We’ve all been there. It is by far the most common criticism levied against socialism: without incentive, who would do the hard jobs? Who would work at all? After all, if the reward is the same, why should someone choose to work sanitation instead of being a painter, or be a farmer instead of a florist?
However this argument does little against many people including, notably, actual socialists. So let’s go ahead and assume, for the fun of it, that everybody goes on board with socialism. Meaning: people work jobs prescribed to them regardless of thought of personal gain, and people continue to innovate without hope of compensation.
Could it work?
Absolutely not. Socialism has a fatal flaw: Who decides to produce what? If we only have 100 thousand tons of lumber, what do we produce out of lumber’s many many applications? How much?
In socialism, the application of what are called the ‘means of production’ (these are your land, machinery, raw materials, etc that go into producing goods that people consume) is decided democratically. In all scaled attempts at, err… ‘socialism’, this has been done by the state (think Soviet Russia, DPRK, or Cuba). But we’ll ignore that too and say that a perfect organizing committee of figurative angels has been devised, eliminating any possibility for foul play, or majority negligence.
Some might say these decisions are easy. You have 500 people, so you produce and maintain 500 homes. The 500 people eat 3 meals a day, so you produce 1500 meals worth of food per day, etc. However the realities of the situation are far more involved then that.
How large should each of those 500 homes be? What shall those 1500 meals consist of? What should the farms cultivate: wheat, corn, a mix of the two, or something else altogether? These are all questions that the angel social planners over at socialist HQ would have to answer.
To understand just why they couldn’t possibly have any good answers to those questions, we have understand just how we make those decisions today, and why it works.
Ultimately what is the function of production? To give people what they want. A guy wants a pizza, give him a pizza. Some girl wants a flash car, give her a flash car. Some kid wants a toy, give ‘im a toy. Unfortunately, there is a problem. We can’t make enough pizzas. We can’t make enough cars. We don’t have enough toys.
So what do we do? We prioritize what we really want. The things we want over everything else. We do so in such a way that maximizes the amount of stuff we want that we get for the resources what we spend.
To do this, we have price. Having a price on an item allows people to make important economizing decisions about their life. You want to eat out every day? That’s nice, but it’ll cost you – you may want to consider cutting that habit down. You want that flash car? I bet you do – but at $70,000, you probably want to compromise.
Economizing decisions ultimately allow us to use resources more efficiently – we prioritize what we buy, as if we didn’t we’d run out money before we got to the stuff we really want.
Price doesn’t only help consumers, but producers too. By using more efficient production methods, producers will come up with new innovative ways to use less resources in producing the same (or similar) products. They do this because they want to make a profit, and producing inefficiently means less profit. Efficient production means more resources that would have otherwise been consumed are now free to be used elsewhere – to produce even more stuff.
So who decides these magical prices anyway? Well, we do. Imagine you run a car dealership, and have 50 cars. Based on the cost of manufacturing those cars, and the cost of running your dealership, you decide on a fair price of $2,500 per car. Things go well for a while, until one day, you run out of cars – there are more people willing to buy your cars than you have cars. What gives?
So you try to produce even more cars, and this time you come up with 70. That seems to work too, until you run out of cars again. Eventually, you realize that given what you have, you can’t produce enough cars. Either your factory can’t accommodate extra production, or you don’t have enough space on your lot, or hiring an extra worker would cost just a little bit too much.
What’s wrong here is you haven’t been giving a fair price. By giving consumers a price of $2,500, a price which many are willing to pay given the current market conditions, you’ve created a shortage. You’ve passed on incorrect information to the consumer, and thus caused an error in that natural economizing process: People attempt to buy more cars then can actually be provided.
There is only one immediate solution to this problem: Raise that price such that the demand for cars accommodates your ability to supply cars. What does this do?
A higher price means that some people are priced out of the market. If the new price is $4,000, but you were only willing to pay $3,000, then you end up without a car. This sounds bad, but what it means is that only the people who wanted the cars really badly (how much they are worth, or more) get them. Before, only the first 70 people who could pay the lower price could get them, meaning the 71st person, even if they wanted the car more, was left in the cold.
The second effect that it gives you more profit. Meaning: You’ll be willing to produce more cars now that you have more money, as it is profitable for you.
This all means that prices are decided by how much we want things (and thus how much we’re willing to pay), and how many resources we’re willing to devote to the manufacture of said things.
Or to put this another way: What would happen if you gave everyone in the US a billion dollars? The simple answer is, if prices remained constant, we’d run out of stuff. With 300 Quadrillion dollars available, the population of America could easily empty every storefront in existence. However the distribution of all this stuff would be ridiculous. You’d end up with people having four fancy cars and a years’ supply of bagels, and people with no cars and no bagels. It would simply be first-come-first-serve.
So, back to socialism.
Socialism doesn’t have prices, if it did, it would be called State Capitalism. Instead, socialism has central planners which decide how to allocate the resources, and thus produce goods that you and me consume.
But without prices, how can these central planners decide what goods and services the people want most, and just how much resources to devote to them? After all, the central planners ‘own’ all the resources. Thus there can be no prices, not in any real sense.
Recalling that the goal of production is to fulfill what people want, the social planners would have to poll the population to decide what to produce and how much.
This is where the big problem starts.
How can you possibly extract the required information? With (literally) infinite possible goods and (literally) infinite possible combinations of said goods, how can we ask what combination of what goods is the best? Of course generalizations would have to be made, but the ballots you’d end up with would still be too big. You could sample part of the population, perhaps a few people from every major population center – but anyway you slice this you’re gonna end up with errors. A lot of errors.
An error means that there would be a surplus or shortage of goods. If the central planners overestimated the amount of cars we’d want, we’d have less steel to use to reinforce our buildings. It could be as mundane as that, or it could be as bad as the central planners underestimating the amount of gasoline, food, or electricity we need, affecting our most basic needs.
Some socialists say this problem can be solved by having local communes instead. However, this does not fix the fact that they’d still have to accomplish more or less the same thing to with trade between areas, otherwise resource-poor areas would be impoverished, creating the same inequalities we have now.
In practice, socialist nations hardly attempt this. Instead, representatives are appointed to make these decisions because of just how impossible it is to poll the population about whether to use plastic for children’s toys or phone casings.
These representatives, even if honest and true to their intentions, make errors that ultimately lead to these regimes collapsing – they’re given the impossible task of knowing what people want the most and what resources should be allocated to fulfill said wants.
The scoreboard? The soviets collapsed, the Chinese gave up and went with markets instead, the Venezuelans are collapsing, the Koreans are starving and the Cubans are also starving. Meanwhile, modern nations with Mixed Economies have a food surplus while only devoting a few percentage points of their population to agriculture.
The disparity between ‘kinda-but-not-socialism’ and capitalist economies in this world isn’t just noticeable, but it’s staggering, and yet we’re supposed to believe we need to walk farther off the deep end?