On paper, the political and economic ideology of socialism promises equality, yet often produces the opposite: economic disorder, scarcity, and restricted freedoms. At the core of socialist hope is the potential to establish shared prosperity and justice, including programs like free healthcare. However, many argue that a completely socialist society is impossible in the face of the economic calculation problem and the economic calculator problem. Thus, the essential question remains: can absolute socialism truly exist in a society?
What is Socialism?
Coined and popularized by French philosopher Pierre Leroux in the 1830s, socialism advocates for social ownership and a system where the government owns and controls the country’s resources and industries to distribute wealth more equitably. In order to understand and define socialism, it is necessary to also define capitalism: a system where a country’s trade is controlled by private ownership for profit. Socialism offers an alternative, where proponents argue that it can mitigate the externalities of capitalism like exploitation and economic inequality. From food to healthcare, the government determines legal production and pricing levels of goods and services in a socialist system. Socialists believe production should be for use instead of for profit and that competition in the market is unnecessary.
Today, many societies have implemented systems that combine capitalist and socialist practices. With capitalist economies, countries have also introduced socialist-inspired programs like public schools, universal healthcare, or subsidized housing. Nevertheless, these societies have not achieved full socialism.
Additionally, socialism encompasses a range of variations. For instance, some of the key types of socialism are democratic socialism, marxism, communism, and libertarian socialism, to name a few. While communism and socialism advocate for similar objectives, socialism is seen as a transitional stage towards communism. One of the key distinctions between the two ideologies is that socialism allows for some private property ownership while communism aims for complete communal ownership. Overall, each of the forms of socialism utilize different approaches to achieve the common goal of social ownership.
The Economic Calculation Problem (ECP)
In socialist systems, where the government controls industries, planners must decide what to produce, how much, where to distribute it, and how to set prices for the entirety of the nation. This process by which the government controls economic decisions is known as central planning. Some argue that central planning allows the government to allocate resources towards socially beneficial goals, such has universal healthcare or education. However, critics have identified a fundamental issue called the economic calculation problem (ECP), an idea introduced by Ludwig von Mises in 1920. The ECP claims that a central planning authority can not effectively allocate resources without proper market-determined prices.
In a free market economy, prices act as signals and communicate crucial information about scarcity, consumer preferences, and the relative value of the goods or services. When the state controls all aspects of production and dictates the prices, there is no way to accurately know what commodities are in demand and how to allocate resources efficiently. Additionally, centrally-planned economies can be politically-motivated and make certain commodities more affordable and accessible. Without real-time information that market generated prices can provide, the task of central planning is extremely complicated and can lead to issues like a lack of innovation and incentive for improvement.
In the past, several communist nations have attempted to establish socialist systems but have failed as a result of the ECP. The most well-known example of failed socialism occurred with the Soviet Union, which faced economic stagnation, political repression, and external pressures. After the 1917 Russian Revolution, the Bolsheviks began to build a socialist state based on Marxist-Leninist fundamentals. From 1922 until the late 1960s, the USSR competed with the West’s capitalism, but quickly declined into a “period of stagnation” in the 1970-1980s when they encountered the very issues recognized in the ECP. In an attempt to fix the failed socialist system, General Secretary of the Communist Party Mikhail Gorbachev created an economy with more capitalist practices, implementing a mixed-economic system.
Ultimately, in a socialist society without prices or competition, planners are blind-sided and face significant challenges in responding to the needs and preferences of consumers. The absence of profit motives in centrally-planned systems can eliminate the incentives for innovation, efficiency, and hard work. It’s not just difficult to implement socialism, but it is arguably impossible to sustain it without encountering the failures introduced by the ECP.
Advanced Technology and Socialism
Some modern economists argue that, given the current evolution of revolutionary technology, it is now possible to create a socialist society through advanced computing or artificial intelligence. These individuals have hypothesized that advanced algorithms can manage the abundance of data required to control complex economies and process and present information in real-time, addressing issues of inefficient resource allocation. Technology could also create simulation models to test different production or allocation strategies before implementing changes to the economy.
However, several studies have disproved the potential benefits of technology in making socialist economies possible. While technological advancements can enhance data processing, they can not supplement and stimulate the competition that market economies create. Additionally, technology can’t fix any social and political challenges that are necessary to transition to socialism. Next, advanced technology can’t magically produce incentive; without personal or profit-motives, workers and entrepreneurs will still be discouraged from improving or innovating new goods and services. Overall, technology can help with some of the calculative and logistical aspects, but it does not address the main issue of the ECP, which is the lack of market-based prices and incentives.
Can Absolute Socialism Truly Exist in a Society?
While socialist practices have been attempted to restore equality and social welfare, historical examples and economic theories acknowledge the sheer impracticability of implementing and sustaining the system. The ECP reveals that operating an economy without market-generated prices can deteriorate innovation, competition, and poses difficulties in obtaining real-time information. Even with today’s rapidly evolving technologies, central planning simply can not mimic the capitalist traits that make it self-sufficient and adaptive to consumer preferences. Without addressing these core challenges, the goal of achieving absolute socialism is still impossible, and raises the question of if it will ever be implemented.