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The Failure of Socialism and Lessons for America, Part 1

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The world is watching the spectacle of Russia and the other captive nations of the former Soviet Union trying to free themselves from their seventy-five-year experiment in socialism. The bankruptcy of the system is accepted by practically everyone. The economies of the former Soviet republics are in shambles. Civil wars and ethnic violence have broken out in an increasing number of territories of the former U.S.S.R. And the quality of medical care, educational facilities and residential housing has been and is continuing to deteriorate.

The disarray, destruction and decay are the logical legacy of the application of the collectivist ideal. This ideal included three ideas: the theory of a planned economy, the belief in collective or group rights, and the notion of socialized or state-provided social services.

1. The Planned Economy. The primary goal of most socialists has been the desire to replace private property and a market economy with state ownership and a centrally planned economy. Capitalism, it was claimed, besides being an inherently unjust system, was economically inefficient and wasteful. Wise and intelligent men, serving the common good, could more rationally plan what goods and services should be produced, where and how they should be produced, and to whom and in what amounts they should be distributed than if these matters continued to be left to the decentralized decisions of profit-motivated private individuals.

Earlier in this century, the Austrian economists demonstrated that socialist planning would fail. Ludwig von Mises and Friedrich von Hayek showed clearly and irrefutably that when private property was nationalized and market competition eliminated, economic irrationality would result. In a market economy, the way people convey information to each other about the products they wish to demand — and the value they place on the various resources that can be used in alternative ways to make those goods — is through the price system. But with the elimination of private property, people are no longer able legally to buy and sell; and with no free-market buying and selling, there can be no competitively formed market prices. And without market prices, the most well-intentioned planners are clueless about what goods people actually want or what are the least-cost methods of producing what the consuming public actually desires.

The arguments of the Austrian economists against socialism have been proven correct in every country in which central planning has been instituted. Whether it has been in Russia, Cuba, Vietnam, Ethiopia, Poland, or Mongolia, wherever the planning model has been imposed and has supplanted the market economy, economic disaster has occurred. The types and varieties of goods and services produced by the state have borne no relationship to the types and varieties of goods and services actually demanded by “the masses” in these people’s republics. Store shelves have been empty of the things people wanted; and they have been stocked with what no one desired. Resources and labor have been misallocated and wasted. And the customers, who are “always right” under capitalism, have been reduced to a life of long lines at state-retail stores and to a daily hunting for the essentials of everyday life in these socialist paradises.

The only avenues for everyday survival and subsistence in the centrally planned societies have been bribery of the bureaucrats who have controlled access to the meager supply of goods ad the shadowy world of illegal black-market transactions.

2. Collective or Group Rights. For the advocate of socialism, the idea of individual rights has been a bourgeois prejudice and deception. For socialists, human relationships in society are defined and determined by class relationships and antagonisms. The idea of individual liberty has been considered a smoke screen to blind those who are exploited and oppressed from understanding the “true” nature of the social order. It was for this reason that Martyn Latsis, a senior officer in the newly founded Soviet secret police, said in 1918 that, in judging the guilt or innocence of an accused, “the first questions that you ought to put are: To what class does he belongs What is its origin? What is his education or profession? And it is these questions that ought to determine the fate of the accused.”

An extension of this view in the Soviet Union was the idea that rights and privileges did not reside with individuals but were determined for the individual on the basis of his national or ethnic origin. In each Soviet subject’s internal passport has been a line specifying his nationality, e.g., Russian, Ukrainian, Latvian, Uzbeki, Tartar, Jewish, etc. And this collectivist categorization determined the individual’s life opportunities in terms of access to education, employment, residence, language usage and political advancement within the Party structure and the bureaucracy. One’s personal fate has been determined by the accident of one’s parentage and place of birth, as well as one’s ideological “political correctness.”

The legacy of this national and ethnic collectivism can be seen in the civil wars that now plague the territory of the former U.S.S.R. Having lost (or never had a chance to acquire) any conception of individual rights, the various nationalities fight over their group rights to land, statehood and resource control. In Estonia and Latvia, large Russian minorities are denied political and economic rights. In Moldova, the Moldavian majority has been fighting the Russian and Ukrainian minorities. In Georgia, it is the Georgian majority fighting the Ossetian and Abkhazian minorities. In the north Caucasus Mountains of southern Russia, it is the Ossetians fighting the Ingushians and the Russians clashing with the Ossetians, Ingushians and the Chechens. Elsewhere in Russia, the Tartar and Yakut minorities demand separate statehood to have nationalist control of the oil and diamonds that are on their respective territories. And the years-old war between Armenia and Azerbaijan continues over the disputed region of Nagarno-Karabakh.

3. Nationalized Social Services. Since the socialist conception of capitalist society was that production for profit by those who privately owned the means of production always meant that the real or true needs of the people would never be fully satisfied, the socialist plan called for the state to provide medical care, guarantee all levels of education, provide employment for all, and assure every one a decent place to live. But with nationalization of these social services came politicization and economic inefficiency. Once it became the state that was responsible to supply and distribute these services and opportunities, it became the state which determined who had access to diem, in what quality and quantity and according to what criteria. For all levels of education, acceptance into the schools of lower and higher learning has depended upon a family’s political connections and whether one’s national or ethnic group had already had its quota for entry filled for that type of school. Housing has been allocated on the basis of one’s Party status and the importance that the state assigned to the particular profession to which one happened to belong. Medical care and hospitalization have been equivalently allocated and provided on the basis of Party position and professional standing, as well as personal connections and bribery. And there have been “special stores” for the purchase of food and clothing on the same basis.

At the same time, since it was the central plan that determined the production and distribution of these services, rather than market-oriented profit, those who have provided them in the bureaucracy were merely concerned with fulfilling the assigned targets of the plan. Medicines of the most simple kind, which anyone in the West takes for granted and which can be bought in any quantity in any pharmacy in the West, are practically nonexistent in Russia. With no private owners to be concerned with the maintenance of industrial, agricultural and residential facilities and buildings, the entire industrial, housing and infrastructure is in a state of advanced decay.

Socialism’s failure in the former Soviet Union and in the other socialist countries stands as a clear and unquestionable warning as to which path any rational and sane people should never follow again. Government planning brought poverty and ruin. The idea of collectivist class and ethnic group-rights produced tens of millions of deaths and a legacy of civil war and conflict. And nationalized social services generated social decay and political privilege and corruption.

Unfortunately, America is not absorbing the lessons that should be learned from the socialist experience and, instead, is following the same path of destruction.

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    Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).