of commercial interest. For example, some budget decisions have to be
kept secret until the date of their enforcement, so that their effect is not
undermined by early release. Also business contracts entered into by governments
involve questions of commercial confidence. This has to be investigated further,
but it does seem that capitalism breeds inherently secretive politicians and
bureaucrats. I think the key is careerism, the competition for position. With a
career at stake, the less people know about your wheeling and dealing,
incompetence and negligence the better. But as I say, this is an area requiring
more work.
Surely we can't do without markets?
Under capitalism markets perform two roles. They provide
information needed for economic calculation and the incentive to act on that
information. Does socialism have alternative ways of performing these tasks?
Let's look at each in turn.
The accepted view is that the efficient allocation of
resources requires decentralised decisions on the basis of present or expected
future prices. This means that firms can chose the cheapest inputs and produce
the most valued and hence profitable output.
It is also generally believed that such a decentralised system
of allocation requires market exchanges and as a result socialism would not be
able to make use of it and would instead have to rely on some system of
centralised allocation, and such a system is said to be grossly inefficient.
The first point that needs to be made is that socialism does
not totally do without markets. There will continue to be markets for consumer
goods and for exports and imports. In both cases there is an exchange of
ownership. In the case of consumer goods, society supplies them to the
individual worker in exchange for hours of labor. In the case of exports and
imports, there is still exchange because collective ownership for most if not
all things will end at political borders.
Where you don't find markets under socialism is in the
transfer of intermediate goods between different production units within
political borders.
The generally held view is that if there is decentralised
price setting and decentralised decisions on the choice of inputs based on these
prices, then the resulting transfers of goods necessarily represents a market
exchange.
This is not the case however. Socialism would be quite capable
of employing such methods without there being any market exchange. Ownership
stays the same because both organisations have the same owner. Equally the
ownership of a good is not exchanged for money that can then be used to acquire
ownership of some other equally valued good. Furthermore, no one in the
supplying unit is profiting from the transfer. The purpose of resource
allocation decisions is not to make a profit for those making the decisions but
to serve the common good.
Not only would socialism be able to make use of decentralised
economic calculation, it would actually be able to make better use of it than
capitalism. This is something we will discuss
below when we look at the economic
superiority of socialism.
While central planning that uses direct measures of labor and
physical inputs rather than prices is not necessary in order to eliminate market
relations, its use as a tool of economic calculation does seem to be far more
promising than the opponents of socialism make out. Planning is dismissed mainly
because of problems with it in the Soviet Union and similar countries. However,
I would suggest these problems say more about the conditions in those countries
than they do about planning. And we've already had a bit to say about them. See
above.
The purpose of planning is to simultaneously determine
production or investment decisions that depend on one another. To do the
calculations you would need a super computer and also the Internet or some other
network for collecting information on what inputs are available and what
production is possible and also for issuing instructions on what to produce and
what inputs to use.
In simple terms the planning process basically involves
feeding into the computer bundles or combinations of final consumer and
investment goods in order of preference until the computer tells you that it has
found a feasible bundle. The computer then reports how each product type is to
be produced using available labor and other inputs. The ordering of bundles of
final goods would rely on consumer research in the case of private consumer
goods and a political decision-making process in the case of both public
consumer goods and investment.
Information would be required on millions of goods including
each variety. Most commentators say that making calculations with so many inputs
and outputs is impossible because even with the fastest computers available the
calculation would take over a million years. And these are calculations that may
need to be made on a daily basis. If you have for example ten million goods that
would mean solving ten million simultaneous equations with one hundred million
million variables. However, in their 1993 book called
Towards a New Socialism, Cottrell and Cockshot claim
that there is a feasible alternative method of calculation that provides a close
approximation of the results that would be gained with the normal method and
would only take minutes to calculate. This alternative methods relies on the
fact that most of the variables in the equations are zero. This is because each
of the millions of goods produced use only a tiny fraction of the other goods in
its production. For example, there is no tooth paste or toilet paper used in
producing telephone wire.
The next objection to socialism is that we cannot do without
the rewards and penalties of market incentives if we are to minimise costs, to
innovate and provide consumers with what they want. Under capitalism you have to
produce what consumers are prepared to buy and avoid being undercut by
competitors. Otherwise you risk going broke. By the same token workers who fail
to obtain the skills required by the labor marker face unemployment or low wages
while workers who fail to work diligently face dismissal or poor promotion
prospects.
The answer to this objection is that socialism develops other
motivations. Firstly, as mentioned in the discussion of
ownership, work becomes an end in
itself. It is simply something people want to do. Secondly, a desire to ensure
that resources are used efficiently will be quite normal once individuals cease
to feel alienated from society and other people. Also mutual supervision will be
much easier because there will be a complete lack of secrecy and tyranny, and
workers will have the necessary competence to carry out the task.
As discussed
below, socialist motives will give you
a more efficient economy than the profit motive.
Isn't it more important for people to change how they
behave towards each other than to change political institutions?
You cannot counterpose the two. The institution of capitalist
private property has a profound effect on how people behave towards each other.
It sets up a host of oppressive and antagonistic relations.
While conceivably people could be nicer to each other under
capitalism, this system places a definite limit on the extent of niceness.
Where a change in the behavior of the individual is really
important is in their attitude to capitalism. People have to become increasingly
intolerant of how it gets in our way and find the gumption to resist and
mobilize others to do the same.
Of course, after the revolution that socialises the ownership
of the means of production, people will have to change fundamentally. You will
have the chicken and the egg. The new institutions give people more room to
change but on the other hand the new insitutions can only thrive if people do
change.
Isn't capitalism more efficient and dynamic?
Western capitalism is certainly more economcally efficient and
dynamic than the fake socialism or state capitalism that existed in the former
Soviet Bloc. (See
above for discussion of these regimes.)
However, it is not more efficient and dynamic than socialism. On the contracy,
as well as liberating the individual, socialism will also remove the brakes that
capitalism places on the economy.
It will do this in three main ways:
(1) As we have discussed elsewhere (See
Social Control) socialism would
eliminate the business cycle which can significantly reduce output.
(2) Liberated workers will be more productive. They will:
- show greater initiative and enthusiasm;
- exercise a greater range of abilities;
- not oppose innovation the way they often do at the moment
for fear of losing their job. In fact under socialism destroying jobs will
be a major priority. While fulfilling work and income will be guaranteed,
particular jobs will not; and
- will not require costly supervision. Under capitalism it
costs a lot to supervise unwilling workers. It is becoming increasingly
costly, and in many cases ineffective, as work becomes more complex and
harder to monitor.
(3) Socialism will replace the "invisible hand" of the market
with the "visible hand" of cooperative production. And this will mean a far more
efficient use of resources.
Let's now look at this third point in more detail.
Supporters of capitalism like to make out that in looking
after their own interests capitalists are generally speaking also looking after
the interests of society as a whole. This is because it is in their commercial
interest to produce what consumers want, and because competition from other
capitalists forces them to keep down their costs.
This equating of sectional and common interest, is called the
"invisible hand of the market", a term coined by Adam Smith in The Wealth of
Nations back in the 1770s. No one claims that they equate exactly, but, all
the same, we are made to believe that there is a reasonably close match.
In fact they diverge far more than is generally acknowledged.
As a result, rather than being an invisible hand the market should be more
modestly described as an 'invisible boundary' that places an outer limit on how
far a capitalist economy can deviate from the common interest. This 'invisible
boundary' means that capitalism is vastly more efficient than a lot of other
economies. For example, it is much more efficient than the kleptocracies of
present-day Africa, the feudalism of the Middle Ages or Vikings marauders during
the Dark Ages. It also means that capitalist economies tend to work better when
the government clearly defines and protects bourgeois property rights and avoids
excessive efforts to 'regulate' the market.
The basic weakness of the 'invisible hand', is that dog eat
dog behaviour really can't replicate the results of genuine cooperation. Below
we identify the main reasons why this is so. They are not necessarily in order
of importance:
- Under capitalism vast amounts of knowledge and
information are commercial secrets. This increases the scope for errors in
investment and labor training decisions, limits the use of the best
technologies and methods, conceals skulduggery and limits the ability of
consumers to make the best choices.
- Price and cost information can only help you make
efficient decisions to the extent that it is accurate and available. For
example, if you want to use the least cost method of production, you can
only do that if you have accurate cost information about alternative
methods, so that you can make the right choice. However, under capitalism
price and cost information is distorted or obscured in various ways.
- Capitalist are always trying to gain market power so
that they can charge monopoly prices. This includes both long term
market power resulting from having a dominant position in an industry
and also the temporary market power that comes with a new product or
process.
- Capitalist firms fail to incorporate costs and
benefits that are not covered in market exchanges. For example, the
costs of environmental degradation and the wider benefits of research
and development. Present attempts by governments from outside the market
to rectify this problem are costly and give far from optimal results.
- There could be a case for arguing that profits
distort prices because the going rate of profit is effectively a tax on
the use of productive assets, and this leads to excessively labor
intensive technologies and under-investment. At this stage, I haven't
formed a view on the subject and simply flag it as something requiring
further work.
- An effective price mechanism requires that everybody
endeavour to provide true and complete estimates of future costs and
values. Under capitalism there is a tendency to be secretive and
deceptive about such matters. This shows up in a number of ways:
- Companies will understate what they are willing
to pay, because suppliers will always charge what they think the
market will bear. Information on willingness to pay will be very
useful under socialism because it will allow greater use of what is
called price discrimination. It basically means that user industries
that place a higher value on the good will contribute to overhead
costs, while others are still provided with the product as long as
they are willing to cover the extra cost of supplying them (marginal
costs). Because of their limited ability to use such pricing
strategies, capitalist tend to charge everyone a price based on
average cost with the result that those not willing to pay this
much, but are willing to pay the marginal cost, are excluded.
- Suppliers may understate or conceal information
about expected future costs to discourage competitors from entering
the industry or suppliers of substitutes from increasing their
capacity. They may also understate these costs in an effort to
attract users who once they have adopted the product cannot easily
switch to an alternative. This problem can only be overcome to the
extent that customers are able to arrange contracts for future
supply at a pre-arranged price.
- Even where there is no reason to be secretive and
deceptive, cost and price information would still be under-supplied
because it has external benefits that cannot be captured by market
exchange. In other words price data, like any useful information, is
a public good - unlike apples and oranges, one user's consumption of
the good does not prevent its consumption by another. It is like
street lighting - my use of it to see where I am going does not
reduce the amount of light available to somebody else to do the
same. Being a public good presents two sorts of problems. Firstly,
it may be difficult to exclude non-payers or prevent those who do
pay from reselling the information. Secondly, most costs are
overhead costs - marginal costs are minimal - and as we have just
discussed, capitalists have difficulty pricing such goods without
excluding users who are willing to pay at least marginal costs but
not average costs.
- Costs of wheeling and dealing. Wheeling and
dealing includes finance, insurance, advertising and marketing. More
research needs to be done on the extent of these costs. However, as a group
I expect them to be a significant part of the economy and for a large
proportion of their activities to be pure waste that socialism would
dispense with. In the U.S., the finance and insurance sectors alone comprise
5 per cent of the workforce and about 15 per cent of GDP.
- The burden of government.
Government is very costly under capitalism.
In the U.S. there are two and quarter million law
enforcement officers, including police, private security and prison
guards. This is 1.7 per cent of the employed workforce. I haven't
checked but I suspect this would not be far off the ratio you would find
in a concentration camp. Then you have judges, lawyers and other workers
in the judicial system who make up another million people.
The debate between liberals and conservatives about
the cause of crime has no bearing on the fact that crime is associated
with capitalism and will be virtually eliminated by socialism. If the
liberals are right, crime is due to unemployment, in which case
socialism solves the problem by offering guaranteed work. If the
conservatives are right then crime is due to a self-perpetuating
under-class which is encouraged in its illicit and slothful habits by
welfare programs. In this case socialism also solves the problem.
Firstly welfare is replaced by a guarantee of rewarding work and secure
income. Secondly, socialism would be in a better position to deal with
the lumpen element. It can mobilise the best elements in problem
neighbourhoods to combat their influence. And it can claim a mandate to
implement emergency measures if necessary. For example, being a hoodlum
or associating with hoodlums could be an offence. Such a mandate could
be claimed because it is one-off and effective - those convicted are not
simply replaced by a fresh crop - and it is not excessively punitive.
Conviction, except for die hards, would lead to retraining and
guaranteed work.
- Taxation system. Capitalist countries all have
very inefficient taxation systems. The Australian Taxation Office costs
$1 billion (US$600 million) per annum to run. That is about 0.2% of GDP
or $110 per worker per annum. I assume the figure would be much the same
in other developed capitalist countries. Estimates of compliance costs
are unreliable but they are generally believed to be at least a few per
cent of GDP. It is certainly possible that capitalist countries could
come up with better tax systems. However, they would never be as
efficient as the tax system under socialism.
Under socialism workers would receive the total income of
society. Out of this income they would then pay a poll tax and also a
ground rent on their places of residence. (For example, if they want a
riverside view they would pay through the nose for it.) These taxes do
not distort prices and would have low collection and compliance costs.
While ground rent could be introduced under capitalism, it would require
the nationalisation of land. A poll tax could also conceivably be
introduced under capitalism but as Margaret Thatcher's attempts show
there is bound to be a major backlash. Under capitalist conditions where
incomes are very unequal and precarious, a large number of people would
be either unable to pay or seriously burdened. Under socialism where
income is secure and more equal these problems do not arise. As well as
being non-distortionary it is the only tax that imposes an equal burden
on everyone. An income tax on the other hand would discriminate in favor
those who work shorter hours.
Both the size of tax revenue and how it is spent would be
determined by a democratic political process. Spending includes
pensions, publicly funded goods like education and investment.
To some extent sectional interests
can be fought off and this has been one of the aims of so-called
microeconomic reform and deregulation. However, the pressure for special
treatment will always be a problem, given that benefits from such
measures are concentrated while the losses are dispersed throughout the
population at large.
I will finish this section by looking at a number of
indicators that suggest that the economic performance of capitalism is not
particularly stunning.
Firstly per capita income in the U.S. has only grown by
about 2% per annum over the last 55 years. I find it hard to believe that that
is all that modern science and technological innovation could have delivered.
A slightly higher rate of growth can make a huge difference
over such a period. While 2 per cent annual growth rate gives a 3 fold increase
in income, a 3.3 per cent annual growth rate gives a 6 fold increase in income.
In other words per capita income would be double what it is now if the growth
rate had been 3.3 per cent instead of 2 per cent.
My view that 2 per cent per capita growth rate is far too low,
is just a gut feeling at this stage and will need to be placed on a firmer
foundation.
I have a similar gut feeling about the level of research and
development spending. On the face of it, the R&D spending figures certainly
don't look that flash when you consider all the benefits that can flow from it
in terms of economic growth and human welfare.
Developed countries only spend about 2 to 2.5 per cent of GDP
on research and development. Also the number of scientists and engineers engaged
in R&D does not seem huge. In the U.S. the figure is about one million out of a
workforce of 132 million. That is a mere 0.76%.
Also the ratio of R&D on process innovation to investment
seems low. Gross investment tends to be in the order of 25 per cent of GDP. My
guess is that less than half of R&D is process innovation so that means that for
every $25 spent on investment only $1 is spent on developing better methods.
Claims for the economic dynamism of capitalism are also rather
laughable when you recognise that virtually every major technological
development of the last 60 years is due to government spending on defence or the
space program - both relying on war or the threat of it. Market forces have been
secondary. These technological developments include jet aircraft, rockets,
satellite communications, the Internet, computers, transistors, micro-chips,
integrated circuits, bar codes, nuclear power and a vast array of new materials
initially developed for military or space use. Even the mass production of
consumer goods after WWII owes much to the diffusion of mass production methods
during the period of war production. Then we have the role of individual
enthusiasts in the development of the PC who were working for the fun of it
rather than profit.
So, to conclude on this subject, I think there are plenty of
good reasons for thinking that capitalism is an obstacle to economic progress
and for viewing with contempt claims that it is dynamic and efficient.
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