The Model Is Market, Not Marxism

The most remarkable event of our time is the recognition by the Soviet Union, at its highest levels of government, that Marxism is inferior to the market as a system for producing goods, providing economic development and enhancing living standards. This recognition comes as no surprise to the people of Eastern Europe, but it may be a surprise to many in the West.

At least since the end of World War II, university courses on economic development have treated the Marxist system as an alternative to the market system, to be discussed and considered seriously. Countries could choose state ownership and planning or private ownership and the market system to achieve growth and higher living standards. If they chose capitalism, they could get growth but faced recessions and the disorder or chaos of the marketplace. If they chose Marxism, they got planning and direction to achieve orderly growth.

Influenced by these arguments, in the 1950s and ‘60s many countries, particularly in Africa, chose state planning, direction and ownership. Others in Cuba, Eastern Europe,China and North Korea had comprehensive planning imposed on them.

Many intellectuals in the ‘40s and ‘50s expected the economic performance of the planned economies to exceed that of the market economies. They talked about the maturity of the capitalist system, the tendency toward stagnation under capitalism and the virtues of comprehensive planning, much as their successors in the ‘60s talked about the greening of America and their successors in the ‘80s now talk about America in decline.

There was some factual basis for the earlier comments. The inter-war experience of the democratic market economies included the slow growth of the ‘20s and the severe depression of the ‘30s. While the experiences differed from country to country, few had the sustained growth that has been the common experience of the years since World War II.

Some of the more perceptive proponents of state ownership of industry or state planning recognized that among the virtues of capitalist market economies are their greater freedom and respect for individuals. Often, they were willing to trade these freedoms for the utopian vision of a “new man” that was supposed to emerge from the Russian, Chinese, Cuban or other experiment that captured their fancy at the time.

Looking back after 40 years, the records of market and planned economies are very different. There was no trade-off. Those countries that produced the greatest increases in living standards also had more freedom and, in several cases where freedoms were restricted, market economies are moving now to eliminate some of the restrictions and to permit movement toward democratic government.

The clearest comparisons come from differences between such countries as East and West Germany, North and South Korea, and China and Hong Kong or Taiwan where people have the same language, culture, history and background. These comparisons are as close as we are likely to come to planned experiments in the social sciences.

In each case, the achievements of the market economies so far outstrip those of the planned economies as to leave no doubt about the results. And the achievements of the market economies are dramatic. Those--mainly Cantonese Chinese--who swam to Hong Kong now have more freedom and per-capita incomes that are at least six times the incomes of the relatives they left behind and more than 20 times the average for mainland China as a whole. The South Koreans, who inherited the poorer, less-developed part of their peninsula and fought a destructive war, now have incomes at least three to four times the incomes of their northern cousins and have moved toward a more Western-style democratic government.

To these clear cases of countries with common language and culture, we can add the experience of countries with “socialism” in all its varieties. Whether it is Burma, Cuba, Poland, Ethiopia, Vietnam or any of the many forms of African or Eastern European socialism, the results are similar. Progress in raising standards of living is poorer than in the market economies and, too often, non-existent. Several have gone backward. None has democratic government.

The comparative economic performance of market and socialist economies has had dramatic effects. No rational person can any longer believe that Marxism and the market are alternative modes of development to be compared, weighed and balanced. What seemed to be a major challenge in the early postwar years should no longer be discussed or debated. The market system, and some form of capitalism, is the recognized path to development. Not everyone chooses that path, but their failure to do so is not based on conjectures about finding a superior alternative.

One can imagine a pragmatist like China’s Deng Xiaoping comparing the experience of China after 1949 to that of its neighbors in Japan, South Korea, Taiwan, Hong Kong and Singapore. Might he not have concluded that he had been reading the wrong books--that Marx and Mao had not provided a valid alternative to the market system and that it was time to recognize the reason for the different results and to change? Whatever the reason for change following Deng’s decision to reintroduce the market system, Chinese living standards rose dramatically.

The example has not been lost on others. We have seen the market system and the system of individual incentives spread in countries as different as India, New Zealand and Hungary, where they were once rejected in whole or in large part. Even the Soviet Union has started to talk out loud about the failures of state planning and the virtues of the market.

Imagine what would have happened if the reverse had been true. Suppose that countries in various parts of the world were now actively discussing or moving toward centralized planning and the Soviet model of centralized resource allocation.

Would the discussion fail to point out that the United States was becoming increasingly isolated, that the “socialist” model had been shown to be an equal or superior mode of development? Is it not, then, a major achievement for the United States and other market economies that some type of market system and system of private incentives is now seen as a requisite for more rapid growth and development? Should we not conclude that our system--capitalism--despite mistakes, has worked, not perfectly, just better than any alternative and far better than the critics of capitalism recognized before or after the fact?