Economic policy allows a governing body to control the way in which the people will use their utility. In this article, I’ll be discussing the foundation of different economic systems, what their positives and negatives are, and will controversially try to compare these systems.
When most people from western countries hear of communism, they think of poverty, and the lack of innovation in the system. The way communism was implemented in the former soviet-union was far from perfect. But the important thing to take away from communism is the things that did work, and how we can learn from this.
First assume a world, where there is no or almost no innovation. In this situation, it would be most logical to divide the way in which people work fairly: everybody will work a little bit, and everybody gets to enjoy the wonders of previous innovations equally. This is how I theorize that Soviet workers thought about their system: if there would be no innovation, then the allocation of resources (like manpower) by a governing body could be chosen such that the focus would be on maximizing total happiness. Because there is almost no innovation, the government could use its resources such that the average happiness is as greatly improved as possible on the short term (this is easier said than done). When resources are used optimally, then the total well being would improve in the greatest way. This improvement of happiness does however not scale to the long term. Let me explain.
Dysfunctioning of communism
The functioning of a communist society does not take multiple major problems into account like: innovation and motivation. Why do people innovate? Maybe because they think it is interesting, maybe because it will help them become rich or maybe just because they have nothing better to do. The important thing to take away is that some, not all people are (partially) motivated by money/ economic-forces: This is most true for people who are less fortunate, because often they do not have the opportunity to follow their passion, and also for people who are more fortunate: if there would suddenly be a shortage of philosophers, and an excess of doctors, there would be a change in how many would study either study. This does definitely not hold for every person. But can clearly be observed when there is a shortage in a certain field of work.
This force of pushing people to where they are needed, causes people to study what the system as a whole thinks is most valuable. If there is a shortage in a certain field of work, the economic reward of studying this will go up and more people will enter this field of work. Due to there being a greater economic reward in a certain field, the motivation for a breakthrough that would help lower the costs is greater. So there is a sort of built-in automatic focus of where innovation is needed in a capitalist system.
In a pure communist system this ‘auto-focus’ exists to a smaller degree: as I mentioned, not all people are purely motivated by these economic factors. But the important thing is that it is a motivational factor, and thus there is less motivation for people to enter this field. This causes innovation in this field to stagnate. When a communist system does have a clear focus, it can be exceptionally great at achieving this goal: when the Soviets wanted to put a man in space, they allocated many of there resources to this project and thus they could achieve this. However, a thing to note is that a capitalist system like the USA was not far behind.
The capitalist system tries to use its resources (like manpower) such that the innovation in the fields where it is most needed is maximized. This is the autofocus that I spoke of before, this also causes many side effects. When innovation is done, great profits can be made, this can totally reshape the distribution of wealth. Innovations in a certain field can be the answer to some problem in some completely different field. These things are unforeseen, and because we can not see them in advance, we can never have a perfect system, because we can never predict if the answer to a certain problem will lie somewhere else.
Capitalism causes resources to be optimally used, such that the average living standard is increased in the greatest way on the short term. On the long term, people who have greatly profited from such economic effects can either legally (lobbying) or illegally (fraud) influence the system such that the system will even more greatly benefit them. This is, of course, great for the people at the top. Their living standard will grow at a greater rate than their less fortunate fellow men. As these fortunate people consume goods, there is an incentive for the producers to lower the cost of production, thus this will, if possible, cause luxury items to become cheaper, and thus the living standard of the less fortunate will also grow. However, it can also be argued that the more fortunate should already have an exceptionally high standard of living and that the effect of taking a bit of their money and using this to help less fortunate would even more greatly profit the average standard of living. The balancing of these two effects is the foundation of the welfare state. And there is, and most likely will always be, a discussion of where we should lay this equilibrium of these two forces.
I think current developments in China are very interesting. There has been rapid development since the government embraced capitalist properties to their system, but unlike Western countries, there are core communist values in the system that remain. For example, a central government that is ‘not’ elected, has given the government the opportunity to react with more volatility in their decisions, and completely focus on long term goals, even if they lower the average well being on the short term. A typical example is the high-speed train network of China: some of the high-speed train tickets do not even cover the cost of operation of the trains. However these trains can in the long term add a lot of value: Inner-Mongolia (this is a part of China) has always been distanced from Beijing, politically speaking, and in an actual sense as well. Due to the built of a new high-speed train line from Inner-Mongolia to Beijing, the government will now have a closer connection with Inner-Mongolia and influence the inner-Mongolian politics and worldview more. This would, in a capitalist system never work, because of the resistance of the opposition. This long term planning gives the Chinese government the opportunity to operate in a way that we have not seen before, and I am very curious about the future of China.
I often hear from people that they do not understand why other people think a certain way, politically speaking. This article was meant as a summation of what I think is most important in the understanding of the economic thoughts of others. I hope that this has sparked interest and has taught you something.
Dit artikel was geschreven door Max Kloosterman