History shows us why socialism doesn’t work - Biznews

Mar 10, 2020
10 March 2020 - We at the Institute of Race Relations (IRR) have written often about the African National Congress’s inability to shake off the ‘cult’ of socialism, notwithstanding the immeasurable evidence globally of the failures of socialism, in the economy, in human development and in upholding human rights.

Sara Gon

We at the Institute of Race Relations (IRR) have written often about the African National Congress’s inability to shake off the ‘cult’ of socialism, notwithstanding the immeasurable evidence globally of the failures of socialism, in the economy, in human development and in upholding human rights.

Much has been said about the demise of the Soviet Union, the socialist behemoth on the world stage that stood in opposition to capitalist America in the Cold War from 1945 until 1989. Communist China also became an influencer.

Socialism in Africa has devastated countries like Tanzania, Zambia, Zimbabwe, Ethiopia, Somalia, Angola, Mozambique and more. Tanzania’s liberation icon Julius Nyerere achieved one of the most notorious successes in ethnic repression and identity transformation in Africa.

Worldwide, there were only three societies which weren’t destroyed by socialism, but eventually abandoned it – the United Kingdom (UK), India and Israel.

All three adopted socialism as an economic model after World War II. The original settlers of Israel were left-wing East European Jews who sought and built a socialist society. The UK’s Labour Party nationalised every major industry and acceded to every socialist demand of its trade union partners.

Unable to keep pace
All three countries, however, succumbed to the same problems: government planners were unable to keep pace with increasing populations and overseas competition.

For the first two decades of its existence, Israel’s economy grew at more than 10% per annum. The average growth rate of India from its founding in 1947 into the 1970s was 3.5%. GDP growth in the UK averaged 3% from 1950 to 1965, along with a 40% rise in average real wages.

After decades of ever-declining economic growth and ever-rising unemployment, however, all three countries abandoned socialism and turned towards the free market.

But perhaps the country that was most successful at running a socialist economy was Israel – for a while.

Israel’s founders sought to leave behind their history as victims of poverty and prejudice, and so they sought an egalitarian, labour-oriented socialist society. The initially homogeneous population of less than 1 million drew up centralised plans to convert the desert into green pastures and build efficient state-run companies.

Early settlers worked either on collective farms (kibbutzim) or in state-guaranteed jobs. Kibbutzim were farming communities in which people did chores in exchange for food, money to live on and payment of their bills. There was no private property, people ate in common dining rooms, and children under 18 lived together, away from their parents. Any money earned on the outside was given to the kibbutz.

Socialist dogma
Histadrut, the General Federation of Labour, subscribed to the socialist dogma that capital exploits labour and that the only way to prevent such ‘robbery’ is to grant control of the means of production to the state.

Through unionising almost all workers, the Histadrut gained control of nearly every economic and social sector, from housing, transportation and banks to social welfare, healthcare, and education. The federation’s political instrument was the Labour Party, which effectively ruled Israel from its founding in 1948 until the 1973 Yom Kippur War.

Real GDP growth from 1955 to 1975 was an astounding 12.6%, putting Israel among the fastest-growing economies in the world, with one of the lowest income differentials. However, this rapid growth was accompanied by rising levels of private consumption and mounting income inequality.

Increasingly, Israelis demanded economic reform to free the economy from the government’s centralised decision-making.

The Israeli ‘economic miracle’ evaporated in 1965 when the country suffered its first major recession. Economic growth halted and unemployment rose threefold between 1965 and 1967. Before the government could attempt corrective action, the Six-Day War erupted, altering Israel’s economic and political map.

The war brought short-lived prosperity to Israel, owing to increased military spending and a major influx of workers from new territories. But government-led economic growth was accompanied by accelerating inflation, reaching an annual rate of 17% from 1971 to 1973.

Public debate
For the first time, there was a public debate between supporters of free enterprise and supporters of traditional socialism.

The near disastrous 1973 war and its economic impact gave impetus to the view that the Labour Party’s socialist model couldn’t cope with the country’s growing economic challenges.

So, in the 1977 elections, the Likud party won on a distinct free-market programme and governed Israel in a coalition with the Liberal party.

Real reform proceeded slowly. Economist Milton Friedman was asked to draw up a programme to move Israel towards a free-market economy. Reforms included reduced government spending; less government intervention in fiscal, trade, and labour policies; income tax cuts; and privatisation.

The government kept borrowing and spending, which drove up inflation (South Africans note), which averaged 77% for 1978-79 and reached a peak of 450% in 1984–85. The government’s share of the economy grew to 76%, while fiscal deficits and national debt skyrocketed. The government printed money through loans from the Bank of Israel, contributing to inflation.

In 1983, the bubble burst – thousands of private citizens and businesses as well as government-run enterprises faced bankruptcy. Israel was close to collapse.

At this critical moment, America offered a grant of $1.5 billion, provided the Israeli government abandoned socialism.

Predictably, the Histadrut strongly resisted, but people had had enough of soaring inflation and non-existent growth. Still, the Israeli government hesitated, unwilling to spend political capital on economic reform. America told Israel it would freeze ‘all monetary transfers’ to the country. This worked and most free-market recommendations were adopted.

Immediate impact
The impact on Israeli economic policy was immediate. Within a year, inflation plummeted from 450% to just 20%, a budget deficit of 15% of GDP shrank to zero, the Histadrut’s economic and business empire disappeared along with its political domination, and the Israeli economy was opened to imports.

Some socialists in the UK currently are looking at the kibbutz model as inspiration for the Labour Party’s political programme. The allure is living in a collective, working as a large family, ‘from each according to his ability, to each according to his needs’.

The first chink in the socialist kibbutz ideology was a revolt against the policy of housing children separately from parents, which had been instituted as a measure ‘against the tyranny of the bourgeois family unit’. Family ties were seen as the ‘nemesis of perfect collectivism’.

Second was women’s desire to choose their own clothing rather than wear clothing determined by the collective – which meant that, after all the clothes had been washed, every woman was expected to wear whatever was available, even if it meant wearing another woman’s clothing. This opened up a ‘Pandora’s box of savage individualism’.

Third, and crucially, was the situation of working hard and getting nothing, while others could work very little yet receive the same. Consequently, the most hardworking and talented kibbutzniks left, which devastated the movement. Incentives and penalties are simply crucial to success.

Today there are very few kibbutzim, and most that remain have privatised.

In the end, even liberal socialism has failed. It’s not that brutal means corrupted beautiful ends. ‘It was,’ as Johan Norberg writes, ‘that those ends were not compatible with human nature in the first place.’

Socialism can ultimately only be imposed by force.

Sources: These 3 Countries Tried Socialism. Here’s what happened, The National Interest | 20 October 2019 WKD,  Lee Edwards, https://nationalinterest.org; Lessons form the kibbutz – socialism is incompatible with nature, The Spectator | 30 November 2019, Johan Norberg .www.spectator.co.uk

Sara Gon is head of strategic engagement at the IRR. This article was first published on the IRR's online publication, Daily Friend.
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