(Challenges
in Getting Socialism to Work)
The
following ‘parable’ explains why there tends to be a tradeoff between equality
and efficiency, why socialism has difficulty working very well, and why
socialism requires limits on personal freedom to have a reasonable chance of
working at all.
Let’s suppose that
you and some of your best friends decide to move out to Kansas and become
farmers. After being farmers for a while it is clear that some of you have a
real talent for making things grow while others are not as skilled. Also, some
of you are more industrious than others. While you are out fertilizing and
watering, some of your friends take time off to watch Jerry and Maury on TV. As
a result of these differences in talent and work ethic, differences emerge in
how much wheat is grown on each farm, resulting in differences in standards of
living. Adding together the output of wheat from each farm, your community
total is 1000 bushels.
Not liking the
unequal distribution and being best friends and all, you decide to put the
wheat in a community silo and split the revenues equally. With this kind of
arrangement, however, there is no longer a direct relationship between effort
and income. This means that the most industrious and productive farmers will be
receiving less and the least productive farmers will be getting more. The
unintended consequence is that effort and innovation are now being penalized
while lack thereof is being rewarded. Seeing no reason to work quite as hard as
before, now even the most productive farmers decide to watch a little Maury
instead of knocking themselves out in the fields. The less productive farmers
add Oprah to their viewing pleasure. Changing the system has changed behavior
and the standard of living falls to 800 bushels.
You are all glad
about everybody being equal, but sad that the economic pie is now smaller. You
achieved maximum efficiency when everybody had property rights over their
production. You had maximum equality when everything was shared and distributed
evenly. (Grading in school would be another example. Do students work harder
when they have property rights over their own scores or would they be better motivated
under a communal system where everybody’s scores are added together and
averaged? With the link between effort and grades weakened, most students would
study less under a communal system of grading)
Now, another
problem emerges. Some of the best farmers are unhappy about their reduced
living standards and want to leave the commune and move to Iowa where they can
once again enjoy all the fruits of their labor. If the best farmers move to
Iowa, this would leave only the least productive farmers in Kansas and community
output would fall even further. To avoid a crisis, a law is passed prohibiting
anyone from leaving Kansas. Later a wall is built and armed guards patrol the
area to make sure nobody slips through. Output now falls to 700 bushels as resources
are diverted away from farming to build and patrol the wall.
With the best
farmers prevented from leaving, output remains at 700 bushels, but you are all
looking a bit peaked from too little nutrition and want to get production back
to 1000. In other words, you want both efficiency AND equality. To accomplish
this, it is decided that officials will be appointed to watch and make sure
everybody is doing their fair share. If it is determined that somebody is
slacking off, or trying to convince others to rise up and go back to the old
system of property rights, they will be sent to a labor camp in Minnesota where
they can be educated/trained/rehabilitated.
If they prove themselves in Minnesota, they may be given a chance to
return to Kansas.
Adding officials to
make sure everybody is doing their share increases output to 900 bushels (Output
cannot return to 1000 because people were permanently transferred away from
farming to become guards and officials) and many are unhappy about being
watched and living in fear and spend considerable time and effort trying to
figure out a way to escape (time and effort that could have been used for
production and innovation)
The
above scenario illustrates why communal systems tend to have low standards of
living, why citizens of the Soviet Union were rarely (if ever) allowed to leave
the country, why the infamous Berlin Wall was built, and why so many have died trying
to swim, boat, or surf their way from Havana to Miami.
With
all that said, I personally believe that socialism is a great idea. On the surface, what's not to like? “From each according to his ability, to each
according to his need”. A true
utopia with everybody working together, helping each other, and being equal. Oh,
if only it were possible! Unfortunately, probably not in this life or on this
planet as this is an idea that is extremely difficult to implement because it requires near perfect people to succeed. It requires people who are willing
to be innovative and industrious even when they know that their allotment will
be less than they personally produce. (In the grading example, this would mean continuing
to study for an ‘A’ knowing that a grade of ‘C’ is all that will be awarded) It
means that those who are less productive will still try their best (i.e. no free riders) even though it won't have much impact on how much they receive. In the absence of people who are purely motivated by the welfare of others, the only alternative is to use fear and force (e.g. The Soviet Union, East Germany, China, Cuba, North Korea) which history has demonstrated doesn't work well at all.
The Pilgrims tried communal living in the 1600s but productivity was so low that they nearly starved. In desperation, Governor William Bradford implemented a system of private property rights. Once these powerful incentives were in place, the result was such an astonishing increase in output that they actually had enough corn left over to export.
The Pilgrims tried communal living in the 1600s but productivity was so low that they nearly starved. In desperation, Governor William Bradford implemented a system of private property rights. Once these powerful incentives were in place, the result was such an astonishing increase in output that they actually had enough corn left over to export.
It
all comes down to how much you value freedom and how much you value equality.
How much personal freedom are you willing to sacrifice to gain more equality?
What is the right mix? At what point are the tradeoffs no longer acceptable?
(The Soviet Union slaughtered 61 Million of its own citizens in its extreme quest
for equality)
All
economic systems have serious flaws, but market based systems have produced the
highest standards of living (and freedom) for everyone involved -- but at the
cost of less equality.
I
highly recommend these Paul Solman videos (about 10 minutes each):
MM
