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Criticisms of socialism range from disagreements over the efficiency of socialist economic and political models, to condemnation of states described by themselves or others as "socialist." Many economic liberals dispute that the egalitarian distribution of wealth and the nationalization of industries advocated by socialists can be achieved without loss of political or economic freedoms and reduced prosperity for a populace. There is much focus on the economic performance and human rights records of Communist states, although some proponents of socialism reject the categorization of such states as socialist.

Socialism itself is by no means a monolithic movement; there are important points of disagreement between its several branches. Therefore, some of the criticisms presented below may not apply to all forms of socialism (for example, many of the economic criticisms are directed at a Soviet-style planned economy, while some proposed socialisms advocate different methods of economic planning, and others reject planned economics altogether).

Economic criticisms

Economic criticisms of socialism are centered on arguments that socialism corresponds to stagnating or reduced prosperity for a populace. Critics claim that it reduces work incentives and efficiency through such things as eliminating the buying and selling of means of production, eliminating the profit and loss mechanism, lacking a free price system and relying on central planning. They also argue that socialism stagnates technology. They further claim that real world examples of countries with socialized means of production indicate that they are not as prosperous as those where the means of production are under private control.^[1] Some socialists reply in kind, with the counter-argument that socialism can increase efficiency and economic growth better than capitalism. Other socialists argue that a certain degree of efficiency can and should be sacrificed for the sake of economic equality or other social goals.

Prices

Main article: Economic calculation problem

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. If the means of production are socially owned then there are no prices at all for the means of production themselves. According to some of the critics of socialism, the free price system in a market economy guides economic activity so flawlessly that most people don't appreciate its importance or see its effect. 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. For example, Friedrich von Hayek argued in 1977 that "prices are an instrument of communication and guidance which embody more information than we directly have", and therefore "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground". He further argued that "if you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle."^[2]

In a market economy, business owners are constantly comparing costs to sales revenue. A business whose costs are higher than its revenues will go bankrupt, and the resources it was using will be re-allocated to other purposes (other businesses). In order to make economic decisions, business owners rely on the information provided by prices; millions of owners make millions of separate decisions, leading to decentralized resource allocation that, in the view of its supporters, is efficient. Adam Smith dubbed this effect the "invisible hand" of the market.

The anarcho-capitalist economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses.^[3]

On the other hand, a Hungarian economist, Jonas Kornai, once a market socialist himself, modified his views subsequent to the fall of the Soviet system and its eastern European variants. Kornai has written that "the attempt to realize market socialism...produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible." ^{[citation needed]}

On the other hand, socialists who do reject the market mechanism of pricing make the following claims:

That market systems have a natural tendency toward monopoly or oligopoly in major industries, leading to a distortion of prices.^[4] Assuming monopoly to be inevitable, these socialists go on to argue that a public monopoly is better than a private one. Proponents of capitalism respond to this by saying that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were underperforming, investors would start a competing enterprise.^[5]^[6]
That market systems are distorted by the unequal power of the players in the markets. Globalissues.org editor, 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. [6]
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 [7] and the Paretians [8]; see also Pareto efficiency.

In her book How We Survived Communism & Even Laughed,^[7] Slavenka Drakulic claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc 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 produce washing machines. But there is not only a problem with creating shortages but with creating surpluses as well. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. Because of this it prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist Milton Friedman "The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."^[8]

Incentives for workers

The nature of the distribution of wealth that would exist under socialism is a matter of controversy and debate. Some commentators, including both critics and a number of advocates of socialism, have seen the socialist ideal in terms of income sharing. Proponents claim that the sharing of income and wealth would foster social cooperation, while critics argue that any kind of income sharing reduces individual incentives to work, and therefore incomes should be individualized as much as possible.^[9] However, many socialists do not see income sharing as the foundation of socialist economics. Instead, they argue that socialism gives every worker the full product of his labour. [9][10][11] This view is inspired by the Marxist notion that capitalism exploits the working class and that only socialism can reward people according to their work. [12]

All forms of socialism advocate a very egalitarian distribution of wealth. A few argue for complete economic equality, while most socialists wish to create a society in which differences of wealth are small, but not necessarily zero.

Critics of those forms of socialism which advocate complete economic equality have argued that in any society where everyone holds equal wealth there can be no material incentive to work, because one does not receive rewards for a work well done. They further argue that incentives increase productivity for all people and that the loss of those effects would lead to stagnation. John Stuart Mill in The Principles of Political Economy (1848) said: "It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any state of existence which they consider tolerable, and the danger to be apprehended is that they will thenceforth stagnate; will not exert themselves to improve, and by letting their faculties rust, will lose even the energy required to preserve them from deterioration. Competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress."^[10]

Those socialists who support absolute economic equality (specifically, some libertarian socialists and some communists) have responded to this objection in various ways. A number of them argue for a society where high peer pressure prevents laziness. Critics counter this with the argument that peer pressure might be effective in a small group with permanent interaction and where everybody knows each other, like among hunter-gatherers, but see no evidence that it works well in larger, more complex societies with constantly changing groups. The social democrat economist John Kenneth Galbraith has criticized radical egalitarian socialism as unrealistic in its assumptions about human motivation: "This hope [that egalitarian reward would lead to a higher level of motivation], one that spread far beyond Marx, has been shown by both history and human experience to be irrelevant. For better or worse, human beings do not rise to such heights. Generations of socialists and socially oriented leaders have learned this to their disappointment and more often to their sorrow. The basic fact is clear: the good society must accept men and women as they are."^[11]

Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition [for] different individual needs, tastes (for work or leisure) and talents." He recommends market socialism instead.^[12] The majority of socialists believe that a balance should be reached between equality, incentives and diversity, and feel confident that such a balance would still allow for a much greater degree of equality than capitalist societies currently have. Many socialists also argue that the importance of material incentives could be reduced, even if it is never fully eliminated.

Slow or stagnant technological advance

Economist Milton Friedman argued that socialism, by which he meant state ownership over the means of production, impedes technological progress due to competition being stifled. As evidence, he said that we need only look to the U.S. to see where socialism fails, by observing that the most "technologically backward areas" are those were government owns the means of production.^[13]

The tragedy of the commons

The tragedy of the commons, in its narrowest sense, refers to the situation of certain grazing lands communally owned by British villages in the 16th century. These lands were made available for public use (or, more precisely, the use of those with rights in that common land). According to Garrett Hardin and others, 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. (However, studies by C.J. Dahlman and others have largely refuted the claim that any such tragedy actually occurred. Access to the commons in the 16th century was constrained by a variety of cultural protocols and was far from equal.)

More generally, the line of argument is that when assets are owned in common, there are no incentives in place to encourage wise stewardship. While private property is said to create incentives for conservation and the responsible use of property, common property is said to encourage irresponsibility and waste. In other words, the argument is that 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. This is an argument directed at libertarian socialism and other proposed forms of socialism where there is little or no central authority to act as a steward of public property. Planned economies avoid the tragedy of the commons by placing the state in charge of the use of resources owned in common.

One libertarian socialist counter-argument is that the tragedy of the commons is an inherently psychological issue that can be resolved through proper education—that is, by creating a culture where people are respectful of common property and do not act as if no one owns it.

On a related note, many socialists point out that some things are almost inevitably commons, for example air and oceans. Paul Burkett makes a specifically Marxist case for socialism as being better able to address the issue of managing the environment in an article entitled "Ecology and Marx’s Vision of Communism" in Socialism and Democracy, Vol. 17, No. 2 [13].

Critics respond that air and oceans are indeed commons and that problems such as overfishing and global warming due to pollution can be traced to this fact. In economic terms, air and sea pollution are cases of market failure due to externalities (market agents do not pay the full costs of their actions). While most environmentalists propose to solve such problems through government regulations, there is also a theory of free-market environmentalism, which argues that the most effective direction of reform is continued privatization of the commons [14]. The United States, and some others nations, have experimented with market solutions in the form of emissions trading in order to reduce air pollution. Such trading 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.

Lastly, there is a body of thought, often linked to cultural anthropology and to modern institutional economics, that recognizes that constraints must exist to prevent the private overuse of resources. However, this perspective contends that alternative institutions than private property might well be just as effective or more effective in meeting those goals and better suited to meeting social goals. This was the belief of many early Bolsheviks, particularly Georgi Plekhanov, who evoked this idea to make his case that a socialist state would need regulations.

Political criticisms

Friedrich Hayek in his The Road to Serfdom has argued that the more even distribution of wealth and nationalization of the means of production advocated by socialists cannot be achieved without a loss of political, economic, and human rights. According to Hayek, to achieve control over means of production and distribution of wealth it is necessary for socialists to acquire significant powers of coercion. Hayek argued that the road to socialism leads society to totalitarianism, and saw Fascism and Nazism as inevitable outcome of the socialist trends in Italy and Germany during the preceding period.^[14]

Historical Examples

Due to the existence of several branches of the socialist movement, who advocate different kinds of social and economic systems they call "socialism", there is no consensus on what countries, if any, can be given as historical examples of socialism.

The two kinds of countries most commonly said to be "socialist" are Communist states on the one hand and Northern European welfare states (e.g. Sweden) on the other. Within the socialist movement, views are divided as follows:

Marxist-Leninists argue that some or all of the historical Communist states were examples of socialism.
Trotskyists argue that historical Communist states were not socialist, but deformed workers' states or examples of state capitalism.
Social democrats argue that welfare states are examples of socialism.
Some libertarian socialists argue that short-lived political entities such as the Paris Commune or anarchist areas in Spain during the Spanish Civil War were examples of socialism.
Other socialists argue that none of the above examples were socialist, and that socialism has never been applied in practice.

Different critics of socialism also hold different views on the subject. Some consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds; others hold that certain historical examples exist and that they can be criticized on practical grounds.

Communist states are the object of a particularly virulent criticism, and there are numerous arguments over their historical records on standards of living, economic growth, and particularly human rights. Critics claim that Communist states provided low standards of living and committed numerous human rights violations, including millions of deaths caused directly or indirectly by the government. Estimates of the number of such deaths, in particular those that occurred in China and the Soviet Union, vary greatly depending on the source and methodology, with numbers ranging from under 30 million to 145 million worldwide over the course of the last ninety years. Proponents of socialism often focus on two aspects: first, the accuracy of the statistics themselves, and second, whether socialists or socialism can be blamed for the deaths in question. As indicated above, there is widespread disagreement amongst socialists as to whether Communist states can legitimately be described as socialist. Many victims of these states have themselves been socialists, for example during Stalin's Great Purge of the 1930s. Critics of socialism, in turn, will often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void." Advocates of Communist states claim that their standards of living and human rights records were better (or no worse) than those of the regimes that preceded them, and that they achieved rapid industrialization and economic growth. Critics argue that the Soviet Union experienced a severe economic downturn in the 1970s and 80s which contributed to its collapse, and that China has been reforming since towards a more market-oriented economy.

For extensive coverage of the debates surrounding criticisms of communism and Communist states, see criticisms of communism and criticisms of communist regimes.

Some libertarian socialist communes have also been criticized. For instance, the Catholic Encyclopedia states that priests and other religious persons were killed by mobs or by order of the leaders of the Paris Commune [15]. Others have accused social anarchists fighting in the Spanish Civil War, of atrocities committed in regions under their control. ^[15]

References

^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [1]. Kluwer Academic Publishers. page 46 in PDF.
^ Reason Magazine, The Road to Serfdom, Forseeing the Fall. F.A. Hayek interviewed by Thomas W. Hazlett
^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [2]. Kluwer Academic Publishers. page 46 in PDF.
^ As argued, for example, in the 2001 Program of the Communist Party of Canada [3]
^ "The Myth of Natural Monopoly", by Thomas J. DiLorenzo
^ "The Development Of The Theory Of Monopoly Price", by Joseph Salerno
^ ISBN 0-06-097540-7
^ Interview with Milton Friedman. July 31, 1991 Stanford California. [4]
^ Zoltan J. Acs & Bernard Young. Small and Medium-Sized Enterprises in the Global Economy. University of Michigan Press, page 47, 1999.
^ Mill, John Stuart. The Principles of Political Economy, Book IV, Chapter 7.
^ John Kenneth Galbraith, The Good Society: The Humane Agenda, (Boston, MA: Houghton Mifflin Co., 1996), 59-60."
^ Self, Peter. Socialism. A Companion to Contemporary Political Philosophy, editors Goodin, Robert E. and Pettit, Philip. Blackwell Publishing, 1995, p.339 "Extreme equality overlooks the diversity of individual talents, tastes and needs, and save in a utopian society of unselfish individuals would entail strong coercion; but even short of this goal, there is the problem of giving reasonable recognition to different individual needs, tastes (for work or leisure) and talents. It is true therefore that beyond some point the pursuit of equality runs into controversial or contradictory criteria of need or merit."
^ Milton Friedman. We have Socialism Q.E.D., Op-Ed in New York Times December 31, 1989 [5]
^ Friedrich Hayek, The Road to Serfdom, Routledge (2001), ISBN 0415255430
^ In particular, Bolloten, Burnett (1991). The Spanish Civil War: Revolution and Counterrevolution. Chapel Hill, NC: University of North Carolina Press.

External links

Socialism: Opposing Views at Curlie
"Socialism", Economic Policy 2nd Lecture, by Ludwig von Mises

PBS' Heaven on Earth: the Rise and Fall of Socialism
The Law by Frédéric Bastiat
"The Intellectuals and Socialism" by Friedrich Hayek
"Hayek and Socialism" by Bruce Caldwell
Home Page of Competitive Enterprise Institute
calculation debate, updated
"Why Socialism Collapsed in Eastern Europe" by Tom Palmer
Socialism by Robert Heilbroner
"Nixonian Socialism" by Murray N. Rothbard
"The Intellectual Cover for Socialism" by Hans-Hermann Hoppe

[1] Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [1]. Kluwer Academic Publishers. page 46 in PDF.

[2] Reason Magazine, The Road to Serfdom, Forseeing the Fall. F.A. Hayek interviewed by Thomas W. Hazlett

[3] Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [2]. Kluwer Academic Publishers. page 46 in PDF.

[4] As argued, for example, in the 2001 Program of the Communist Party of Canada [3]

[5] "The Myth of Natural Monopoly", by Thomas J. DiLorenzo

[6] "The Development Of The Theory Of Monopoly Price", by Joseph Salerno

[7] ISBN 0-06-097540-7

[8] Interview with Milton Friedman. July 31, 1991 Stanford California. [4]

[9] Zoltan J. Acs & Bernard Young. Small and Medium-Sized Enterprises in the Global Economy. University of Michigan Press, page 47, 1999.

[10] Mill, John Stuart. The Principles of Political Economy, Book IV, Chapter 7.

[11] John Kenneth Galbraith, The Good Society: The Humane Agenda, (Boston, MA: Houghton Mifflin Co., 1996), 59-60."

[Self-12] Self, Peter. Socialism. A Companion to Contemporary Political Philosophy, editors Goodin, Robert E. and Pettit, Philip. Blackwell Publishing, 1995, p.339 "Extreme equality overlooks the diversity of individual talents, tastes and needs, and save in a utopian society of unselfish individuals would entail strong coercion; but even short of this goal, there is the problem of giving reasonable recognition to different individual needs, tastes (for work or leisure) and talents. It is true therefore that beyond some point the pursuit of equality runs into controversial or contradictory criteria of need or merit."

[13] Milton Friedman. We have Socialism Q.E.D., Op-Ed in New York Times December 31, 1989 [5]

[14] Friedrich Hayek, The Road to Serfdom, Routledge (2001), ISBN 0415255430

[15] In particular, Bolloten, Burnett (1991). The Spanish Civil War: Revolution and Counterrevolution. Chapel Hill, NC: University of North Carolina Press.

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@@ Line 7: / Line 7: @@
 Economic criticisms of socialism are centered on arguments that socialism corresponds to stagnating or reduced prosperity for a populace. Critics claim that it reduces work incentives and efficiency through such things as eliminating the buying and selling of [[means of production]], eliminating the profit and loss mechanism, lacking a [[free price system]] and relying on [[central planning]]. They also argue that socialism stagnates technology. They further claim that real world examples of countries with socialized means of production indicate that they are not as prosperous as those where the means of production are under private control.<ref>Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [http://www.mises.org/etexts/Soc&Cap.pdf]. Kluwer Academic Publishers. page 46 in PDF.</ref> Some socialists reply in kind, with the counter-argument that socialism can increase efficiency and economic growth better than capitalism. Other socialists argue that a certain degree of efficiency can and should be sacrificed for the sake of economic equality or other social goals.
-===Efficiency===
-Critics of socialism argue that publicly owned organizations are less efficient than private companies (see [[privatization]] for further discussion). A majority of socialists disagree with the notion that private companies serve the public interest. They argue that the profit/loss motive encourages companies to cut costs and raise profits in ways that do more harm than good to the public: a company will try to get the maximum work from its employees for the minimum amount of money, keeping wages as low as it can, and, as capitalists hold high concentrations of capital and may restrict access to vital resources, they claim that the workers are left with little bargaining power. Finally, since the rich have more money than the poor, they claim capitalism encourages companies to cater to the interests of the rich and ignore the needs of the poor. <!--They also point to [[pharmaceutical]] companies that have little incentive to produce drugs to cure diseases such as [[malaria]], which primarily affect poor countries that cannot afford to buy them, but those same companies devote huge resources to developing drugs for the relatively trivial complaints of the rich western consumers who can pay. Advocates of capitalism argue that most advances in the development of new drugs have been accomplished by capitalist economies.-->{{Fact|date=February 2007}}
-Supporters of capitalism argue that companies compete for workers and thus cannot give arbitrarily low wages. They also hold that companies that sell luxury products are few; most money is made by selling products to ordinary people in developed nations. However, socialists argue that since companies are also in competition with each other and thus attempt to cut costs in order to enhance their competitiveness there is an incentive to "downsize" the workforce and/or cut wages. Capitalists argue that competition is the driving force in improving the efficiency of the economy, which in turn leads to products and services being produced at increasingly lower costs, raising standards of living.{{Fact|date=February 2007}}
-Regarding poor people in developing nations, capitalists assert that people in the democratic developed nations could vote to raise taxes in order to increase foreign aid or otherwise give much help voluntarily, almost everyone in developed nations being very wealthy in comparison to people in developing countries. They argue that the little interest among the public for such aid is not something capitalism can be blamed for. Furthermore, they argue that nations that are more capitalistic have less poverty (see [[index of economic freedom]]). Socialists argue that the reduced poverty in developed countries is either due to [[exploitation]] of poorer nations, or to the extensive [[welfare state]]s that have been put in place in most of the developed countries.{{Fact|date=February 2007}}
 ===Prices===
@@ Line 20: / Line 13: @@
 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. If the means of production are socially owned then there are no prices at all for the means of production themselves. According to some of the critics of socialism, the [[free price system]] in a market economy guides economic activity so flawlessly that most people don't appreciate its importance or see its effect. 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. For example, [[Friedrich von Hayek]] argued in 1977 that "prices are an instrument of communication and guidance which embody more information than we directly have", and therefore "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground". He further argued that "if you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle."<ref>[[Reason Magazine]], [http://reason.com/hayekint.shtml ''The Road to Serfdom, Forseeing the Fall'']. [[F.A. Hayek]] interviewed by [[Thomas W. Hazlett]]</ref>
-In a market economy, business owners are constantly comparing costs to sales revenue. A business whose costs are higher than its revenues will go bankrupt, and the resources it was using will be re-allocated to other purposes (other businesses). In order to make economic decisions, business owners rely on the information provided by prices; millions of owners make millions of separate decisions, leading to decentralized resource allocation that, in the view of its supporters, is efficient. [[Adam Smith]] dubbed this effect the "[[invisible hand]]" of the market. Under socialism, it is the task of central planners to compare the costs and benefits of various kinds of economic activity. Critics of socialism hold that these central planners cannot see as much information or respond as rapidly as the more decentralized observations and decisions made by all people in a market economy.{{Fact|date=February 2007}}
+In a market economy, business owners are constantly comparing costs to sales revenue. A business whose costs are higher than its revenues will go bankrupt, and the resources it was using will be re-allocated to other purposes (other businesses). In order to make economic decisions, business owners rely on the information provided by prices; millions of owners make millions of separate decisions, leading to decentralized resource allocation that, in the view of its supporters, is efficient. [[Adam Smith]] dubbed this effect the "[[invisible hand]]" of the market.
 The [[anarcho-capitalism|anarcho-capitalist]] economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses.<ref>Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [http://www.mises.org/etexts/Soc&Cap.pdf]. Kluwer Academic Publishers. page 46 in PDF.</ref>
-Socialists opposed to the market generally argue that markets don't work nearly as well as thought. They point out that some people struggle to survive in capitalism while others have mansions, and that this itself is indicative of scarcity and evidence that free market pricing mechanisms are evidently not effective or equitable. Socialists also point out that many economists supporting capitalism acknowledge the existence of various [[market failures]] that need to be regulated such as [[monopolies]] or [[externalities]]. They also argue that the rules of the market may also be manipulated by those with more power.{{Fact|date=February 2007}}
-A planned economy tries to replace the invisible hand with a highly visible (and, according to socialists, more efficient) one. 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.{{Fact|date=February 2007}}
-Socialists are sharply divided on the claim that market pricing produces allocative efficiency. There are [[market socialism|market socialists]] who believe it is both possible and imperative that socialistic systems take this point into account. [[David Schweickart]], a [[philosophy]] professor in the US, has said that socialists must endorse the market because otherwise "everything in the economy is subject to political debate&mdash;every price, every product, every technology" and he says only two possible outcomes can result from this, "either [[anarchy (word)|anarchy]] or, more likely, the subtle or not so subtle shutting down of democratic input."{{Fact|date=February 2007}}
 On the other hand, a [[Hungary|Hungarian]] economist, [[Jonas Kornai]], once a market socialist himself, modified his views subsequent to the fall of the Soviet system and its eastern European variants. Kornai has written that "the attempt to realize market socialism...produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible." {{Fact|date=February 2007}}
-A capitalist opponent of socialism would argue that both Schweickart and Kornai are right&mdash;that markets are both a necessity and an impossibility for a socialism that would be humane, sustainable, and allocatively efficient. {{Fact|date=February 2007}}
 On the other hand, socialists who do reject the market mechanism of pricing make the following claims:
@@ Line 39: / Line 24: @@
 * That market systems are distorted by the unequal power of the players in the markets. Globalissues.org editor, 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]]. [http://www.globalissues.org/TradeRelated/FreeTrade/Criticisms.asp]
 * 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]] [http://cepa.newschool.edu/het/profiles/lange.htm] and the [[Paretian]]s [http://cepa.newschool.edu/het/essays/paretian/paretoptimal.htm]; ''see also [[Pareto efficiency]]''.
-===Central planning===
-Even anarchist socialists usually advocate some form of coordination so that different groups of workers function smoothly together (whether on a local or global scale). Critics of socialism argue that it is not possible to vote on everything, if for no other reason than that information gathering, discussion, and voting takes time; therefore, theoretically, some power must be given to leaders, at least temporarily.{{Fact|date=February 2007}}
-Large scale central planning (and anarchist coordination) requires an understanding of trends and statistics. Critics argue that it is often impossible to make long term predictions (e.g.. [[chaos theory]] and [[extrapolation]]) based on current trends and numbers. They further argue that a capitalist system solves this problem by simultaneously trying multiple solutions and letting economic competition find the best result. Central planning means that relatively fewer solutions will be chosen, and those that will be based on numbers. Arguably, these solutions may be less effective due to a lack of variety in the number of options available.{{Fact|date=February 2007}}
-===Incentives for managers===
-According to its supporters, a profit and loss system is a monitoring mechanism which continually evaluates the economic performance of every business enterprise. In theory, under capitalism the firms that are the most efficient and most successful at meeting consumer demand are rewarded with profits. Firms that operate inefficiently and fail to serve the perceived public interest are penalized with losses.{{Fact|date=February 2007}}
-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 consumer demands of their corresponding market segment. 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 profit or suffer the consequences.{{Fact|date=February 2007}}
-In a [[planned economy]], 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. Therefore, they claim that centrally planned economies do not have an effective incentive structure to coordinate economic activity.{{Fact|date=February 2007}}
 In her book ''How We Survived Communism & Even Laughed'',<ref>ISBN 0-06-097540-7</ref> [[Slavenka Drakulic]] claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc 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 produce [[washing machine]]s. But there is not only a problem with creating shortages but with creating surpluses as well. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. Because of this it prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist [[Milton Friedman]] "The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."<ref>Interview with Milton Friedman. July 31, 1991 Stanford California. [http://www.achievement.org/autodoc/printmember/fri0int-1]</ref>
-In response, most socialists claim that the incentives in a socialist planned economy should come from the democratic nature of the system. Economic planners are supposed to have an interest in doing a good job and delivering what the people need because that ensures the people will keep voting for them in elections, while if the planners are doing a bad job and the economy is stagnating, the people would vote them out of office and elect a new government with a new economic plan.{{Fact|date=February 2007}}
-Drakulic lived under a system that was not a democratic one, and it can be argued that the planners had no incentive to cater to the needs of the people. Some socialists do not consider such an undemocratic system to be socialist at all. As a corollary to this argument, socialists claim that inefficient planned economies can only exist for prolonged periods in undemocratic conditions, where the people cannot reward or penalize the state for its performance.{{Fact|date=February 2007}}
 ===Incentives for workers===
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 Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition [for] different individual needs, tastes (for work or leisure) and talents." He recommends [[market socialism]] instead.<ref name="Self">Self, Peter. ''Socialism''. A Companion to Contemporary Political Philosophy, editors Goodin, Robert E. and Pettit, Philip. Blackwell Publishing, 1995, p.339 "Extreme equality overlooks the diversity of individual talents, tastes and needs, and save in a utopian society of unselfish individuals would entail strong coercion; but even short of this goal, there is the problem of giving reasonable recognition to different individual needs, tastes (for work or leisure) and talents. It is true therefore that beyond some point the pursuit of equality runs into controversial or contradictory criteria of need or merit."</ref> The majority of socialists believe that a balance should be reached between equality, incentives and diversity, and feel confident that such a balance would still allow for a much greater degree of equality than capitalist societies currently have. Many socialists also argue that the importance of material incentives could be reduced, even if it is never fully eliminated.
-All real-world societies that have called themselves "socialist" have preserved at least some small degree of economic inequality. Thus, the argument between socialists and their critics often becomes an argument on the ''extent'' of inequality that should exist, not an argument on the question of whether inequality should exist at all. Socialists argue for less inequality than their critics believe to be optimal. The critics of socialism often claim that introduction of measures for reducing inequality would also reduce incentives, and therefore productivity and total wealth would be reduced in turn.
 ===Slow or stagnant technological advance===