Democratic Socialism: Straight Talk About Twisted Facts
A memorable way to distinguish between capitalism and socialism is as follows:
The "C" in capitalism stands for "competition." The "S" in Socialism stands for state control of the means of production. When government takes over major industries, for reasons beyond the scope of this editorial note, everything turns to mud.
Plain and simple, it's competition that keeps prices down and quality up.
It's competition that forces every company to continuously look for new ways to provide more "value" to customers and non-customers (people that should be customers but are not). It's competition that makes us better.
Now let's get down to a basic truth. Government-run enterprises have little or no competitive pressure that incentivizes continuous productivity improvement and innovation–the two key drivers of corporate wealth creation and, in turn, societal wealth creation.
Once government controls key industries, economic history tells us we can fully expect a continuous downgrading of productivity and innovation. Always happens. And the economic and social results are disastrous.
This article by celebrated economist Benjamin Powell, is the first in a series of economic literacy articles, that could be titled "Socialism Killed Over 100 Million People, But Sure, Let's Bring It Here" tackles seldom reported realities about the meaning of socialism and why it ultimately fails to deliver on any of its utopian promises.
Not only does it not deliver on what it promises, but instead brings untold misery, economic poverty, food shortages, near-collapsed healthcare systems, out-of-control inflation rates (e.g., Venezuela's 2018 inflation rate was 1,370,001.05%), and a host of other ills.
Dr. Powell sets the record straight on today's barrage of misleading information about which countries are socialistic and which countries are not truly socialistic but have some form of hybrid economic system which accounts for their modest economic health.
The great British leader Winston Churchill summed it up best when he said: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries."
To summarize: The socialistic agenda medicine prescribed by some of today's political leaders has proven to have such grave side effects, it would never be permitted if it had to be approved by the equivalent of an economic "Food & Drug Administration.”
Unless you’ve been living under a rock the last few years, you’ve likely noticed that “socialism” has become increasingly popular in the United States, particularly among young people.
When we first noticed this trend in 2016, it made economist Robert Lawson and I, pause, scratch our heads, and ask, “Could this really be a trend with a future?”
We knew that socialist countries had killed roughly 100 million of their own citizens in the 20th century. We knew that socialist economies stagnated.
While socialists preached equality, the reality was, as George Orwell put it in Animal Farm, that some animals were more equal than others in socialist countries.
Orwell’s point? The political elite in truly socialistic countries fare much better than ordinary citizens. Historians long ago discovered Karl Marx’s idea of equality always gets subverted by people who really just want power and, therefore, inevitably organize authoritarian regimes.
How could our fellow Americans, most of whom are intelligent, self-reliant, caring people, want a socialist economic system?
Bob and I have written more than one hundred academic research papers on the importance of economic freedom and how a free enterprise system operates.
Many of these are boring academic articles and even the ones that aren’t boring clearly haven’t significantly influenced the young people attracted to socialism.
So we decided we’d try something different. We got drunk and traveled the unfree world and wrote a book about it.
Socialism Sucks: Two Economists Drink There Way Through the Unfree World is an off-color, Anthony Bourdain style romp around the globe, where we explore the functioning and history of socialist, fake-socialist and mistakenly-identified-as socialist countries.
We take the economics and history of these places deadly seriously without taking ourselves too seriously. In the process we found out that a country’s booze ends up serving as decent metaphor for how the rest of the economy functions.
So, let’s get one thing straight. The term “socialism” meant/means something different to Marx, Lenin and economists like us who seriously study economic systems.
Measuring Just How Socialistic a Country Really Is
A socialist economic system requires collective (i.e. usually government), rather than private, ownership and/or control over the major inputs to the production process.
In practice, there are varying degrees of government ownership and control, but this is the margin or key indicator that measures how socialist a country is. The greater the degree of government ownership and control, the more socialistic a country.
By that standard, there are really only three countries in the world today that can accurately be labeled as socialist and they are all hell holes: North Korea, Cuba, and Venezuela.
Wait, what? No Nordic countries? Nope, because the Nordic countries are mostly capitalist. The vast bulk of their economic activity is based on private ownership and their citizens have a high level of economic freedom.
Nordic countries do have high taxes and big welfares states which makes them less than perfectly capitalist. Those high taxes have consequences.
It has slowed their rates of economic growth and made their booze extremely expensive. But, at least, private ownership (as opposed to state ownership) of the means of production doesn’t impoverish a country the way socialism does.
Venezuela: A Case Study in Making the Wrong Choice
Venezuela was once an extremely prosperous country. Then they gradually chose socialism over capitalism. Today Venezuela is in shambles. They made the wrong choice.
When we traveled there in 2017, the country was facing dire food and medical shortages, frequent power outages, the world’s highest inflation rate, violent crime, serious political unrest and was in a declared state of emergency.
But only several years before, Venezuela was held up as an example of successful “democratic socialism” by many celebrities, social media sites, news publications and the like.
In 1998 Hugo Chavez was democratically elected, in what international observers classified as a fair election, promising his version of “Bolivarian socialism.”
Venezuela sits on the world’s largest proven oil reserves and, for a while, the government was able to sell oil on the international market and import enough stuff to make it appear to be prosperous.
But there’s a difference between appearances and reality. The socialist policies were destroying the ability of Venezuelans to produce at home.
When oil prices plummeted, the country was unable to feed itself. Even its beer producer, Polar, even had to cease beer production for lack of Barley.
Venezuela’s democratic freedoms have vanished. Socialism requires centralized control over the economy. With that control comes the power to punish political rivals and undermine democratic opposition.
Nobel Prize winning economist F.A. Hayek long ago argued in his 1944 book The Road to Serfdom that it is impossible to maintain a large degree of democratic freedom without also maintaining a large degree of economic freedom.
Simply put, that’s why all socialist economies soon become totalitarian dictatorships. Venezuela is the most recent to fall prey to the promise of utopian coddling and a large degree of economic freedom only to plunge down the road to serfdom.
Our global tour took us to Sweden, Venezuela, Cuba, Korea, China, Russia, Ukraine, the Republic of Georgia, and then back in the USSA where we attended the largest socialist conference in the United States.
Most of the young people we met at the conference didn’t want the United States to become like the Soviet Union, but, not surprisingly, most of them also didn’t understand the link between economic and political freedoms.
Space doesn’t permit me to share more of our travels here. So, if you’re interested in learning more, pick up a copy of Socialism Sucks. Cheers!
Benjamin Powell, Ph.D. is the Executive Director of the Free Market Institute and Professor of Economics in the Rawls College of Business at Texas Tech University, Senior Fellow with the Independent Institute, and co-author of Socialism Sucks: Two Economists Drink Their Way Through the Unfree World.
The editors would appreciate your feedback on this article, so we can write future articles that amplify, clarify and laterally extend many of the concepts just touched upon in this article.