2 simple reasons why socialist economies always fail..
This is a short post – written as a prelude to a discussion on “Why Socialist Planning is a Stupid Idea” that I hope to host early in Jan ’12 (exact date/time to be confirmed shortly). Pl read and share – especially with the younger ones in your family. Children in our family and society are the ones we really need to focus on – to make them aware of this dangerous (and false) ideology that passes for economic theory (even to this date).
Earlier today, while reading something else, it occurred to me that there are actually two very simple reasons why socialist planning inevitably fails – and is actually a very stupid idea.
1] It goes against basic and fundamental human tendencies – that of self-interest, trade and exchange
and
2] It assumes that governments can allocate resources more efficiently than markets
Nehru was too much of a believer to realise this – and perhaps too arrogant to see the evidence later in his life that it was not working. His successors are incapable of understanding this… and so we continue to suffer to this date.
Two short extracts to round off this post. The first from a review of Amartya Sen’s Rationality and Freedom by Sauvik Chakraverti (emphasis added):
..(Socialist thinking led to) the construction of an economic system based on the assumption that the people were sub-human, something less than Homo Economicus ; while their rulers were assumed to be infallible. Socialist planning was thrust upon Indians using public irrationality as an excuse. This planning has been a huge failure – but it continues. Every prime minister of India chairs the planning commission, and this body has just come out with a tenth five year plan
The second, also from Sauvik from The Liberal Visions for India:
No one has to be taught how to create wealth. All human beings are born wealth creating machines. We are all born to be rich. If there is poverty all around, it is because the State has placed innumerable restrictions on the free use of this ability. This implies that population is a resource, and that State policies are the problem
Also read: “The Socialist Calculation Debate” which mentions:
Central planning failed not because it was logically impossible, but because it couldn’t deal with the ignorance and self-interest that characterises all human activity.
Additional Reading: Sociology – And This Evil Anti-Sociology and The “Right and the “Left” – Shaping the Debate. More details on the discussion and live chat to follow. Comments/thoughts welcome as always…
Excellent post. Thank you!
Please read Igor Shafarevsky’s book here:http://robertlstephens.com/essays/shafarevich/001SocialistPhenomenon.html
Sharad Joshi of the Shetkari Sanghatana was the first one to point out that the Election Commission requires parties to swear by socialism whilst registering a party for the first time.
The matter was also discussed in parliament and shelved.
If conventional “socialism” is untenable, where do we go, because capitalism, as it is practised in the USA, cannot be transplanted here. Rajiv Malhotra’s book “Being Different” says we are different in many ways. let’s hope that we are different here too.
Your basic premise may have something in it, but your two points about self interest and resource allocation are fundamentally flawed. We’ve all seen how well that worked in 2008, and during all the previous crises that happen regular as clockwork in the capitalist economies. The big banks come out ahead, but the man on the street pays the price with taxpayer funded multi-trillion dollar bailouts, currency devaluation and increasing inflation.
On the same topic, we also know how well the market economy has managed healthcare in the US, where even a simple checkup for your child will cost upwards of $250 a visit and a serious illness will bankrupt you if you are not insured. We saw this first hand when my father in law’s kidney condition turned worse, the first treatments cost us $60,000 and the next round was to reach $450,000. He promptly took the next flight back to India.
Neither extreme works, as we see with India & other former socialist countries versus the capitalist US of A. There needs to be a fine balance tailored for each country.
When the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
=================================================
Is this man (the Economics Professor) truly a genius?
Checked out and this is true…it DID happen!
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan”
All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B.
The students who studied hard were upset and the students who studied little were happy.
As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too
so they studied little.
The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the
benefit of anyone else.
To their great surprise, ALL FAILED.
The professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government
takes all the reward away, no one will try or want to succeed.
Could not be any simpler than that.
==================================================================================================
These are possibly the 5 best conclusions you’ll ever read….
and all applicable to this experiment:
1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
2. What one person receives without working for, another person must work for without receiving.
3. The government cannot give to anybody anything that the government does not first take from somebody else.
4. You cannot multiply wealth by dividing it!
and most importantly ….
5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and
when the other half gets the idea that it does no good to work because somebody else is going to get what they work for,
that is the beginning of the end of any nation.