Socialism: the end of a Millenarian Dream
[A paper presented at the Joint Georgist Conference,
University of Pennsylvania, Philadelphia, Pennsylvania, 1989]
The world was at a crossroads when Henry George wrote Progress
and Poverty. Nineteenth century capitalism had succeeded, but only
partially: many people were not enriched by the new methods of mass
production. Social pressures were dictating the need for structural
changes in the economic order. Henry George showed that the fault lay
not with the methods of mass production, or the operation of the free
market, and he was therefore able to deny that socialism was the only
alternative. He proposed qualitative changes that would have built
equity and greater efficiency into the capitalist mode of production.
Karl Marx's model, however, achieved supremacy, and held sway until
Deng Xiaoping signalled the end of the socialist system 100 years
later. China acknowledged that the planned approach to economics had
failed. The Soviet Union followed when Michail Gorbachev expressed
discontent with the Marxist model in 1986. Henry George was right:
Marxism could not stand the test of time.
The eclipse of socialism offers the opportunity to relearn the
lessons taught by Henry George. For in socialising the means of
production, the USSR and China have the chance to redefine property
rights and establish both equity and efficiency from the opposite end
of the spectrum from our imperfect system of capitalism. If properly
exploited, the rent of land could serve as the "governor"
for the engine of economic growth and social transformation. The
possibility of success turns on how rent is distributed.
The social ownership of land means that Eastern bloc leaders merely
have to rent out the resources of nature to individual producers in
the urban and rural sectors to achieve an explosive growth in output.
Collective use of land has failed, but individual use allied with
collective ownership is a potent model for unleashing energy and
building a just society. Unfortunately, we now know that the
communists have still not learnt the wisdom contained in the books
written by Henry George.
China has foiled to distribute land on a basis which ensures
that rental value remains with the community. Fifty-year leases, which
can be inherited, have been granted on terms so favourable to tillers
that a class of rich peasants has been created. This has
re-established class division in the countryside based on unearned
Russia is still (1989) trying to define new property
relationships, but is likely to make mistakes similar to China's.
Moscow's economists, having abandoned the Labour Theory of Value, have
not retraced intellectual history to the classical economists. They
have not grasped the nature of rent. What are the prospects for these
Rent as a mover and shaker. Russia has been biased against
consumer goods, favouring the development of the capital goods sector
and the military space programmes. This has been allied with
enormous-waste of resources; the absence of a pricing mechanism
protected the inefficient producers. Result: workers were forced to
save money -- shops have not been filled with the goods on which they
could spend their wages! Can pent-up demand be satisfied? A
consumer-oriented production policy can work only if there is a
relatively free market within which people can express their
preferences. Gorbachev's glasnost augurs well; the USSR's
Communist Party appears willing to share a portion of its power; the
most striking advances have been in Poland.
But can the Soviet Union adapt its economy fast enough to satisfy the
material needs? There are strains; perhaps the major threat comes from
the ethnic minorities and sovereign peoples, such as those who line
the Baltic, who appear determined to reclaim their political - and
economic - freedom. Latvia and Estonia not only want economic freedom;
they appear to be demanding political freedom. If these frustrations
are not quickly satisfied, will the Russian tanks roll? In China, the
Community Party showed its hand with the massacre in Tiananmen Square.
It may flirt with a liberalised economy, but not with a plural
To progress, these nations need a balanced approach to their
transformation. Time is short. Britain took a century to develop a
relatively free, democratic society. Changes in the eastern bloc will
have to materialise in a more concentrated time-horizon. Is there a
model that can be emulated?
Japan should inspire Russia and China. The Meiji Restoration was
designed to transform a peasant-based feudal society into an
industrial system. This was achieved by taxing rural rents to finance
infrastructure, and scientific and technological research institutes,
that enabled entrepreneurs to exploit their talents and resources to
compete on world markets. By contrast, in Stalin's Russia, socialist
industrialisation was financed by bleeding rural incomes -- and people
-- to death.
THE GEORGIST MODEL.
Henry George specified the democratic-market framework within which
people could prosper. A necessary condition was the taxation of
unearned (rental) incomes, to enable the State to finance
socially-necessary services while freeing people to enjoy the maximum
incentives to work and invest.
It is unlikely that the Communist regimes will alienate (sell)
natural resources: ironically, this does not matter -- the alienation
of rent, which is what matters, is proceeding covertly in China, by
distributing land in exchange for rent below market levels. Charging
users the full value requires a free and efficient market place,
within which prospective users can compete for possessory rights. This
competition dictates efficiency in production. In other words, by
insisting on retaining the full economic benefits of natural resources
as community revenue, former socialist regimes would encourage
citizens to be efficient entrepreneurs. This would freely lead to the
self-financing of capital investment, full employment and a capacity
to trade in foreign markets.
That is the painless route to the rapid transformation of
economies into ones capable of satisfying the consumer needs of
citizens and the capital requirements of what are still essentially