It was suggested that a good topic for a Friday Room discussion would be the status of Socialism today. Here are my thoughts. Starting with the Oxford English dictionary definition of socialism in English:
A political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.
- Policy or practice based on the political and economic theory of socialism.
- (in Marxist theory) a transitional social state between the overthrow of capitalism and the realization of Communism.
The term ‘socialism’ has been used to describe positions as far apart as anarchism, Soviet state Communism, and social democracy; however, it necessarily implies an opposition to the untrammelled workings of the economic market. The socialist parties that have arisen in most European countries from the late 19th century have generally tended towards social democracy
There seems to be a popular but unfocussed movement towards “taking control” and opposition to control by “Elites”. To be “bottom-up” rather than “top-down” which fits the basic definition above. However this conflicts with the actual political practice. Nationalisation puts politicians in control resulting in distinctly top-down regimes. Revolutionary regimes have tended to be strongly top-down in practice, even crushing emerging bottom-up governance as in the Spanish Civil War.
The practicalities and limitations of bottom-up governance
The idea of enterprises being regulated by the community-as-a-whole may be a nice one, but how does it work in practice?
Doing the regulation requires effort. All enterprises are liable to go wrong in all sorts of ways and for all sorts of reasons. They need a mechanism of scrutiny and feedback that has the power to correct things when they go wrong.
When policy decisions have to be made, the regulators have to put some effort into understanding the implications of the decision.
The fundamental problem is that regulation by the community-as-a-whole means involvement. If the community-as-a-whole can’t be bothered, then no amount of top-down actions by politicians can create a bottom-up regime.
First, to get things in perspective here is a graph:
In this graph all the countries of the world for which there is data are compared. There are many measures of how well a country is doing and the one used in this graph is the Prosperity Index. This is a carefully thought out combination of factors relating to both material wealth and social wellbeing. The degree of corruption comes from Transparency International.
This graph shows a strong correlation between lower corruption and greater prosperity.
In words this can be summarised as “no country with a high degree of corruption is prosperous and no country that is prosperous has a high degree of corruption”
For the dozen most prosperous counties less inequality becomes significantly correlated with greater prosperity. Which can be summarised by: “The most prosperous countries tend to be less unequal and the more unequal countries tend to be less prosperous.”
There is a simple interpretation of this. Corrupt parties impoverish the economy of the country by extracting money from it, leading to directly to less prosperity. Funds legally extracted from the economy and used it for the same things as funds from corruption.
Of course things are a bit more complicated than this. Parties that are extracting excessive amounts of money legally will sometimes be using it in ways that are good for prosperity.
Let us define Greed Component as the portion of the money obtained over and above what is justified, Although legal, the Greed Component is used in the same way as funds obtained by corruption. Economically there is no distinction between extortion and excessive bonuses. The Greed Component is clearly bad for prosperity and shows up as by contributing to greater inequality.
Reducing the Greed Component
The economy, the making, moving and using of real things, is controlled by a collection of financial systems, such as money, markets and capital. These exist entirely in the minds of the users, generally as a set of rules and agreements. In general they have emerged in a bottom-up manner but get controlled by top-down regulators who codify and enforce the rules.
There is nothing fundamental “right” about any of these systems, they are human inventions and as such flawed. In principle, the rules can be changed just as they can in that other human invention, sport. But in both cases change is not easy. Both are “established” in that all the players have to accept the change and the changed rules have to “work”.
Once there are rules, any system can be “gamed” and played in ways allowed by the letter of rules but not as intended and not necessarily beneficial.
A plan to reduce the Greed Component might include:
- Creating new financial systems that with an intrinsically smaller Greed Component, possibly like crowdfunding.
- Establish a survey of the estimated Greed Component in MPs income.
- Considered changes to the rules of existing financial systems. Not an easy option.
- Encouraging existing alternative systems that have an intrinsically smaller Greed Component such as cooperatives and mutuals.
In particular, when firms mature and, for example, the founders want to retire, many end up being sold to multinationals, whose principle objective is maximising a Greed Component. In many cases a cooperative could work just as well but the existing financial systems make this difficult. (Cooperatives do work. On average they last longer and the workforce are happier.)
Innovation needs to be cherished.
Innovation has a lot of bottom-up features. Science and engineering pioneers tend to come from all sorts of backgrounds. Bookbinder, funeral director, Countess, patent clerk, etc. Bottom-up friendly regimes flourish in this field better than dictatorial, top-down regimes.
There can be wisdom in crowds
In well regulated markets in goods, useful valuations can emerge from a bottom-up mechanism of trading. The “well regulated” is key. Where the market is gamed or corrupted, then the valuations becomes less useful.
However, markets for capital and investment, where the behaviour of the crowd is different, this is arguable. These markets are prone to bubbles and crashes, which can be hugely damaging.
There is a problem with the term “Socialism”. The definition and the desires of a lot of people who identify as socialists imply a more bottom-up society
As a complete contradiction, opponents and indeed much of the general public and even some people who call themselves socialists, will take the word Socialism to be primarily about state-control and top-down governance.
This maybe due to the political expression of socialism, particularly under Communism (the Marxist transitional state?) being essentially top-down, which did not work. Interestingly, the ex-soviet countries are significantly more corrupt than other European countries.
Maybe best not to use the word in public debate.
Otherwise, let’s have more bottom-up.
– It has to work.
– Politics is essentially top-down.
– Individuals have to take control.
– Corruption and Greed are always waiting.