Problems with Socialism: What if a more equal society reduces economic growth? Even just a little bit…

No one should hold a belief unquestioningly. I’m a Socialist, but there are lots of matters on which my mind has been changed by the evidence. For example, I used to be quite anti-market, in a Polanyian sense, now I’m less convinced that non-market institutions will work as well as they could. A market seems like the only rational way to distribute iPods, food or housing; so long as we ensure people can afford what is on offer through their wage or a direct transfer then a market in goods is a good thing.

I once believed the positives of Maoism; an educated, healthy, disciplined workforce with a diversified set of infant industries (for the per capita income) outweighed the negative; the Great Leap Forward and the Cultural Revolution. When you consider how badly China had been run up until 1949 and how badly it still would have been run in Mao’s absence I found it hard to condemn what Mao left behind (even if it was easy to condemn what Mao did to get China there). These days, I’m less sure that Taiwan’s rulers wouldn’t have been as successful on the mainland as they have been in Taiwan.

Something which is important for Socialists to consider is that some of the things they hold dear may be mutually exclusive.

I quite like the idea of humanity progressively getting richer. By that I mean continuing increases in productivity being used to make and do more stuff from fewer resources (with some of this increase in making and doing being taken as increased leisure). I also like the idea of a more equal society. What if the two of these are at odds with one another? What if a little bit more equality leads to a little bit less growth.

A price worth paying, perhaps? Jimmy Reid said that he was “prepared to sacrifice a margin of efficiency for the value of the people’s participation.” And many on the left echo this statement. However, many on the left have not heard of the most powerful force in the universe, compound interest. A small reduction in growth, become a big reduction in wealth in a surprisingly short amount of time. If an unequal economy growing at 3% a year can purchase equality by sacrificing just 0.5% annual growth, would I make that deal? In the short run, you bet, but in the long run, I’m not completely sure I would.

I used actually existing income distributions of the UK in 07/08 and Norway in 97/98 so I could emphasise that these are realistic income distributions, not wishful thinking. I used 3% and 2.5% GDP  growth figures because a small difference allows me to make my point even more strongly and because they are roughly realistic historical figures. For ease of comparison I’m assuming social mobility is the same in each country and that there is no population growth or demographic decline etc.

Our countries start with an equal income, represented in the below graph. 70% of Redland’s people are better off than their compatriots in blue land and even the top 30% are still doing pretty well. The poorest 10th in Blueland take 1% of income, compared to around 4% in Redland. Whether you’re looking at minimising your chance of the worst outcome, or maximising you chance of a relatively higher income, Redland wins handsdown.

However, things change as we mover through the generations and tiny differences in growth compound over time. After 30 years, 60 years and 100 years our societies become radically different. After one generation (below) Redland is now about 5% poorer than Blueland, but still much more equal and what I would call a fairer society. Bottom half of Redland society are wealthier than the bottom half in Blueland.

After 100 years, a few generations (below), the material benefits of a more equal society more or less vanish as everyone bar the very poorest become worse off than they would have been in more unequal Blueland. (A similar trend is visible after two generations, but become particularly pronounced after a century.)

This change in fortune is the result of a tiny 0.5% difference in growth rates. Blueland is 19 times richer than it was, Redland only 11.

Is it beneficial for everyone to be slightly worst off if the non-material benefits are great enough? There are many arguments out there that an equal society provides many benefits that an unequal one cannot; lower crime, happier people, less mental illness, better quality of life.  Does the benefit of knowing you’re a member of an equal society outweigh the cost of simply not being as wealthy? These are empirical claims, and if we are honest, we don’t know either way.

Is it fair that in 100 years time a generation will be about half as wealthy as they could have been? It is impossible for us to know what choices that generation would have made. Perhaps equality is worth the price, but without knowing what the unborn think we would be exploiting those not yet born to purchase ourselves some equality.

Is it desirable to be poorer? This is not just a case of quantitative differences, if we end up in Redland in 100 years not Blueland, there will not just be fewer iPods and smaller housing. In Blueland we are on a manned mission to Mars, in Redland we can’t afford it. There may be diminishing returns to greater prosperity, but are they such that it is worth everyone being a little bit poorer in the long run?

Would Jimmy Reid (and am I) still be happy to “sacrifice a margin of efficiency” if it led to nearly everyone becoming poorer? Well, I cropped Jimmy Reid early. He didn’t just say he was “prepared to sacrifice a margin of efficiency for the value of the people’s participation.” He actually added “in the longer term, I reject this argument.”

As do I. I contend that Socialism as I see it, not a capitalist market economy with tax credits thrown on top, would not reduce growth. A Socialism in which the information and knowledge of normal people working in democratic workplaces would operate more efficiently and more equitably that modern managerial capitalism. However, if a fairer society as I imagine could be shown to consistently reduce growth then my life as a Socialist would become far more problematic.

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7 thoughts on “Problems with Socialism: What if a more equal society reduces economic growth? Even just a little bit…

  1. It’s always good to see a chap take his first step along the road to liberalism. It’s worth reminding you at this point that JS Mill strongly preferred co-operatives to corporations.

    1. Haha, you should be so lucky as to get me on your side.

      In any case, I’ve always been a liberal (see anything on drugs or civil liberties on this blog), but liberalism makes me want to be a Socialist.

      I’m curious what the reaction would be to post will be on both the left and right.

  2. This is a really good post, possibly the best one you’ve ever written.

    You’re onto something important: the extent to which egalitarianism *now* cashes out in inter-generational trade offs. More attention needs to be paid to this. Although lots has been said about “sufficientarian” arguments, and insisting on equality even at the cost of growth FOR US, less has been said about the long-run impacts on unborn generations – and I suspect the arguments about growth “vs.” equality will be importantly different there.

    One quible though: why do you think you are a “socialist”. What you describe in your final paragraph is unrecognisable as socialism to me. Lots of people – you, Carl Packman, Laurie Penny, for example, but also Ed Miliband, Andy Burnham, etc – like to call themselves socialists, but then put down whatever their favourite glad-bag of preferences are when asked to fill that term out. The result is that socialism is alleged to mean “not free market capitalism, nor New Labour/Clinton triangulation, but something nicer”. Which isn’t really very helpful, and also isn’t really socialism.

    May blog about this at length. But I’d recommend not calling yourself a socialist, because that term relates to historically entrenched thoughts about political economy and the modes of production being state-owned that you (clearly, and from this post) do not subscribe to.

  3. First off, I call myself a socialist for a number of reasons.

    One is that I quite like the assumptions that go with it, it is nice to be part of a tribe. I share most of the same objectives as Carl Packman and Laurie Penny, I just differ on whether those objectives are logically consistent and on the methods used to get the results.

    Secondly, in lots of ways I’m not as anti-state as I make out. For example, when it comes to developing economies I can be quite statist, because in that situation it works. In the developed world I’m more agnostic I suppose. There’s lots of ways the state can make the world better, but often it doesn’tact in that way. It detains children and enriches the already wealthy.

    So, much as libertarian has changed from being a term denoting “left wing anarchists” to “right wing conservatives” so socialism has become something quite statist. It doesn’t have to be in my book and I see socialism as quite a broad tent.

    With respect to the post, I agree that far too little attention is given to the dynamic long term effects of policies which may be optimal in the short run.

    Basically far too many people think all their pet projects will sync up. Green jobs and equality and growth and democracy and fluffy bunnies for all and shorter working hours. There is a reality deficit amongst many people on our side, and it is annoying and I want people to think about things more deeply.

    It is annoying that the debate at Liberal Conspiracy has been hijacked by people arguing about whether growth is possible at all, largely becuase they don’t understand what growth is, rather than people discussing the original post, that egalitarianism may not be egalitarian at all if all the people effected (people not yet born for example) are taken into account.

  4. Well, regarding the original post, things aren’t helped by the fact Sunny truncated your article in such a way that it doesn’t read coherently.

    Not as bad as what happened to mine re the Police – which went from being tongue in cheeck but with a point, to frankly incoherent – but annoying. I’m tempted to ask Sunny to chill out on the edit front and trust people to deal with 700 words and not feel compelled to chop it down to 400 every time.

    1. Thank you for your compliment as well by the way. I appreciate it from a blogger like you who I respect.

      Yes, Sunny does get a bit, how should I say, overzealous with the editing. Its probably okay with newsy/reporting stuff, but when you’re crafting an argument sometimes something just needs to be that long. I try to follow the rule “if you can cut it out then cut it out” as it is.

  5. I realised a while ago that I was talking about socialism as if there was one standard meaning of it, so I decided to explain what socialism means to me – just to add to your debate here.It doesn’t explain everything, but it is some beginning, but to be sure, my entry is predicated upon the fact that socialism – particularly since it became a buzzword for labour leader candidates again – is an overused, underexplained word.

    http://thoughcowardsflinch.com/2010/07/10/socialism-restated/

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