Criticism of socialism

This article is about criticisms of socialist economic systems and political movements. For criticisms of Socialist states, see Criticisms of communist party rule. For criticism of social democracy and welfare capitalism, see Criticism of welfare.

Criticism of socialism refers to any critique of socialist models of economic organization and their feasibility; as well as the political and social implications of adopting such a system. Some criticisms are not directed toward socialism as a system, but are directed toward the socialist movement, socialist political parties or existing socialist states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds (such as in the Socialist calculation debate); others hold that certain historical examples exist and that they can be criticized on practical grounds.

Economic liberals and right libertarians view private ownership of the means of production and the market exchange as natural entities or moral rights which are central to their conceptions of freedom and liberty, and view the economic dynamics of capitalism as immutable and absolute. Therefore, they perceive public ownership of the means of production, cooperatives and economic planning as infringements upon liberty.

According to the Austrian school economist Ludwig von Mises, an economic system that does not utilize money, financial calculation and market pricing will be unable to effectively value capital goods and coordinate production, and therefore socialism is impossible because it lacks the necessary information to perform economic calculation in the first place. Another central argument leveled against socialist systems based on economic planning is based on the use of dispersed knowledge. Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals.

Many economic criticisms of socialism focus on the experiences of Soviet-type planned economies. It is argued that a lack of budget constraints in enterprises operating in a planned economy reduces incentives for enterprises to act on information efficiently, thereby reducing overall welfare for society.

Other economists criticize models of socialism based on neoclassical economics for their reliance on the faulty and unrealistic assumptions of economic equilibrium and pareto efficiency.

Some philosophers have also criticized the aims of socialism, arguing that equality erodes away at individual diversities, and that the establishment of an equal society would have to entail strong coercion. Critics of the socialist political movement often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void."

Because there are many models of socialism, most critiques are only focused on a specific type of socialism. Therefore, the criticisms presented below may not apply to all forms of socialism, and many will focus on the experience of Soviet-type economies. It is also important to note that different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved - so critics of specific models of socialism might be advocates of a different type of socialism.

Critique of centralized planning

Distorted or absent price signals

Main article: Economic calculation problem

The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy. The free market relies on the price mechanism, wherein people individually have the ability to decide how resources should be distributed based on their willingness to give money for specific goods or services. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices, socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as the Socialist Calculation Debate.

Ludwig von Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth" that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently. This led him to declare "...that rational economic activity is impossible in a socialist commonwealth.". Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.

Friedrich 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."

Ludwig von Mises argued that a socialist system based upon a planned economy would not be able to allocate resources effectively due to the lack of price signals. Because the means of production would be controlled by a single entity, approximating prices for capital goods in a planned economy would be impossible. His argument was that socialism must fail economically because of the economic calculation problem – the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy. Mises projected that without a market economy there would be no functional price system, which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses. Socialism would fail as demand cannot be known without prices, according to Mises.

"The socialist planner, therefore, is left trying to steer the collectivist economy blindfolded. He cannot know what products to produce, the relative quantities to produce, and the most economically appropriate way to produce them with the resources and labor at his central command. This leads to "planned chaos" or to the "planned anarchy" to which Pravda referred.... Even if we ignore the fact that the rulers of socialist countries have cared very little for the welfare of their own subjects; even if we discount the lack of personal incentives in socialist economies; and even if we disregard the total lack of concern for the consumer under socialism; the basic problem remains the same: the most well-intentioned socialist planner just does not know what to do." The heart of Mises' argument against socialism is that central planning by the government destroys the essential tool — competitively formed market prices — by which people in a society make rational economic decisions.

These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek and students such as Hans Sennholz.

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. Hungarian economist Janos 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."

Proponents of laissez-faire capitalism argue that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise.

In her book How We Survived Communism & Even Laughed, Slavenka Drakulić 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. 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. This 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."

Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.

Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century but also proposes certain voluntary arrangements, which would also require economic calculation.

Leon Trotsky, a proponent of decentralized planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people."

Mises argued that real-world implementation of free market and socialist principles provided empirical evidence for which economic system leads to greatest success:

The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism.

According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."

In contrast to the lack of a marketplace, market socialism can be viewed as an alternative to the traditional socialist model. Theoretically, the fundamental difference between a traditional socialist economy and a market socialist economy is the existence of a market for the means of production and capital goods.

Suppression of economic democracy and self-management

Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin Hahnel notes that even if central planning overcame its inherent inhibitions of incentives and innovation it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.

As Hahnel explains, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power."

Critique of public enterprise

Slow or stagnant technological advance

Milton Friedman, an economist, 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 where government owns the means of production. Without a reward system, it is argued, many inventors or investors would not risk time or capital for research. This was one of the reasons for the United States patent system and copyright law.

Socialism has proved no more efficient at home than abroad. What are our most technologically backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do not for mail or schools, as has been shown by Federal Express and others, and by the ability of many private schools to provide superior education to underprivileged youngsters at half the cost of government schooling.....

We all justly complain about the waste, fraud and inefficiency of the military. Why? Because it is a socialist activity – one that there seems no feasible way to privatize. But why should we be any better at running socialist enterprises than the Russians or Chinese?

By extending socialism far beyond the area where it is unavoidable, we have ended up performing essential government functions far less well than is not only possible but than was attained earlier. In a poorer and less socialist era, we produced a nationwide network of roads and bridges and subway systems that were the envy of the world. Today we are unable even to maintain them.

Reduced incentives

Some critics of socialism argue that income sharing reduces individual incentives to work, and therefore incomes should be individualized as much as possible. Critics of socialism 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.

However, he later altered his views and adopted a socialist perspective, adding chapters to his Principles of Political Economy in defense of a socialist outlook, and defending some socialist causes. Within this revised work he also made the radical proposal that the whole wage system be abolished in favour of a co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit in a slightly toned down form.

The economist John Kenneth Galbraith has criticized communal forms of socialism that promote egalitarianism in terms of wages/compensation 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.

Reduced prosperity

According to economist Hans-Hermann Hoppe, countries where the means of production are socialized are not as prosperous as those where the means of production are under private control. Ludwig von Mises, a classical liberal economist, argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore average income. Consequently, the socialist chooses the objective of a more equal distribution of income, on the assumption that the marginal utility of income to a poor person is greater than that to a rich person. According to Mises, this mandates a preference for a lower average income over inequality of income at a higher average income. He sees no rational justification for this preference, and he also states that there is little evidence that the objective of greater income equality is achieved.

Social and political effects

Friedrich Hayek in The Road to Serfdom, argued that the more even distribution of wealth through the nationalization of the means of production advocated by certain 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 such socialists to acquire significant powers of coercion. Hayek argued that the road to socialism leads society to totalitarianism, and argued that fascism and Nazism were the inevitable outcome of socialist trends in Italy and Germany during the preceding period.

Hayek was critical of the bias shown by university teachers and intellectuals towards socialist ideals. He argued that socialism is not a working class movement as socialists contend, but rather "the construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could be persuaded to adopt it as their program."

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.

Objectivists criticize socialism as devaluing the individual, and making people incapable of choosing their own values, as decisions are made centrally. They also reject socialism's indifference to property rights.

Claims of leadership corruption

Some critics of socialism have argued that, in a socialist state, the leadership will either become corrupted or be replaced by corrupt people, and this would prevent the goals of socialism from being realized.

Lord Acton's aphorism that "power tends to corrupt" has been used by critics of socialism to argue that the leadership of a socialist state would be more susceptible to corruption than others, because a socialist state has a broader scope than other states. Milton Friedman argued that the absence of private economic activity would enable political leaders to grant themselves coercive powers. Winston Churchill, in his campaign against socialist candidate Clement Attlee in the 1945 elections, claimed that socialism requires totalitarian methods, including a political police, in order to achieve its goals.

Friedrich Hayek made a slightly different but related argument. He conceded that the leaders of the socialist movement had idealistic motives and did not argue that they would become corrupt or resort to totalitarian methods once in power. However, he argued that the kind of state structure they wish to set up would eventually attract a new generation of leaders motivated by cynical ambition rather than any ideals, and these new leaders would enact repressive measures while at the same time giving up attempts to implement the original goals of socialism.

See also

• Analysis of Soviet-type economic planning
• Anti-communism
• Anti-capitalism
• Black Book of Communism
• Criticisms of capitalism
• Criticisms of communism
• Criticisms of Communist party rule
• Criticisms of Marxism
• Criticisms of social democracy
• Economic calculation debate
• Economic efficiency
• Economic equilibrium
• McCarthyism
• Mixed economy
• The Fatal Conceit
• Tragedy of the commons

Further reading

• Friedrich Hayek (1988). The Fatal Conceit: The Errors of Socialism. University Of Chicago Press. ISBN 0-226-32068-5.
• Friedrich Hayek (1997). Socialism and War: Essays, Documents, Reviews. University Of Chicago Press. ISBN 0-226-32058-8.

External links

• Interventionism: An Economic Analysis
• School of Darkness Autobiography of Bella Dodd, ex-Communist (1954)
• Template:Dmoz
• "Socialism", Economic Policy 2nd Lecture, by Ludwig von Mises
  • Slavery vs. Freedom (Part 1 of 4)
  • Class Warfare vs. Harmony of Interests (Part 2 of 4)
  • Central Planning vs. Freedom (Part 3 of 4)
  • Inability of Economic Calculation (Part 4 of 4)

• What remains of socialism ? [4], by Emile Perreau-Saussine, in Patrick Riordan (dir.), Values in Public life: aspects of common goods (Berlin, LIT Verlag, 2007), pp. 11–34
• The Law by Frédéric Bastiat
• "The Intellectuals and Socialism" by Friedrich Hayek
• "Hayek and Socialism" by Bruce Caldwell
• Home Page of Competitive Enterprise Institute
• "Why Socialism Collapsed in Eastern Europe" by Tom Palmer
• Socialism by Robert Heilbroner
• "Nixonian Socialism" by Murray Rothbard
• "Socialism", by Robert Heilbroner
• "State socialism and anarchism" by Benjamin Tucker
• Lecture XXXV "A Philosophy of Life" includes a critique of marxist socialism by Sigmund Freud
• Socialism: Still Impossible After All These Years, by Peter J. Boettke and Peter T. Leeson
• The Myth of the Scandinavian Model, by Martin De Vlieghere, Paul Vreymans and Willy De Wit
• The Impossibility of Socialism