CREEPING CAPITALISM

One of the effective tactics of creeping socialism, especially in America, has been the annexation of words with favorable connotations. The best example is the word ‘liberal’. In the nineteenth century, a liberal supported laissez-faire economic policy, free trade, broadly based democracy and civil liberties. The word had strong positive connotations; even today, while ‘conservative’ is sometimes used favorably, ‘illiberal’ is always pejorative. The socialists opposed liberal economic policies. The more successful socialists, instead of saying that liberalism was bad and socialism good, called themselves liberals (or progressives, another ‘good’ word) and their opponents conservatives.

Nobody but a few Brahmins in Delhi and two or three Trotskyites in New York still believes that the earthly paradise can be achieved by nationalizing General Motors and turning the corner grocery store over to the Mayor’s office. Socialism, as a coherent ideology, is dead and is not likely to be revived by student rebels in Paris or Soviet tanks in Prague. Yet many people, including the late reformers in Prague, call themselves socialists. ‘Socialism’ has become a word with positive connotations and no content.

Shortly after the Soviet invasion of Czechoslovakia, I spent an evening with two Czech economics students. They saw the aim of the Czech reforms as the creation of a society combining the best elements of socialism and capitalism. One of the elements of capitalism they especially liked was that bad workers did not get the same pay as good workers. Whatever socialism meant to them did not include ‘from each according to his ability, to each according to his need’. They wished to preserve government health care and some other welfare measures, but these were not what they meant by socialism. To them, socialism meant a just society, a society where people were reasonably prosperous and reasonably free; it meant roughly what we mean by a liberal society.

This, I think, is what socialism means to much of the world. If so, socialism need not be opposed—merely improved. Any change that makes a socialist society better makes it, by definition, more socialist. If people are convinced that state ownership and control do not work, as the Eastern Europeans by bitter experience are, then the changes that will make their society more socialist are changes such as the transfer of ownership and control from the state to workers’ cooperatives and, at a later stage, from workers’ cooperatives to the workers themselves.

The complete destruction of socialist institutions in the name of socialism is practical only if creeping capitalism tends to force itself to its logical conclusion. Otherwise socialists might move to some mixed economy, intermediate between capitalism and socialism, such as the present American economy, and stay there. As a libertarian, a liberal in the old sense, I would consider this unfortunate.

Evidence that capitalism creeps is seen in Yugoslavia. Yugoslavian workers’ cooperatives, which, in effect, own factories as corporations own them here, must get capital for investment from either their own profits or the government. Some cooperatives that could get large returns from capital investments do not have enough profits to finance them and others have large profits which they would be willing to invest for a reasonable return but do not need additional capital in their own operations. The obvious solution, as many Yugoslav economists realize, is to allow cooperatives to make loans to each other and charge interest.

A worker cannot sell his share of his cooperative (which entitles him to a share of the profits) and loses it on retirement. So the workers who control the cooperative have no incentive to make investments whose return will come after they retire. The solution is to make the share transferable, like a share of stock. Its market value would then depend on the expected future earnings of the cooperative. A long-term investment would lower the worker’s dividends but raise the value of his share. This reform, when and if it is made, will constitute a further step in the effective conversion of Yugoslavia to a capitalist society.

In describing the objective of the Czechoslovakian reforms, my Czech friends said that in the system the reformers wanted most products would be controlled by the price system but prices of necessities such as milk and bread would be fixed by the government. I argued that if the price system was better for other things, it was even more important to use it for necessities. Their English was not very good, so there may have been some confusion at this point. What I think one of them said was “Yes. That’s what our teachers say too.”

Your property is that which you control the use of. If most things are controlled by individuals, individually or in voluntary association, a society is capitalist. If such control is spread fairly evenly among a large number of people, the society approximates competitive free enterprise—better than ours does. If its members call it socialist, why should I object?

Socialism is dead. Long live socialism.

[This chapter was written before the fall of the Soviet Union and the breakup of Yugoslavia. By the time I finished the book’s third edition, China had produced striking evidence of the power of creeping capitalism. For details see How China Became Capitalist by Ronald Coase and Ning Wang.]