Why Communist Economies Fall Short

Why Communist Economies Fall Short


B: One thing that may have led to communist philosophy in the first place was the supposedly appalling relative wealth of citizens in capitalistic societies.  Some were so wealthy, they could have provided for hundreds, even thousands, of poor people, and yet they didn’t while many starved or labored under what seems to have been extreme difficulty to survive.  It may have been natural to some to think that such wealthy people should be coerced to surrender their wealth for those many others who were struggling.  One idea behind the communist government was that everyone would be equal in wealth, and that everyone’s gains would be distributed evenly throughout the general population.

This may sound appealing in theory, but it turns out to be difficult to achieve the goal of this idea in practice, and the reason may be traced to motivation.  To illustrate, take the story told of a school class taught by a certain professor, who guaranteed that everybody would get the same grade in the class; that is, the class average.  When the first test came up, the class average was a “B.”  Those who had studied diligently for the test, who would have received an “A,” had their grades reassigned to the “B” average.  Those who hadn’t been so diligent in their studies, who would have received a “D,” also were reassigned the “B” average grade.  What do you think would happen for the next test?

A: Well, I –

B: I’ll answer for you: those who studied hard, who would have received an “A” on the previous test, saw little reason to study as hard for the next test, since they knew it wouldn’t benefit them as much, and those who didn’t study hard for the previous test, who should have received a “D,” figured they didn’t need to study at all, since their little study was rewarded with a grade better than they deserved the previous time.  The class averaged, unsurprisingly, a “C” for the second test, and so everybody got a “C” grade on that test.  Again, those who should have scored higher than a “C” had little motivation for extra study, and neither had those who should have scored lower than a “C,” so the class averaged a “D” on the third test.  And so it goes.

Likewise so it is with communistic economies, where the wealth is spread throughout the entire population: those who are more talented or resourceful at obtaining wealth are squelched of the motivation to do so, seeing how they don’t benefit any more than the next guy and would end up supporting a large portion of the remainder of the population, and so they aren’t as productive as they would be if they were operating within a free market.  Also, those who are not so talented or resourceful at obtaining wealth are no more motivated than otherwise either, since they know they’ll get the same as everybody else regardless of how hard they work.  And this results in the entire society underperforming.

Another reason communist governments haven’t been successful is that they don’t allow a person to choose his own profession.  If the state wants progress in a certain sector – as communist Russia wanted, in its infancy, to improve steel and other manufacturing industries – it doesn’t necessarily matter if you may have wanted to pursue a different career; you may be consigned to work in that sector the state has mandated for you.  Therefore, people who have abilities and interests in other fields are not even allowed to be productive in those fields at all, and instead become relatively unproductive in their forced field of labor.  It’s no wonder, then, that in this environment, the economy fails.  After communism fell in Russia, some enterprising individuals went to open business there, with drastically improved results.  Shortly thereafter, it was shown that the productivity of some farms in a former satellite state that owned them could be improved many times over.1

A: Buddy, everybody knows that communistic economies are lousy.

B: Well then why are we continually strapping ourselves with more and more laws and taxes, to the point that we’re continually emulating a communistic society further?  The rich are taxed at such a high rate that it’s almost akin to forced support of others in the country who are underperforming.  This may result in lack of motivation for people who have talent and capital to invest in improving the economy, and may follow the same path the aforementioned class and communistic societies have trod.  As mentioned before, new laws benefitting some lead to newer laws benefitting others, leading to the creation of more and more laws, increasingly binding the workforce and slowing the economy to the point that it resembles the stodgy, decaying, broken-down machine the Soviet economy was before it finally, simply (and inevitably) collapsed.

A: Good heavens.  You make it sound like there’s no hope for the economy.

B: While this may very well be, sadly, the direction the U.S. economy is taking, if it wasn’t for the repeal of those economy-slowing laws, it would be approaching that dystopian ideal more quickly.  So there is hope, at least in the form of repealing laws.  If, for instance, the graded tax was eliminated (that is, if everybody paid taxes at the same rate), then the rich would not pay nearly as much and everybody else would pay a bunch more.  All in an effort to keep the same tax revenue, which is needed to support all these unnecessary and inefficient governmental programs.  Perhaps if people were to see how much they’d be paying to support them in such a new tax system, they’d realize they can get by without them more efficiently on their own and pull the plug on them.  Not only that, with lower taxes the wealthy may have more motivation and capital to generate more wealth, and collectively that could also reduce the tax rate.  All of this leads to a more efficient economy.


A: What about China?  Isn’t that communist?

B: I’d imagine if you asked hardened communist lackeys Karl Marx, V. I. Lenin, Joseph Stalin, and Mao Zedong to examine the current state of affairs in the good ol’ People’s Republic thereof, they’d be appalled that China calls itself communist.  Sure, a lot of the society there still undoubtedly reeks of communism, but there’s no question China has given a lot more freedom to its citizens in economic pursuits than the kinds of societies the original communist thinkers envisioned.  There are almost as many billionaires (speaking in terms of U.S. dollars) in China, as of 2017, as there are in the U.S., for instance – under “true” communist redistribution policies, that would mean everybody in China would be a U.S. billionaire, which is far from true.  One thing to note is that, as of 2016, China is still way down the list in GDP per capita; in fact, still below the world average.  It probably shouldn’t be too surprising that the country with the world’s largest population has one of the world’s largest economies, but China’s GDP per capita is still only about a quarter that of the U.S.’s.

Consider reading an encyclopedic article about China’s economy with the question of how it suddenly started improving so quickly.  I say “suddenly” because its economy was struggling mightily in its first 30 years under communism.  But in the “Development” section of that article, it is noted that in the 1980s China began “freeing its peasants from the confines of central planning” and, in the 1990s, “wooing foreign investors for the first time,” concluding “these policies had catalyzed the country’s phenomenal [economic] growth…China [took] what many regarded as the final step toward the market [by] launching the beginnings of a real capital market.”

  1. See the story about the Hesses in this talk.

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