Anthony Davies

© 1998, Cline & Davies Research Alliance

As the Yeltsin government faces its most turbulent time, observers are beginning to consider the real possibility that Russia may, once again, embrace communism. As a nation, we are distanced enough from the cold war and McCarthyism (perhaps for the first time in our history) to take a dispassionate look at what it means for a society to be communist. Let us begin with a truth that will be surprising to many: neither Russia, nor the Soviet Union before her, has ever been communist. The word "communism" usually conjures images of an authoritarian government that is short on personal freedom and long on bread lines. In truth, the Soviet Union was politically totalitarian and economically socialistic. The former was responsible for the lack of freedom, the latter for the presence of bread lines. Communism, as an economic system, has been successfully practiced over the past several millennia by many religious orders. In an economically communist system, all members of society equally own the means of production (the land, the buildings, the machinery) and equally share in the ownership of the output and the decision making. There seem to be two general requirements for a communist system to be viable: (1) the members of the society must be drawn together by a higher ulterior motive (i.e. the members must be striving toward some other goal, the means, not the end, of which is economic activity), (2) the members of society must be personally familiar with each other. Communism works for religious communities because (1) their primary raison d’être is to serve God, and (2) they are generally small enough in membership that every one knows every one else. Russian society satisfies neither of these requirements for a viable communist system. Russia, however, was not communist, but socialist.

In a socialist system (also called a "command economy"), the government owns most of the means of production, decides how much output key industries will produce, and sets prices of many products and services. In a command economy, prices become levers that are perceived to cause economic activity rather than indicators measuring economic activity. Command economies fail to achieve the best for the most because the government (1) has imperfect information at the time it makes its decisions, (2) cannot summon the results of those decisions immediately, and (3) can never guarantee that the decisions made are the correct ones. A sad but humorous example of this occurred when the Russian economy was first going through its transition from command economy to free market. The Russian government owned and controlled the industry that made dump trucks. The government decreed that production of dump trucks be increased. On the market, however, there was already a surplus of dump trucks, but a shortage of busses. Seeing an opportunity, an entrepreneur started a company that bought dump trucks from the government, stripped them down to their chassis, and built buses on top of the chassis. Because the government could not perfectly measure what the economy needed and when and where the need was, the government made an incorrect decision, the result of which was massive economic waste.

Russia may yet return to economic socialism. Advocates claim that a socialist system is good because economic power can never become concentrated in the hands of large monopolies. This claim is partially true: one of the four instances in which capitalism fails to achieve the most good for the most people is when monopolies develop. In practice, however, a socialist system merely replaces one monopolist with another – instead of most of the economic power being concentrated in the hands of monopolists, it is concentrated in the hands of government bureaucrats. Advocates also claim that, in a socialist system, there will be less economic stratification as is seen between rich and poor in free market systems. This claim is also partially true: in a socialist system, people are prevented from becoming rich because they cannot own the means of production. However, because they cannot own the means of production, invention and innovation are not rewarded and so there is little of either. The result is that there is less economic stratification because everyone is equally poor. Bear in mind as well, that the US poverty statistics quoted by socialist advocates are often misinterpreted. For example, while it is true that 21.3% of the population were classified as being poor for 2 or more months of 1991, only 5.1% of the population were classified as being poor for the entire 24 months from January 1991 through December 1992. Thus, while it is true that, at any given point in time, many Americans are classified as "poor", over the course of a couple of years, most of those poor cease to be poor.

It is true that Russia has had a rocky start on its road to a free market system. Most of that rocky start, however, has to do with the failure of the government to understand its proper role in a free market economy. Adam Smith was not entirely correct, a pure laissez-faire policy is not conducive to a healthy economy. The government is needed to compensate for the natural failures of a free market system (this function, however, can be achieved with a government only a fraction of the size of most major governments). However, a strongly interventionist policy is not healthy either – in all but a few circumstances, the government needs to allow the market to make its own decisions. Russia’s failure in its free market experiment lies in its simultaneously intervening where it shouldn’t have and not intervening where it should have.

Return to Cline & Davies Research Alliance