The term “socialism” is generally used to refer to an economic and political ideology whose premise is for state ownership of non-human means or factors of production and distribution, and centralized planning and control of economic activities, particularly activities in key and strategic commercial and industrial sectors of a country’s economy.
The means or factors of production and distribution alluded to include land and the various forms of capital, such as raw materials, financial assets and institutions, manufacturing facilities, assembly plants, machinery and equipment, transportation facilities, service centers, and retail outlets.
In socialist countries, therefore, some elements of private ownership of the means or factors of production and distribution are permissible, particularly in non-strategic commercial and industrial sectors of such countries’ economies.
There are many socialism-related issues and risks associated with propositions and pronouncements by Karl Marx and Frederick Engels in the Manifesto for the Communist Party which cannot only scare or fan away private investors but prohibit them from investing their capital in a country whose economy is, by design, based on socialist ideals, or a country that has political parties which have the potential to secure the people’s mandate to form government.
Such issues and risks include the following:
(a) Eradication of what the duo referred to as bourgeois competition;
(b) Abolition of free trade and of buying and selling of commodities;
(c) Abolition of private property and replacing it with communal control of a country’s national economy through nationalization or expropriation of such property;
(d) Nationalization or expropriation of privately owned business entities and conversion of such entities into state-owned enterprises; and
(e) Imposition of price controls, which require business entities to charge prices prescribed by the government for their products irrespective of the costs associated with the creation of the products.
As commonsense and observation have taught us, international trade and private investment are two vital drivers of both economic growth and economic development. Clearly, therefore, countries that actively and zealously participate in cross-border trade and simultaneously create a conducive and hospitable environment for private investment, among other pursuits and endeavors, have a much greater chance of improving the livelihoods of the majority of their citizens.
In practically all affluent nations of the world today, privately owned and operated business undertakings are the major institutions that are in the forefront searching for efficient and effective ways and means for application in the creation and delivery of a cornucopia of high-quality goods and services at competitive prices.
In these nations, business entities are greatly depended upon to keep the stream of discoveries flowing in the form of consumer goods and services.
We, for example, know too well that the affluence being enjoyed by citizens in such countries as Canada, France, Japan, Great Britain, and the United States today is the direct outcome of a relentless quest for new and improved forms of technology in agriculture, agribusiness, commerce, and the manufacturing industries by privately owned and operated business entities.
Naïve socialists and communists worldwide are likely to point to China as an excellent example of a communist country whose economic outputs have continued to flood the entire world unlike any other country in modern history.
In this regard, News China (2019:1) in an editorial has summed up the actual reason for the country’s economic success in the following words: “China’s economic success in the past decades has been established on the premise of a liberalized and vital private sector.” And Chinese President Xi Jinping affirmed in a meeting on November 1, 2018 that the Chinese government will support the private sector to become bigger and stronger.
Private investors in the Chinese economy include indigenous capitalists and investors from a wide range of countries, including Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States of America.
As I noted in a previous article entitled “The Privatization of State-Owned Assets Explained,” what has happened to countries worldwide whose economies are, or have been, based on socialist ideals, should offer us guidance. In the following paragraphs, I have re-cited examples of socioeconomic ills associated with government ownership of the means of production and distribution.
(a) Cuba: The country’s economy is dominated by state-run enterprises. The government owns and operates most industries in the country. The country is currently experiencing the worst economic crisis in its history. Akin to Zambia’s unpalatable experiences during the late 1980s when the country’s commercial and industrial sectors were captained by state-owned enterprises, stores in Cuba no longer routinely stock products including eggs, flour, chickens, cooking oil, rice, powdered milk, and ground turkey.
These basic commodities disappear from shops for days or weeks. Hours-long lines appear within minutes of trucks showing up with new supplies, and shelves are often empty the same day.
(b) East Germany: East Germany had a command economy—an economy captained by State enterprises. It experienced economic problems similar to those experienced by other socialist countries worldwide. Prior to the end of World War II in 1945, a War that started in 1939, East Germany and West Germany were one country. After the War, Soviet forces occupied eastern Germany, while French, British and U.S. forces occupied the western half of the country.
The Berlin Wall was constructed by East Germany with the help of the now-defunct Soviet Union in 1961 to prevent the socialist country’s citizens from escaping to the more affluent and democratic West Germany.
At least 171 East Germans were killed trying to defect to West Germany, while more than 600 border guards and 4,400 other refugees “managed to cross the border [illegally] by jumping out of windows adjacent to the wall, climbing over … barbed wire, flying in hot air balloons, crawling through … sewers, and driving through unfortified parts of the Wall at high speeds”—History.com Editors, 2019.
The introduction of perestroika and glasnost in the former USSR by the Mikhail Gorbachev administration in 1987 and the eventual break-up of the USSR on December 26, 1991 occasioned the dismantling of the Berlin Wall, which separated communist East Germany and capitalist West Germany, in November 1989 and eventual reunification of the two countries into a united capitalist Germany upon the signing of a reunification treaty on August 31, 1990.
(c) Venezuela: Shortages of regulated food staples and basic necessities are widespread mainly following the country’s enactment of price controls and other socialist policies. The severity of the shortages has led to the largest refugee crisis ever recorded in the Americas. There are shortages of milk, meat, coffee, rice, oil, precooked flour, butter, toilet paper, medicines, and personal hygiene products.
Hours-long lines have become common, and those who wait in them disappointingly go back to their homes empty-handed. Some citizens have resorted to eating wild fruit and garbage.
The country has been governed for the past 20 years by the socialist PSUV party. From 1999 to his death in 2013, Hugo Chávez was president. He was succeeded by his right-hand man, Nicolás Maduro. During its two decades in power, the PSUV has gained control of numerous key economic institutions.
On September 24, 2019 in a speech delivered at the United Nations General Assembly in New York, Jair Bolsonaro, then President of Brazil, uttered the following words relating to the socioeconomic ills facing Venezuela: “It is fair to say [that] socialism is working in Venezuela—they are all poor.”
(d) Zimbabwe: The economic history of Zimbabwe began with the transition to majority rule in 1980 and Britain’s ceremonial granting of independence. The new government under Prime Minister Robert Mugabe promoted socialism and Marxist-type rule. Within 20 years, the country has had unprecedented socioeconomic woes, rampant corruption and political instability, which have continued to haunt the country to date.
Note: In October 2001, Zimbabwean president, the late Mr. Robert Mugabe, stunned the world by abandoning his country’s economic liberalization efforts. News headlines in this regard were self-explanatory: “Mugabe Returns Zimbabwe to Socialism” (Independent Online, 2001) and “Zimbabwe a Step Closer to Marxist-Style Economy” (Independent Online, 2001).
(e) The Soviet Union: The Soviet economy was based on State ownership of the means of production and distribution. In May 1985, newly “elected” Mikhail Gorbachev delivered a speech in which he publicly criticized the Soviet Union’s inefficient socialist / communist system.
This was followed by a February 1986 speech to the Communist Party Congress, in which he talked about the need for political and economic restructuring (that is, Perestroika) and called for a new era of transparency and openness—that is, Glasnost.
It was reasoned that the lack of open markets which could have provided price signals and incentives to direct economic activity led to waste and economic inefficiencies. The Union of Soviet Socialist Republics (USSR) ceased to exist on December 31, 1991.