Why Socialism Fails
By Rene Stein
While socialist ideals can be tempting, I disagree that socialism is an effective means of economic management. According to the American Heritage Dictionary (2006), socialism is “any of various or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that plans and controls the economy.”
Socialism promises equality, security, and prosperity, but in turn delivers quite the opposite which has been clearly demonstrated throughout history. It does not equate work with value. The dilemma of socialism as practiced in European nations is that there is no incentive to work hard. For example, if you have two people working assigned on the same task and one works hard and the other works leisurely both will earn the same wage and the same benefits under a socialized system; there is no incentive. Under a capitalist system people are rewarded based on their individual ability and effort. Private property rights are paramount and charity is based on personal discretion.
Main Component of Socialism
The main component of socialism is redistribution of wealth. Many historical examples have shown this to have a negative net effect on society. The most dramatic example of this in the modern area has been the country of Sweden. Swedish citizens pay nearly half of their wages in taxes. The promised benefits are free education, universal healthcare, and subsidized childcare. There are few people who could argue that these goals are outrageous. It is a natural human reaction to offer aid to the suffering. The capitalist answer to the economic challenges of others is charity given at free will.
However, a close examination of the effects of these programs reveal that:
“Right now more people than ever are on welfare. In 2008 Swedish newspapers reported that mentally ill children were being housed with violent, mentally ill adults due to lack of funding. Another major problem is work absenteeism. There is a growing concern that Swedes are faking illnesses to reap the benefits of the extensive medical leave program. Some economists believe that Sweden’s brand of socialism is fundamentally flawed. While it works well in the short term, it can lead to disenfranchised consumers in the long run. The more taxes the government takes, the less people are willing to spend in a consumer market, which leaves the government to prop up those flagging industries, creating a vicious cycle in the economy.”
In the United States programs such as social security have had similar effects as the Swedish economic system. According to heritage.org, social security has an average rate of return of 1.23% while low risk IRA and bond investments would give a return of approximately 5% each, W. W., & Davis, G. E. (1998, January 15).
Friedrich von Hayek, (recipient of the Nobel Memorial Prize in Economic Sciences in 1974), wrote a book titled, “The Road to Serfdom”, published in 1944, in which he convincingly argues the role in socialist governments. The end results, he proclaims, fail and end in tyranny and oppression. In the book, Hayek refers to America’s shift towards a socialistic society as “creeping socialism”. He discusses the threat of state control over the means of production.
Hayek believed that excessive governmental controls on society did not deliver on their promises and that their ideology actually delivered unfortunate and hopeless economic results. He proclaimed it produces a psychological change in the character of the people in that man’s desire to better himself is what drives him to succeed and also improves the way of life for those around him. According to Hayek, socialism strips man of his desire to succeed. In Marxism, which is pro socialism, argues that capitalism is what results in no creativity in labor and alienation from own human potential. The effects of socialism in America can still be felt today.
According to the Future of Freedom Foundation, any government-owned, -funded, or -subsidized operation is considered to be a socialist program. For example, publicly owned airports, sports arenas or government-funded universities would be considered socialist operations by that definition Ebeling, R. M. (1993, March).
Capitalism is an economic system in which the means of production and distribution are privately and corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market according to the American Heritage Dictionary (2006). Capitalism is a social system that separates the economy from the state. Capitalism is the opposite of socialism.
The Most Famous Example of Capitalism
The California gold rush during the mid 1800’s was historical. The relative lack of government and the ability for the average individual to accumulate wealth allowed the entire western United States to develop public infrastructure and modern commerce in under 50 years. No other time in history has such a development taken place. Ultimately the effects of a free market distributed more wealth than any social program in place on the east coast at the time (Wilma, D.2003, February 21).
In 1973 OPEC (Organization of Arab Petroleum Exporting Countries) declared an oil embargo on the United States. The United States government responded by implementing gas rations and price ceilings. This caused artificial scarcity and further exacerbated the shortage. Near the end of 1973 these controls were lifted which allowed prices to rise for a short time. As prices rose more producers were encouraged to enter the market creating competition that drove prices down dramatically in early 1974. The 1973 oil crisis was the first world wide modern example of a free market correcting for scarcity vs. government intervention, (J. L. 2009, November 11).
Another unintended effect of social programs is the lowering of labor prices. The more money an employer is forced to pay in benefits such as social security and Medicaid, the less money is available to be paid in wages. This results in a net loss of income for the employee. In a free market “minimum wage” is the lowest wage a person can live on. This includes medical costs, housing, child care, transportation, and other incidentals. This creates a cycle in which government provides a benefit program, which causes lower wages so consumers have less money to spend, which lowers profits, which creates a need for industry to be subsidized; but because the profits of goods produced is still lower than the market price the cost of labor stays low creating a need for benefit programs. At each step of this cycle, waste and abuse occur.
Socialism has also served negative effects on the organization of society. Capitalism is based on the right of an individual to own the results of his/her mind and labor. Property rights are clearly defined and protected. Socialism however, maintains that property be shared. The only means of enforcing such a system is either through force or voluntary compliance.
“Socialism is inseparably interwoven with totalitarianism and the object worship of the state. It will prescribe for every one where they are to work, what they are to work at, where they may go and what they may say. Socialism is an attack on the right to breathe freely. No socialist system can be established without apolitical police. They would have to fall back on some form of Gestapo, no doubt very humanely directed in the first instance.”
Threat of Legal Action
Both systems use the threat of legal action as a means of gaining compliance; however, what differs is the motivation. Capitalism uses force to prevent the violation of civil liberties whereas socialism uses force as a means of cohering citizens into action and breads a culture of dependency.
Close, logical examinations of these two economic and political systems show a vast difference in the methodology of obtaining the same goal. Both attempt to distribute wealth as efficiently and equitable as possible. Socialism is based on the idea that every person has an equal share of all wealth. Whereas capitalism is based on the idea that everyone earns what they deserve based on ability. On the surface, both ideologies are effective at achieving these goals. Socialism tries to achieve this through incentives and assistance programs. Capitalism is through the total ownership of one’s own labor.
Socialism has been historically proven to be ineffective at achieving either goal while capitalism has again and again corrected for many of the problems that socialism has caused. Whether the oil crisis of the 1970’s or current global financial shortages, socialism has never been the answer. While the United States moves ever slowly towards the ideals set forth by Karl Marx, countries such as Sweden have realized and seen the false promises of “shared wealth” for what they really are; an illusion created by people who don’t believe that individuals have the right or ability to create their own happiness.
It would be wise for Americans to heed the warning of Ronald Regan that the 10 most dangerous words in the English language are; “I’m from the government and I’m here to help you.”