Defending a Centrally Planned Economy
by Zoltanous and DoomerNationalist
Dispelling the libertarian notion that governmental influence or proprietorship is a barrier to market efficiency, it's evident that regulatory engagements can actually propel economic progress. By implementing regulations that demand transparency from corporations, vital information becomes readily available, leveling the informational playing field and cultivating an equitable and fair competitive market. Governmental economic policies often involve a spectrum of initiatives, notably the establishment and governance of state-owned enterprises tasked with delivering essential services and goods. These organizations are integral to the fulfillment of a country's strategic objectives and the welfare of its populace, particularly in critical areas such as healthcare, energy, and public safety. By prioritizing the needs of underserved communities, these entities are instrumental in enhancing the quality of life for all citizens.
Taking China as an example, its impressive economic strides have been substantially supported by a robust public sector and the influence wielded by state-run enterprises. These entities are central to infrastructure development, creating employment, and at times, providing subsidies for essential goods and services that expand their availability to a broader audience, leading to enhanced living standards across the country. The extent of a public sector's reach is deeply linked with the welfare of society and the prosperity experienced by its citizens. Scandinavian countries, celebrated for their high living standards, such as Sweden, Denmark, and Norway, host some of the most expensive public sectors in the world. Their wide-ranging social welfare services, which include healthcare, education, and social security, are lauded for their role in reducing economic disparity and improving the overall quality of life for the populace. The Nordic Model, while retaining elements of capitalism, represents a transitional phase toward a purer form of socialism. Professor Richard Wolff regards this model as an exemplar of how socialism can be pragmatically integrated into a capitalist framework, demonstrating a balance between market economics and socio-economic welfare policies. Hence, the Scandinavian Nordic model should not be seen as an endorsement of capitalism, but rather as a triumph for socialist principles.
Richard Wolff on the Nordic Model
A critical yet oft-overlooked aspect of state economic involvement is its impact on the cost of living. There's a notable relationship between governmental policies, the pricing strategies adopted by state-run firms, and the affordability of everyday expenses. Singapore serves as an illustrative case where the government, through significant economic influence, leverages its policy-making capabilities and control over public enterprises to shape the cost of living. Strategies such as public housing and transport initiatives are employed to keep living expenses manageable for the majority of the population.
Essential government intervention can also manifest in the strategic implementation of price controls to reduce the cost of living. While there is historical evidence of price controls backfiring, as seen with Nixon's gas price caps, there are also instances where they have been successful. One illustrative example is the regulation of pharmaceutical companies, particularly with the medication Insulin. In the United States, the cost per vial of Insulin was significantly more expensive compared to other wealthy, industrialized countries, suggesting a lack of effective government regulation.
In America, the cost of insulin, on average, is over ten times greater than the combined average cost in other nations. Specifically, rapid-acting insulin, which constitutes roughly a third of the U.S. market, is priced on average at $119, while in other countries, it averages around $8. The primary reason for this stark difference, as highlighted in this study, is the absence of stringent price controls. Unlike the government-managed systems in Canada, the UK, Germany, and most other countries, the U.S. does not implement similar regulatory measures. This discrepancy is evident in market statistics: North America, with only 7% of the global diabetic population, represents 52% of the world’s insulin sales. In contrast, China, with 25% of the world's diabetic population, only accounts for 4% of insulin sales.
In the absence of regulatory measures, The Hill found that corporations might conceal important data, gaining an unjust market edge. This scenario is counterintuitive to the growth of industries and contradicts the principles of economic productivity. Laissez-faire economics advocates for minimal state interference in business, a stance that could inadvertently lead to the formation of monopolies. Such monopolies were found to engage in price-fixing and stifle competition, to the detriment of economic dynamism. Government-imposed regulations on private companies aim to avert the rise of monopolies, preserving a competitive marketplace that safeguards consumer rights and endorses equitable business practices.
Libertarians argue for limited government intervention, trusting in the market's invisible hand to be the primary regulator. Yet, the financial meltdown of 2008 highlighted the perils of insufficient regulatory frameworks, especially within the United States' financial sectors. According to Harvard, the crisis exposed how the lack of adequate regulations can lead to severe market inefficiencies and unethical behavior, causing widespread distress. Moreover, libertarianism can inadvertently cultivate societal disparities. Without proper government oversight, it was found that extreme wealth can accumulate among a select few corporations or individuals, leading to economic and social imbalances. Such disparities can perpetuate poverty, escalate social unrest, and erode the social cohesion of a nation. For these reasons, government interventions and regulatory frameworks are essential for wealth redistribution and the promotion of social equity.
Delving deeper into economic theory, Soviet mathematician Leonid Kantorovich developed mathematical methods in the mid-20th century to fine-tune production to meet economic objectives, providing a stark contrast to the views of libertarian economist Ludwig von Mises. While Mises is frequently cited by libertarians for his Economic Calculation Problem, which challenges the effectiveness of central planning, Kantorovich's work suggested that mathematical planning could indeed optimize economic outcomes. The “problem” as most Libertarians perceive it can be laid out in three premises:
A market for production resources cannot emerge without private ownership of these resources.
Absent a market for production resources, it is impossible to set monetary values for them.
Without monetary values to reflect the relative scarcity of capital assets, economic agents lack essential data to make informed decisions on the use of capital assets in different ways.
The argument centered on the essential role of market-based, decentralized price setting for economic exchanges, casting doubt on the capability of planned economies to allocate resources effectively. Mises contended that only the spontaneous orchestration of the market could efficiently manage resources and determine prices, suggesting that in the absence of market-derived pricing, planned economies would struggle to adjust to shifts in supply and demand. This argument, however, has its shortcomings. It concentrates solely on how capital goods are distributed, overlooking that central planning usually prioritizes consumer goods.
Mises points out:
"In-kind calculation in an exchange-free economy can only account for consumer goods; it is utterly inadequate for managing higher-order goods."
— Ludwig von Mises, Economic Calculation In The Socialist Commonwealth
Murray Rothbard stated the same thing.
“Another grave flaw in the Lange-Taylor trial-and-error approach is that it concentrates on consumer goods pricing. It is true that retailers, given the stock of a certain type of good, can clear the market by adjusting the prices of that good upward or downward. But, as Mises pointed out in his original 1920 article, consumer goods are not the real problem.”
— Murray Rothbard, Review of Austrian Economics
Thus, even the pioneers of Libertarian economic thought concede that "Socialist" planning can be effective for consumer goods, which is often the focus for economic interventionists. Mises's critique is relevant principally to entirely centralized command economies and not without its deficiencies. The most significant gap in the ECP is its inadequate justification for why private property is essential for resource allocation, while public property is not.
Andy Davis's paper argues that:
“There is nothing here to say that public property will not do the job. Point two: again, it is certainly the case that rational economic calculation requires responsible decision-making both on the part of, and on behalf of, owners. But where is the argument that public property will lead to irrespon- sible decision-making on the part of or on behalf of the population? We entrust the latter to choose their government, after all, and, for all its faults, democracy remains ‘the worst form of government, except for all the others’. Point three: again, if the assertion is that public property cannot provide a background for experimentation, then the case needs to be made. Point four: the implicit claim seems to be that public property is incapable of providing a context for signals to guide resource use. But that is to say that economic calculation is impossible without private property, which is to beg the question: that’s what we are trying to establish.”
— Andy Davis, Economic Calculation: Private Property or Several Control?
Davis suggests that Mises' ECP is circular reasoning. Historically, socialist economies have demonstrated substantial growth. During the 20th century, the Soviet Union saw considerable economic expansion, at times surpassing the growth of West Germany. Countries implementing the Nordic Model have successfully embraced a form of economic organization that is influenced by socialist principles within a social-corporatist framework, such a China. For instance, China's economy expanded by 2.3% in 2020, defying a global downturn, with its GDP surpassing 101.6 trillion yuan. That same year, China saw a 2% rise in per capita GDP, maintaining a per capita income of over $10,000 for two years in a row. During their 13th five-year plan, China achieved considerable economic growth, increased disposable incomes, and a marked decrease in rural poverty. Banking is obviously one of the most important factors in how an economy functions. Interest rates on loans and the issuance of currency are determined by banks, which in turn can significantly influence the economy's performance.
The track record of Libertarian free banking has been predominantly unfavorable, exemplified by Australia in the latter part of the 19th century. During the 1860s, Australia's banking system operated on a gold standard with no price or capital controls, no central bank, and no government-backed deposit insurance. This lack of regulation allowed for uncontrolled speculative capital flows, leading to an excessive expansion of credit between 1881 and 1890. The resulting property and financial asset bubble eventually burst, causing a debt-deflationary depression and plunging Australia into a severe downturn. Barry Eichengreen and Muge Adalet discuss these events and their impact on the Australian economy in their research.
The economic downturn of Australian, had GDP declining by approximately 25%, over four consecutive years. Unemployment increased dramatically, immigration rates declined and even began to reverse, and social unrest became widespread, with sheep shearers, dock workers, and miners leading protests. The recovery after 1893 was sluggish and inconsistent. Central banking, despite its challenges, remains unparalleled when it is the sole currency issuer and is effectively regulated by the government, which also ensures employment. A nationalized central banking system stands out as the most effective, affording a country the freedom to spend without inflationary fears and granting the government complete control over its monetary resources.
Turning to the healthcare system of the GDR, a 1991 study from the Health Care Financing Review observed that the GDR and FRG had similar health service volumes, although the GDR's per capita healthcare expenditure was lower, implying more cost-effective service prices. Despite its economic constraints, the GDR achieved notable health outcomes, keeping up with the advancements seen in Western Germany. Advocates of libertarianism often point out that socialist nations have failed to reach the "high-income" status in various analyses, arguing that capitalist economies in this tier are superior to their socialist rivals. This stance is seen as definitive evidence of capitalism's triumph. On the contrary, those who lean towards socialism assess the effectiveness of an economic model not by employer-determined salaries but through measures of contentment, living standards, and tools like the 'Human Development Index' (HDI). A United Nations study from 1990 explored the HDI scores across the globe, placing a number of Marxist socialist countries—such as Bulgaria, Cuba, Czechoslovakia, the GDR, Hong Kong (post-integration with China), Hungary, Poland, Romania, the Soviet Union, and Yugoslavia—in the upper echelon of human development, each with an HDI above the 0.800 mark.
Advocates of libertarian views often argue for consulting those who have lived under socialism in Eastern Europe to gain insights into the system. Yet, individuals transitioning from socialist to capitalist societies may encounter unexpected realities and possess a limited grasp of capitalist principles. For example, Polish workers during the shift to a market economy mistakenly believed the state would always provide jobs if factories closed. In the Soviet Union, even among proponents of privatization, there was an expectation that state support would continue. The harsh truths of economic restructuring became apparent during the Soviet era of Glasnost when the cost of newsprint soared by 300% to reflect true expenses, leading to protests from pro-capitalist newspapers that had previously benefited from state subsidies.
The promise of capitalism didn't resonate with everyone; many who migrated from the Soviet Union and Eastern Europe to the United States in the 1970s and 1980s found themselves disillusioned with the American system's limited social safety nets, higher crime rates, demanding work environments, and what they perceived as a lack of communal bonds. These immigrants faced the rigorous demands of a capitalist society head-on, ranging from job instability to the constant fear of not being able to afford healthcare or education for their families, a stark contrast to the conditions they knew back in their socialist countries.
A survey indicated that a significant proportion of people from former Yugoslav republics look back on the socialist era with favor. Specifically, 81% of Serbians, 77% of Bosnians and Herzegovinians, and 65% of Macedonians believe they lived better during socialism. A mere 4% of Serbs saw Yugoslavia's dissolution as positive, while only 6% of Bosniaks and 15% of Montenegrins felt the same. On the other hand, 55% of Croatians and 41% of Slovenians viewed the breakup as advantageous, whereas 23% of Croatians and 45% of Slovenians regarded it as detrimental. In Kosovo, which declared independence in 2008, 75% welcomed the split, with just 10% expressing regret.
The nostalgia for socialism persists, even after populations have experienced capitalism, suggesting a deeper dissatisfaction with the latter system. Critics like Ben Shapiro advocate for deregulation, limited government, and free markets, championing a hyperindividualistic approach. However, such a philosophy is argued to lead to severe inequality, an expansive military-industrial complex, widespread poverty, and a plutocracy, as shown in research by Princeton University's Martin Gilens and Northwestern University's Benjamin Page. They studied 1,800 U.S. policies enacted from 1981 to 2002 and found that the preferences of the wealthy and business-oriented groups significantly influenced government policy over those of the average American. Their findings, which indicate that the majority does not have a decisive influence on policy outcomes, are discussed in greater detail at MinnPost and The Daily Evergreen.
An analysis by the Swiss Federal Institute of Technology in Zurich also revealed that a relatively small number of transnational corporations, predominantly banks, exert a disproportionate influence on the global economy, further contributing to a plutocratic structure. Meanwhile, a study on the increasing suicide rates in the United States suggests that the competitive demands and social fragmentation inherent in capitalism are leading to greater instances of depression and despair. This research posits that the societal structure of capitalism itself may be contributing to the deterioration of mental health among Americans.
A CNBC report found that, in the United States, many individuals earning the average wage find themselves unable to secure a two-bedroom apartment, and the situation remains dire when looking for a one-bedroom place, with such accommodations being out of reach in 95% of U.S. counties. Furthermore, when faced with sudden expenses amounting to $1,000, for instances like urgent healthcare needs or vehicle maintenance, only a minority of Americans, about 4 in 10, have the capability to cover these costs using their savings, as highlighted in a Bankrate survey. A Pew Research survey revealed that a mere 37% of employees feel content with their earnings. The private sector fails to furnish sufficient income for the workforce. Companies significantly reduce expenses by slashing labor costs, despite being able to afford them. A graph from the Economic Opportunity Institute illustrates the stark contrast between soaring corporate profits and stagnant wage growth.
Implementing a state-mandated minimum wage can substantially address the issue of inadequate earnings for workers. Minimum wage legislation has proven to be an effective policy, with seven decades of research indicating that such increases do not lead to higher unemployment rates. One particular study examined scenarios where the minimum wage constituted up to 82% of the median wage and found no negative impact on job numbers. This suggests that corporations have the capacity to pay higher wages but often choose not to due to self-interest. Raising the minimum wage not only boosts worker productivity but also has the potential to lift millions out of poverty. Furthermore, higher minimum wages are associated with reductions in suicide rates and generally contributes to making daily life easier. The body of research clearly indicates that the state is more adept at setting employee wages than any profit-driven employer.
Research from IMF staff has shown that in 2022, corporate profits significantly influenced inflation in the Eurozone, contributing to 45% of it, with the UK experiencing a similar trend. While profits influenced US inflation sooner, the rise was more pronounced in Europe. In the Eurozone, profits were the major driver of inflation, accounting for nearly half, with input prices being another major factor. The IMF proposes that as time progresses, wages might increase while profits' influence on inflation could diminish, as companies can more quickly alter prices in response to rising input costs than they can change wages. A minor trend towards this wage-profit shift has been noted in the US. Nevertheless, the trajectory of profits and wages will likely hinge on the market power dynamics among corporations, labor forces, and financial entities. The research further concedes that their analysis is not definitive and doesn't prove a causal link between profits and inflation, highlighting the need for more detailed firm-level analysis to understand this relationship better.
Paula B. Voos, working with the Economic Policy Institute, highlights the necessity of a well-off and spending-capable middle class for long-term economic stability and the prevention of volatile, bubble-like market conditions. The growth in unionization is key to this strategy, offering a path to improved economic status for workers through better pay and benefits. This, in turn, can help close the income disparity and fortify a thriving middle class, which is essential to the nation's economic health. Assessing a country's position in the global market is a complex task, and while there's no single standard measure, trade balance is frequently used as a basic gauge. According to the information available, unions appear to have a neutral or even beneficial effect on a nation's ability to compete internationally. It was revealed that employees in unions have a greater chance of having health and pension benefits from their jobs than those who are not unionized.
The positive impact of a union-supportive economy extends to several areas, including the success of employee-owned cooperative enterprises, a model favored by supporters of syndicalism. Virginie Pérotin of Leeds University Business School has found that worker co-ops are competitive with, and often exceed, the performance of traditional businesses, especially in capital-heavy industries. They also show greater resilience during economic slumps, offering more reliable employment. Encouraging such cooperatives can have a ripple effect on community health, by improving employment rates, public health, social investment, and tax revenues. In contrast, traditional business structures often fail to balance wage cuts with job retention, as owners have a vested interest in keeping wages low even when the economy picks up.
Conclusions
The degree and character of governmental engagement in the economic sphere, the extent of the public sector's footprint, and the commonality of enterprises under state ownership are intricately intertwined with the quality of life and the affordability of basic necessities for citizens. Thoughtful and strategic state intervention carries with it the capacity to foster greater social equality, enhance overall living standards, and regulate the costs associated with living, thereby creating a balance between the vibrant competition found in free markets and the security offered by social welfare systems. The advantages of a socialist approach can be observed in the heightened quality of life, which is quantifiable through indicators such as the HDI. These benefits are also echoed in the wistful remembrance of socialist regimes by some in Eastern Europe, the remarkable economic ascent of the People's Republic of China, and the significant accomplishments of communist, fascist, and social democratic governments. All of these examples underscores the potential for state-directed economic democracy to achieve substantial advancements in the collective well-being of their populations.
“The immemorial vestal fire of all civilization, the State, I defend with you against those modern barbarians [the liberal bourgeoisie].”
— Ferdinand Lassalle quoted in The Two Souls of Socialism by Hal Draper