23.
UTOPIANS AND SOCIAL ENGINEERS

In 1516, Sir Thomas More, who was Lord Chancellor to English King Henry VIII, published a book describing an imaginary dream society, in which there was no private property, so that everyone lived in similar houses and shared everything equally. Meals would be shared in community dining halls, and each community had the perfect number of inhabitants (6,000). In order to secure these perfect arrangements against violation, the state would issue internal passports and control where everyone lived.

The name of the book was Utopia, and ever since it was published, the dream of a society with state-enforced equality has captivated millions; after Karl Marx’s Communist Manifesto in the 19th century, the idea gained even further ground. So much so, in fact, that by 1965, approximately 32% of the world’s population lived in pure socialist economies, for example, the Warsaw Pact countries, Mao’s China, Kim’s North Korea, Pol Pot’s Cambodia and Fidel Castro’s Cuba. Another 23%, including Egypt, India and Indonesia, had socialist-inspired leadership with a focus on self-sufficiency and strong re-distribution policies (except, perhaps, when it came to the political leaders themselves). In other words: just over half of the world’s population then lived in nations pursuing More’s and Marx’s utopians dreams.

Socialism and communism are examples of what is sometimes called “social engineering”. This is the large-scale pursuit of centrally-controlled social programmes, within which citizens are commandeered in the pursuit of Utopian goals.

Of course, such social engineering does have its costs, because you cannot tightly control people and at the same time have them do what they please, so the Greek ideas of liberty and democracy don’t really work in these projects, and neither does Montesquieu’s separation of powers, nor John Locke’s protection of private property nor Adam Smith’s free trade. You also need to control where people live and forbid them from undertaking private enterprises. In reality, though, that’s not enough. You also have to control the information they receive and prevent the best and the brightest from escaping your regime.

This is why the Communist regime in the Warsaw Pact countries spied on inhabitants, conducted systematic brainwashing, mass deportations, political murders, incarceration of political prisoners, and restricted internal movement, prohibiting most attempts to escape (via the Berlin Wall, for example).

Overall, the leading French expert on the history of Communism, Stéphane Courtois, has estimated that, through executions, famine, deportations, physical confinement and forced labour it has killed 94 million people as follows:⁴⁹⁴

65 million in China

20 million in the Soviet Union

2 million in Cambodia

2 million in North Korea

1.7 million in Africa

1.5 million in Afghanistan

1 million in the Communist states of Eastern Europe

1 million in Vietnam

These people all died for a dream, but it probably wasn’t their dream.

Fascism is another example of social engineering. While it does allow some market forces, the common denominator between fascism and socialism or communism is a strong preference for state control over the individual. Indeed, the German Nazis, as well as the Italian fascists, always called themselves socialists. Mussolini was, in his early years, editor of the communist weekly publication Avanti!, and he described his aim as: “Everything in the State, nothing outside the State, nothing against the state.” Hitler was, as a young man, sent by the German military to spy on the Deutsche Arbeiterpartei, but he came to sympathize with them and joined as their 55th member. He later renamed it Nationalsozialistische Deutsche Arbeiterpartei, which was since known as the “Nazis”.

Various shades of socialism and fascism have always had a following in Central, Southern and Eastern Europe. For instance, fascists came to power in Italy in 1925 and in Poland the following year. After the start of the Depression, fascism spread quickly to Croatia (1930); Portugal (1932); Austria (1934); Germany (1934), Spain (1936) and Greece (1936). These regimes implemented various degrees of persecution, mass killings or genocide. The Nazis alone murdered some six million Jews, almost two million Poles, between 220,000 and 1.5 million Romanians, 200-250,000 disabled people, 20-25,000 Slovenians, 5-15,000 homosexuals and 2,500 to 5,000 Jehovah’s Witnesses. All together, European fascists and Nazis deliberately murdered more than 10 million civilians during the 20th century. On top of that came victims of World War II, which led to 50-60 million additional deaths. In 1942, Europe had only four liberal democracies left; England, Ireland, Switzerland and Sweden; elsewhere, it was lights out, and if Hitler or Stalin had won the war, they would surely have put a definitive end to what the Athenians had started approx. 2,300 years before.

Grand-scale social engineering doesn’t work, and there are two main reasons for this;

Technical impossibility of central planning

The public productivity problem

Central planning of a country may sound easy to somebody who has never tried to run a business. This would explain, as the British historian Paul Johnson has noted, that European dictators pursuing social engineering have this in common: they showed very little interest in how wealth was created and had never personally been engaged in wealth creation.⁴⁹⁵ For instance, Lenin wrote that the operation of enterprises involved “extraordinarily simple operations” which “any literary person can do”.⁴⁹⁶

However, all centrally-planned economies have ended up with huge logistical problems that often descended into pure farce. One of the major mistakes of central planning is to trust in the value of experts. Even if the typical knowledge among governing elites is, for example, ten times that of the average citizen, these elites will still, in combination, hardly possess more than a tiny minimum of society’s entire knowledge. They are unlikely to have any real concept of the daily tasks of farmers, fishermen, school teachers, software engineers or factory managers. So let’s be extremely generous and assume that the country is ruled by elites which, together, hold 1% of its total knowledge. The remaining 99% is held by the rest of the population. That means that people who have 1% of the relevant knowledge tell people who have the remaining 99%, what they must do, which evidently doesn’t work well.

In order to understand why you cannot run a complex society from the top, you need to consider the alternative: what happens when it is operated largely by a free market. In this scenario everyone use price mechanism and profit motives as real-time information tools and motivators. Prices settle at levels that attract customers, and profits settle at levels that signal where markets are relatively undersupplied. Both phenomena are fluid and adapt in real-time - the system is organic and an excellent example of large-scale crowdsourcing.

Perhaps such a system sounds extraordinarily simple if you are Lenin, but it only works because millions of people spontaneously and simultaneously adjust constantly to the behaviour of one another. In the Soviet Union, it was discovered how utterly impossible it was for the central government to set prices for the 24 million different products which the country apparently had, in spite of its relative simplicity.

The lack of market-based pricing and profits meant that there was frequently an over-supply of certain products and (more often) a shortage of others. Therefore, the large factories in the Soviet Union often resorted to self-sufficiency. For example, a car factory would produce its own window glass, screws, rubber bands and tyres, because that was the only way to be certain that these would be available. So, without specialization, competition and incentives, everything regressed to an appalling quality.

Meanwhile, a lack of market-based pricing made it utterly impossible to calculate which investments made most sense, which meant that many things for which there was a natural demand were simply missing. Stories about life in the communist Soviet Union told of hour-long queues to buy the most basic groceries.

The lack of pricing signals also applied to wages, which were rigid and largely unrelated to effort, skills, ingenuity and demand, so that nothing showed whether a given person would be more valuable in another position than where he was, or whether that person ought to work harder (to get richer) or less (to prioritize family life, health or hobbies). This lack of price signalling meant that people who worked more than others were, in fact, often abused by colleagues for being “eager beavers” raising expectations for everyone else.

As early as 1921, Austrian economist Ludwig von Mises predicted in a book that the Soviet Union would collapse, merely because of such planning problems.⁴⁹⁷ The philosopher and economist Friedrich Hayek elaborated in 1944 that, as an economy developed, it would become evermore complex, and this would make it ever less suitable for socialism. He stated here, more specifically, that the collapse of the Soviet Union would occur before the end of the 20th century.

He was right, and a modern society has far more than the Soviet Union’s 24 million different products. After all, a Boeing 737 aeroplane consists of 367,000 parts, provided by countless suppliers around the world. To create each of these parts requires further commodities, materials and machines, each of which requires thousands of other parts. This means that, when you add it all up, it must require co-operation between countless millions of specialized people to produce a single aircraft or even a single modern car. The same goes for virtually any product beyond stone axes and the like.

The only way this can work for all products is via the equivalent of what IT people call massive, parallel, real-time computing; overall, this could be called “the silent knowledge of market economy” – the unplanned ability to enable co-operation between millions of people. Socialism, on the other hand, is based on the equivalent of sequential, central computing. Comparing socialism with a market economy is a bit like comparing an old mainframe computer with an internet-based crowd-sourcing and social network.

The other big problem with centralized control and social engineering is the public productivity that we have already examined. It causes the problems described by Parkinson’s Law, Mancur Olson’s accumulation of special interests and privileges, Niskanens public growth sickness, Tim Wu’s Kronos effect, Acemoglus’ and Robinsons’ extractive organizations. If everything is run by the state, it becomes very difficult to check these issues, which is why productivity soon slows down further and further.

Especially within socialism, things happen through rules, coercion, manuals and punishment and there is rarely anyone who smiles, says “thank you” and thinks about how to do it better next time. Coercion and commands creates resentment and motivation problems, and socialism creates a negative, unco-operative and ineffective culture.

Motivation is key. When agriculture is changed from collective to private ownership, history shows that there is typically a marked increase in productivity, in the manner of the quick doubling of productivity that was seen in China when it privatized agriculture from 1978-84. Conversely, when a shift is made from private farming to forced collectivisation, the consequence has often been starvation.

While socialism lacks the positive incentives to work hard and think creatively, it also lacks the negative pressure of competition. This, combined with centralization, explains why virtually no technological innovation has been observed in socialist/communist economies except for in the arms industry and space exploration sectors, where people were offered incentives similar to that in market economies. Nor was there any significant innovation in art, fashion, design and lifestyle, and the typical attitudes in the service sectors were lousy.

Socialism and fascism are based on using force to make individuals comply with imposed plans, and this never works as intended. The systems end up undermining honesty and creativity. Despite numerous attempts over the years, there is not a single example in history of socialism serving a country’s citizens well. In fact, all countries that have tried it have been forced to prevent their citizens from escaping and have introduced censorship to prevent uproar. In the Soviet Union, access to photocopying machines and even printing paper was tightly controlled and foreign radio and TV signals blocked with noise transmitters.

Virtually all socialist states have imprisoned political opponents, and many have resorted to state-sponsored mass murder. They have experienced shortages of all sorts of basic goods including toilet paper. Finally, the lack of technological and cultural innovation has led to depressing, grey communities with poor environments, corruption, poor resource utilization, increasing dishonesty, widespread crime and comprehensive substance misuse.

Actually, after a time, both Hitler as Mussolini changed most socialistic aspects of their models to corporatism instead. This is a concept, under which private businesses are allowed, but where all companies are expected to work for society as a whole, rather than for their owners and clients, under observance of the law. Corporatism can involve control of salaries, prices and profits, and it works better that pure socialism, but not necessarily much better, as Argentina and Venezuela have discovered. Milder forms are simply “corporate social responsibility” with buzzwords such as “people, planet and profit” and “triple bottom line”, where public bureaucrats, union leaders or environmentalists may be de-facto co-managing companies which they would never have been capable of creating personally.

The world will always have people dreaming of utopian social engineering, and the reason is that they imagine a better world and wants to ensure that it gets implemented. The problem is always the same: if their systems predominantly involve force rather than encouragement, they are on the wrong side of history, because, as Robert Wright correctly pointed out: its cooperation; not coercion, that drives success. Success comes to those who bet on voluntary win-win transactions, which large scale social engineers definitely don’t.