What Is Socialism?

Similar distortions occur in the labor market. If government-set wages are above or below market wages, workers will respond by over-producing or underproducing various goods and services, relative to the value consumers place on them.

Under socialism, the government does much more than set prices. It determines what will be produced, how it will be produced, where it will be produced and under what circumstances people will be able to consume what is produced. Since prices are not allowed to clear markets, inevitably there is rationing by waiting for food, clothing, housing, medical care and other necessities. People spend enormous amounts of time and effort trying to circumvent the rationing bureaucracies.

To this point we have said nothing about why the government would do these things. Whatever the stated goals, socialist governments almost always have an economic plan. Whatever the plan, it’s in no one’s self interest to carry it out.

Let’s suppose the plan calls for you to have two bowls of rice every day, but you would like three. In a market economy you get the third bowl if you are willing to pay the market price. Let’s say that is $10. Under socialism, you are not allowed to have the third bowl at any price. So, your incentive is to spend up to $10 of effort to manipulate the rationing bureaucracy to get your third bowl.

Or let’s say the plan calls for you to work 8 hours a day, but you would prefer to work only 7. In a market economy, if you work one less hour you get one less hour’s pay. Let’s say that’s $15. Under the socialist plan you don’t have this option. So, your incentive is to spend up to $15 of effort to manipulate the bureaucracy in order to get an hour off.

Now, when everybody at the bottom has a self-interest in defeating a plan created by those at the top, guess who wins? Socialism, wherever it has been tried, has been an economic disaster.

Capitalism is sometimes described as institutionalized selfishness, while socialism is often described as institutionalized altruism. If anything, the reverse is true.

As Adam Smith pointed out, the only way to increase your income in a market economy is to meet other people’s needs. In a socialist system, the only way to increase your income is to undermine the plan. Doing so often means your increase in wellbeing is at someone else’s expense.

Even if socialist governments respected human rights – even if they didn’t imprison, torture and murder dissenters – socialism still imposes huge economic cruelties on ordinary people. That’s why northern European countries that have flirted with socialist ideas have subsequently abandoned them. In many ways, Scandinavian countries today are more capitalistic than we are.

There are several examples of economic freedom without political freedom, e.g. Hong Kong and Singapore. But we have no examples of a country that has abolished economic freedom while maintaining political and civil liberties.

It’s easy to understand why. If the government controls your job, your salary, your living choices and just about every other aspect of your economic life, how free will you be to challenge the rulers in the next election? All truly socialist regimes quickly became dictatorships – even if, like Nazi Germany and present-day Venezuela, they started out as democracies.

To this point, I have made no distinction between national socialism (fascism) and Marxist-type socialism (communism). The traditional political science literature tends to define the former as having private ownership with government control while the latter has both government ownership and control. The general rule is: the more government asserts its power in whatever way, the worse the economic deprivation and the worse the human rights atrocities.

In the 20^th century, an estimated 169 million people were killed by their own governments. It was genocide on an unimaginable scale. The vast majority of these victims were murdered by socialist governments. The Russian communists were the worst (62 million) followed by the Chinese communists (35 million) and then the Nazis (20 million).

Although socialists claim that workers are exploited under capitalism, no greedy capitalist has ever begun to match what socialists have done.

Stalin, Mao Tse Tung, Fidel Castro and Hugo Chávez lived like kings and accumulated vast fortunes while their own people often faced starvation. Kim Jong-un and the current rulers in Cuba and Venezuela are following in their footsteps.