Mises Wire

Why Do Half-Measures Work for Markets, But Not for Socialism?

Socialists have attempted many times to put their ideology into action. Socialism has been applied in the Soviet Union, Cuba, China (before Deng), North Korea, and by many other less-famous regimes.

In each case, the result has been economic impoverishment and political authoritarianism.

But the die-hard socialists refuse to give up. "Don't judge communism based on these results, " we're told. "Socialism has simply never really been tried."

Socialism Doesn't Work Unless It's Pure Socialism

Indeed, in a recent back-and-forth between John Stossel and Noam Chomsky, Chomsky denied that the Venezuelan regime is socialist at all

I never described Chavez's state capitalist government as 'socialist' or even hinted at such an absurdity. It was quite remote from socialism. Private capitalism remained ... Capitalists were free to undermine the economy in all sorts of ways, like massive export of capital.

The thinking goes that socialism cannot work unless it progresses all the way to "full socialism." No partial effort will suffice, we are told, and socialism keeps failing because the some elements of "private capitalism" remained. 

So long as any aspect of a state is not full-on socialism, the thinking goes, then the regime is not really socialist. Moreover, the failure of the regime's socialist policies — such as expropriation of private companies and expansion of government-owned industries — are to be blamed on capitalism, not socialism. 

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Naturally, were socialism able to achieve it's final state — and all elements of capitalism expunged — we'd know it by its ushering in of a society marked by unparalleled prosperity and total equality.

Nevermind that for all intents and purposes, Lenin did achieve nearly complete and total nationalization of the economy during the Russian Civil War in 1922. The people began to starve soon after, and Lenin retreated to the partial socialism under his so-called "New Economic Policy." 

The Lenin example is steadfastly ignored, of course, and we're repeatedly told by the likes of Chomsky that mere half measures don't work for socialism, and only total socialism works. Anything short of total socialism, it seems, will fail miserably, as it has in Venezuela. Yes, the government can seize many factories, shops, and even whole industries, as has happened in Venezuela. But, unless the state seizes every single shop, then it's not real socialism. Thus, don't blame socialism when the whole thing crashes down. 

The Same Logic Need Not Be Applied to Laissez-Faire Liberalism 

Note, however, that this isn't a problem in the opposite direction. If we take a middle-of-the road interventionist economy and start introducing partial, half-way free-market liberal reforms, does this cause the economy to collapse? 

Certainly not. Indeed, everywhere we look and find a relatively less socialistic economy, the less poverty and more prosperity we find. 

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Historically, this is obvious. The countries that embraced free trade, industrialization, and the trappings of market economies early on are the wealthiest economies today. We also find this to be the case in post-war Europe where the relatively pro-market economies such as those in Germany and the UK are wealthier and have higher standards of living than the more socialistic economies of southern Europe — such as Greece and Spain. This is even true of the Scandinavian countries like Sweden, which, as Per Bylund has noted, historically built its wealth with a relatively laissez-faire regime.1

This is all the more true when we compare Western Europe with Eastern Europe.

In none of these cases is any economy totally free-market (or even nearly so) or totally socialistic. What we do find, however, is that in countries where the economy leans more in the direction of markets — the standard of living is higher, there is less inequality, and poverty is less awful in general.

This is also true in Asia. South Korea and Japan are by no means free-market economies. Both countries' economies are characterized by a wide variety of trade restrictions, crony capitalist deals, and a massive regulatory state. 

But North Korea and Vietnam, which are much poorer, are characterized by far more government ownership of industry, and much smaller private sectors than is the case in Japan and South Korea.

And yet, by the logic of the socialists, the problem with North Korea and Vietnam is that they don't have enough socialism. If those countries could only rid themselves of the capitalists who are "free to undermine the economy" then North Korea will finally be prosperous and Vietnam will rival Japan in its productivity and wealth. 

This is nonsense, of course. If North Korea wants fewer famines it need only move in the direction of less socialism as South Korea has. 

Even Halfway Reforms Work with Markets

Unlike socialism, market reforms need not be total, complete, or utopian in order for their benefits to be recognized. 

This is why market advocates never need to say "market reforms didn't work in Country X because that country never achieved full and true capitalism! If only all the socialists been liquidated, then true capitalism would have been realized!" 

This is never said said because even half-measures in the direction of laissez faire improve economic growth and standards of living. 

We saw this in West Germany after World War II with the reforms of Ludwig Erhard, who helped usher in a period of immense economic growth with only half-way reforms. By abolishing price controls and other government-imposed restraints on the economy, the Germany economy took off while more socialistic economies — like that found in the UK at the time — were more stagnant. "If only East Germany had had more socialism!" we can only conclude. Then East Germans wouldn't have risked death trying to escape to West Germany.

Obviously, in this case, the West German state did not adopt "pure" capitalism. They merely adopted relatively more laissez-faire. And the economy expanded. In fact, according to Hans Sennholz, the West German state rather accidentally stumbled upon its free market reforms. And yet, we call the results "the German economic miracle." 

Another modern example is Latin America. When we look across the region as a whole, we find repeatedly that the regimes that have embraced even half-hearted pro-market reforms — such as Chile, Peru, and Colombia — are the countries that have seen some of the greatest economic growth in recent decades.

Meanwhile, those countries that have most enthusiastically embraced the so-called pro-socialist "Pink Tide" have seen some of the worst growth rates: 


But what is the excuse for the lack of economic growth in Argentina, Brazil, and Venezuela? All those countries have in recent decades embraced economic populism — namely, more government ownership, more government regulation, and more government control of the economy. 

So why haven't those countries outpaced the more market-oriented Latin American states? According to the logic of the socialists, the problem is that none of these states has embraced total socialism. 

What a blessing for the socialists, then, that every time some socialist reforms are tried — and fail — the ideology has a built-in excuse: socialism never works unless it's fully implemented. 

Just imagine if the same were true of markets, though. Since no ideology is ever likely to be fully realized in its entirety, this would mean that humanity would be doomed to abject and grinding poverty forever. 

Fortunately for us, market reforms need only be partial and haphazard to make us all better off. Unfortunately, governments are often committed to moving in the wrong direction with central banks, wage controls, price controls, more regulation and more taxation. The assaults on markets are continuous and widespread. Fortunately, all it takes is movement back in the direction of freer markets to improve matters again. We'd do well to learn from Eastern Europe, West Germany, Latin America, and all the other regimes that have, reluctantly or not, gotten out of the way and allowed markets to work. 

The socialists can keep dreaming about their paradise to be realized some day when total unadulterated socialism is achieved. Meanwhile, markets will continue to improve matters for billions of people in real life. 

  • 1The Danish Prime Minister agrees, noting in 2015: "I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy." Compared to the economies of southern and eastern Europe, he's right. 
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