On socialism and capitalism at different stages of economic development

Socialist and capitalist economies have not remotely followed the trajectory Marxism assumes

Have you heard about the Niemietz Diet? It is a two-stage miracle diet with a guaranteed success rate of 100%.

It works as follows: during the first stage, you start every day with a Full English Breakfast, including black pudding, sausages and hash browns. Then for lunch, you alternate between Domino’s pizzas, Big Mac meals with fries and Chicken McNuggets, KFC buckets, and fish and chips. For dinner, you go for the Wetherspoons sharer platter, washed down with a couple of pints, followed by a chocolate fudge cake with ice cream for dessert.

This brings you to well above 5,000 calories per day, so admittedly, at this stage of the diet, you will put on weight. But now comes the neat trick: during the second stage, you just radically cut back on all of the above – and you won’t believe how quickly that excess fat melts away!

You can see the logical flaw in the above. And yet, every so often, I come across people who unironically believe in the economic equivalent of the Niemietz Diet: “Socialism With Chinese Characteristics”. Look at how much progress China has made over the past 30 years!, they will say. Look at how many people they have lifted out of poverty! Isn’t that incredible?

Photo by Li Yang on Unsplash

Well, yes, of course it is. But they achieved all that by simply reversing a lot of the terrible things they had done during the first three decades of the existence of the People’s Republic of China. If you do a lot of really stupid things to yourself, and then you stop doing them, your situation will improve. Which is great. But an even better idea would be to skip the first stage, and just not do the really stupid things.

I was on Novara Media recently, where the host, Aaron Bastani, presented a version of the above argument. (“What about communist China? They’ve taken 700 million people out of poverty in the last 30 years!”) 

Bastani accepts that Dengism was a major departure from Maoism. But he insists that it is not, in any way, a departure from Marxism. Rather, it is a return to the original Marxist idea of development. Deng Xiaoping, channelling Marx, believed that poor countries have to unleash market forces in order to build up their productive capacity. Once they have done that, they can move on to the next stage of development, which is socialism. But only then. In that sense, it is Maoism – not Dengism – which is really the departure from Marxism, because Mao believed that you could largely skip the capitalist stage of development, and move straight from agrarian feudalism to socialism. The lesson from China, then, is not that there is anything wrong with socialism, but that there are no shortcuts.

As a summary of the orthodox Marxist position, this is, of course, correct. Let's do a quick recap. The Marxist position is not simply that capitalism is terrible, and that it should be overthrown at the earliest possible opportunity. It is that capitalism is a temporary but necessary stage of economic development, which all societies have to pass through. Capitalism, in that theory, is like a well-organised apprenticeship scheme. If you start from a position of zero or very little knowledge, an apprenticeship can be an extremely effective way to build up a solid skills base. But there is a reason why people do not remain apprentices forever. There comes a point when an apprenticeship has outgrown its usefulness. At some point, you have learned everything you are ever likely to learn in that format. If you remain an apprentice beyond that point, it will actively constrain the further development of your skills. You are ready to move on to the next stage of your career – and move on you must.

Maoist China, in that analogy, is like a stroppy, overconfident apprentice, who, after a few days of learning, thinks that he now knows it all, kicks up a fuss, he assaults his master, trashes the workplace, and storms out. Convinced that he is now a skilled craftsman, he then sets up his own workshop, only to find out that he is not remotely ready for it yet. His project crashes and burns.

Dengism, in the same analogy, is that apprentice ruefully returning to his master, promising to do better the second time, and fully delivering on that promise. This time round, he turns out to be a role-model learner.

The West, meanwhile, is an ageing long-term apprentice, who has not learned any new tricks in decades, who is frustrated with the lack of progress in his career, but who just fails to realise that he is in an economic arrangement that no longer works for him.

Capitalism is, in that perspective, not “good” or “bad” – no more than apprenticeships are “good” or “bad”. Rather, it is conducive to economic development up to a point, and becomes a hindrance to development beyond that point. As Friedrich Engels put it in his book Socialism: Utopian and Scientific (1880):

“Since the historical appearance of the capitalist mode of production, the appropriation by society of all the means of production has often been dreamed of, more or less vaguely, by individuals, as well as by sects, as the ideal of the future. But it could become possible, could become a historical necessity, only when the actual conditions for its realization were there. Like every other social advance, it becomes practicable, not by men understanding that the existence of classes is in contradiction to justice, equality, etc., not by the mere willingness to abolish these classes, but by virtue of certain new economic conditions. […]

[D]ivision into classes […] was based upon the insufficiency of production. It will be swept away by the complete development of modern productive forces. […] [T]he abolition of classes in society […] presupposes […] the development of production carried out to a degree at which appropriation of the means of production and of the products […] by a particular class of society, has become not only superfluous but economically, politically, intellectually, a hindrance to development.”

In other words, societies cannot simply overthrow capitalism because they feel like it. They have to be ready for it. They have to have reached a sufficiently high level of economic maturity.

So how do you know when you have reached that point? How do you know when the time is ripe?

Engels had little to say on the “how”, but he nonetheless somehow knew:

“This point is now reached. [Emphasis added.] […] The expansive force of the means of production bursts the bonds that the capitalist mode of production had imposed upon them. Their deliverance from these bonds is the one precondition for an unbroken, constantly-accelerated development of the productive forces, and therewith for a practically unlimited increase of production itself. […] The socialized appropriation of the means of production does away […] with the present artificial restrictions upon production […] [Emphasis added]

The possibility of securing for every member of society, by means of socialized production, an existence not only fully sufficient materially, and becoming day-by-day more full, but an existence guaranteeing to all the free development and exercise of their physical and mental faculties — this possibility is now [Emphasis added], for the first time, here, but it is here. [Emphasis in the original]”.

Bastani would probably say that Engels was right in principle, and that he just got the timing wrong. When he said “now” (in 1880), he probably meant “in 2025”. Easy mistake to make. Could have been a typo.

My main problem with this theory is not the timing, though. It is that, if we look at how socialist and capitalist economies have actually developed, we find that they do not remotely follow the trajectory we would expect under Marxist assumptions.  

If the above theory were even half-way correct, we would expect socialism to be bad at building an industrial base, but great at developing it further once it is there.

What we actually see, though, is the exact opposite. Countries can build an initial industrial base under socialism. That is arguably what socialist economies are least bad at, or at the very least, that was never their main problem. The Soviet Union industrialised under Stalin: far from brilliantly, but industrialise, it did. Some of the poorer parts of Eastern Europe also saw industrialisation boosts under Soviet-aligned regimes, and until well into the 1970s, North and South Korea industrialised at comparable rates. If you have a very backward economy with lots of potential for catch-up growth, a planned economy can get you some of the way there.

It just cannot get you much further. Socialism has been described as “all thumbs and no fingers”. It can do the big, bulky, heavy stuff – but it cannot deliver sophisticated consumer goods and services. It can build steel mills, tanks and coal-fired power plants – even satellites. But it cannot brew craft beer.

At the opposite end of the spectrum, what we have seen over the course of the past two decades or so is that the economies which were already closest to the production possibility frontier – the US, Switzerland and Singapore – have pulled even further away from second-tier economies like the UK. The most advanced capitalist economies are where “the bonds that the capitalist mode of production had imposed upon [the forces of production]” should be tightest. Again: the exact opposite of what we actually observe.

Marxists can count themselves lucky to have eloquent defenders like Bastani on their side to promote their cause. Because they certainly cannot rely on data, real-world economic observations or historical experience to do that job for them.