Why Socialism Leads to Dictators


There is a strong movement in the US and other first-world countries that have traditionally been economically free to move towards socialism. On the Democratic side, even the right-most candidates such as Joe Biden would nationalize large parts of the economy such as healthcare and college payment (Obama already nationalized the student loan process). These candidates are not socialist enough for a large portion of the public, however, so people like Elizabeth Warren and Bernie Sanders are leading in the polls. If the DNC doesn’t cheat them out of the nomination like they did in 2016 (and it is looking like they’ll install Hillary Clinton as their candidate again), it is likely that one of them will be the democratic candidate, meaning about half of the country will vote for people who are avowed socialists who would like to dictate how businesses must hire, what they must pay, what benefits they must provide, and in general how they must run their companies. More and more of the economy will also be taken over by the government under one of their administrations. This would be a grave error on par with the disaster going on in Venezuela.

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Sadly, this isn’t some sort of violent coup by a small group trying to inflict its will on the populace as a whole, but the result of a large portion of the population thinking that socialism is a good thing. They are buying into the idea that things would be better if the government were mandating high minimum wages, putting high taxes on those making more than average, providing essential products like healthcare, food, clothing, and shelter, and generally were in charge or at least had a strong influence on most of the economy. They do this because they have been taught that this is a good thing through the public education system, from kindergarten through college, and because they are buying into the rhetoric that by making things public the economy will be working for the general population, whereas it is now being controlled for the benefit of a few capitalist oligarchs. Let’s take a look at those ideas and how things would really work out.

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Socialism 1.0

Socialism is not a new idea. Karl Marx and his contemporaries were successful in getting it instituted in several countries during the 20th century. The largest example was the USSR, where the socialist government in Russia took over most of Asia and a good portion of Europe and instituted socialism. China also became socialist and spread socialism into several Oriental countries including Vietnam, Cambodia, and North Korea.

In the western hemisphere, the USSR was able to spread socialism into Cuba and other Central and South American countries. Most recently, the leaders of Venezuela, working with Cuba, became socialist. In every one of these examples, the economy became a shambles using socialist principles, leading to starvation, lack of basic needs, long lines, and extreme poverty. All of these areas have also seen large amounts of corruption. These things can all be expected under socialism (the reasons why to follow). It is really most surprising that young people in the US and elsewhere continue to embrace socialism given the very recent example of Venezuela, which went from a prosperous country to one in which mass starvation is taking place in a span of less than a decade under socialism.

(To get a perspective on the effects of socialism from someone living under it, read Dear Leader, written by one of Kim Jung-Il’s former poets. )

Socialism 1.0 was clearly a dismal failure. You would think that people would be ready to give up on it, but instead the ideas are alive and well. The reason is that the rhetoric of those hoping to enact socialism has changed to make it appear that it was just implemented wrong, or that the previous socialist countries weren’t really examples of socialism but just brutal dictatorships. We should therefore, they say, not look at these examples and instead continue to transform our economy into a socialist one because, somehow, things will be different. To have these beliefs shows a clear lack of understanding of human nature. It also is being driven by those who would like to assume the role of a dictator such as Lenin or Kim Jung-Il.

Socialism versus Marxism

The modern proponents of socialism in capitalist countries believe there is a difference between socialism in countries like the USSR and what could be in the US, Canada, England, and elsewhere. They point to places like the Scandinavian countries as examples of socialism that works (despite these countries not really being socialist). They say that places like the USSR and Cuba are/were Marxist or communist, not socialist, and equate Marxism and communism with dictatorships, while equating socialism with control “by the people.” They seem to forget that all of the regimes they call “communist” said that they were controlled by the people and many even called themselves some version of “The People’s Republic.”

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The meaning of words change all of the time, so today’s socialist, when he uses the word, is thinking of a society where a benevolent government takes care of necessities so that he, himself, doesn’t need to worry about it and those who are unfortunate are taken care of. He/she thinks of a government that always has the interest of the citizens in mind, as opposed to corporations who are there to enrich the shareholders and executives. Socialism and communism are both very much a part of Marxism, however, and really remain that way regardless of what today’s Starbucks socialist wants to think. Indeed, Karl Marx probably never thought that his vision would lead to the brutal dictatorships that we’ve seen under socialist regimes. He was just thinking of a system where people would share equally in wealth rather than having some individuals wealthy and others poor.

In Marxism, socialism is a stepping stone to communism. It is where the government takes control of “the means of production and the distribution of goods.” Here the government, as an agent of the people, takes control of factories, farms, and other businesses and sets pay, working conditions, and decides what should be produced based on the needs of the population. Wealth is still not equally distributed under socialism, but it is more equally distributed than under capitalism.

The amount of control by the government grows and grows under socialism until eventually everything is distributed equally. Everyone has exactly (or very close to) the same personal possessions and the same amount of wealth. Large things are owned by everyone and everyone has free use of them, provided they don’t stop others from using them. Government, which is the last group that is still unequal to the others, dissolves as people organically do what is needed to keep society functioning and make decisions through committees. Perhaps you would live in a large dormitory where you have a bed or a small room, get up and have breakfast from an open pantry, then get in one of the many cars sitting at the curb to drive to your job at the factory each day. You collect no pay, instead just providing the results of your labor to a collective pool while others do the same. Out of the goodness of your heart you produce all that can based on your abilities for the good of the society.

As one can see, the vision of socialism and communism under Marxism are no different than the vision people see today when they seek socialism. They want the people, through the election of a government that has their best interest in mind and will fight for them, to have control of necessities. Only things that are luxuries would be under private control. They want necessities to be provided free of charge, paid for by high taxes which are essentially the same as the vision where one works and provides the fruits of his labor to the collective pool. The expect this benevolent government with wise leaders to distribute these products equitably as needed, or at least distribute vouchers that allow people to get these necessities (money). This is no different than Marxism. This is exactly what Karl Marx envisioned. So, what happened? Why have we gotten brutal dictators like Stalin, Hitler, and Pol Pot when socialism has been tried in real life?

Why socialism and communism don’t work for large groups of people and result in dictators and slaughter

The issue with socialism is that it assumes that a benevolent government that will put the needs of the people foremost can be formed. It requires a large number of individuals who believe in fairness, are honest beyond reproach, and will tirelessly work in the best interest of the public and not their self-interest. You need people who will gather and direct resources without taking extra for themselves or using their power to decide who gets what to get favors from others. While you can probably find a few people who will do this (there are people out there who are honest to their bones), there are a lot of people who aren’t. Think of the percentage of people who, finding a wallet on the ground, would take the cash. Even if it is only 10%, imagine now how many would take some cash if it were a bank bag containing a million dollars sitting out and no one were watching. What about a billion dollars? What about money blowing down the street from an open armored truck?

Even if you can find individuals who would never outright steal, how many would call in sick for work when they weren’t? How many would not pay to get into a subway if others were skipping the turnstile? How many men who, if put in charge of distributing goods, would give out extra to women who were offering themselves up to them in exchange? How many would use their control over necessities to get women to sleep with them (witness the Hollywood casting couch and Harvey Weinstein). How many would build fancy offices and create all sorts of largess for themselves, thinking that the percentage they were taking was only a small fraction of the total collected? (See the IRS scandal, OPM scandal, and similar scandals by government agencies.)

Socialism takes wealth and power and concentrates it in the hands of a few people. This gives them a lot of power. It also makes it easy for them to skim a little off of the top since there is so much. Beyond just looking at the percentage of people who would take advantage of the situation, this large concentration of wealth and the power it provides attracts the sort of people who would take advantage. And once these sorts of people have power, many would be willing to even commit murder or mass murder to retain control. You can bet that many of the Bolsheviks were thinking of an idealistic society when they overthrew the Russian Czars in 1917 and not the brutal regimes that were implemented under Stalin and others. The revolutionaries in Cuba were thinking of shared wealth and not the dictatorship of Castro that was maintained through torture and imprisonment when their movement started. Most recently, the citizens of Venezuela were told that the land owners were the source of their woes and that by overthrowing them they would have plenty to eat and get to share in the wealth. Instead they are starving as dictators work to maintain control over them and the government ineptly tries to manage the resources the previous land-owners managed so successfully.

The truth is that socialism and communism, while being born under the ideals of fairness and equality, are tools of dictators to gain and maintain power. It is much easier to control people if you provide their necessities than it is if they are self-sufficient or the generation and distribution of resources is distributed among a large number of people, none of which has control over a large portion of the supply. In North Korea the Kims have been able to maintain control for generations while barely firing a round. Instead, they simply stop providing food to those who are political rivals and starve them to death. Compliance with and even worship of the Kims has become a requirement to simply receive enough resources to survive. And, given the ineptitude of the Kim family to manage the economy, many are starving even if they are in the good graces of the party.

But isn’t capitalism unfair?

Capitalism, while not perfect, is a far better system than socialism and communism. In fact, it gives a lot more control of production and distribution to people, which is exactly what those who are fighting for socialism now are seeking. If a business is not meeting your needs, you don’t need to send a letter to a politician and hope that a large, slow, ineffective government will answer your request. You simply choose another provider that better meets your needs. This drives providers to try to do what is needed to please their customers. The large number of providers allows for different providers to focus on different segments of the population, creating a variety of products that are customized to different populations. Even with the best intentions, central planners under a socialist society neither have the ability to gather all of the needs of their people nor make solutions that fit a large number of unique needs. A capitalist society, with hundreds or thousands of different providers distributed within the population, does.

But what about the worker? Just as with the consumer, if there are a sufficient number of different workplaces, the competition for workers creates the drive for employers to find ways to satisfy their workforce while still meeting the needs of the customer. Workers who make themselves more valuable by learning critical skills and being good employees (showing up on time, begin prepared to work and providing good service/production, showing initiative to please the customers and generate more business, develop skills that allow them to provide more or specialized services) have even more choices of places to work and receive higher rewards.

And really, workplaces are simply an easy way for an individual to make money. Working for an employer means not needing to find customers, find a location, buy tools and equipment, create advertising, find a good product or service to sell, come up with a business model, raise funding, and find training. Everything is provided for them in exchange for a small amount of their earnings. It is only because businesses have large numbers of employees, each providing a small percentage of their earnings in exchange for the service the business provides them, that business owners make large profits.

Typically both the employee and the owner benefit through the employment process, the employee making more than he/she would working on his/her own and not needing to worry about all of the requirements for running a business and the owner benefiting from the work provided by the employees. If this is not the case and the owner is requiring too large a percentage of the worker’s earnings such that the service he is providing the employee is not worth the price the employee is paying, the employee can find another owner who pays more or create his own businesses. Free enterprise frees the workers to change jobs or start their own business and find the best deal for themselves. It also allows workers to work more and learn valuable skills to gain more money, or find a job that will allow them to do the minimum and spend their time on other things. This is not the case under a socialist regime where work is dictated and salaries are artificially fixed. Socialist regimes are also subject to favoritism where those in charge give the choice assignments to their friends and those who provide bribes to them.

Who succeeds under free enterprise?

Capitalists are often seen as greedy and self-serving people by those promoting socialism. Because this depiction often fails when people know the owners of businesses and see that they aren’t the leviathans they are depicted as, the modern spin is to personify corporations as the bad guys, as if the corporation were not made up of people. The CEOs and officers are often pointed to as the greedy beneficiaries of corporations who are getting rich on the backs of the workers and the public, but it is actually the shareholders who are the owners, and thousands of people receiving $30-$40 per year in dividends in their 401k accounts are hardly the ultra-rich slave-drivers socialist propaganda makes corporate owners out to be. In fact, there is nothing stopping employees from buying shares in the corporations they work for, as well as other corporations, and sharing in the profits generated by their work.

On the consumer side, most people find that when they make a purchase they are pleased to do so, feeling like the things they are getting are worth at least as much if not more than the price they are paying. While they may not realize it, they’re happy to be able to go to a grocery store (or get delivery using an app) rather than needing to grow their own food, or go to a Wal-Mart and be able to choose just what they need from a selection of items rather than needing to make things themselves. Consumers rarely feel taken advantage of in a free market economy. Whenever they do, their recourse is often to choose a different supplier, which prevents businesses from taking advantage. Compare this with a government system where the choices are to take it or leave it.

Because a company must please its customers to succeed, successful people are those who find out what customers need and provide it to them at a fair price and in the manner that is best suited to their needs. A company that does not provide what customers need, like an artist who paints just what she wants and not what consumers want, will not be in business long. This means that the people who spend the most time thinking of how to delight others, and then putting those ideas into action successfully, are the ones who do the best.

On the worker side, again those who are able to provide what is needed to the consumer are the ones who are most successful. This might mean providing what your employer needs from you so that he/she can provide a great product to his customer rather than you providing things to customers directly. An employee who is able to meet more in-demand needs, is able to work independently, and who has special skills and abilities will be more successful than one who does not. It might also mean moving from areas where the needs are already being met to places with more need exists. This is one of the virtues of capitalism, that the supply tends to spontaneously go to where the need is greatest.

How is the Basic Minimum Income (BMI) bad?

One socialist idea taking root is the Basic Minimum Income, or BMI. The idea is that every citizen gets a check, say for $25,000, each year to cover basic expenses like food, shelter, and clothing from the government. On the surface, this sounds like a good idea. Why should people not have their basic needs covered by default? Where there are a couple of reasons.

Looking at it from an economic perspective, a BMI makes the society poorer because it reduces the incentive to produce. A society becomes economically richer when everyone is doing all that they can, or at least doing enough to basically take care of themselves, if they are able. If you have individuals who could be taking care of their basic needs, but decide to spend their time not producing things that are useful for themselves and others, the amount of useful stuff produced is reduced. Even if they are not able to produce enough to fully take care of themselves, if they are at least producing most of what they need and society only needs to cover a little, what they are producing will make society richer and there will be more to go around. If you create a BMI, there will be many who decide not to work or produce anything useful, making society poorer. (Note, there is also a certain dignity that comes from doing useful work, so you’ll be damaging the fabric of society by not at least expecting everyone to as least try to take care of himself/herself.)

If people who are able to take care of themselves choose not to, but you’re providing a BMI, you’re also then taking from those who are working to provide the BMI to those who aren’t. This disincentivizes them to produce. You may have some who decide to stop working entirely since they feel like a sucker going to work when they see others doing nothing and having their needs met. Even those who do work are likely to work less and/or spend more of their time doing things that only benefit them like growing a garden or working on their home since working more and/or spending the time needed to develop useful skills is less rewarding. Note that every socialist society seen thus far has seen a lowered standard of living and scarcity, the latter both from a decline in production and mismanagement of supplies due to central planning.

Is there a role of government in free enterprise systems?

Government certainly has a role in a free enterprise economy. The first and foremost is to provide the environment in which free enterprise can work. This is done by 1)Protecting people from outside forces, like other countries that would come and steal the wealth generated. 2) Providing protection from internal thievery and protecting property rights, such that wealth generated can be kept by those who generate it. 3) Overseeing the development of infrastructure that everyone uses and which it is not practical to have a market economy provide due to things like space constraints, such as roads, power lines, etc…. This will typically result in more waste and some fraud than would be seen if it were developed under a market economy, but sometimes there is no real choice. 4) Ensuring that the rights of everyone are protected and that the actions of one do not adversely affect those of another. An example here is not letting a company save money by dumping waste into a stream that hurts those downstream.

The second role of a government is to ensure that there is as much free and fair competition, both for production of goods and provision of employment, as possible. This means preventing trade practices like one company preventing their suppliers from doing business with competitors, someone buying up all of the available space but not putting it to good use, just to keep competitors out, or companies colluding to fix prices or wages, rather than competing fairly and letting market forces set prices and wages. It is also a role in preventing grave human abuses such as indentured servitude, use of illegal immigrant labor, or child labor.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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