Why Socialism Fails: The Greed Problem

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    The Greed Problem starts from a false assumption that greed comes from markets and property, and that if we just got rid of those things we would be like Rousseau's noble savages, living in peace and happiness. Greed is a fundamental part of the human condition - people want a better life if it is available. The only thing socialism does is change the way greed is expressed.

    I also want to take a moment and define the word "greed." Usually people tie the word with money, but most people do not want a pile of banknotes, or even a large amount of gold. What they want, are the things money can buy. Greed can therefore be understood in terms of security (savings, whether that is money, food, or some other good), or status (having/doing something perceived as rare and expensive).

How wealth is acquired

    Greed can be thought of as the pursuit of wealth, or too heavy of a focus on the pursuit of wealth. But if that is the case, how does one measure wealth, or how rich someone is? I would put it down to two ways: property values and current consumption.

Property Value

    Property value, simply enough, is what you own (assets) minus what you owe (liabilities/debt). You can either acquire more property, or improve the property you already own in order to increase your wealth.

Current Consumption

   Consumption is what you are spending right now. This could be income you derive from your property (and you own you, i.e.your body is your property), or it could could come from consuming your property (selling stuff off to buy things today), or taking out debt, which means selling a claim on your future property/labor.

    From my Plan for Action series, I wrote about rejecting "rich" and getting wealthy. Mainly, this was about favoring increasing your property (savings/assets) over consumption. Understanding the difference is critical for understanding the Greed Problem with socialism.

How greed is expressed

    Under ideal capitalism, greed can only be satisfied by producing something of value to someone else, and then trading for the thing you want. This is a highly social/cooperative thing - in order to succeed you have to learn how to build good relationships with others. Further, you get ahead by first providing something people find valuable. You do this by improving yourself, and improving what you own.

    Another key component of capitalism is that you can increase wealth by increasing property value. In the case of land, if you take currently unproductive land and get it to produce something by improving the ground, the value of the ground increases. For example, converting raw land into a farm. If you have a house, keeping it in good shape or making it better than when you bought it means the house value go up, in addition to the benefit you get from the improvements right now. Finally, with inheritance, an improvement that will take 50 years or more to pay off will still be worth making, because your grandchildren will get to enjoy it. Think planting cedar trees, or some older European houses that have been in a family for generations, or a multi-generation family business.

    The bottom line is, in the ideal case, a free society encourages people to express any desire for wealth via 1) cooperation, 2) improving what you own, and 3) thinking in terms of long-term investment.

    Under socialism, note that there is no inheritance, basic income is guaranteed, and you can't really own anything substantial. This means the "property value" means of increasing wealth/riches is not available. Therefore, if we have a constant amount of greed, the greed would now be expressed as current consumption, which in this case either means 1) conspicuous consumption, or 2) a position of power over others. Also, consumption means taking things that you were saving for the future, and consuming them in the present.

Near-complete consumption of capital

    This "present orientation" means that long-term improvements are not incentivized, and while a planning board can engage in long-term planning, they still run into the Decision Problem, which means they are just as likely to waste invested resources. With ownership removed, and with inheritance removed, the only success is what you can consume today. Improving the ground you live on, or the living you live in, does not benefit you. Add the socialist institution of central banking, and saving for the future is also worthless. Taking everything you have an spending it today is the only success.

Socialism and corruption

    Now that we see that socialism incentivizes consumption over savings and investment, we can also see how corruption comes into play. As people from communist countries have explained to me, even though you do not "own" something, if you have the right position, you can control it. So, for example, a state-owned enterprise might buy a BMW or Land Rover for driving overseas investors or diplomats around (hospitality is a very legit need), and hire a driver. Most of the time, the car isn't being used in that way, so letting it sit is a "waste." Who gets to use it? You guessed it: office politics go absolutely wild as the boss decides who gets this particular "benefit," especially in a country where everyone else is taking a bike or the bus. In some cases, hosting guests is only the on-paper reason, but in reality the company managers are having the State effectively buy them a car.

    Beyond this, socialism breeds other forms of corruption, because the options for success are limited to increasing current income (or avoiding a loss), and very often this will require going through a gatekeeper, like a boss, director of a government program, and so on. Since the "gatekeeper" cannot improve his position through saving, and public salaries tend not to be great, bribery becomes the primary way to get ahead. Promotions, approvals for programs, and admissions for schools all end up being "on sale" in a way that ends up even worse than whatever one complained about under capitalism.

    Over time, this culture of pursuing more current income, with no savings and investment, means that capital is lost or consumed over time, i.e. "eating the seed corn." This leads to poverty. And since the remaining wealth is handled by an administrator or gatekeeper, greed is expressed by pursuing those positions, which also invites corruption. The result is a financial and moral collapse of society.