Prophet of Socialism and Communism

Photo: The Bettmann Archive.

For more than half of Europe and a third of the world's popu­lation, history's greatest economist was Karl Marx. Born in Germany, Marx's revolu­tionary activities got him into trouble with the authorities, and from 1842 until his death in 1883 he lived his life in exile.

In 1849, Marx moved to London, England, where he studied, wrote, and produced his greatest work, Das Kapital (Capital).

Marx's single-minded dedication to his studies made it all but impossible for him to earn a living. Were it not for the financial help he received from his friend Frederick Engels, a wealthy textile manufacturer from Manchester, England, he and his family might have starved to death. As it was, they lived a life of poverty.

In 1845, the League of the Just (later to change its name to the Communist League) asked Marx and Engels to prepare a statement of beliefs. They wrote The Communist Manifesto. The Manifesto, which contains some of the most memorable lines of revolutionary literature, concludes with:

"... Let the ruling classes tremble at a Communistic revo­lution. The proletarians have nothing to lose but their chains. They have a world to win.

Working men of all countries unite!"

The Economic Theories of Karl Marx. It is not possible to summarize briefly everything that Karl Marx had to say about the world in which he lived. However, the following paragraphs describe some of his more important theories.

The economic interpretation of history. In Marx's view, the course of history has been determined almost solely by economic forces. Forget about things like great men and women, religion, patriotism, and the like. Look instead, he said, at the economic events of the time to find the real reasons why people and states behaved the way they did.

He also asserted that history has been a series of struggles between economic classes. For example, in Ancient Rome the landed aristocracy struggled for power with small farmers and city workers. In medieval times, guildmasters and journeymen, nobles and serfs struggled with one another for economic supremacy. Similarly, the French Revolution could be explained in terms of a struggle between merchant classes and the agrarian (agricultural) aristocracy.

The exploitation of labor. According to Marx, goods and services had value because of the efforts of laborers. But according to the economic theory of the day, workers were only paid enough to enable them to stay alive. Whatever was left over (profits) was pocketed by the factory owner — the capitalist. Profits, therefore, represented surplus value which should belong to those who created it: the workers.

The inevitability of capitalism's collapse. Under this system, the rich would get richer and the poor, poorer. Because workers were underpaid, Marx went on, they would be unable to buy the goods and services they produced. Even­tually, the system's excesses would lead to the final class struggle. In this, workers would overthrow the capitalists who had been exploiting them. In the new order that would follow, Marx concluded, class struggle would no longer be necessary, and the state could simply "wither away." Each worker would perform "according to his ability" and be rewarded "according to his needs."

Most American economists today would disagree with Marx's views of the world. History cannot be explained in economic terms alone; labor is not the only source of value; today's communist states would like to become more like their capitalist neighbors rather than the other way around; and who would seriously predict a time in which governments would "wither away"?

The Soviet Economy: Communism In Action.

As a result of the revolution that successfully overthrew the Czar in 1917, Russia became the first country to formally apply some of the economic theories of Karl Marx. Two of these lay at the heart of the Soviet economic system: government ownership of the means of production and central economic planning.

Government Ownership. Government ownership of the means of production was a fundamental economic principle in the Consti­tution of the Soviet Union:

"State ownership is the foundation of the USSR's economic system. . . . The land, its mineral wealth, the waters, and the forests, the principal means of production in industry, construc­tion and agriculture, transport and communication, as well as other property necessary to carry out the state's tasks, belong to the state."

Although the Soviet Constitution gave individuals the right to own homes and personal property, and some types of small busi­nesses, in reality, those in business for themselves were very few in number. The ownership and control of most production was in government hands.

Central Economic Planning. Decisions about What goods and services to produce in the Soviet Union were made by various government agencies. So were the decisions affecting How to produce those goods and Who will receive them.

At the top of the Soviet government were the Communist Party and the Politburo. The Politburo was the governing agency of the Party. The Communist Party set overall economic policy and turned it over to theGosplan, the Soviet's state planning commis­sion, to carry out.

Gosplan collected data from all over the country. It used the information to prepare a detailed plan to achieve the nation's economic goals. Most frequently, the plans were prepared to cover a five year period and were called "Five-Year Plans."

The Five-Year Plans set broad economic goals. For example they might specify how much an increase there would be in the production of consumer goods, capital goods and investment. Other parts of the plan might list output goals in certain major industries such as agriculture, home appliances and clothing

But Five-Year Plans did not specify all the details. This was left to the Annual Plans. Annual Plans spelled out in great detail how, the yearly production goals were to be reached. They allocated the raw materials, workers, power and other resources that would be needed by the nation's factories, farms and mines to achieve their goals.

Once the planning process had been completed, individual factories and business firms were given their assignments. These told the factory managers what they were expected to produce and the resources that would be available to them to achieve their goals.

The Soviet economy had many problems over the years and consequently Soviet consumers had to make do with far less than their Western European counterparts. Critics of the Soviet system have cited these reasons for its shortcomings

· The planning system was far less efficient than the market system. In a market system, goods are produced in response to demand. Therefore, those items are generally sold. In the Soviet Union goods were produced because planners had determined that they would be needed. Unfortunately for the Soviet economy, the planners were not always right, and frequently their decisions resulted in large stockpiles of unwanted products and serious shortages of others.

· The Soviet system discouraged creativity and innovation The main goal of factory managers was to fill their production quotas. Those who tried to introduce new or more effective production methods risked failure and, consequently might not have met their quotas. Successful innovations could also have proved to be a problem for Soviet managers. If they were to increase their output as a result of their creativity, that higher level of production could have become the basis for next year's quota.

· The Soviet economy was far less sensitive to consumer demand than are the economies of the capitalist nations. In the absence of the profit motive, a manager's primary concern was filling his or her assigned quota, rather than satisfying consumer demand. The Soviet shoe industry, for example, produced enough shoes to meet consumer demand, but the quality was so poor that Soviet consumers preferred more expensive imported shoes.

Soviet agriculture also suffered hard times. Before the Revolution, Russia had been the world's largest exporter of grain. In the 1980’s, it was the world's largest importer. Here, too, the problem stems in part from the consequences of central planning.

Because of the shortages of grain and other farm products, the Soviet Union imported a great deal of its food. Since Soviet policy was to keep the cost of food sold in government-owned stores very low, they had to subsidize the food industry. The government sold bread made with imported grain and imported meat for less than those products had cost them.

This policy had some strange consequences. For example, as a result of the government program, the price of bread was less than the cost of growing the grain necessary to make the bread. Consequently, many farmers found it was more profitable to buy bread in the government-owned shops and feed it to their animals than to use the grain they had grown for that purpose. They also found that it was cheaper to feed the meat sold in government stores to their profitable fur-bearing animals than it was to grow grain to feed their own livestock.

The result of these distortions was a more serious shortage of grain and meat. Shortages were so serious that in 1982 the Soviet Union had to impose food rationing in a number of its large cities.

Central planning also failed to provide Soviet agriculture with adequate storage facilities for crops awaiting shipment and with roads to carry those crops. One consequence of this plan­ning failure was that about 25 percent of the Soviet crops failed to find their way to food storage and processing centers.

The American economic system has experienced many of the problems that the Soviet Union faced; however, because it is a market rather than a planned economy, the effects are felt somewhat differently.

For example, because the Soviet government set the prices, demand often outran the available supply of a product. This led to long lines at stores. Shoppers waited for hours at a time in hope of reaching the sales counter before an item is sold out. In the United States there are also periodic shortages of food and merchandise. When this happens, however, the supply shortage will push up prices, and higher prices cause buyers to look for substitutes.

In other words, when there is a shortage of hamburger in this country, shoppers do not line up at their local grocery store in hope of buying a few ounces before the store runs out. Instead prices rise, forcing those who can't afford the higher price to buy a substitute, like chicken, while leaving enough hamburger for those who can afford it.

Soviet planners were not alone in misjudging the market and overproducing certain products. Most goods produced by the American economy are made in anticipation of the demand for them. When, as frequently happens, producers guess wrong, some way (such as having a sale) has to be found to sell off the surplus merchandise.

Government farm policies in the United States have led to the overproduction of some commodities and the underproduction of others. In the Soviet Union, however, government policies resulted in food prices that were lower than if supply and demand were allowed to work freely. American farm programs have had the opposite effect. The price of food is often higher than if the laws of supply and demand had been allowed to operate freely.

Glasnost and Perestroika: Gorbachev's Reforms. In 1985, Mikhail S. Gorbachev became General Secretary of the Communist party and the leader of the Soviet Union. Since coming to power, Gorbachev startled the world with his open recognition of the USSR's economic problems. To set things right, he announced a series of reforms to be built on the prin­ciples of glasnost and perestroika.

In the past, public discussions of weaknesses of the Soviet system or criticism of government policies were strictly forbidden. Gorbachev broke with this tradition when he introduced his policy of glasnost or "openness." The glasnost campaign encouraged public criticism of all but the top levels of govern­ment as a means of identifying inefficiency and corruption.

Perestroika, which is Russian for "restructuring," was often mentioned by Gorbachev as his goal for the Soviet economy. The Soviet government instituted a series of economic reforms in 1987.

The United States applauded the Soviet Union's plans to restructure its economic system. The reasons for this support were explained by Secretary of State James Baker in an address before the Foreign Policy Association on October 16, 1989:

"I do not believe that perestroika can succeed without increasing measures of free markets, free speech, and insti­tutions more accountable to the people. That means a more democratic society, more respectful of human rights; a society where citizens have a say in what their govern­ment does at home and abroad."

Sweden: Democratic Socialism In A Capitalist Setting

Democracy is alive and well in Sweden. Free speech, a free press, and a freely elected representative government are as much a part of the Swedish political picture as they are of ours. Like the United States, Sweden has a capitalist economy. More than 90 percent of its industry is privately owned and operated. In other words, in Sweden, decisions about the production and allocation of goods — the answers to the What, How, and Who questions — are made in the marketplace.

But unlike the United States, where government participation in the economy is limited, the Swedish government plays a very active role. In the United States, for example, the responsibility for providing for things like health maintenance, infant and child care, college education, and retirement are essentially left to individuals and families. In Sweden the government blends socialism with capitalism by allocating the resources for virtu­ally all education and welfare services.

For example, health care is provided to mothers even before their children are born. From that time forward, cradle-to-grave medical and dental care are provided at government expense.

Public schooling, from nursery to university, is also available, as are retirement facilities and pensions for the elderly and handicapped population. As they are in the United States, insur­ance and other benefits are available for unemployed and disa­bled workers. A significant difference between the two, however, is that welfare payments come to approximately 90 percent of manufacturing wages in Sweden, as compared to 40 percent in the United States.

Swedish public welfare services are not really free, of course. Swedes pay the world's highest tax rates for their benefits. For example, in 1986 when Sweden's per capita GNP was 70 percent that of the United States, taxes in Sweden amounted to $8,300 per capita as compared to $4,900 in the United States.

In 1989, Sweden's governing political party announced that taxes had reached the saturation point, and that steps would soon be taken to reverse the upward trend. Although specific programs have not been spelled out, the government did indicate that one approach would be to reduce costs and increase efficiencies in the publicly operated medical care, day care, and education fields by introducing some form of "privatization." It remains to be seen whether a market-oriented approach to Sweden's social service sector is actually adopted.

The Less-Developed Countries (LDC's)

In the Delta region of lower Egypt, many people make their living from cultivating less than one acre of land per person. The total annual income of the average Egyptian is less than $300 per person per year. When the land ceases to provide enough for the people, they migrate to the cities. In Cairo, the largest of the African and Middle Eastern cities, people crowd the wide sidewalks almost shoulder to shoulder. Home, to the majority of families, could mean two small rooms for four or five people. These families would be considered fortunate. For many people, having meat once a week is a luxury. Furthermore, four out of ten people cannot read or write.

But Egypt is not unique. In fact, the Egyptians are better off than hundreds of millions who live in Africa, Asia and Latin America. Most of the countries on these continents are less-developed countries or LDC's. For instance, in Mali the per-capita income is about $140 per year, and the rate of illiteracy is 90 percent. The income per person in Bangladesh is even lower than in Mali. Many of the villages in LDC's are still without electricity. Septic tanks or sewer systems do not exist in most villages. Nearly half a million people in Africa died of hunger during the 1970's. At present more than 500 million people go to sleep hungry every night.

Certainly the LDC's are different from each other in many ways. They have different languages, religions, traditions and cultures. They are similar, however, in that they all face a common problem, perhaps a crisis. Their people expect more than their slowly developing economies have been able to deliver.

For generations their traditional economies satisfied their basic needs at the subsistence level, producing just enough food and shelter for survival. The people endured floods, droughts, disease and malnutrition. Few were fully aware that alternatives were possible.

The communications revolution of the past two decades has put the vast populations of the less-developed countries in touch with the rest of the world. With small, battery-operated tran­sistor radios, they can now listen to a variety of programs from Washington, London, Moscow, Peking and other world capitals. The Voice of America (USA), BBC London, Radio Moscow, Radio Peking and other stations broadcast around the world, around the clock. Satellite television transmissions can be received anywhere, and movies are now distributed globally.

Expectations of a better life have been rising rapidly. By Western standards, these expectations are minimal and modest. But why have the economies of these countries not been able to fulfill the expectations? The answers vary from country to country.

In some countries the population, because of improved sani­tary conditions and vaccinations, has been growing at a faster rate than the rate of production. Eager to obtain money for the purchase of modern equipment, a few countries have shifted large areas of cultivated land from edible crops to cash crops such as coffee, tea, cotton and tobacco. The result has been a decline in food production.

There also has been a lack of experienced management and trained technical staff.

In some cases an effective market mechanism might have helped the situation. Ordinarily, what people demand through their buying causes people with capital, when free to do so, to invest their money to meet that demand. After all, producers are in the business to sell and to make a profit, and if people are not willing to buy what producers provide, the producers will go out of business. When governments control the decisions of production and distribution, however, the small available capital might not be channeled to where it is most in demand.

Impatience and frustration can lead to political turmoil and to the overthrow of governments. If new leaders promise more goods and faster delivery, radicalism and violence can spread when those new leaders do not deliver.

Rodrigo Carazo Odio, former president of Costa Rica, stated in a recent interview that "90 percent of Central America's problems are economic," and "Central Americans believe in freedom and democracy, but they may be driven to despair." Many observers agree with this conclusion and apply it to other less-developed countries also.

The History of Economic Thought

Thomas Robert Malthus (1766-1834)

Prophet of the "Dismal Science"

Engraving: The Bettmann Archive.

In 1986 music lovers were treated to an extended day-long concert featuring many rock and jazz greats. The Live Aid concert staged simultaneously in London's Wembley Stadium and Philadelphia's JFK Stadium was beamed via satellite to millions of viewers in Europe and America. The purpose of the concert was to raise funds for the starving people of Africa. The sight of the desper­ately hungry in Ethiopia a few years ago, and before that in the West African region of the Sahel, shocked and helped sensitize television viewers to the tragedy in these lands.

Some scholars place the major blame for these condi­tions on runaway population growth in nations of the underdeveloped world. They explain that standards of living in many developing nations continue to decline because the growth in population is greater than economic growth. If world economic growth continues to average about two percent annually, nearly half the world's people will live in countries where population growth exceeds economic growth.

Much of what these writers had to say was foretold by an 18th-century English economist, Thomas Malthus. In his Essay on Population (1798) Malthus warned of the dire consequences of uncontrolled population growth. His argument was direct and simple. While food supplies can be increased through the addition of land and labor, the rate of growth is in an arithmetic progression (2, 4, 6, 8, 10 and so on). But population growth expands in a geometric progression (2, 4, 8, 16, 32, 64 and so on).

Given the difference between the rate of population growth and that of food production, Malthus concluded that a large portion of humanity was doomed to a life of misery. Worse yet, as the arithmetically increasing food production fell short of satisfying the geometrically increasing population, malnutrition and disease would take their toll until the rising death rate restored the balance between food and population.

Other than urging the poor to have fewer children, there was nothing that society could do to reduce starvation or suffering, Malthus thought. For that reason, he opposed legislation to provide relief and housing for those living in poverty. In his view, such aid would simply encourage the poor to have more children and worsen their lot. It is little wonder that after reading the Essay on Population, Thomas Carlyle, a contemporary British writer, called economics the "dismal science."

Since Malthus's day several factors have prevented the fulfillment of his prophecies. The most visible of these has been the enormous increase in food production, on the one hand, and declining birthrates in the industrial­ized nations on the other. Food production increased far beyond anything he could have foreseen, owing to scien­tific and technical advances in farming. Meanwhile, declining birthrates have brought several European coun­tries near zero population growth.

Critics of Malthusian theory argue that the focus on popu­lation misses the main causes of hunger and starvation. The fact is that the agricultural nations grow enough to feed themselves and the rest of the world. However, not enough food reaches those in need because poor nations do not have the international currency with which to purchase it from world suppliers.

Thomas Malthus, a controversial figure in his own time, remains one today. To some he was a great prophet whose theories are still relevant. To others, his opinions are as shortsighted and inappropriate today as they were nearly two hundred years ago.

The Special Problems Of The LDC's

The LDC's can be found just about everywhere, except in North America and Europe. All the nations of Africa, with the excep­tion of Libya and South Africa, are LDC's. So, too, are about half the nations of South America, all of those in Central America and most of those in Asia. Although it is difficult to generalize about so many different countries and cultures, the LDC's do share most of the following problems.

The Legacy of Colonialism. In the years prior to World War II, most of the LDC's were colonies of the industrialized nations or were dominated by them. As a result they were heavily influenced by foreign economies which may not have had their best long-term interests at heart. Some claim that raw materials and resources taken out of the colonies long ago weaken the economies of LDC's today even though the industrialized nations no longer control them.

Low Productive Capacity. In a year when the United States economy was producing about $15,000 for every man, woman and child in its population, the African nation of Zaire had a per capita GNP of $200. Other LDC's had similar records.