Why Socialism FailsWhy Markets Survive
DECEMBER 01, 1983 by BILL ANDERSON
Mr. Anderson has taught social studies In junior high school and currently is enrolled at Clemson University in the master’s program in economics.
The other morning I had the opportunity to view a child’s lesson in socialism. While my six-year-old daughter and I curled up on the couch, the popular Saturday cartoon show gave to us in story form a recitation on how self-interest corrupts while mutual community sharing in a commonly-owned system brings peace and happiness.
Please don’t misunderstand me. I have nothing against young persons—or even older persons—sharing their possessions. Indeed, unselfishness is a positive unifying force for social cooperation. But the message of the cartoon went far beyond just being generous with one’s own property; it said this: self-interest leads to conflict and strife, but the road to wealth, happiness and equality comes from the proper motive of sharing one’s things with others—by force, if necessary.
If we think carefully, we will realize that this kind of social sermon is not unusual. We hear such exhortations almost daily, whether they be from the minister’s pulpit, the politician’s speech, the editorial pages of our nation’s newspapers or the evening news. Public (and most private) school curricula are often designed with such a message. Even many of our most successful businessmen declare that they seek nothing more than to further the common good of humankind; profit, they say, is not their main motive. Humanity is.
Why Are We Unsociable?
So be it. But, with all the urging to be good socialists, or at least socially-minded creatures, why are we not good socialists? Why do we as individuals continually seek our self-interest, and why do most of our actions reflect a desire to maximize our own satisfaction? From the cradle to the grave, we are exhorted by those around us to act in a manner that we believe will bring satisfaction and happiness to “humanity,” yet many of our actions mirror our own needs and our own desires. In short, in spite of many “socialized” particulars of our upbringing, most of us act in a manner deemed by intellectuals and other observers of the social scene to be unsociable.
It would seem, given what we are told about ourselves, that such a condition is intolerable. For exam-pie, the environmentalist biologist Dr. Paul Ehrlich believes that human beings must curb their desire to have children “hopefully through a system of incentives and penalties, but by compulsion if voluntary methods fail.” Our birthrate, he says, must “be brought into balance with our deathrate” if humanity is to survive on this planet? Harvard psychologist B.F. Skinner declared that “we need to make vast changes in human behavior” to solve our economic and social problems. His solution, of course, mirrors that of Harvard economist John Kenneth Galbraith: intellectuals, members of the academic and scientific community and the state must play the dominant role in making all of us behave in a “proper” social manner.
Vast efforts have been made in that sphere in the United States since the New Deal era in the 1930s; other nations, especially the communist ones, have gone much further, both with external stimuli designed to educate persons in the proper socialist mold and, when that failed, brute force and terror. Have such efforts worked? If these socializing attempts have been successful in the communist countries, then perhaps we can espouse a philosophy of life in which self-interest can be eliminated and replaced with service for the common good. But, on the other hand, should such methods be lacking in their effectiveness, we must either question their modus operandi or their very validity itself; for if these behaviorist ideas fall way short of the mark in their theory of human action, we must draw the conclusion that free markets, though they be stifled and harassed, cannot be eliminated from human relationships. Why? Because most behaviorist theories, when applied to the general population, are geared to the elimination of self-interest, and it is self-interest that fuels the free market.
Last year I visited a nation in which a certain amount of financial success is guaranteed by the state. Medical care was “free,” each person is guaranteed a job and a place to stay, good athletes and talented arts performers are heavily subsidized by the government and pensions are provided to the elderly people. I saw no emaciated people on the streets, no beggars and (from my vantage-point) no prostitutes.
The Other Side
“Where is this paradise?” some readers may be asking by now. “How can I become a citizen of that country?” However, before you renounce your citizenship, let me tell you a few other things about this wonderful nation. To enter, I had to travel through a breach in an impregnable wall, a barrier guarded with barbed wire, tank traps, steely-eyed guards with machine guns, vicious dogs and buried land mines. The wall exists not to keep travelers like me from entering but rather to keep people from leaving this “workers’ paradise.” On the other side of the wall, numerous crosses served as reminders of the many who had been gunned down by their countrymen while trying to leave without their government’s permission. The barrier is the famed Berlin Wall and the nation, the world’s most prosperous communist country, is the German Democratic Republic, known better as East Germany.
Compared with West Germany, the GDR’s standard of living is quite low, and that difference between the two nations is assumed to be the cause of persons’ risking their lives to cross from East to West. But such an explanation of why people are willing to take a chance at being ingloriously gunned down at the border is, at best, incomplete. After all, the GDR offers what many intellectuals and politicians believe the people really want: bread, jobs, and circuses (or, to be more accurate in the GDR’s case, bread, jobs, and operas).
And, in keeping with what Dr. Ehrlich believes is the proper role of government, the East German state dictates a lifestyle for each citizen. Birth control—sometimes enforced with required abortions for women who might become pregnant at what the government regards as an inopportune time—is a must. An intellectual and political elite tries to determine the lives of each person living in the GDR, exchanging the promise of lifetime security for an implicit agreement that the people do what the government tells them. And still they risk their lives; if the wall were suddenly removed, many more would stream across the border.
Something is clearly amiss in someone’s social theories. The intelligent and efficient East German leaders have used the best-known techniques of mind control and stimulation. But, judging from the high number of defectors from that nation and the increased amounts of “underground” economic activity in the GDR, numerous Germans from behind the Iron Curtain still practice officially verboten self-interest.
The Chinese Story
Perhaps the East Germans are an exception; after all, many of those citizens had been previously “contaminated” by capitalism before World War II. A decade ago, many western intellectuals journeyed to the Far East and, upon their return home, gushed forth the praises of the Communist Chinese nation that had seemingly trained its citizens to be happy, cheerful, socialized people. Chairman Mao had urged his subjects to be “willing to integrate yourselves with the broad masses of the workers and do so in practice.” The people, according to the intellectuals and members of the western media, proclaimed the glories of socialism with “evangelistic moral fervor.”
And even though the Chinese state is officially atheistic, missionary David H. Adeney enthusiastically trumpeted what he felt were the government’s real achievements.
Many of the great economic problems of the past have been solved. The terrible inequalities between rich and poor have disappeared. No longer does a large segment of the population live under the threat of natural disasters such as flood and famine [In contrast to Adeney's claims, reports have filtered out from China that tell of millions dying at periodic times in the past three decades, both from famine and disaster]. There are none of the glaring inequalities which are to be found in a city like Hong Kong with its great contrast between the very rich and the very poor. Many have been impressed by the clean streets, disciplined living and the absence of prostitution, sordid sexy advertisements and commercialism which are found in other parts of the world. Even though living standards may seem to be very low, the communists have at least been able to provide for the basic needs of the largest national population on earth.
Yet, many Chinese still flee to Hong Kong, risking their lives to swim across a shark- infested bay or sneaking through a no-man’s land, hoping to avoid border patrols that will send the would-be escapees back to China.
The situation is puzzling. On the one hand, intellectuals and religious leaders tell us that what people believe to be a horrid social evil—disparity of incomes—has been eliminated in China. On the other hand, people still want to leave that land.
What about Mao’s exhortations to “serve the masses”? Adeney says, “He (the individual) is sent to the place where his gifts can be used to serve the masses . . . the communist state does not allow a man to choose the place of work where he can obtain the maximum benefit for himself.” It is clear, from reading Adeney’s description of China, that the communist system works with success.
Yet, a contrasting account comes from a man who lived for a year in the Chinese city of Zhengzhou:
The slogan “Serve the People” is laughed at . . . The overwhelming worry in students’ lives is their future job assignments. They are seldom consulted about their interests or desires. The theory is that one should serve the state in whatever capacity the state wishes. This means giving the cushiest jobs to party members and their friends. For society as a whole, the result is bus drivers who wish they were postal clerks, electricians who wish they were metal workers, and shop clerks who wish they were bus drivers . . . With so little personal freedom it is unutterably difficult for a person to discover what his potential might be, let alone fulfill it in the service of the state. The policies of control make the control necessary, and by exercising them so encompassingly, the government cheats itself of the abilities of its own people while it cheats people out of their abilities.
The reports of individualism are not endemic to either the GDR or China. Such stories accompany tales of human action from nearly every totalitarian nation on the globe. Something in the human condition makes us act as individuals. Governments using the most sophisticated and most terrible methods of control have failed—and will continue to fail—to create the socialist man en masse. What they have created, instead, are austere, grim societies in which the individual, to reach any sort of self-fulfillment, must often break the law or leave the country.
The Socialist Paradox
This does not mean, due to past failures of socialist experiments, that social visionaries will stop trying to create the collectivist utopia. A glance at the world scene today will dispel any such notion. But all these social experiments are doomed to failure because a collective cannot act; only individuals act. They may work with one another in a collective effort, but that output is only the sum total of individual action. Walter Lippmann understood this condition well when he wrote of the Nazi experiment in the 1930s:
The success of this experiment would seem to depend upon the fulfillment of a paradox. All Germans must sink into docile but eager resignation, accepting the decision of the Führer as the fellah accepts the will of Allah; and then out of this conforming mass must arise brilliant, adventurous, and supremely intelligent leaders.
Within the socialist framework, only the collective (read that, “people”) has importance and yet, as Lippmann so aptly pointed out, the kind of leadership needed within a society must come from that same mass that has been told that individual initiative is evil. One cannot be a leader without exerting individual initiative; likewise, as Israel Kirzner has noted, a growing, dynamic economy is impossible if the entrepreneur does not have freedom to act (in the Soviet Union and a scattering of other socialist nations, to engage in entrepreneurship for profit is to commit a capital offense punishable by death.) This might account for the reason numerous western visitors to communist lands have remarked that the countries seem economically and socially frozen in time, a condition that certainly applied to East Germany when I saw it last year. People in the GDR have tremendous pressures upon them to conform, and the penalties for nonconformity make it extremely unattractive for people to risk imprisonment and even death just to improve one’s financial state (one can also place political dissidents and artists who refuse to succumb to “Socialist Realism” in their work in this category of risk takers). Thus, to reduce the risk, would-be entrepreneurs must often engage in bribery and stealing in socialist nations; as one recent exile from the Soviet Union writes, the socialist system is greased by corruption.
Why the Urge to Be Free?
We have examined reasons why socialist systems work so poorly, but have not explained why human beings cannot be totally socialized. After all, we can say that human beings act from their own desires and perspectives, but we have not said why this is so. We ask: “What is it in the human condition that does not allow us to be totally absorbed in the collective? Why do we as human beings act first from our own perspective and not the perspective of everyone else? And why do we want to be free?”
A glib answer that comes from some of the intellectual elite in religion and social sciences is that most people are not enlightened and need to be herded into doing right by members of the elite, be they a B.F. Skinner or a David Adeney who declares that it is “tragic that only a few Christian professionals demonstrate true dedication to the needs of society and victory over self-interest. Many would bitterly complain if deprived of freedom and compelled by the state to serve where the need is greatest rather than where the salary is most attractive.”
In one sense, perhaps, the intellectuals are right. We are unenlightened in many aspects and truly limited in what we can accomplish. Most religious (and secular) dogmas admit that sin and suffering exist in this world; people become ill, make mistakes and often fail to show proper respect for their fellows. We live in a world fraught with error. Such is a given condition of life as we know and experience it.
But imperfection is a trait of all of us, not just most of the population. To say that a few of the elite can by force or persuasion rearrange the world into a utopia is to vastly mis understand the human condition. Writes Thomas Sowell:
For some, the world is envisioned as a place that needs only their superior virtue and wisdom to achieve happiness and fulfillment. This might be called the vision of the anointed. To others, the problems inherent in man and the cruel choices of nature can only be imperfectly resolved, and even this modest goal requires great efforts by all, not inspired salvation by a few messiahs.
The Division of Labor
It is vitally important to understand that all of us are vastly limited in many respects. A man thoroughly skilled in metaphysics may have almost no knowledge of economics; likewise, a highly-regarded economist may be totally ignorant of the processes in a nuclear fission reaction. People may gain expertise in some areas, but few, if any, persons are extremely competent in all disciplines. And there are probably none among us who can truly predict the future, least of all, economists.
Because of our limitations, we can barely master our own circumstances, let alone the circumstances of others. The best guide we can have for dealing with situations that face us is self-interest, flawed and racked by evil as it may be. As Sowell points out:
The problem with experts is that they don’t know and can’t know. They may have a lot of theories and second-hand information at their fingertips. But the hard, specific knowledge needed to make decisions is usually scattered among millions of laymen. The layman is the real expert on his own particular situation and has every incentive to change his decision when the results don’t turn out the way he wants . . . True, an expert may know more than one layman. But neither of them knows enough to try to control a whole economy or society of rail-lions of other human beings.
It is in the best interest of the individual to learn from his or her own errors. Granted, all of us repeat our mistakes from time to time, but the negative results from those mistakes give us incentive to correct our errors.
This is not always true, however, for those in positions of governmental power and authority. Take education, for example. For more than a decade the “new math” was foisted on public school children, even though many educators had serious misgivings about that curriculum.
The result was that mathematics skills of children involved in “new math” were found to be far below those students taught a more conventional form of math. To the layman, the only sensible thing seemed to be to drop this pseudo-math like a hot potato; but to the experts whose jobs depended upon continuation of the “new math,” changes in the mathematics curriculums across the nation became a threat to their livelihood. Therefore, they organized and worked with an amazing amount of success to keep “new math” in schools for many years, to the detriment of many youngsters who became unwilling victims of this educational malpractice.
There seems to be an unsolvable contradiction in my thesis on self-interest, however. First, I point out that self-interest is, given our very real limitations, the best guide for human action. But then, I show how self-interest on the part of some educators has proven disastrous in the field of education. Either self-interest is good or it is bad, one may say, and if it has such awful effects, then perhaps society should work to eliminate self-interest from the individual. (Of course, that last phrase is a self-contradiction itself, since it implies—if one believes the whole (society) is a sum of its parts (individuals)—that it is in the self-interest of all individuals to eliminate self-interest.)
The key word in all of this discussion, however, is coercion. When an individual follows his own self-interest and has little, if any, power to coerce his or her neighbor into doing what he wants, then that self-interest can serve others. For example, take the baker of Adam Smith’s The Wealth of Nations. Smith wrote that the baker did not bake bread because he was necessarily a benevolent man, but rather because he wished to make a living. He was following his own self-interest—he could make money plus he may have enjoyed the feeling of accomplishment when he produced an excellent product—and his neighbors received benefits in the form of bread and pastries.
It is important to remember that the baker had no power to coerce his neighbors to buy his bread, at least in Smith’s example. All the exchanges were voluntary, and both the baker and the buyers benefited from the exchange.
However, to show how coercion may distort the picture, let us give the baker the same power as, say, the public educator. First, the baker has the local government pass a law that only he can bake bread within certain limits, and those trying to start a bakery without his permission will be subject to imprisonment or fines or both. Next, he has the government decree that people in the neighborhood must buy their bread from his shop; they cannot manufacture their own bread in their homes. This condition is known as compulsory bread buying (he may even press for a law that requires people from another neighborhood to be bused to his bakery). Some time later, people begin to discover that the bread is moldy and the pastries are hard and tasteless, but the baker, backed by his political friends, manages to keep the compulsory bread-buying law on the books. The law, they solemnly declare, is in the public interest.
The people in the neighborhood, while obeying the law at first, may take to less-than- lawful means to obtain bread as the quality of “public interest” bread deteriorates. They may secretly bake bread in their own homes; perhaps a disgruntled resident may set up an “underground” bakery in the back of a hardware store. Maybe a brave soul will openly set up his own “uncertified” bakery in hopes that the unjust law will be repealed (unfortunately, he is arrested and jailed and his illegal bakery padlocked).
In all three cases, people are following their own self-interest, but only in the first instance, when buyers and sellers are involved in voluntary exchanges, can self-interest truly serve the public good. In the second case, when the baker was able to convince the legislators to give him a legal monopoly, what was in the baker’s self-interest was not at all in the interest of his customers. In the third situation, the underground market, while providing much-needed services to people, involved corruption and dishonesty to stay afloat. Yet, people who might think of themselves as law-abiding and decent citizens, will turn to such unlawful tactics if they feel their rights to pursuit of their vital interests are either being stifled or taken away.
The Underground Economy
The corruption that accompanies underground economic activities in many socialist nations is a good case in point. To quote a troubled Soviet official, “It’s hard to imagine the extent to which theft and corruption have become expected. The assumption that ‘everybody steals’ is erasing the whole nation’s sense of right and wrong.” Yet, at the same time, such underground economic activity is necessary to keep the Soviet economy afloat. The Soviets face a dilemma; they can either admit that socialism works poorly, a move that would discredit their entire political structure, or they can continue to speak of the glories of socialism and tolerate the black market, knowing full well that such activity, accompanied by corruption, is tearing the soul of that nation apart.
Because people will ultimately follow their own self-interest, markets, be they legal or illegal, will inevitably spring up. However, there is more to the human condition than just sin and self- interest. As human beings, each of us desires to be significant. Each of us desires purpose for living; most, if not all, of us aspire to something beyond what we have today.
Because of their makeup, markets enable us, at least in part, to pursue our goals. Says Kirzner, “The market system runs on purposefulness.” That purpose may be monetary profits to improve our own standard of living or profits to improve someone else’s life. People may seek power, as in the case of a politician, or influence, as in the case of a journalist or teacher.
The psychologist Abraham Mas-low claimed human beings have a priority of needs, beginning with basic physiological needs such as food, clothing and shelter. People without those basic items will center their lives on obtaining them. Once those needs are met—or, if they are met—people seek more abstract goals such as safety and security, belonging and social needs, esteem and status and, finally, self-actualization and fulfillment.
For example, an entrepreneur may risk his life savings on an enterprise because he believes success will bring riches. Twenty years and millions of dollars in profits later, however, the entrepreneur, once motivated by making money, now seeks to be known not as a “cut-throat businessman,” but rather as a philanthropist or, perhaps, a “friend of arts.” Such was the process of many of America’s self-made men like John D. Rockefeller or Andrew Carnegie (whose descendents now often engage in anti-capitalist activities).
Ways of Self-Expression
Whatever the motivation, people will seek avenues to fulfill their dreams. The market is one of those avenues, though not the only one. Hitler, Stalin and Lenin sought other paths to power besides noncoercive markets (although Hitler was, at first, chosen in a free election—he later seized absolute power in Germany by brute force). And some people who gain wealth and prestige through free market activities may later turn on the market because they feel such action advantageous to their own position.
Yet, for those who spend much of their careers working against the market system, numerous others use it because they have no other avenues to success. A man who lacks literary talent and thus cannot make millions skewering private enterprise in books and articles may have abilities in making and selling better mousetraps. The Soviet citizen who, because of his lack of position or party membership, cannot shop at the special “yellow- curtain” shops which offer goods not available in regular stores may turn to the underground market to satisfy his needs and desires. That same citizen, disgusted at the low pay he receives from his guaranteed, state-run job, may illegally moonlight as a repairman or taxi driver. Again, he turns from government-run activity based on coercion to private—though illegal—activity based on free exchange. He lacks the power to coerce; therefore, he must seek other means to fulfill his needs.
There is one other reason that free markets exist in the face of hostility, that being the need for interpersonal cooperation. Of course, to the anti-capitalist mind, such a claim may seem self-contradictory. After all, we have been brought up on the notion that competition, not cooperation, is the basis of the market system. In one sense, this is true. Competition helps provide the incentive people require to do a job well.
But, on the other hand, market systems are also dependent upon free exchange. Buyers must cooperate with sellers and, within a business enterprise, individuals must cooperate with other individuals. Notes theologian Michael Novak, “What constitutes capitalism is an organizing ethos, a corporate enterprise, a collective effort. Capitalism is far more social in character than its enemies-or its friends—have yet grasped.” Businesses, unless they have the power of government behind them, cannot coerce customers into buying from them. Their only other avenue to success is through incentive and cooperation. (This does not mean that businessmen are immune from using fraud and trickery in their activities—it just means that in the absence of coercion, businesses must be able to attract potential buyers into voluntarily cooperating with them.)
We Are Interdependent
When we speak of free markets and self-interest, the idea of “rugged individualism” comes to mind. Yet, self-reliance is a myth. We must all cooperate and interact with others if we are to survive; all of us are interdependent upon the skills and services of others. The same goes for nations. As the French economist Frederic Bastiat once said, “If goods don’t cross borders, armies will.” For the cause of peace, there is a need for free exchange.
Markets have existed and will continue to exist because there is a pressing need for them. As Kirzner puts it, “The market is the substitution for the absolute knowledge of truth.” We are imperfect and shortsighted people. In a real sense, we are all blind to absolute truth and knowledge. We need incentives, and we can only act at any time with partial knowledge. With that in mind, we should remember that no central authority can or should have near-absolute control over actions of others; the result—and we see it in totalitarian ‘states—is the blind forcing the blind to follow. What was originally sought in those nations was economic order; what has emerged is economic chaos.
Not only are we dependent upon self-interest to help us in solving our problems, we are also forever finding that new and pressing problems needing solutions continue to force their way into our lives. We cannot live without continual replenishment of the basic necessities of life; nor can we exist without self-expression. Notes William Winter, “Self-expression is the dominant necessity of human nature.” And because most of us lack the legal power to coerce others into serving us, we must turn to the cooperation of the market system to fulfill our needs.
As Sowell writes: “The institutions that bring out the cooperation of numerous and very different people—the family, the Constitution, the market, traditions—are all sacred to believers in the vision of social processes as the way to make the best of the tragic human condition.”
Yet, the market will always have its enemies, and by blocking the free activities of the market, the enemies of capitalism have succeeded and will continue to succeed not in their cherished aims of bringing social order and harmony, but rather in creating chaos and poverty. The record of collectivism in this century, from Stalin’s gulags to Mao’s hellish communes to the Pol Pot massacres, is one of coercion and failure. Yet, the failures of socialism do not sway those who seek to impose more socialist orders on humankind. As Sowell points out, what believers in social processes see as ways to deal with the problems of humanity, many intellectuals and government leaders scornfully view as obstacles to their own imposed “solutions.”
Markets Will Survive
But for all the anti-capitalist mentality that exists, we can be assured that markets in one form or another will survive. True, by blocking—or attempting to block—market processes, many social leaders stifle legitimate human action and aspirations, but they cannot completely immerse the human spirit in the sea of collectivism.
The only way that socialism can succeed is for an elite to have total knowledge of what is good for others (who are assumed not to know what is good for themselves), and then to be able to force their will on that less-than-enlightened population. And as long as human beings remain in their imperfect state, we can assume socialism will never be successful. Therefore, free markets—though stifled—will exist as long as human beings inhabit the face of the earth. And markets can best serve the public interest when they are permitted to be practiced in the open without government harassment and extensive regulation.
5. Because of the social and economic makeup of communist nations like East Germany, ac curate comparisons of standard of living are hard to measure. A suit bought in East Germany may cost the same percentage of income as a suit bought in West Germany. But the West German suit may be of a higher quality. It is simply difficult to measure all variables in such a comparison. In the case of people escaping communist nations to enter free ones, standard of living may be only a partial reason. Freedom of worship or speech may also enter in the picture. Again, it is hard to measure motives. We must simply accept the fact the people escape from communist nations, not to them.
14. For further descriptions of this phenomenon of communist lands, read Lawrence Elliott, “Berlin Beyond the Wall,” Reader’s Digest (January, 1979), and Robert Poole, Jr., “Inside Cuba Today,” Reason (October, 1981).