A Critique Of Socialism, Definition Of Socialist Economy

Modern socialism has advanced beyond the patchwork of anticapitalist animosities, Utopian proposals, and romantic hopes that distinguished early socialist schemes. Probably no other type of economic system, in­cluding capitalism and Marxian communism, has constructed for itself a theory that covers such a wide range of social phenomena.

It is toward a critique of socialist theory that this chapter is directed, rather than toward criticism of minute details of some administrative plan or political platform. The socialist blueprint does not extend to the level of detailed programs because, the socialist claims, desirable changes in society are not necessarily hastened by concern over questions of organi­zational form, which in any case would vary greatly according to the cir­cumstances prevailing when the socialist government assumed power.

The intermediate ground between abstract socialist theory and me­ticulous operational plans represents a fair arena for considering the validity of socialist claims. If serious defects appear in parts of the theo­retical structure, it is unlikely that any degree of administrative juggling could overcome those faults; if, on the other hand, other proposals appear practicable in theory, then the subsequent chapters, which survey the ac­tual operations of socialist economic systems, should give an accurate view of how such factors work in the real world. Before we can get down to a basic analysis of socialism, however, we must dispose of several super­ficial criticisms.

Superficial Criticisms

The claim that the advocate of socialism is merely interested in better­ing himself at the expense of others who are more successful under capi­talism is as flimsy as the parallel contention that all defenders of capitalism are simply protecting their own vested interests. The challenge that the socialist immediately relinquish any personal property he might possess to prove his sincerity is equivalent to testing the sincerity of the ardent Republican or Democrat by his willingness to contribute his personal for­tune to the party campaign chest. The only objective proof of the sin­cerity of the wealthy advocate of socialism is his willingness to accept a reduction in his own standard of living after the entire system has been socialized, and there is no way in which this test can be applied before the advent of socialism.

Defenders of capitalism often charge that socialists fail to recognize gains under capitalism that make socialism unnecessary. This sort of criti­cism is considered superficial, not because its claim to progress under capitalism is unfounded but because it fails to meet the major point of socialism that, whatever the record of economic progress under capitalism, the existence of private property and the profit motive inherently limit the potential of capitalism to serve human needs in an adequate way.

Finally, the epithet "un-American" has often been applied to so­cialism. In its most superficial sense, this criticism means nothing more than that the person making it does not like socialism. Few American institutions, not excepting the major forms of religious observance and our system of common law, lack foreign roots; ideas, like people, deserve to be judged on their intrinsic merits rather than according to their country of origin. Slogans are not an adequate substitute for honest evaluation.

Basic Criticisms

Turning from these superficial arguments against socialism, we can cite several basic criticisms of socialist programs. As with capitalism, there are theoretical problems involved in the operation of a socialist order that go to the heart of the economic process and thus far have not been solved satisfactorily by the proponents of socialism. In attempting to devise solu­tions for each of these problems, moreover, socialists often become en­trapped in basic inconsistencies that prevent the simultaneous attainment of multiple goals.

Difficulties of Pricing

Although the model of Lange socialism operates efficiently in theory, the actual implementation of a socialist economy using centrally established prices for all commodities and factors of production is an overwhelming administrative task. Trial-and-error adjustment of prices in each market would require the planners to know which markets would be most affected by demand shifts in a given portion of the economy. Carried one step fur­ther, this knowledge implies the previous existence of a complete mathe­matical model of the entire economy. The capacity of modern computers is perhaps approaching the point at which such disaggregated models are within the realm of possibility, but the immense flow of high-quality eco­nomic data that would be required to create and sustain such a system would undoubtedly divert a substantial share of the work force away from the production of goods and services for final consumers.

Even if a functioning system of prices could be established in a so­cialist economy, the ability claimed by the socialist to cope with externali­ties (the smoking factory, for instance) may prove as illusory as it was under capitalism. If central planners assume responsibility for balancing social costs and benefits, they tremendously complicate the planning pro­cess; if they order the manager of each firm to take social costs into account when determining his own output, the central planners assume that each unit is aware of its own impact on the economic universe. Either way, dealing with externalities destroys, or at least scrambles the economic sig­nals with which price-directed socialism is supposed to guide the allocation of resources.

The pricing process" in a socialist economy that does not use scarcity prices is also subject to criticism. In this situation, production targets are determined on the basis of input-output models or other methods of phys­ical planning. Prices still have a place in such an economy, but it is the role of "clearing" a market once the level of output in it has already been determined by fiat, rather than the role of pointing out shifts in consumer demand. The socialist planner may congratulate himself on choosing high enough prices to adjust quantity demand to supply available, but he should remember that consumer sovereignty means more than the passive acts of consumers to make the best of an unappealing menu of choices. Economic democracy is not achieved unless consumers' preferences count in deter­mining output in the first place.

Difficulties of Economic Coordination

It has been boasted that socialist planners will have the breadth of vision and the practical means to achieve greater economic coordination than is possible under oligopolistic capitalism. This claim implies a considerable degree of centralization in socialist planning machinery. The ability to view the total situation is achieved, however, only with the sacrifice of some of the flexibility and familiarity with local conditions that come from as­signing decision-making powers to those actually on the scene. It is by no means automatic that overall efficiency would be improved by efforts to build coordination of dissimilar activities explicitly into the planning structure.

The achievement of complete centralization of economic planning is impossible in any modern socialist nation; the task becomes manageable only when responsibility is divided according to economic functon or geo­graphical area. This involves not only the loss of overall direction but the danger that the quest for efficiency at lower levels may result in "suboptimi-zation," which is actually detrimental to the total performance of the econ­omy. For instance, the electric industry, in an effort to cut costs, might choose to generate power with coal as fuel rather than to develop potential hydroelectric power, thus limiting the supply of coal to other industrial uses. If the cost difference in power technology were small, the allocation of coal might not be optimal from a social standpoint. Likewise, maximum development of the trucking industry might create underutilized railroad facilities.

It is apparent that socialists have been overoptimistic regarding the ease with which the benefits of economic coordination could be secured under central planning. The administrative compromises that a socialist regime would have to make in order to function at all would hide many of the opportunities for economic integration that capitalism is blamed for overlooking.

Morale and Competence

All of the socialist disclaimers to the contrary cannot erase the critic's suspicion that it could easily bog down in a morass of low morale, in­efficiency, and red tape. There is no inherent reason why a sense of pride and professionalism would not be found at all levels of administrative re­sponsibility in a socialist government; indeed, during the transition phase the excitement of building institutions anew and perhaps the existence of a charismatic leader might provide the kind of intellectual ferment that chal­lenges people to put forth their best efforts. The main question, however, concerns the staying power of ideological zeal as a motivating factor. As our New England forefathers discovered, is it difficult to pass a vision on to succeeding generations.

In a technocracy occupational groups may form standards of profes­sional competence, one possible way of establishing norms within the civil service. This requires that government service itself must not be used as a social-welfare program to provide employment for excess workers or as a sinecure for those of mediocre talents. Evidence suggests that both socialist and capitalist bureaucracies face these temptations; the serious­ness of poor performance in a socialist bureaucracy is compounded, of course, by the crucial role it plays in the total economy.