7 January 2019

The real problem in Venezuela isn’t socialism


The disastrous state of Venezuela’s health system is yet another example of the calamity that has befallen that country under dictatorial socialism.

Of course, defenders of the cause always like to argue that the failure of a socialist experiment doesn’t devalue socialism at all. If only they had implemented “real” socialism things would have been different. Radical leftwingers are so often applauded when they start out for their desires and aims, only to be rejected as not being the real thing when their plans inevitably fail.

The “real” socialism argument would have more logic to it if there were a real world example of a successful socialist economy. Then again, insisting on comparing agitprop to reality is most uncouth, and possibly even a right-wing conspiracy.

That being said, the unfolding disaster in Venezuela isn’t really a failure of socialism and it’s no surprise that it just happened to coincide with the Bolivarian implementation of it. The real lesson from Venezuela is, to be more precise, about what happens when we destroy the price system. There are no exceptions to this either – whatever any government anywhere’s plans for the future, keeping the price system in place is of paramount importance.

The great mistake of the Bolivarian socialists, leaving aside all the corruption, favouritism, over-reliance on oil revenues and so on, was that they killed off the best mechanism for running a complex economy.

Of course, we would all love food to be cheap enough for everyone to be well fed. But trying to engineer cheapness by fixing the price below the cost of production just means that no one has any incentive to produce anything, the result of which is famine. Expand the idea of price-fixing across all basic goods and none of those goods are produced, which is exactly what has happened in Venezuela. Outside the oil industry – and that is now dwindling too – there’s not really anything we could call an economy in Venezuela any more.

It’s the same problem we see every time. It’s simply not possible to know enough about a complex economy in order to be able to plan it. Actually, as Cosma Shalizi has shown with reference to the Soviet Union, it’s not even possible to know what to plan for.

There’s a fairly simple choice here — use central planning and have a simple economy, or use another method and have a complex one. This itself has a corollary – simple economies will be poor ones. A complex economy supports fine grained division and specialisation of labour, with the resultant trade in production, that’s what the complexity is. And the division and specialisation is, as Smith and Ricardo – backed up by Marx even – told us, what produces the wealth and high incomes we all so enjoy. Planning can’t support the fine grained part of the economy because of a lack of information, so a planned economy will always be a non-complex and thus poor one.

Friedrich Hayek was not the High Priest here, more the recorder of a generally agreed conclusion. Given that we cannot use planning we must use that only other calculating engine we’ve got: the economy itself and the price system. That’s the only system which will support complexity and thus wealth generation to any degree.

This should, but sadly won’t be, a warning to our home-grown enthusiasts for socialism. The proper definition of socialism is an economy where productive assets are held in common by those who use them to produce. Workers’ co-ops and the like, mutually owned organisations. Those kind organisations already account for a substantial chunk of our current economy and as long as everything is voluntary they work just fine. But they only work provided they are part of the floating in that ocean of the market and the sea of prices.

The sad part is that all too many on the left are not just fans of this system but also harbour something akin to a hatred of the market and price system. They take the idea of controlling the economy beyond state management of industry and insist on planning prices — that could include minimum and sometimes maximum wages, the prices of housing, healthcare and so on throughout the economy.

If Venezuela hadn’t killed off prices and the market then it wouldn’t be the disaster it is today. What’s happening there ought to be a salutary lesson for anyone, Corbynista or otherwise, thinking of undermining the price system here in the UK.

Tim Worstall works for the Adam Smith Institute and the Continental Telegraph.