‘Why Socialism Failed: A 2018 Update,’ Part IV
Here is Part IV and the final section of my updated essay “Why Socialism Failed,” see Part I here, Part II here, and Part III here.
Why Socialism Failed: A 2018 Update, Part IV: Incentives Matter
Without the incentives of market prices, profit-and-loss accounting, and well-defined property rights, socialist economies like Venezuela stagnate and wither. The economic atrophy that is now occurring in socialist Venezuela is a direct consequence of its neglect of economic incentives.
As we can learn from Venezuela today, no bounty of natural resources can ever compensate a country for its lack of an efficient system of incentives. Venezuela has the world’s largest reserves of one of the most precious commodities on the planet – crude oil (see chart above, Venezuela’s reserves are 8.6 times greater than America’s). Russia, as another example, is one of the world’s wealthiest countries in terms of natural resources; it has some of the largest reserves of oil, natural gas, diamonds, and gold. Its valuable farmland, lakes, rivers, and streams stretch across a land area that encompasses 11 time zones. Yet both Russia and Venezuela remain poor. Natural resources are helpful, but the ultimate resources of any country are the unlimited resources of its people–human resources.
By their failure to foster, promote, and nurture the potential of their people through incentive-enhancing institutions, centrally planned, socialist economies deprive the human spirit of its full development. Socialism fails because it kills and destroys the human spirit — just ask the millions of starving, malnourished, desperate people leaving Venezuela today for Colombia, Ecuador, Peru, and Brazil (see photo below).
As socialist economies around the world inevitably move toward free markets, capitalism, and democracy, they will look to the United States for guidance and support during the transition. With an unparalleled 250-year tradition of open markets and limited government, the United States is uniquely qualified to be the guiding light for countries like Venezuela in their eventual transition to freedom and liberty.
Despite a recent trend among young Americans who have mistakenly embraced socialist ideology and propaganda, the United States has an obligation to continue to provide a framework of free markets and democracy for the global transition to freedom. Our responsibility to the rest of the world is to continue to fight the seductiveness of statism around the world and here at home as promoted by socialists like Bernie Sanders and Alexandria Ocasio-Cortez. The seductive nature of statism is strong, especially to the young and ill-informed, and continues to tempt and lure us into the Barmecidal illusion that socialism can create wealth.
The temptress of the socialism advanced today by Sanders and Ocasio-Cortez, is constantly luring young Americans with the enticing offer: “give up a little of your freedom and I will give you a little more economic security.” And free college tuition, free healthcare and guaranteed housing. As the experience of Venezuela has clearly demonstrated, the bargain is tempting but never pays off in the long run. The unfortunate citizens of Venezuela have ended up losing both their freedom and their economic security.
Programs like socialized medicine, free college, guaranteed jobs, free housing, and living wage laws will continue to entice us because on the surface they appear to be expedient and beneficial. But those programs, like all socialist programs, will fail in the long run regardless of initial appearances. These programs are part of the dangerous Big Lie of socialism because they ignore the important role of incentives.
As we’ve learned from the recent rising popularity of Bernie Sanders and Alexandria Ocasio-Cortez, socialism remains a constant temptation. We must be vigilant in our fight against socialism not only around the globe but also here in the United States.
The failure of socialism in the 20th century inspired a worldwide renaissance of freedom and liberty in the 1980s and 1990s. For the first time in the history of the world, a majority of the people in the world were living in free societies or societies rapidly moving toward freedom as the last century ended.
Capitalism will play a major role in the inevitable global revival of liberty and prosperity in the 21st century because it nurtures the human spirit, inspires human creativity, and promotes the spirit of enterprise. By providing a powerful system of incentives that promote thrift, hard work, and efficiency, capitalism creates wealth and prosperity.
Socialism is being repackaged and recyled by today’s left-leaning politicians including Sanders and Ocasio-Cortez and is being taken seriously by a new young and guilible generation, many who weren’t even alive when the historic events of the 1980s and 1990s occured including the fall of the Berlin Wall and the collapse of the Soviet Union. But the lessons from history about the defects, deficiencies and failures of socialism are very clear. As we’ve learned from countless examples throughout history, including now Venezuela, the main difference between capitalism and socialism is this: Capitalism works.
‘Why Socialism Failed: A 2018 Update,’ Part IV