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Socialism has an abysmal record in the twentieth and twenty-first century, its effects include economic destruction, failure, and misery — Venezuela being the latest in a long line of wretched examples. Yet today, Democratic Party leaders such as Bernie Sanders and Alexandra Ocasio-Cortez are still proud to adopt the label of “democratic socialist.”
As we relive today a version of the ancient debate between Adam Smith and Karl Marx, the best recent contribution to the discussion was published in the Economic Report of the President. At 45 pages, Chapter 8, “Markets versus Socialism,” may be the most concise, comprehensive, yet broadly accessible account of the performance of free enterprise versus socialism offered in decades.
The chapter reminds us that the more rigorously socialist principles are applied, the greater the human suffering, regardless of race, creed, or geographic location.
It provides an excellent overview of the underlying theoretical tenets of free enterprise versus socialism, including the crucial role of private versus state control of the means of production. As the chapter authors recount, and as many Russians still remember, the grim statistics of those who died in the Soviet Union and elsewhere in the name of socialist experimentation (such as those who suffered forced starvation during the collectivization of agriculture) are pegged at about 100 million. While this bears constant repeating, it is routinely ignored by many in the academy who find the facts inconvenient.
Still more important is that Chapter 8 rebuts the new arguments about why socialism will improve the human condition this time around. The Oxford English Dictionary defines socialism as: “A political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.” New socialists argue that the distinction between government ownership and regulation is critical, and that they want extensive regulation but not nationalization. Yet, if regulation is sufficiently intrusive and onerous, private property rights are neutered, and control is effectively transferred to the socialist state.
As scholars in law and economics have long recognized, ownership is only important because of how it allocates control over the use of a resource or asset, as well as the income it produces. And as the authors of Chapter 8 note, “Public monopolies, ‘public options,’ profit prohibitions, and the regulatory apparatus allow the socialist state to control asset use, and high tax rates allow the state to determine how much income everyone receives,without necessarily abolishing ownership in the narrow legal sense.” (Emphasis added.) That may explain why sweeping policy changes, such as the Sarbanes-Oxley Act, Obamacare and the proposed Green New Deal, seek the most intrusive regulations into large sectors of the private U.S. economy, rather than the least. Perhaps the new term for such policies should be “socialism by regulation.”
Another aspect is the “don’t worry” view which relates to the use of force to achieve socialist ends. New socialists argue that, unlike their 20th century counterparts, they oppose the use of force to achieve their policy goals, instead preferring peaceful democratic processes. As the Chapter 8 authors points out, however, whether socialist ends are achieved through forceful or democratic processes matters little when it comes to the nefarious effects of policies such as “free” healthcare, “free” college tuition, and so on. The destructive effects on both the supply and demand side of those markets would be much the same in the end.
The chapter also provides a detailed discussion of Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden) — beloved by some as examples of successful socialism. The authors stress that those countries are in many ways more market-oriented that the United States, “because they have internationally low corporate taxes, have low regulation of business, allow the private sector to participate in the provision of primary and secondary schooling, link full social benefits to having a work history, and require full cost sharing for healthcare at the time of service.” Indeed, those countries are decades ahead of the United States in adopting market reforms in two of my areas of policy expertise: postal services and infrastructure delivery.
In contrast, in the 1970s Senator Sanders supported nationalizing major U.S. industries, including “the public ownership of utilities, banks and major industries.” Despite vast international evidence of the destructive effects such policies since then, Senator Sanders has never revised or recanted that position. Without an acknowledgment that Adam Smith was right and Karl Marx wrong, we can only assume that he continues to support collective ownership of the means of production.
Given the overwhelming evidence favoring markets over socialism, the necessity of such a chapter is a sad commentary on the state of economics education in many American colleges and universities. Yet with the markets-versus-socialism debate now raging in the United States it is needed now more than ever, particularly to educate the young about socialism’s true track record. It should be required reading in every college-level economics class.
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