Criticisms of socialism

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See also, Socialism, Socialism:A conservative viewpoint and Socialism:A Marxist viewpoint

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Opposition and Criticisms of Socialism

A number of leading thinkers, historians, economists and historians have raised many issues with socialist theory. These individuals include Milton Friedman, Ayn Rand, Ludwig Von Mises, Friedrich Hayek, and Joshua Muravchik, to name a few. Most of their objections and critiques seem directed more at a centrally planned economy (not a part of all proposed socialisms), some at socialism and Marxism in general, but because these distinctions are relatively difficult to tease out of their writings, it is probably useful to take them up in a single context. These objections and critiques usually fall into the following categories:

  • Incentives
  • Prices
  • Profits and Losses
  • Private Property Rights

Incentives

According to the critics of socialism, under socialism incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. Socialism, say the critics, is based on the theory that incentives don't matter.

This is essentially the point made by Slavenka Drakulic in How We Survived Communism & Even Laughed (ISBN 0060975407), where she argues that a major contributor to the fall of state communism was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produces washing machines.

Of the many forms of socialism, the one that appears to have made the greatest effort to address this criticism is participatory economics, or "Parecon." Parecon envisions an iterative process to match what consumers want with what producers are ready to offer, while keeping personal consumption requests anonymous. [1]

Prices

According to the critics of socialism, the price system in a market economy guides economic activity so flawlessly that most people don't appreciate its importance or see its effect. Adam Smith dubbed this effect the "unseen hand" of the market. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.

Some forms of socialism propose to abolish markets entirely. All, or nearly all, advocate some form of governmental or other "social" interference with market prices. Free-market economists argue that a controlled or fixed price always transmits misleading information about relative scarcity and that inappropriate behavior results from a controlled price, because false information has been transmitted by an artificial price.

Obviously, a command economy tries to replace the invisible hand with a highly visible one (what libertarian Sharon Harris of Advocates for Self-Government calls a "visible fist" [2]). The claim is that a more rational result can be achieved by the efforts of economic coordinators rather than by market forces. While some socialists oppose a centrally planned economy, all advocate the overt inclusion of non-economic factors in determining economic decisions.

Socialists of all stripes seem to be united in their rejection of the claim of market rationality in determining prices. Among the issues they point out, and which they say would be handled better by some other mechanism, are:

  • The claim that capitalism has a natural tendency of toward monopoly, leading to distortion in prices. This is essentially the same argument used by critics of socialism, but with the terms reversed: since monopoly is inevitable, these socialists argue, the conditions will not be present for the "invisible hand", and other means, not available under free market capitalism, must be found. For example, this argument is repeatedly invoked in the 2001 Program of the Communist Party of Canada, which refers to the current system as "State-monopoly capitalism" and argues, that "financial and industrial monopolies dominate agriculture, and farmers are compelled to pay high monopoly prices for seed, equipment and other inputs, while the prices they get for their produce are set by the powerful packing, milling, grain-handling and railway monopolies." [3]
  • The related claim that market systems are distorted by the unequal power of the players in the markets. Economist Anup Shah (a leftist, though not necessarily a socialist) makes this case, suggesting that the current neo-liberal order might be better called "neo-mercantilism" and applying to it Adam Smith's critique of how military power distorted trade under mercantilism. [4]
  • The claim that one or another socialist approach can mitigate the role of externalities in pricing, producing results at least as efficient as those under capitalism. This was basically the argument put forward by Oskar Lange [5] and the Paretians [6]; see also Pareto efficiency.

Profits and Losses

Many historical and proposed forms of socialism would not operate under a profit-and-loss system of accounting. All these forms of socialism give less of a role to competition than does a capitalist economy. A profit system is an monitoring mechanism which continually evaluates the economic performance of every business enterprise. In theory, at least, under capitalism the firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.

By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the public. A competitive profit system ensures a constant re-optimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to serve the public interest or suffer the consequences.

Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, critics argue, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. There is no efficient way to determine which programs should be expanded and which ones should be contracted or terminated.

Without competition, critics claim, centrally planned economies do not have an effective incentive structure to coordinate economic activity. This lack of incentives results in a spiraling cycle of poverty and misery. Instead of continually reallocating resources towards greater efficiency, a centrally planned economy falls into a vortex of inefficiency and failure.

In general, socialists do not address this argument head on, preferring to focus on the downside of the profit motive. For example, this argument can be seen in an article published by the Socialist Party (England and Wales), claiming that the profit motive inherently puts capitalism at odds with ecologically sound policy. (http://www.socialismtoday.org/69/green.html).

Private Property Rights

Another defect of socialism, according to its detractors, is its disregard for the role of private property rights in creating incentives that foster economic growth and development. The failure of socialism around the world is seen as some as a "tragedy of the commons" on a global scale.

The "tragedy of the commons" refers in its narrowest sense to the British experience of the sixteenth century when certain grazing lands were communally owned by villages and were made available for public use (or, more precisely, the use of those with rights in that common land). Because each individual had more of an incentive to maximize his (or her) own benefit from this common land than to be concerned for its sustainability, the land was eventually overgrazed and became worthless.

The line of argument is that when assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property creates incentives for conservation and the responsible use of property, public property encourages irresponsibility and waste. If everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it. Public ownership encourages neglect and mismanagement.

As Peruvian economist Hernando de Soto remarked, "you can travel in rural communities around the world and you will hear dogs barking, because even dogs understand property rights. It is only statist governments that have failed to understand property rights."

The socialist counterargument is that some things are almost inevitably commons, notably the quality of the physical environment. While the past and present communist states have an even worse record than capitalist states in this respect, many socialists today would argue that was due more to their non-democratic nature than to their socialist aspects and that, in principle, a democratic system of planning could achieve appropriate shared management of this inevitably shared resource. In fact, in practice, this is what even many otherwise capitalist societies have resorted to, imposing government regulations to restrict air and water pollution. (Paul Burkett makes a specifically Marxist case for socialism as being better able to address the issue of managing the environment in an article "Ecology and Marx�s Vision of Communism" in Socialism and Democracy, Vol. 17, No. 2 [7].)

There exists a contrary body of theory on free-market environmentalism, arguing that the most effective direction of reform is continued privatization of the commons [8] On the level of practice, the USA, and some others, have experimented with market solutions in the form of emissions trading. Such trading has certain aspects that are more socialist than capitalist, since it uses an artificially created market in which a government decides the number of emissions credits that will be in circulation and the rules under which they may be traded.

References

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