- Isn't socialism at odds with human nature?
- Doesn't the Soviet Union show that socialism doesn't work?
- Doesn't socialism suppress individuality and economic freedom?
- Doesn't socialism mean political dictatorship?
- Surely we can't do without markets?
- Isn't it more important for people to change how they behave towards each other than to change political institutions?
- Isn't capitalism more efficient and dynamic?
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.
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 pseudo 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)
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.
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.
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 more profitable output.
It is also generally believed that such a decentralized 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 would not totally do without markets. There would 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. 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 driven out of business. 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 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.
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.
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 contrary, 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.
- Regulation. Firstly we have the costs of regulations dealing with pollution, public health and product quality. Socialism would make use of far cheaper and more effective self-regulation based on a desire to do the right thing. In the U.S. Federal regulatory agencies cost about $17 billion pa to run. Small government advocates in the U.S. claim that these regulations impose a compliance burden of about 10 per cent of GDP. This is probably a huge exaggeration. To begin with you would need to net out the cost of sensible measures. Nevertheless, the waste is no doubt huge.
- Legal system. Capitalism requires a judicial system to deal with society's rejects and to ensure that the law-abiding remain that way.
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.
- Government failure Government policies can be seriously affected by the demands of politicians, officials, workers and capitalists pushing their own sectional interests. Common forms of government action driven by sectional interests include trade protection, favorable regulation and vote buying expenditures by politicians. These can lead to considerable economic inefficiency. For example, a recent study of trade protection in the European Union suggested that it cost the Union 7 per cent of GDP per annum.
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.