Column by Jim Davies.

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Famously, in 1922 Ludwig von Mises predicted the ultimate failure of socialism, for the good reason that in a planned economy, freely-moving prices are outlawed, while freely-moving prices are the only valid signal of what is wanted, where, when and in what quantity. It took a while – and a dreadful war – but in 1990 he was proven right. The Union of Soviet Socialist Republics collapsed, in an economic shambles, for exactly the reason he named.

Recently on the Net, I was surprised to encounter a commenter who said he “looked forward to a socialist future.” I replied that he should hire himself out to some kind of museum, as a rare example of a dying breed. He insisted that socialism was the way to get a “more egalitarian” society. We all favor equality, so the claim should be checked.

In one sense, socialism has been fabulously successful. Every country in the world is run by a clique that purports to “plan the economy,” and not far under the surface of each is a claim, ready to be trotted out if needed, that this is a good thing because it provides a safety net at least, and hence a degree of equality (of outcome) impossible in a free market of winners and losers. That's certainly true of America and Europe, though the name “socialist” isn't much used here; with the usual American political genius for deceptive P.R., labels like “Liberal” or “Progressive” are much preferred.

It's not uniform, though. It's possible to grade or classify the degrees of socialism employed by different countries, and to get a rough idea of the result in terms both of prosperity and equality. When that is done, a pattern emerges: the more an economy is planned, the less prosperity the people enjoy. Therefore, widespread though it is, socialism is a failure.

Perhaps the most blatantly socialist country is North Korea, and it's a very well-known basket case dependent for survival on support from neighboring China – whose government provides it rather than having US Marines stationed on its very border. GDP per capita in NK is $1,800 per year, ranking #197 in the world, while China's is $9,300 and South Korea's, $32,800.

We might think next of Cuba, whose living standards had formerly progressed, now for half a century cut off from trade with the US and with car models to prove it. Exiles manage to get some money in to their families, so the poverty is less acute than in North Korea, with a per capita GDP of $10,800.

Rhodesia used to be the second most prosperous country in Africa, after the Republic to its South, when run by white settlers who knew which way was up. Farming was the main source of wealth. The native black Africans were used for labor but for little else, yet still were doing better economically than their ancestors--until they caught the political bug and, like the existing one, favored a government selected by race--but of a different race. Under immense pressure from socialists in Britain like Harold Wilson, the white one under Ian Smith was dismantled and a black one under Robert Mugabe, an avowed socialist, eventually replaced it--along with the country's name; it became “Zimbabwe.” Racist Smith and his friends knew something about creating wealth; racist Mugabe did not. Living standards plunged and went on plunging; even the currency was totally destroyed. Per capita GDP is $600, ranked #227.

Venezuela operated under the guidance of the late Hugo Chavez, also an open socialist, who built his popularity by ripping off the oil business and – unusually – actually handing some of the loot to the poor. The theft kept the country's economy afloat for several years, but depended heavily on the continued oil bonanza, which was discovered and exploited not by socialist planners but by greedy capitalists. Recently, there was an acute shortage of toilet paper. When socialists plan economies, there is always a shortage of something, and a surplus of something else; it's inevitable, since the planners forbid the free movement of prices. Nobody can know what millions of people will demand, from one day to the next, unless free price movement gives the signal.

China is by far the biggest socialist country on Earth, but it's Socialist In Name Only – an ironic acronym, SINO. There's plenty of nasty residue of socialism, especially the tight control over what people can say to each other, via the Net, and on how many babies they can have; but its main characteristic – central planning – has been seriously scaled back following the disaster of the Cultural Revolution in the 1960s and 1970s. Result: a massive economic growth, over 20 years and counting, and a GDP equal to America's. There's much progress to be made before China matches the U.S.' GDP per capita, but they are well set to make it. The country is still far from being a full free market, as the eerie empty cities indicate, but the change from its former, lethal paralysis is dramatic. Arguably, China is history's most convincing proof that socialism doesn't work, while free markets do; they have brought hundreds of millions of people into a flourishing, egalitarian middle class.

Above, I quoted some GDP figures (from the CIA World Fact Book), so I should add a big caveat. GDP – Gross Domestic Product – may be the best we have, but it's a seriously misleading measure of prosperity because it counts as “product” the services provided by government, at cost. This is bizarre; it means that if government planners were to spend ten billion dollars having holes dug and then filled in again, that $10B would count positively as a component of what the population produced (!), instead of negatively, as a dead loss. Thus, the more of a country's economy that is controlled by government, the more GDP is likely to be overstated; and typically, socialist ones tend to control more than others. So while these per capita GDP figures for socialist countries are low, they probably hide even deeper poverty.

Dismal failure though socialism has proven to be, it would be a serious error to suppose that some other flavor of government would work just fine. It would not. Government itself is the obstacle holding humanity back from unprecedented progress; socialism is merely one of several styles of government. Singapore, for example, has for decades enjoyed one of the world's most emphatically anti-socialist governments, and its prosperity bears eloquent testimony to the soundness of that choice. But prosperity is only one of the good results of liberty; other kinds of freedom are important for human happiness and the Singapore government forbids them savagely; drug dealers, for example, are executed. The pursuit of happiness is what life is for, and government in any form inhibits that pursuit, in one way or another. For complete freedom, there is no alternative; in all its forms, it has to go.

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Jim Davies's picture
Columns on STR: 243

Jim Davies is a retired businessman in New Hampshire who led the development of an on-line school of liberty in 2006, and who wrote A Vision of Liberty" , "Transition to Liberty" and, in 2010, "Denial of Liberty" and "To FREEDOM from Fascism, America!" He started The Zero Government Blog in the same year.
In 2012 Jim launched , to help lead government workers to an honest life.
In 2013 he wrote his fifth book, a concise and rational introduction to the Christian religion called "Which Church (if any)?"


Thunderbolt's picture

A flawless essay that should be published world-wide!

mhstahl's picture

This is a good one, Jim! The point about GDP, and all such statistics simply cannot be overstated.

That said, I think that it is hazardous to make the case that "prosperity" equals freedom, or stems from it. A strong case, perhaps even a devastating one, can be made for market intervention spurring some of the most "prosperous" and "productive" economies that have ever existed. Mercantilism and the "American System", as well as the legislative birth of a caste of "businessmen" who were (and are) free from liability for their actions and products, drove the British Empire and the US to trade dominance. Italy and Germany both added more teeth to what rightly ought to be called the soft fascism of the British and American economy and turned what were economic shambles into massive engines of production, and "prosperity."

I suspect that we would agree that in all of the above cases, the "prosperity" was markedly superficial and certainly did not represent "freedom" in any real sense. We might even speculate that, particularly in the case of the UK and US, that the "prosperity" bought by the industrial revolution was in fact inevitable and even that it occurred not because of government, but despite it. Even so, we cannot deny that these economies had men with guns on their side giving them a boost, sometimes passively, but often enough overtly and brutally. Ask the Cherokee.

Additionally, no matter how dysfunctional they might be internally, it is worth noting that economies like those of Cuba and N. Korea have suffered mightily from US and international trade "sanctions." In the case of Cuba, its largest export market-as well as a huge tourism market-  has been totally closed by force of arms for nearly 50 years. It is difficult to boast about the merits of the US "freer market" when I am banned by the Washington Coven from buying so much as a thumbtack made in Havana...or even visiting the place!

"The pursuit of happiness is what life is for, and government in any form inhibits that pursuit, in one way or another." This was the best line in the piece, and to me the best argument...all of the "isms" are really just impositions upon a theme; they tell the same tale.

Jim Davies's picture

All excellent points, thank you!
I do think prosperity will result from freedom, because it's part of human nature to seek it (greed is good!) or else to maintain what one has with less work, which has the same effect. But you're quite right, they are two separate things and I should have done more to keep them so.