Testing the Socialist hypothesis

Emile Woolf

August 24, 2023

Kristian Niemitz, Head of Political Economy at the Institute of Economic Affairs, wrote a book in 2019 that explores the reasons why the idea of socialism persists as a viable economic system. In “Socialism: the Failed Idea that Never Dies” Niemitz notes that when socialism, in all its guises as an economic system, simply doesn’t work, its ever-faithful adherents in the West declare that what failed wasn’t “real socialism”. 

Note that the “fake socialism” epithet is only ever attached to a system after failure; when a socialist project is still underway no one ever claims what they are doing isn’t ‘real socialism’. As Niemitz shows, every socialist project goes through a honeymoon phase during which prominent Western intellectual liberals praise it enthusiastically. Only when the project’s grandiose ideas flounder do they reclassify it as ‘not real socialism’. The Nordic countries are sometimes cited as examples of successful socialism, but much to the dismay of leftists, they all have relatively free market economies underpinning their prosperity.

Contrasting views

My South African-born parents were anti-apartheid activists as well as communists, and when the Nationalist government made life intolerable for them because of their anti-apartheid activities, our family emigrated to England in 1955. It was their detestation of the apartheid system that had spawned their lifelong embrace of communist principles, both eliding into a single belief system. In 1956  Khrushchev’s speech to a closed session of the Communist Party’s 20th Congress laid bare the full horrors of Stalinism, but my parents and their closest ‘comrades’ could not countenance what they heard, and instead withdrew into a fantasy of disbelief.

The distinction between communism and socialism isn’t useful for this debate. Whether the former is an extreme form of the latter, or the latter a milder form of the former, is merely a question of degree, not of destination: the trajectory of both finishes up in varying extents of societal impoverishment. 

The infallible direction of travel

No one can define Socialism’s final form because it never quite gets there before imploding. Nationalisation of all public services; trade union domination over the labour force, permitting secondary picketing and wildcat strikes; heavy representation by ‘worker-directors’ on company boards; transferring company shares to workers’ trusts; inflicting penal rates of tax on high earners; automatic index-linking of public sector pay and pensions. Somehow these enticing features have never made much headway with a free-voting electorate. 

John Cowperthwaite, Hong Kong’s first Financial Secretary, put it like this: “In this hard world we have to earn before we spend”. Every government that aspires to inflict the joys of collectivism on its citizens includes a programme of wealth redistribution; But, as with every socialist programme ever tried, no guide exists as to how wealth is created in the first place. 

Oh, and Capitalism? 

Under capitalism, the satisfaction of wants must be paid for by prior production funded by savings. In practice, like any economic system, it is often marred by excesses, abuse and distributive distortions. But there are no adverse manifestations of capitalism that cannot be cured by pursuing policies of sound money, unilateral free trade, free markets, and a transparent low-tax regime.

Unlike the communist system of command economics, under which the state’s dead hand supplants personal choice, capitalism is not a system imposed from without. It is rather the nexus in which human actions, springing from individual desires and choices, come together. It flourishes on competitive innovation, with success reflected in productivity and profit – the only source of saving on which further growth depends. Had it not been for the spirit of competitive innovation, the primitive hole in the ground would not have been superseded by flush toilets; nor would we likely have seen the immense technological progress that birthed the internet. 

Apple, a company that began in a garage in 1976, run by two kids with the crazy idea that people should have their computers, now has a market capitalisation that exceeds the value of the entire FTSE 350. Steve Jobs and Steve Wozniak provide an example of what can be achieved when left to innovate, untrammelled by regulation or intervention. 

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