A New World, A New Way Upward: Efficiency in Association

Socialism first became a reality – to a degree – in Russia in 1917. The communist system in Russia, however, faced a number of severe challenges, as the economy in Russia prior to the revolution was a wreck. Production was very low. The economy was agrarian. The newly formed USSR faced many of the same challenges as other rapidly developing countries and made some if the same mistakes. As is often the case, quality and safety were sacrificed for production.

The government of the USSR, moreover was brutally authoritarian. There were murders, mass arrests, forced relocations, secret police and harsh interrogation methods. Stalin, in particular, grew paranoid and the USSR was run as a police state. Due to foreign policy mistakes by the party leadership, the USSR found herself mired in a hellish war with Nazi Germany, destroying much of her newly built infrastructure and productive capacity.

Socialism, meanwhile, was seen as a threat by the economic elites in power throughout developed capitalist countries and these countries went out of their way to ensure the failure of the USSR. By the 1950′s, the USSR found itself in a standoff with the super-power US – whose infrastructure was intact, as the war took place in Europe – and her allies. A great deal of the country’s remaining production was funneled toward the military and the socialist system as a whole was militarized.

In the following decades, other socialist and communist countries would be shunned by the Western powers on principle – Viet Nam, for example, sought friendship with the US from its earliest inception, only to be rebuffed. As was the case with all developing countries, these were forced to align with one power or the other. To be socialist, therefore, meant to align with the USSR and soviet support came with strings attached. Aspiring socialist countries became communist and, in many cases, were integrated into the soviet economy as subject states.

Inefficiency in Socialist countries from the late 1940′s through the 1980′s, therefore, can be more accurately understood as the inefficiencies of the soviet system and their failure is linked to the unsustainable arms race between the USSR and the US. Importantly, the entire Soviet bloc was comprised of developing countries, or countries that were in the developmental stages prior to the adoption of socialism, while many of the countries in the Western alliance were quite well developed. This, in part, explains why the capitalist alliance was able to sustain despicably high military output longer than the Soviets were.

The history of Socialism and Capitalism, then is not an accurate gauge of the potential for efficiency and inefficiency in the systems. Any examination of the potential efficiency of Socialism must, therefore, be somewhat theoretical. Capitalism, on the other hand, has a longer history and a broader field of experimentation. On some level, a comparison between the two involves the comparison of the concrete and the fluid. This will be, therefore, a discussion of the potential for efficiency in the two systems.

More specifically, this paper envisions a particular political and economic reality inspired by socialist thought and capitalism. In essence, there is a single, global political and economic entity. At the highest levels, its leadership is democratically elected and these leaders serve limited terms, after which they rejoin the bureaucracy or, if they are of appropriate age, they retire. Rules for behavior are legislated in much the same way they are now and decisions on production are made according to demand. The economy is centrally planned in a loose sense, as is an individual corporation, but production is driven by demand. If red, polka dot skirts are more popular than gray slacks, more red, polka dot skirts are produced, for example. Every person in the world belongs to this entity and all capital belongs to it.  Income is measured as a proportion of total production, and there is a tiered system for resource distribution based on position, training and production. A person at the highest income level might make double that of someone on the lowest level.

There are a number of inherent inefficiencies in capitalism – especially ‘pure capitalism.’ The least contentious among economists is the potential for externalities – wherein a public good, like air, water or education is exploited and often damaged for private gain without compensation to the public.

In theory, externalities can be minimized through taxation, fines and other levies imposed on private businesses by the government – thereby redistributing a portion of the proceeds from the production to the public. In practice, however, this can be extraordinarily difficult to accomplish. It is extremely difficult to estimate the true costs of many externalities, like environmental pollution and degradation. How much, for example, is the air worth? How much does soil erosion really cost society in the long run? Moreover, many large business interests – including lobbies representing many smaller parties in the same or related industries – have a great deal of political influence through connections between powerful people, through advertisement and through the shear number of people employed in respective industries. This is especially true in democratic countries.

In this global socialist system, on the other hand, externalities are an impossibility. Environmental degradation, to be certain, is still possible and probably only slightly less likely than in a capitalist system. There is still a cost, then, to the public – but the benefits accrue to the public as well.

Something that receives less discussion, on the other hand, is the inefficiency of profit itself. Economists have long recognized economic profit – profit in excess of the customary 3-5% – as inefficient. This is one of the oft-pointed-to inefficiencies of uncompetitive markets. This 3-5% is referred to as accounting profit and is seen as the just reward for entrepreneurship and the labor invloved in running a business. Anything more, however, is seen as taking from the public. In an idealized capitalist system, all markets are competitive and there is no economic profit.

In certain capital-intensive industries, however, monopolies are able to produce goods more cheaply than a number of smaller firms in competition, even given an economic profit for the monopolist. In the most efficient real-world capitalist system possible, then, there would be a mix of monopolies, oligopolies, dupolies and truly competitive markets, as the circumstances dictated. The capitalists in the most productive and, therefore, efficient, capitalist system possible in the real world, then may well make more than 5% profit.

This profit, moreover, may be saved – and it often is by the economic elite, who control more resources than they can use personally and for whom it is prudent to have savings as well as further investment (It is important to note that financial products do not qualify as investments and, in many cases do not enhance the productivity of an economy – as recent history has shown).

In a this socialist system, however, there is no profit. Capital is jointly owned and 100% of production goes to either consumption or investment in further production. In this respect, socialism is more efficient than capitalism. Meanwhile, all capital is controlled by a single entity. The system, then, takes full advantage of the benefits of monopolistic production without the cost to the public from high profits.

Proponents of capitalism, of course, might point out that the lack of a profit motive might decrease productivity, as extra effort does not translate to greater material gain. This view is flawed in a number of ways, the product of thinkers who have known no way of life other than that based on material consumption. Humans work hard for a variety of reasons – intrinsic satisfaction, prestige, status, the greater good, etc. In our society, money equates roughly to prestige and status. This is not true of all societies and social norms would likely adjust within a generation to assign status to production, rather than income.

Moreover, in a this socialist system, one’s income would be expressed as a proportion of total production, meaning the more a society produces, the more one can consume. It would be in the individual interest to work toward the greater good. In addition, the tiered compensation system, which might or might not be phased out over time as norms change, would provide sufficient material incentive for advancement.

Another key inefficiency of capitalism, in theory and as currently practiced within the global political system, is its utter failure to take full advantage of human capital. Because goods like education, food, and health care are more expensive than many people can afford, an enormous proportion of our most talented people never see those talents developed. The vast majority of the World’s population lives in countries with poor educational systems or countries in which many children do not receive an education.

Most of the technological advance and economic production comes from the few developed countries that can afford to provide education for their citizens. Even within a rich, capitalist country like the US, moreover, rich and middle class people go to better schools and have better access to higher education – to the point that rich and middle-class people of average and below average ability receive a college education, while all but the most talented poor people go without.

Ultimately a great proportion of technological advance comes from the rich few, while their more talented poor counterparts never see their talents developed to the point that they might contribute meaningfully. This represents an enormous inefficiency, as technological advance may multiply production many times over in a generation at the current pace – one, quite literally, can only imagine the pace of advancement if all people had the opportunity to receive higher education.

In a global, socialist system, education would be centralized and available to everyone within a generation. Access to higher education would be merit-based, so that the most talented students receive the most aggressive and extensive development, greatly increasing global productivity. Eventually, greater mechanization would likely allow more people to take on challenging tasks, as more simple, menial, repetitive work would be done by machines.

Along the same lines, unemployment – currently over 6% worldwide – would be all but non-existent in this system, as everyone would be matched to a job based on their skills and preferences – and their career path would be determined by their skills, preferences and experience. Duplication of investment would cease to be a problem, as a single, centrally planned economic entity would be responsible for investment. Basic goods like housing, health care, education, food and safe water would be provided to all citizens at the expense of the broader society. This would ultimately save unfathomable resources, as the cost of upkeep, of prevention, is far less than the cost of repair and lost production.

Finally, one last inefficiency in the current system, though not a product of capitalism so much as nationalism, is the amount we spend on our military. This proportion is less than 3%, but three percent of everything made in the world is significant. Moreover, the loss of lives, destruction of capital, the destruction of minds and bodies, all are bad for production, bad for quality of life and bad for humanity in nearly every imaginable way. Needless to say, in a world controlled entirely by a single governmental and economic entity, in which every person has a tangible interest, military spending would be nonexistent. The closest thing to military spending would be spending on police, which would likely be far less than what is necessary today, as poverty is at the root of most criminal activity.

One might be skeptical of the efficiency of administering such a large bureaucracy, but what of the cost of administering so many small bureaucracies? Moreover, advancements in communications, transportation and energy technologies, coupled with experience in making a new system work, would progressively mitigate these costs. And, as development of human capital improves, one would not only see advances in technology, but also more competent administrators emerge and innovations in administration.

Overall, this system, by addressing the key inefficiencies of both the current capitalist social structure and the flaws in implementation of socialism in the past, and by noting the strengths in both systems, would be a marked improvement over the current system for the organization of society.

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