Times columnist Matthew Parrish suggests socialist economics should be as discredited as believing the earth is flat, AIDS denial and eugenics.
This century’s intellectual consensus should show Marxism the door. Whether strictly defined as public ownership of the means of production, distribution and exchange, or more loosely as state direction of the “commanding heights” of the economy, socialism must be counted as definitively discredited. Over almost a century that theory has been tested — in every case — to destruction.
Is he right? It's very easy to take examples of Stalinist central planning, Mao's Great Leap Forward and some of the African socialist experiments to show that there are huge deficiencies in attempting to control economic activity from the centre without a free market. And it is true that Venezuela, the most high profile recent attempt at "21st century socialism" has run into a lot of trouble with price controls, despite having reduced poverty and inequality.
So clearly there is something to that old argument that a state controlled economy will not produce prosperity, and cannot know what millions of consumers want, and that much of this can be left to markets.
His particular beef is with the English distaste for making profit, which he urges the Tories to come out in open defence of rather than skirt around. It's true that profit can be a dirty word, but it is the capitalist system in general that needs to be understood, rather than simply the pursuit of profit. Parrish's argument seems to be a slight aunt sally. After all, state firms under socialism in many cases make a profit but the wonderful thing about a state company, as against a corporation run for shareholders, is that it can cross-subsidise so that unprofitable but socially necessary activities are subsidised by profitable ones. Royal Mail made a profit for the UK treasury until George Osborne flogged it on the cheap, while also supporting loss making postal services.
Profit per se I don't see as a universal bad, even though it does occupy a level of hell in classical marxism, since it derives from surplus value taken from workers. In this sense, I agree with Parrish that the pursuit of profit should not be seen as the primary bad. However, what happens to profits once they are made is a legitimate question for society and will remain so. If our entire economic system is devoted to profit making at the expense of all other social goals, the results will be the same old bad ones - massive inequality, rising poverty, economic bubbles and the economic irrationality of failing markets, such as we saw in 2008. It is a fact that the state cannot substitute itself for markets across the whole economy - and will likely end up causing distortions if it tries to control the price of say, food, as has been seen in the Venezuela case. Subsidies - to individuals or producers - have been shown to be far more effective than price controls.
But it is one thing to claim that the abolition of the price mechanism and private profit making does not work if it is applied to the whole economy. It doesn't lead magically to the opposite being true: that letting unfettered markets control all aspects of economic life will lead to prosperity for all. That too is idiotic and flies in the face of all evidence. Market failures happen all the time, and can sometimes be catastrophic. While Stalin and Mao both created mass famines with rapid and forcible collectivisation of agriculture, Britain's 'free market' policy of selling grain from India and potatoes from Ireland on the world market when the indigenous people were starving led, not surprisingly, to the death of millions. According to Amartya Sen, the Indian Nobel Prize winner, the common factor here was the absence of democracy, rather than too much market or too much state (given that most so-called free markets require a very large amount of state cohersion to enforce them).
And contrary to what Parrish implies, state direction of the “commanding heights” of the economy is still widely practiced - in many Asian countries, including those rich Gulf Arabs, energy, transport, health and education are still largely state controlled.
Some industries are natural monopolies or quasi monopolies and privatising them simply allows for massive rent-seeking at the expense of the rest of society. The joke of state subsidised 'competition' on Britain's railways is a classic case in point. Certain models of socialism have been discredited, and price controls are sometimes ineffective and counter productive - although rent regulation works perfectly well in Germany, enabling it to avoid the housing bubbles that felled the UK and US in 2008, and also nearly did us in the early 90s. Markets often fail but the free market fantasy continues, despite the evidence that very few free, competitive markets exist - most are dominated by large companies who bully and destroy the competition.
Parrish attempts to caricature socialists as believers in a defunct ideology, but only in a bubble universe can the believers in classical free markets continue to uphold such an abstract model in the face of reality: most markets are distorted by the massive power wielded by large companies and the very rich. And that is something that capitalism and profit motive can never fix. Enter the state - or perhaps the democratic will of the populace harnessed in new forms of social ownership and control.
Long live the mixed social democratic market economy!
