According to the economist and former Finance Minister of Greece Yanis Varoufakis, since the 2008 recession the global economy has been in a state of limbo. Year after year the global economy has been faced with chronic low growth, low infrastructure investment, and low demand. This has caused all sorts of nasty externalities such as the rise of the nationalist Right in Europe and America. What is needed now more than ever are bold solutions to the economic problems we face. Where do we look for such solutions? Since the collapse of the Soviet Union in 1991, socialism has been regarded as impractical and contrary to human nature. But the Soviet Union is only one form of socialism (if that) and to ignore other means of implementing socialist ideas is dangerous, for what is needed now, in this our darkest hour, are radical ideas to tackle not just the dangerous, destabilizing levels of wealth and income inequality seen around the world but also the ever present dangers of climate change and nuclear war that threatens every human being on the Earth. The goal of this paper is to retrace the origins of 20th century socialism as it was implemented, to listen to critiques of that system from both sides of the political spectrum, and to ultimately decide what is to be done.

The roots of what most people consider socialism sprang from the Bolshevik Revolution in Russia. There, the doctrine that became known as Marxism-Leninism was forged and crystallized. The titular founder of Marxism-Leninism, Lenin, was by all accounts a demagogue. Emma Goldman, an American anarchist expatriated to the newly founded Soviet Union and who met personally with Lenin on a couple of occasions, describes that for Lenin, “the Revolution and Communism to him was a very remote thing.” (Goldman). What Lenin cared about most, Goldman writes, was the seizure of state power. French anarchist and historian Daniel Guerin charts in his book Anarchism: From Theory to Practice the origins of Lenin’s sociopolitical views: “Lenin took a lesson from contemporary German state capitalism, the Kriegswirtschaft (war economy). Another of his models was the organization of modern large-scale industry by capitalism, with its ‘iron discipline.’ He was particularly entranced by a state monopoly such as the posts and telegraphs and exclaimed: ‘What an admirably perfected mechanism! The whole of economic life organized like the postal services,... that is the State, that is the economic base which we need.’ To seek to do without ‘authority’ and ‘subordination’ is an ‘anarchist dream,’ he concluded. At one time he had waxed enthusiastic over the idea of entrusting production and exchange to workers’ associations and to self-management. But that was a misdeal. Now he did not hide his magic prescription: all citizens becoming ‘employees and workers of one universal single state trust,’ the whole of society converted into ‘one great office and one great factory.’ There would be soviets, to be sure, but under the control of the workers’ party, a party whose historic task it is to ‘direct’ the proletariat.” (Guerin). As Guerin shows, Lenin deviated from the socialist concept of worker ownership of the means of production, becoming increasingly entranced during his life with the concept of the state and state ownership of the means of production instead. MIT Professor Noam Chomsky elaborates further in a 1989 Q and A session where he was asked what his thoughts on Lenin were: “Lenin was a right-wing deviation of the Socialist movement and he was so regarded, he was regarded as that by the Marxists, by the mainstream Marxists. We’ve forgotten who the mainstream Marxists were because they lost, and you only remember the guys who won. But if you go back to the, to that period, the mainstream Marxists were people like for example, Anton Pannekoek, who was head of education for the, uh, Marxist movement and a serious, he’s the one, one of the people who Lenin later denounced as an ‘infantile leftist’, but he was one of the leading intellectuals of the actual Marxist movement. Uh, Rosa Luxemburg was another mainstream Marxist and there were others. And they were very critical, in fact Trotsky was one up until 1917, they were all very critical of Leninism, because of this, what they regarded as this opportunistic Vanguardism, the idea that the radical intelligentsia were going to exploit popular movements to seize state power and then to use that state power to whip the population into the society that they chose.” (Chomsky). From this man came the well spring of authoritarian socialism, first Stalinism, then Maoism, Titoism, and so on. What one is ultimately left with, is what University of Birmingham Professor of Soviet Economics Philip Hanson calls the “USSR Inc.”: “Basically, the whole economy was run like a single giant corporation - USSR Inc. … The fundamental difference from a market economy was that decisions about what should be produced and in what quantities, and at what prices that output should be sold, were the result of a hierarchical, top-down process culminating in instructions ‘from above’ to all producers; they were not the result of decentralized decisions resulting from interactions between customers and suppliers.” (Hanson 9). This “top-down”, command economy, Lenin’s “single state trust”, ultimately failed and failed spectacularly in December of 1991 with the breakup of the Soviet Union. Since then right-wing critics have savaged the very concept of socialism by pointing to what is really an extreme version of state capitalism. Let us examine these critiques.

The most banal right-wing critique of statist Soviet socialism is explained in a well thought out article called “The Nondesignability of Living Systems: A Lesson from the Failed Experiments in Socialist Countries” by Jixuan Hu: simply, that it’s contrary to human nature. Using recent breakthroughs in behavioral science and systems theory to make his point, the author’s article ultimately boils down to this: that human beings are inherently irrational and any attempt to fine tune them, to create machines out of men, will ultimately fail. Ironically, the same could be said about capitalism. People create value and attempting to whip them into a machine-like efficiency by forcing them to work longer hours for lower wages will result in the devaluing of society’s products and cause all kinds of problems that this paper will examine later. Mark J. Perry, currently a visiting scholar for the conservative thinktank, the American Enterprise Institute, offers the most compelling right-wing critique of Soviet-style socialism: that it ignores key economic incentives that are necessary to drive the economy forward. Writing in 1995 for the Foundation for Economic Education, another right-wing thinktank, Perry states that there are three key incentives missing in a Soviet-style economy: “In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter! Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!” (Perry). The author of this paper could not agree more! Any economic system that ignores incentives is a fundamentally flawed system. Market prices determine what jobs need doing the most and signal to suppliers what goods and services are most in demand. Likewise private property rights are necessary to ensure that what is earned by the sweat of one’s brow cannot be arbitrarily taken away. So what does this tell us about 20th century socialism and what can we learn as a lesson from it? That we ignore incentives at our peril and if we are to implement socialism (that is, worker ownership of the means of production) in the 21st century we cannot do away with markets.

Markets, as a means of distributing society’s scarce resources, work reasonably well. However, where markets break down is in the labor market, where the battle between labor and capital, wages and savings, takes place. If wages are too high, they eat into a firm’s ability to invest and expand. On the flip side, if wages are too low the working poor do not have enough money to consume the goods society produces and the rich have too much money, more than they could possibly need. After all, a rich man who has a thousand times the income of a poor man does not also have a thousand times the appetite, or a thousand times the need for housing, or clothing, or medical care, etc. When the economy is functioning properly the money the rich man does not consume is saved and invested back into the economy. But what happens when investors are wary to invest for fear of future demand? If the market is already oversaturated with goods not being consumed who in their right mind would want to invest into the economy? So the savings of the rich become idle cash, not being reinvested and, since in an economy total income equals total expenditure, incomes shrink accordingly. At precisely the same time firms begin laying off workers to deal with the deflationary pressure affecting the market, thus exacerbating the crisis, lowering aggregate demand still further. And so, as if by an invisible hand (to borrow a phrase from Adam Smith), everyone, cautious investor, shrewd firm, and penny-pinching consumer, acting in their own self-interest, come about to create perfect chaos. This is what happened during the Great Depression and this is why income inequality is such an important economic factor. President Roosevelt’s New Deal created essential transfer payments systems, giving the economy enough macroeconomic stability to ensure that a Great Depression never happens again. Social Security, the FDIC, food stamps, as well as later Great Society programs such as Medicare and Medicaid all act as means of transferring wealth from the rich to the poor and ensuring that the factories of the global economy keep humming and the shelves constantly restocked. There are some in our government that seem to forget the lessons of 1929 and would like to privatize Social Security, would like to cut Medicaid and our Supplemental Nutrition Assistance Program (SNAP) out of existence and thus doom the country to long-term instability for their short-term gains. There is no reason to believe that a second New Deal will not also be slowly eroded away and the tragic cycle of relearning lessons that were previously common knowledge won’t continue. So why not tackle the real root of the problem rather than mitigating for its effects? To truly end the constant tragedy of economic boom and bust (and, one cannot stress enough, the political instability that follows) the people who produce the wealth in society, the working-class, should own their workplaces. They should be the ones who decide the conditions and hours of their work, they should be able to democratically elect their managers, and they should ultimately determine how the profits of their labor are distributed. Through collective ownership of the workplace, each worker would have a personal stake in the firm and an incentive to see its profit margins increase, since increased profits means a larger pool to be distributed as income. No more battle between labor and capital, instead the workers would democratically decide how much of the profits of their firm goes toward investment and how much of it goes toward income. Essential incentives in our current capitalist system that ensure we have a steady supply of doctors, custodians, teachers, etc. would remain perfectly intact since not all incomes would be perfectly equal and would still largely be dictated by the laws of supply and demand.

Socialism as an economic concept was distorted, intentionally and unintentionally, by the Soviet experiment of the 20th century and its subsequent progeny. There are examples of democratic, centrally planned socialist economies in history that did work, however, like the candle that burns brightest, external forces were quick to extinguish them. These examples include the 1871 Paris Commune, Republican Spain during the Spanish Civil War, the Makhnovshchina in Ukraine that lasted from 1919-21, even the soviets during the first few months following the October Revolution, before Lenin and Trotsky put them under their control. By the nature of their short lifespans it is impossible to conclude whether they would survive in the long term and hold up against right-wing critique of planned economies. Perhaps in the future, when most work is automated by machines, there may be a need to transition towards such a type of society where “to each according to his need” can actually be implemented practically. As Yanis puts it: “... the question is not whether capitalism will survive the technological innovations it is spawning. The more interesting question is whether capitalism will be succeeded by something resembling a Matrix dystopia or something much closer to a Star Trek-like society, where machines serve the humans and the humans expend their energies exploring the universe and indulging in long debates about the meaning of life in some Ancient Athenian-like high-tech Agora.” (Varoufakis). Until that day dawns, we must look towards a strange hybridized version of capitalism and socialism, a market socialism if you will, to answer the crisis facing the global economy.
