Socialism Is the Wrong Path for America

Socialism is once again fashionable in America.

For many Americans—particularly younger generations—the word no longer conjures images of the Soviet Union, breadlines, central planning, or government ownership of industry. Instead, socialism is increasingly associated with promises of free healthcare, free college, greater economic equality, and a government willing to guarantee more financial security.

Those goals can sound appealing.

But before America embraces socialism as the answer to its economic and social problems, we should ask a more important question:

What does history tell us happens when societies move away from free markets, private property, and individual economic freedom and toward greater government control?

The historical record provides a sobering answer.

Capitalism is imperfect. It can produce inequality, economic disruption, corporate concentration, and financial crises.

But socialism has repeatedly produced something far more dangerous: the concentration of both economic and political power in the hands of the state.

For the United States, that is the wrong path.

Socialism Was Born From Real Problems

To understand socialism's appeal, we first have to acknowledge why it emerged.

The Industrial Revolution transformed the world, but the transition was anything but painless. Early industrial cities suffered from terrible working conditions, disease, economic instability, and enormous disparities between rich and poor.

Karl Marx and Friedrich Engels looked at those conditions and predicted capitalism would eventually destroy itself.

According to Marx, wealth would become increasingly concentrated among a small capitalist class while workers would become progressively poorer. Eventually, the working class would revolt, private property would disappear, and a new economic system would emerge.

There was just one problem.

Capitalism didn't follow the script.

Capitalism Adapted Instead of Collapsing

Industrial societies certainly experienced inequality. But something happened that Marx failed to anticipate.

Workers became more prosperous.

They organized unions. Wages increased. Voting rights expanded. Governments introduced public education, pensions, progressive taxation, and other reforms.

In Britain, for example, real wages for London construction workers roughly doubled between 1848 and 1913.

Capitalists also discovered a simple economic reality Marx underestimated:

Workers are also customers.

A prosperous middle and working class created an enormous market for the products businesses were producing.

Capitalism therefore proved capable of something centrally planned economies would later struggle to accomplish: adaptation.

It wasn't necessary to abolish private property or free enterprise to improve the lives of workers. Democratic societies could reform capitalism while preserving the incentives that created economic growth in the first place.

Then Socialism Was Put to the Test

For much of the nineteenth century, socialism was primarily an idea.

The twentieth century gave the world an opportunity to see what happened when governments actually tried it on a massive scale.

The results should matter enormously to today's debate.

The Soviet Union created a centrally planned economy in which the government controlled enormous portions of economic life.

For decades, many Western intellectuals believed it might work.

Some prominent economists even predicted that the Soviet economy would eventually surpass America's.

It never happened.

According to the historical evidence cited by Niall Ferguson, after World War II the Soviet economy never exceeded 44 percent of the size of the U.S. economy. By 1991, Soviet GDP had fallen below one-third of America's.

The problem wasn't simply that socialism failed to outperform capitalism.

The human consequences were far worse.

Communist governments in the Soviet Union, China, Cambodia, and elsewhere combined economic control with extraordinary political repression and enormous loss of life.

Central planning also repeatedly failed economically. Agricultural collectivization reduced productivity, incentives disappeared, shortages became common, and governments struggled to determine something markets calculate millions of times every day:

What should be produced, how much should be produced, and what should it cost?

Markets Work Because Nobody Has to Know Everything

One of capitalism's greatest strengths is easy to overlook.

No single person controls it.

Millions of individuals make decisions based on information available to them.

Consumers decide what they want.

Businesses decide what they believe consumers will buy.

Workers decide where to sell their labor.

Entrepreneurs risk their money pursuing new ideas.

Investors decide which businesses deserve capital.

Prices communicate information throughout the system.

It is messy. Companies fail. Industries disappear. People make bad investments.

But that decentralized decision-making is also why capitalism is extraordinarily adaptable.

Socialism attempts to replace much of that process with political decision-making.

And history repeatedly demonstrates how difficult that becomes.

The more decisions government controls, the more economic power becomes concentrated among the people running the government.

That should concern Americans regardless of their political affiliation.

China's Rise Actually Strengthens the Case for Markets

China provides one of the clearest examples.

For decades after its communist revolution, China maintained extensive government control over economic activity.

Then reforms beginning in 1978 gradually allowed greater private initiative and market competition.

The results were dramatic.

China experienced extraordinary economic growth as restrictions on private enterprise were loosened.

As Ferguson points out, China's non-state sector eventually became responsible for roughly two-thirds of GDP growth and approximately eight out of every ten new jobs.

That raises an obvious question:

If socialism was responsible for China's economic miracle, why did the miracle accelerate after China moved toward markets?

China remains politically communist, but much of its economic success came from introducing mechanisms associated with capitalism: entrepreneurship, private businesses, investment, competition, and market incentives.

What Many Americans Call Socialism Isn't Actually Socialism

There is also considerable confusion about the word itself.

Many young Americans who say they support socialism aren't calling for Washington to take ownership of Apple, Ford, Amazon, Microsoft, local restaurants, farms, banks, and millions of other private businesses.

They generally mean something different.

They want affordable healthcare, lower college costs, stronger social programs, and greater economic equality.

Those are legitimate policy debates.

But they are not necessarily arguments for socialism.

Countries such as Sweden are frequently described as socialist, yet they maintain private businesses, entrepreneurship, competitive markets, and private property.

A government can tax a capitalist economy and redistribute some of the resulting wealth without actually replacing capitalism.

That distinction is critical.

A social safety net is not the same thing as socialism.

America can debate how large government should be, how much taxation is appropriate, and which social programs government should provide without abandoning the market economy that generates the wealth those programs depend upon.

The Most Important Issue May Be Property Rights

Perhaps the strongest warning from history concerns something even more fundamental than economic growth.

Property rights.

Ferguson argues that socialism ultimately requires weakening private property rights because the state must gain control over resources previously controlled by individuals.

That makes the rule of law enormously important.

In a capitalist democracy, government power is supposed to have limits. Courts protect contracts and property. Businesses can challenge government actions. Individuals have legal protection against arbitrary confiscation.

When those protections disappear, economic freedom becomes dependent upon political favor.

Ferguson's distinction is important: capitalism does not necessarily depend upon perfect democracy, but it does depend heavily upon the rule of law and enforceable property rights.

Once government possesses enough power to decide who may own what, political and economic power begin merging.

History suggests that combination deserves extreme caution.

But Capitalism Still Needs Guardrails

Rejecting socialism does not require pretending capitalism is perfect.

It isn't.

Capitalism can produce monopolies.

It can produce enormous inequality.

Globalization can devastate communities when industries move overseas.

Financial markets can behave irresponsibly.

Large corporations can accumulate too much influence.

And technological disruption can destroy careers and industries almost overnight.

Joseph Schumpeter famously described capitalism as a process of "creative destruction."

The creation gets most of the attention.

The destruction is very real.

America therefore shouldn't choose between completely unrestricted capitalism and socialism.

We should make capitalism work better.

Encourage competition.

Protect workers and consumers.

Prevent monopolistic behavior.

Maintain an appropriate social safety net.

Make education and economic mobility priorities.

Demand responsible government spending.

Protect entrepreneurship.

And above all, defend the rule of law and private property.

Those reforms strengthen capitalism without destroying the incentives responsible for creating prosperity.

America's Greatest Economic Advantage Is Freedom

America became an economic powerhouse not because Washington planned which companies would succeed.

It happened because millions of people were given the freedom to try.

Someone could start a company.

Invent a product.

Buy property.

Invest money.

Hire employees.

Fail.

Start again.

And potentially build something extraordinary.

That freedom created countless businesses and industries that no government planning committee could possibly have anticipated.

The American economic system works precisely because its future isn't centrally planned.

It is discovered.

Every entrepreneur, employee, investor, and consumer participates in discovering what comes next.

Socialism shifts more of those decisions from individuals to government.

And regardless of how noble the original intentions may be, concentrating economic power also concentrates political power.

History gives Americans good reason to be skeptical of both.

Learn From History Before Repeating It

Capitalism's critics are right about one thing: the system always needs improvement.

But recognizing capitalism's shortcomings does not mean socialism is the solution.

The twentieth century gave humanity an enormous economic experiment.

Countries pursued different combinations of markets, private property, government ownership, and central planning.

The results were not perfect anywhere.

But the broad lesson is difficult to ignore.

Societies that protected markets, private property, entrepreneurship, and the rule of law generally produced greater prosperity and individual freedom. Economies dominated by central planning repeatedly struggled with inefficiency, shortages, stagnation, and—in the worst cases—political repression.

That doesn't mean America should ignore inequality.

It doesn't mean we shouldn't reform healthcare.

It doesn't mean college affordability, housing costs, wages, corporate concentration, or economic mobility aren't serious issues.

They are.

But we should solve those problems without discarding the economic principles that helped make the United States prosperous in the first place.

The choice isn't between accepting every flaw of capitalism and embracing socialism.

There is a better option:

Fix what is wrong with capitalism while protecting what is right about it.

Preserve competition.

Protect private property.

Reward innovation and work.

Maintain the rule of law.

Create opportunities for people to move upward.

And keep economic power dispersed among millions of Americans rather than concentrating it in Washington.

America does not need to repeat the economic experiments of the twentieth century to discover where socialism can lead.

History has already run that experiment. We should learn from it.