Por qué fracasó el socialismo real / Héctor Silva Michelena

Why Actually Existing Socialism Failed

We tend to accept that this failure was due to the conjunction of three characteristics that were unique to it: 1) the allotment of goods by an administrative apparatus, which eliminated competition between producers; 2) the direct control of businesses by political units; and 3) the lack of liberty and democracy. But this identification of problems does not explain failures; we must uncover the mechanism that hindered economic development. Various authors, such as John E. Roemer, alluded to the relation between management and agents as a serious problem for Soviet-style economies (this was also called the principal-agent relationship). The various socialisms faced this problem in three types of economic relations: between executives and workers, between planners and entrepreneurial executives and between the public and planners. All of these were based on the utopian conception that economic incentives weren’t necessary for resolving this problem; however, the expected coherence barely functioned. It went well between 1950 and 1970, and the economies responded when the war was over and planning was improved.

That’s why the explanation needs to be reformulated. The conjecture in vogue now is that what varied was the dependence of the growth of economic well-being in respect to technological change. During the post-war era the rhythm of growth increased due to the need for reconstruction without innovations. A situation that ended by the 1980s. At that point much more depended already on technological innovation, which socialism failed to create and introduce. The truth is that, without competition in markets—both national and international—no business was obliged to innovate, and without the motivation of competition there is no innovation, at least not at the rhythm attained by market economies.

The matter for socialism is, then, if an economic mechanism can be designed that will allow technological innovation but will also inhibit the evolution of a typically capitalist rent distribution. Said more concretely: Can competition be fomented between businesses that will impel innovation without a regime of the private property of the means of production? This matter is vital, since to this day innovative processes as a generic, multi-sectional phenomenon have not been observed in any economy separate from those fomented by competition.

In Venezuela, Chávez and his acolytes have announced the implantation of a socialist economy, for which they identify five motors that public opinion is well aware of, the central one being a new enabling law, which would turn one man alone into the creator of a new way of life that would last forever. The role of the market and innovation, the principal motors of a socialist free market, are absolutely never mentioned. What awaits us then is a military and single-party totalitarianism, identical to those that failed. Who will pay the costs?

{ Héctor Silva Michelena, TalCual, 17 January 2007 }

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