Communism versus Capitalism
By Dan Tow • Oct 3rd, 2007 • Category: Politics • 21 Commentsby Dan Tow
Money is like manure. It should be spread around.
- Thorton Wilder
How much difference does one thousand dollars add to the happiness of an already very rich man? How much difference can an extra thousand dollars make in the life of a very poor man? Communism has a certain seductive logic – seemingly, by moving wealth from those who have more (and who therefore get less value from each unit of wealth) to those who have less, until everyone has exactly the same income, we ought to be able to maximize the sum of everyone’s happiness and well-being. It’s a nice enough theory, but it doesn’t work! Where are the flaws in the argument? There are two basic problems with flattening wealth under a Communist system:
1. A Communist economy tends to restrict freedom, in important ways that a free-market economy doesn’t. Since happiness and well-being is not just a function of wealth, but also very much a function of freedom, a less-free system with a better distribution of wealth would likely have less total happiness than a more-free system with less efficiently distributed wealth.
2. A Communist economy has much less wealth, per person, to distribute! When you imagine wealth as a great big pie to divide up amongst the people, you may imagine a big pie representing the current wealth under Capitalism, and envision everyone getting an equal, fair share of that pie, under Communism. Instead, what happens is that when you move to Communism, the pie gets smaller, much smaller. Instead of everyone getting a fair slice of that original big pie, everyone gets a fair slice of a much smaller pie, something like the slices that the poorer people already got under the Capitalist system.
I will come back to the question of the freedom-cost of Communism, and focus first on why it hurts economic productivity.
In game theory, the most commonly-discussed games are called “zero-sum games.” In these games, one player cannot do better without the benefit to that player doing proportional harm to another player or players. Competitive games, where one player must lose in order for another player to win, are like this. Games of chance, where two players bet against each other, are like this. It is a common misconception to view the economy like some sort of machine that produces a fixed quantity of wealth, where everyone plays a zero-sum game to try to get as much of that wealth as possible at the expense of the other players. If we were monkeys in a zoo, all our wealth might pass to us, as if by magic (from our perspective), through a feeding door in our enclosure. In such an “economy,” the monkeys might invent Communism, and since they play a zero-sum game in competing for that wealth, Communism might make good sense, for those monkeys!
However, in the human economy, very little of our wealth is simply found lying around waiting to be picked up! Instead, we humans create almost all the wealth the economy has available to share. The economy is assuredly not a zero-sum game! The economic system in which humans, in spite of our imperfections and general tendency to behave selfishly, will create the most wealth will have the biggest “pie” to share around, and a system in which wealth creation is severely inefficient will have a much smaller pie! There are several basic flaws to Communism that lead to poor economic productivity:
1. Communism fails to reward and encourage hard, diligent labor.
2. Communism fails to reward and encourage vigorous, clever innovation.
3. Communism fails to fill all the potential “niches” that make up an ideal, efficient “economic ecosystem.”
4. Communism implies central planning, which does a very poor job of allocating scarce resources for efficient economic productivity.
I will elaborate on each of these flaws, as compared to Capitalism:
Communism fails to encourage hard, diligent labor. If everyone gets the same basic income, regardless of the job they do, they have no incentive to work long or hard, or to focus diligently on their work. Even under the “purest” Communist systems, governments recognized the need for some incentives, and they stepped away from absolutely flat incomes, instead providing some rewards based on worker productivity, and some punishments for especially poor productivity. These often involved quotas that were set to measure basic productivity. Quantity produced is fairly easy to measure and reward, in this way. Quantity matters less than quality, however, in a modern economy, and quality is much harder to measure. The ultimate measure of quality is that people continue to buy your product or service, even when they have many other choices offered by competitors intent on taking away your business! In a Capitalist system, owners of the businesses monitor profit diligently, out of their own self-interest, and when quality problems lead to lost profits, as they surely will, those owners will pass severe pressure all down the chain of command to ensure that whatever aspects of quality matter most to the customers are not neglected by the workers! Rather than wait for lost profits to threaten their employment, the chain of command in a company will anticipate most potential problems and reward diligent attention to quality from the start. The “team” knows, in a Capitalist system, what matters to the success of the company, and they know that their rewards will tend to reflect their contributions to that success. (Yes, I know that even in free-market economies, many people get away with laziness, and many people are under-rewarded for diligence, but at least the free-market economic feedback mechanisms tend to encourage diligent work!)
Communism fails to encourage innovation. Hand someone a flat salary, the same as anyone else’s, and tell him or her to find something that increases the size of the economy. What result would you expect? Alternatively, place that same person (and a whole lot of people who are not chosen by the state as assigned innovators!) in a free market, with the opportunity to keep a substantial share of the value of any innovation he or she discovers. Now, you’ll see real motivation! The prospective innovator will think about the problem day and night, in the shower, dreaming, waiting for the bus. The innovator will care intensely about the success of the innovation, and will fight to overcome all obstacles! In a free market, the innovator may get rich, enjoying a large share of the benefits of that innovation for some short period, while the innovator enjoys a temporary monopoly on the innovation. The monopoly never lasts, however, and ultimately the entire economy enjoys the full benefits of the innovation, as the secret leaks out, or the patent expires.
Innovations, here, can be very subtle, but still very useful to the economy. Most innovations in business are not the sort of thing you find in a patent, some design for a better mousetrap or some other such product. Anywhere you see a company making better-than-average profits, there is likely some subtle, economically valuable innovation behind those profits, perhaps a better way to manage and motivate the workers, or a better way to ensure quality products, or a better way to work with the suppliers, or a better way to reach the buyers, or a more-efficient management of the inventory, or a more-clever, more-seamless way to work with partners, with each partner better focused on whatever they do best (their “core competency”). Mostly, it is a subtle combination of many such largely invisible but very useful innovations that lies behind more profitable companies, admittedly often with some luck, besides. These subtle innovations don’t come from an inventor at a drafting table – they come from ordinary managers and business owners who are highly motivated to squeeze just a bit more profit from the business, and they assuredly don’t come from a government bureaucracy running government-owned business.
Innovation, including the very subtle, invisible innovation that happens constantly in a free-market business, is the source of productivity growth – it is the only way that the productivity per person in an economy grows steadily higher. This growth may seem slow, a few percent per year, but over decades it is enormous and hugely important. An economy that grows just two percent faster per year versus an equal-sized but slower-growing economy will be double the size of the slower-growing economy in about 35 years, and the innovation-handicap in economic growth for Communist systems is far greater than one or two percent. With so much to gain from innovation, over time, any government system that fails to optimize innovation is a terrible idea!
Communism fails to fill a diverse set of economic niches. One special type of innovation consists of discovering a previously-unsuspected economic need, and filling it. On a large scale, eBay discovered a previously-unsuspected niche for a global virtual auction house that brings together individual and small-business sellers and individual buyers for almost any obscure new or used item from across the globe. On a tiny, tiny scale, I personally make my living in an unsuspected niche for a specialist solo consultant in tuning other people’s database-query code for faster performance. With eBay’s niche filled, the economy is far more productive than it would be without that niche filled. Even such a tiny niche as my own adds its bit, and when you multiply this bit by hundreds of thousands of other independent business persons also filling their own self-discovered, tiny niches, carefully chosen to provide enough value to run at least a tiny but profitable business, the economy as a whole benefits enormously. Can you imagine a government bureaucracy discovering and filling these niches efficiently? In the less-complex set of niches of a centrally-planned economy, these hidden, unsuspected needs simply go unmet.
Communism implies inefficient central planning. With government ownership of the economy goes central planning of that same economy. I confess that central planning has some allure to me! I hope you’ll pardon a small personal digression, to make my point: Long ago, I did my thesis work under Professor Dale Rudd, who was the founder of the sub-discipline of chemical engineering synthesis. In short, this was a branch of chemical engineering design that focused on the big picture, when designing chemical processing plants. Instead of optimizing one piece of the plant at a time, under synthesis the trick was to find a better optimum (a more-efficient design) by looking at the whole problem at once – central planning for chemical processing plant design! Here’s the problem: By being a very clever fellow, and thinking hard about the problem, Professor Rudd found the problem of central planning for design of a single chemical processing plant to be just within reach, something that kept him and his graduate students (and lots of people in other departments who joined him in the study of the synthesis problem) busy for decades, but still a (barely) manageable problem. Now, imagine extending the problem of central planning from a single chemical processing plant to an entire national economy! Well, much as I like the idea of global optimization problems, this global optimization problem is way beyond human ability, today! The result of the attempt to plan centrally is gross inefficiency, too much of many products, too little of most others, poorly coordinated, with constant productivity-sapping shortages of vital economic inputs.
The great surprise of Capitalism, explained by Adam Smith as the “invisible hand” of the free market, is that with no central control at all, Capitalism does far better than Communism does with careful central planning! Planning of a sort is happening in Capitalism, but it is happening all over the place, all at once, all the time, in a completely decentralized way. Each business person is simply planning to make a profit. As shortages arise, the prices of the scarce products rise, making these more profitable to provide, and the free market is remarkably nimble at filling these needs almost immediately, and often even at anticipating them in advance. As surpluses arise, profits fall, and businesspersons quickly look for better, more-profitable products and services they might provide, instead. Millions of individuals, each looking to make money, do remarkably better at anticipating and filling the needs of a growing economy than the best possible central planning. At any given time, some of these businesspersons will guess poorly, and do the wrong thing, but with the profit motive guiding them, more will guess well, or respond well, with clever trade-offs and creative workarounds, when the economy offers surprises. One of the most-important shortage types that a free economy avoids is shortages of key job skills. When workers know that they will be better paid for a scarce but important job skill than for a fun but surplus job skill, they will be more likely to learn the scarce skill, filling the shortage. A severe shortage offers highest rewards, and is filled fastest. I’ve personally changed careers three times, so far, so I can testify that workers can be quite nimble in this way, with enough motivation. The result of central planning versus free enterprise responding to needs in a decentralized way was endless queues for poor-quality products, and little choice, in the Soviet Union, and shelves full of high-quality alternative choices in the US, with no queuing.
I now come to the freedom-cost of Communism. Let us say that Communist economies were just as efficient as Capitalist economies, and they grew just as fast, just for the sake of argument. Would the benefits of redistributed wealth exceed the freedom costs? What are the freedom costs? What it all boils down to is this: If I have something to sell, and you wish to buy it for the price I offer, should government get in the way of this transaction? If I am making the offer, presumably I will be happier with the cash from the sale than I would be with the item I offer for sale. If you want to buy what I am offering, at the price I ask, then presumably you will be happier with the item than with the cash you must pay. Therefore, after the transaction, we are both happier than we were before the transaction, and it would seem to be a mistake for government to interfere. This doesn’t just apply to me selling a few stamps from my stamp collection, though – it applies to the entire free economy. A big business is nothing more than a bunch of owners who voluntarily agree to pool their resources to try to make a profit (which means the business produces more value than it consumes!), who buy labor from workers who willingly sell it, who buy input goods, services, and materials at prices other businesses willingly offer, and who sell products or services at prices customers willingly pay. Every one of these transactions involved in running a business is a voluntary act between two or more people who all believe that they will be better off after the transaction than they would be if they made another choice! We are far less free if government steps in and says that no, it knows better than we do what is good for us, and only it may make things for sale, hire laborers, and run businesses, without competition from the rest of us.
Worst of all, with all economic power under government control, including especially the power of the press, there is a powerful tendency under Communism for government to abuse its over-abundant power, and to suppress all freedoms. It is the only employer, and the only vendor, and this monopoly of economic power just adds to the power and tendency for government to over-control our lives, and to suppress dissent that threatens its continued power and economic monopoly.
Is Capitalism free of problems? Surely not! Is there a vital role for government to play to address the worst problems and inefficiencies of unregulated Capitalism? Definitely! These will be topics for one or more future articles (and in the meantime, I expect there will be some comments with your own ideas on these subjects)!
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The voluntary disbanding of the communist state of the Soviet Union in 1991 was the practical defeat of a certain theory of communism as the economic, social, and political antithesis and opponent of the liberal capitalist state of the developed Western societies. According to Francis Fukuyama, citing the philosophical framework of Hegel, the “death of communism” marked the triumph of liberal capitalist democracy as the paramount achievement of human history. Any further opposition to the extension of the Western model could only come in the form of regressive social movements seeking to avoid the trauma of inevitable change by clinging to ancient dogmas.
And yet as capitalism becomes the unrivaled global economic system, spilling over the bounds of the nation state, the achievements and perspectives of the liberal social democracies of the West are increasingly being jeopardized by the further development of economics of global capitalism itself. In historical retrospect and freed from much of the ideological partisanship of the Cold War period, it becomes clear that the challenge of communist claims of social egalitarianism and economic efficiency did much to stimulate progressive social and democratic changes in the Western societies throughout the nineteenth and twentieth centuries. Rather than a choice between two distinct models, it appears rather that the thesis of capitalism and the antithesis of communism produced in the West a social mixture of elements of both ideal models, and one that continues to evolve.
When we share our ideas with others, we do not lose anything, but enrich both ourselves and the others. It’s a win-win situation. When however we are dealing with the pursuit of limited material goods, then what one person gets the other loses. Scientific philosophy therefore prescribes a social ethics in which the pursuit of goods of the first type has precedence over pursuit of goods of the second type.
So Descartes prescribes the basic social rule: From each according to ability in the promotion of the good of all. A good society is therefore one in which the creative development of each individual is freely associated with that of other individuals, and working together they promote the full development society as a whole. But that’s just Marx’s definition of communism in the Communist Manifesto
Whether its capitalism or communism, I think that, it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.
The apportionment of work to the strength and
capacities of individuals, the mitigation of a general rule to
provide for cases in which it would operate harshly, are not
problems to which human intelligence, guided by a sense of
justice, would be inadequate. And the worst and most unjust
arrangement which could be made of these points, under a system
aiming at equality, would be so far short of the inequality and
injustice with which labour (not to speak of remuneration) is now
apportioned, as to be scarcely worth counting in comparison. We
must remember too, that Communism, as a system of society, exists
only in idea; that its difficulties, at present, are much better
understood than its resources; and that the intellect of mankind
is only beginning to contrive the means of organizing it in
detail, so as to overcome the one and derive the greatest
advantage from the other
Capitalism could be described as the dominant ideology, or perhaps a ‘homogenous public norm’, on which Western society is founded. One way of construing the rational for social categorization, and for explaining why people with certain characteristics are accorded less value, rights or power, is to consider the relationship of those characteristics to the goals and consequences of capitalism.
Governments that have existed under capitalism have seen fit to regulate industrial production, and usually in rigorous ways, because the majority of citizens who backed these governments believed that capitalism is to some degree inimical to the public welfare. This is not to say that capitalism is an unmitigated social evil, for it clearly is not. It has had great advantages and is possibly the most efficient kind of economy that humans have yet invented. But in its pure laissez-faire form, it appears to have great limitations–as most economists admit. In fact, capitalism is inherently inefficient. If there is to be competition, there must be choice. Choice requires that there be more product available than in demand. That means there will be products and services that either are not consumed or sold at a loss. That is, there will be lost effort, unused real estate, and wasted materials in the production of the products not sold or sold at a loss
You cannot solve the sickness of capitalism, because capitalism does not have a cold – it has a malignant cancer and it is terminal
Communist ideas are merely a result of the accumulationof ideas and theories over millennia and are a much morerecent product than religious theories, while capitalism is all about materialism.
It’s really like one of those old Hollywood movies of the 1930s — “boy meets girl” — then we have 90 minutes of “misunderstanding” during which they row and slang hell out of each other, only to wind up in an embrace, recognising each other as true soul mates after all. Maybe the “affair” between the world Stalinist movement and Capitalism hasn’t yet reached a passionate embrace, but the sight of these two reactionary forces huddled in a tete-a-tete — officially called the dialogue between Marxism and Capitalism — is startling enough to provoke thought.
Lenin fought tooth and nail against all flirtations with religion and against attempts to tamper with the philosophic basis of Marxism, even on the finest theoretical points whose significance was far from obvious to most of his own party. He ruthlessly split the Bolshevik faction at a time when it was already weakened by the aftermath of the 1905 Revolution, rather than co-exist with a group, the so-called faction of “God-builders”, which attempted to marry religion with elements of Marxist socialism. To the pseudo-practical politicians now calling themselves Communists, who have always gladly traded all the “books” of Marxism for deals and alliances, lately known as co-existence, Lenin’s action must seem utterly impractical, the epitome of sectarian dogmatism. But there is practicalness and practicalness!
Under the world order which held sway throughout the Cold War era bipolarity was between world capitalism and world communism. The communist pole saw itself, and was seen by many, as the only countervailing force in the face of an unbridled neo-liberal capitalism which ignored the social dimension necessary to reduce the gap between haves and have-nots. The collapse of the Soviet Union signalled the collapse of the world communist pole as a force to be reckoned with; more important, as a force capable of restraining the excesses of neo- liberal capitalism and preventing the deepening of social discrepancies. Liberated from any constraint the world capitalist pole allowed powerful forces of laissez-faireism to run rampant, thus deepening social discrepancies and laying the ground for chaos and terrorism. The Cold War period did not eliminate enmity between capitalism and communism, nor the objective of either to liquidate the other. But the two superpowers agreed to disagree, an accommodation that is not possible in the present confrontation between contemporary capitalism and terrorism.
capitalists present their case with great fervour and see their approach as fundamental to economic development. The “anti-business” resistance from “anti-capitalists” is seen as exceptionally problematic. For some corporate interests it justifies the use of “dirty tricks”, possibly resulting in the death of labour leaders, whistleblowers, or demonstrators. Whilst dialogue by business to make the case for capitalism is conducted with moral fervour enhanced by public relations, there is no guidance from capitalists as how to make a reasoned critical case against the capitalist perspective, notably as formulated in the pro-globalization discourse. Any such critical discourse is viewed as highly suspect if not subversive. Interestingly however, “criticism tolerance” is viewed as a highly important characteristic impacting on interpersonal effectiveness and leadership — successful startup entrepreneurs seem to have a higher criticism tolerance.
as with capitalists, communists present their case with great fervour. Any “anti-communist” perspective is viewed as highly suspect. But no guidelines are offered by communists on how to engage in appropriate critical dialogue regarding the inadequacies of communism. Unlike capitalism, of particular interest is the emphasis on “critical” discourse within communism of whatever flavour — even “self-criticism” (eg Soviet, Chinese, Cuban, Albanian). But the degree or scope of criticism is severely circumscribed. It is important to avoid “crossing a line” into inappropriate dialogue.
To Sid Ahmed: The mutual neutralisation that prevailed under Cold War conditions has now disappeared.
The shortest joke of all: communism
A political activist named Dave was just arriving in Hell and was told he had a choice to make. He could go to Capitalist Hell or to Communist Hell.
Naturally, Dave wanted to compare the two, so he wandered over to Capitalist Hell. There outside the door was Rockefeller, looking bored. “What’s it like in there?”, asked Dave. “Well,” he replied, “in Capitalist Hell, they flay you alive, boil you in oil, chain you to a rock and let a vulture tear your liver out, and cut you up into small pieces with sharp knives.”
“That’s terrible!!”, gasped Dave. “I’m going to check out Communist Hell!” He went over to Communist Hell, where he discovered a huge line of people waiting to get in. The line circled around the lobby seven times before receding off into the horizon. Dave pushed his way through to the head of the line, where he found Karl Marx busily signing people in. Dave asked Karl what Communist Hell was like.
“In Communist Hell,” said Marx impatiently, “they flay you alive, boil you in oil, chain you to a rock and let vultures tear out your liver, and cut you up into small pieces with sharp knives.”
“But … but that’s the same as Capitalist Hell!”, protested Dave.
“True,” sighed Marx, “but sometimes we don’t have oil, sometimes we don’t have knives … “
You talk about freedom-cost of communism, Freedom is not just an ideal. The FUNCTION OF FREEDOM IS TO FREE SOMEONE ELSE. Thus, with our social activism we can free those who are physically bound and simultaneously free oppression from global phenomena.
Sputnik, you came back from orbit? You naughty elf.
By the way,
Freedom thus far, has been an illusion if one accepts that
no one is free while another is enslaved. Millions of people around the world, and domestically, are held captive to slave labor, arbitrary imprisonment, torture and inhuman living conditions due to the function of oppression
Marx’s theory of communism is interpreted as being founded on a conception of the good society in which individual freedom is the supreme good. Communism is intended as a process of freedom expansion. By focusing on widely defined consumption choices, the extent of an individual’s freedom is identified in the opportunity set delimited by his budget and time constraints. Social goods, i.e. those provided without rivalry and without exclusion, are allocated on the basis of the criterion “to each according to his needs” and, if they are financed by progressive taxation, also on the basis of the criterion “from each according to his abilities”. Thus a process of growth of social goods supply turns out to be a process of construction of communism and, since social goods remove some budget constraints to choice options, a process of expansion of individual freedom. Social goods are mostly provided by the state to allow people to fully enjoy constitutional liberties and social rights, but their provision is strongly affected by the evolution of class struggle. In fact the privileged classes tend to oppose a process that raises their tax burden, whilst the unprivileged ones tend to favor a development that extends their freedom. Since the majority of citizens in all capitalist systems have an income which is lower than the mean, communism tends to grow with the strength of the democratic movements’ action.
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