Socialism and communism are used to describe the left-wing schools of thought which are fundamentally opposed to free markets, and instead advocate for government control of the economy. Proponents argue that this kind of system promotes a more equitable society, whereby workers produce according to their abilities, and receive compensation in accordance with their needs.History of socialist economics
Such ideologies developed during the 19th century, in response to the contemporary wealth inequality which had become problematic. Rapid economic and industrial growth had allowed certain people to become very rich, while others descended into extreme poverty.
Socialist economic policies have since been implemented by many governments around the world over the course of the past century, with a variety of disastrous consequences resulting in and every each case.
In view of these socialist economic failures, many of the socialist advocates today are eager to distance their ideology, and how it would be implemented, from the very obvious shortcomings evidenced throughout history. However, a failure rate of 100% is difficult to argue with!
Today, most countries have a mixed economy, which is somewhat of a balancing act. A mixed economy can consist of a predominantly capitalist economy, which also has varying degrees of socialist policy, for example the U.S. and most of Europe.
Markets are relatively free but state interference can increase with customer protection, welfare, and a social safety net in place. Private companies are favored over state-run enterprise, although sometimes there are contracted out state monopolies, e.g. prisons. A mixed economy could also consist of a predominantly or previously socialist economy, which has some elements of free markets through privatization, as seen with Russia and China.Foundations of socialist economics
Production for use rather than profit forms the basic principle of socialist economics. Public or collective ownership of all means of production, such as factories and plants, follows on from this. In other words, the government owns everything and decides everything, while citizens rely on the state for all their needs, from employment, housing, and food, to healthcare.
Such a model of society can be called utopian, since in reality, this highly regulated, redistributive system results in producing surpluses and shortages, without creating an equitable distribution of wealth. In every instance, the implementation of socialist economics led to widespread political corruption and often even persecution, coercion, and brutality.
Critics of socialist economics have highlighted two major problem areas which contribute to policy failure. Firstly, there exists no means of incentivizing people to perform unpopular work. Few workers would volunteer to empty bins or unblock sewage systems without being paid a suitable wage compared to more pleasant professions. Why work at all?
Secondly, economist Ludwig von Mises raised the issue of calculation. He pointed out that the ruling socialist planners would have no reliable means of accounting, since they had no true market prices. It would be impossible for them to organize production efficiently, which explains why, in reality, socialist economics leads to underproduction and overproduction.
Even the questions of what to produce, where to produce it, what materials to use, and how to structure production, are all going to receive random answers when there is no free market or competition.
Proponents of socialism have tried to conjure up solutions to counter these problematic arguments. However, in practice, there is overwhelming evidence heavily stacked against them.Failures of socialist economic policies
Every country that experiments with a socialist economic system will inevitably face a number of severe challenges, which eventually result in a choice between sustained hardship, some level of economic liberalization, or a total collapse of the regime. Even in some cases, where socialist economies can boast some degree of positive economic outcome in their early stages, many examples in history prove that this is in no way sustainable.
Academics and politicians around the world who are sympathetic to the ideology will be quick to praise any initial success of a socialist regime. However, they will be equally quick to distance themselves and their version of socialism from these regimes when cracks inevitably start to appear.
It is indeed common practice for modern advocates of socialist economics to deny any idea of their ideology ever having been implemented, with the totalitarian socialist regimes of Mao or Stalin dismissed as ‘not real socialism’.
In more recent times, Venezuela under Chávez was the subject of much praise from socialist politicians and commentators around the world. The country’s economic growth was thus claimed as a success story for socialist economics.
However, it is now apparent that this initial upturn was completely unsustainable, as can be shown by the worsening economic and political crisis in which the country has found itself in since 2013.
The outcome of policies implemented in China, under Mao Zedong, as part of the ‘Great Leap Forward’ provides a particularly tragic example of the failings of socialist economics. During this period, from 1958 to 1962, it is estimated that as many as 45 million people died as a result of the famine brought on by Mao’s policies. Similarly, the policies of the Soviet Union, under Stalin in the 1930s, resulted in the deaths of many millions.
Why exposing the failures of socialist economics matters to SFL
At Students For Liberty, we believe in the importance and urgency of exposing the dismal track record of socialist or communist economic policies. Thus far, after numerous attempts at implementation in a variety of countries around the world, socialist economic policies have consistently failed to deliver anything resembling the promised utopia. Instead, socialist regimes are known for repression, economic hardship, and the loss of liberties that they inflict on their populations.
Any ideology that consistently produces such levels of failure and misery surely ought to be totally discredited. Yet, so long as the idea of a socialist utopia remains relevant in modern political discourse, it will be necessary to keep highlighting its previous failings, in order to prevent errors from the past recurring indefinitely.