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Archive for February 10th, 2019

As an economic system for a nation, socialism is a miserable failure. Especially real socialism (government ownership of the means of productions, government-dictated prices, etc).

But that doesn’t stop some people from defending socialism. They claim the theory is noble since it is based on sharing and equality.

And they even say that many things we like in society – such as the family, neighborhoods, community groups – are based on socialist principles.

I think it would be more accurate to say those institutions are based on non-market principles rather than socialist principles, but that raises an interesting question.

Would socialism be okay if it was voluntary?

In a column for FEE, Tim Worstall explains that we shouldn’t object to socialism – so long as it isn’t coercive.

…voluntary socialism does work sometimes, and it’s habitual now to mention Mondragon as an example of industrial companies that succeed as worker-owned organizations. But the two important words there are voluntary and sometimes. …worker ownership works better sometimes and that more capitalist organizational forms work better elsewhere. What we need is a method of sorting through what works best when—and that’s where the market comes in. …an interesting observation to make about that claimed superiority, of performance at least, of the socialist form. If it were truly more productive always and everywhere, then it would have taken over the economy already.

In the real world, though, it’s hard to find examples of successful socialist entities.

Consider what just happened to Panera Cares.

…after nine years of being in business, Panera Bread’s socialist pay-what-you-want restaurant, Panera Cares, will officially be closing shop on February 15 due to the business model’s unsustainability. …Panera tried to create a socialist system in which meals were offered at a suggested donation price. That means some people would pay more while others would pay less based on what they felt like or could afford. …Panera completely removed any incentive for patrons to meet even the lowest standards of consumer/retailer exchange. The result: some people paid their fair share while others enjoyed a “free lunch.” …company founder Ron Shaich said the cafe was designed as a quasi-test on human sensibility… “In many ways, this whole experiment is ultimately a test of humanity.”

If it was “a test of humanity,” then we failed.

None of the restaurants were self-sustaining, with some locations reportedly being “mobbed” by students along with homeless people looking for a free meal. “The Portland-based Panera Cares was reportedly only recouping between 60 and 70 percent of its total costs,” reports Eater. “The losses were attributed to students who ‘mobbed’ the restaurant and ate without paying, as well as homeless patrons who visited the restaurant for every meal of the week…” Though Shaich said the restaurants tried to educate people about “sharing responsibly, people ultimately came to the locations for a handout.” …As with every socialist experiment, the natural harmony between the commoners and the power-brokers devolved into hostility. “Patrons reported security guards roaming the entrance and ‘glaring at customers,'”… Shaich stepped down as CEO in 2017. He admitted to the St. Louis Post-Dispatch in 2018 that “the nature of the economics did not make sense.”

Interesting confession by Shaich. I wonder if we’ll ever see Bernie Sanders of Alexandria Ocasio-Cortez admit socialism doesn’t make sense.

The Kibbutz in Israel were perhaps the most famous example of voluntary socialism. The late Gary Becker explained their collectivist structure.

…nowhere is the failure of socialism clearer than in the radical transformation of the Israeli kibbutz. …Kibbutzniks, as they were called, replaced those fundamental features of modern societies and set up agricultural collectives in which all property was owned by the kibbutz, adults were treated equally regardless of productivity… The kibbutz movement was motivated in part by the Marxist dictum of “from each according to his abilities, to each according to his needs.”

But this system has basically disappeared.

By abolishing capitalistic organization, the founders expected members to live in contentment and harmony and to work for the common good. From what I was told and could observe during my brief visit, there was little harmony. Jealousy abounded, directed at those who were only a little better off… Kibbutzniks were also angry at slackers who appeared to be living off the labor of others. …the socialist zeal that propelled the kibbutz movement in its early days has now largely disappeared. …Many were forced into bankruptcy… Self-interest and family orientation are products not of capitalism but of a human nature developed under evolutionary pressure over eons. They will outlive any utopian experiment. …Utopian socialistic experiments like the kibbutz movement, and countries that tried to create large-scale efficient socialism, all failed for the same reasons.

Indeed, not only have the Kibbutz faded away, but the entire nation of Israel has moved significantly in the direction of free markets. Some stories do have happy endings.

I’ll close with this cartoon, which perfectly illustrates why socialism doesn’t work, regardless of the level of coercion.

P.S. I can’t resist sharing an unrelated excerpt from Tim Worstall’s column.

One of the primary objections to capitalism is the boilerplate insistence that in a capitalist system, the worker doesn’t gain the full value of her labor. This is exploitation, and something must be done about it. The argument has a major logical fault: It is a two-way street, for the capitalist doesn’t gain the full product of the use of their capital, either, meaning the capitalist is equally exploited.

Amen.

Labor and capital are complementary factors of production. Labor helps capital generate a return, and capital helps labor generate income.

Which is why it is in the best interest of workers to get rid of capital gains taxes, lower the corporate tax rate, eliminate the death tax. The more investment we have, the more productivity goes up, and the more wages increase.

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