Friday, September 28, 2012

Socialism Russian Style

We have defined socialism as an institutionalized policy of redistribution of property titles. More precisely, it is a transfer of property titles from people who have actually put scarce means to some use or who have acquired them contractually from persons who have done so previously onto persons who have neither done anything with the things in question nor acquired them contractually. For a highly unrealistic world—the Garden of Eden—I then pointed out the socio-economic consequences of such a system of assigning property rights were then pointed out: a reduction of investment in human capital and increased incentives for the evolution of nonproductive personality types.
I now want to enlarge and concretize this analysis of socialism and its socio-economic impact by looking at different though equally typical versions of socialism. In this chapter I will concentrate on the analysis of what most people have come to view as “socialism par excellence” (if not the only type of socialism there is), this probably being the most appropriate starting point for any discussion of socialism. This “socialism par excellence” is a social system in which the means of production, that is, the scarce resources used to produce consumption goods, are “nationalized” or “socialized.”
Indeed, while Karl Marx, and like him most of our contemporary intellectuals of the left, was almost exclusively concerned with the analysis of the economic and social defects of capitalism, and in all of his writings made only a few general and vague remarks about the constructive problem of the organization of the process of production under socialism, capitalism’s allegedly superior alternative, there can be no doubt that this is what he considered the cornerstone of a socialist policy and the key to a better and more prosperous future.17 Accordingly, socialization of the means of production has been advocated by all socialists of orthodox Marxist persuasion ever since. It is not only what the communist parties of the West officially have in store for us, though they become increasingly reluctant to say so in order to seize power. In all of the Western socialist and social-democratic parties a more or less numerous, outspoken, and eloquent minority of some influence also exists, which arduously supports such a scheme and proposes socialization, if not of all means of production, then at least of those of big industry and big business. Most importantly, smaller or bigger sectors of nationalized industries have become part of social reality even in the so-called “most capitalist” countries; and of course an almost complete socialization of the means of production has been tried out in the Soviet Union and later in all of the Soviet-dominated countries of Eastern Europe, as well as in a number of other countries all over the world. The following analysis should thus enable us to understand the economic and social problems of societies, insofar as they are characterized by nationalized means of production. And in particular, it should help us to understand the central problems that plague Russia and its satellites, as these countries have carried a policy of socialization so far that it can justly be said to be their dominant structural feature. It is because of this fact that the type of socialism under investigation is called “Russian” style.18
As regards the motivational forces pushing socialization schemes, they are avowedly egalitarian. Once you allow private property in the means of production, you allow differences. If I own resource A, then you do not own it, and our relationship to this resource is thus different. By abolishing private ownership everyone’s position vis à vis means of production is equalized with one stroke, or so it seems. Everyone becomes co-owner of everything, reflecting everyone’s equal standing as human beings. And the economic rationale of such a scheme is that it is supposedly more efficient. To the untrained observer unfamiliar with the action-coordinating function of prices, capitalism as based on private ownership of means of production simply appears chaotic. It seems to be a wasteful system characterized by duplicating efforts, ruinous competition, and the absence of concerted, coordinated action. As Marxists call it depreciatively, it is an “anarchy of production.” Only when collective ownership is substituted for private does it seemingly become possible to eliminate this waste by implementing a single, comprehensive, coordinated production plan.
More important, though, than motivation and promises is what a socialization of means of production really amounts to. 19 The property rules that are adopted under a socialization policy and which constitute the basic legal principles of countries like Russia are characterized by two complementary features. First, nobody owns the socialized means of production; they are “socially” owned, which is to say precisely: no person, or no group of persons, or all taken together is allowed to either acquire them or sell them and keep the receipts from their sale privately. Their use is determined by people not in the role of an owner but of a caretaker of things. And secondly, no person or group of persons or all taken together is allowed to engage newly in private investment and create new private means of production. They can neither invest by transforming the existing, nonproductively used resources into productive ones, by original saving, by pooling resources with other people, nor by a mixture of these techniques. Investment can only be done by caretakers of things, never for private profit, always on behalf of the community of caretakers with whom the possible profits from investments would have to be shared.20
What does it mean to have such a caretaker economy? What, in particular, does it imply to change from an economy built on the natural theory of property to a socialized one? In passing, two observations should be made, which will already throw some light on the above-mentioned socialist promises of equality and efficiency. Declaring everybody a co-owner of everything solves the problem of differences in ownership only nominally. It does not solve the real underlying problem: differences in the power to control. In an economy based on private ownership, the owner determines what should be done with the means of production. In a socialized economy this can no longer happen, as there is no such owner. Nonetheless, the problem of determining what should be done with the means of production still exists and must be solved somehow, provided there is no prestabilized and presynchronized harmony of interests among all of the people (in which case no problems whatsoever would exist anymore), but rather some degree of disagreement. Only one view as to what should be done can in fact prevail and others must mutatis mutandis be excluded. But then again there must be inequalities between people: someone’s or some groups’ opinion must win over that of others. The difference between a private property economy and a socialized one is only how whose will prevails in cases of disagreement is to be determined. In capitalism there must be somebody who controls, and others who do not, and hence real differences among people exist, but the issue of whose opinion prevails is resolved by original appropriation and contract. In socialism, too, real differences between controllers and noncontrollers must, of necessity, exist; only in the case of socialism, the position of those whose opinion wins is not determined by previous usership or contract, but by political means.21 This difference is certainly a highly important one, and our discussion will return to it later in this chapter and again in later chapters, but here it suffices to say that—contrary to socialism’s egalitarian promises—it is not a difference between a nonegalitarian and an egalitarian system as regards power of control.
The second observation is intimately connected with the first and concerns socialism’s allegedly superior coordinating capabilities. Again closer inspection reveals that the difference is merely illusory, created only by semantics: to say that an economy of private owners is supplanted by a nationalized one creates the impression that instead of a multitude of decision-making units, all of a sudden there is only one such unit. In fact, nothing has changed at all. There are as many individuals with as many different interests as before. Just as much as capitalism then, socialism has to find a solution to the problem of determining how to coordinate the uses of different means of production, given the fact of differing views among people on how this should be accomplished. The difference between capitalism and socialism is again one of how coordination is achieved, and not between chaos and coordination, as the socialist semantic insinuates. Instead of simply letting individuals do what they want, capitalism coordinates actions by constraining people to respect previous user-ownership. Socialism, on the other hand, instead of letting people do whatever pleases them, coordinates individual plans by superimposing on one person’s or group of persons’ plan that of another disagreeing person or group regardless of prior ownership and mutual exchange agreements.22 It hardly deserves comment that this difference, too, is of the utmost importance. But it is not, as Marxist socialism would like us to believe, a difference between social planning and no planning at all; on the contrary, as soon as the coordinating mechanisms of socialism and capitalism are brought into the open and reconstructed, socialism’s claim to greater efficiency immediately begins to lose much of its credibility, and the opposite thesis appears to be more convincing.
How well-founded this thesis indeed is, and exactly why it is that capitalism’s, and not socialism’s, coordinating mechanism proves to be economically superior will become clear when one turns away from apparent differences and concentrates on real ones instead, and looks at the redistribution of property titles, and hence of income, which is implied in giving up capitalism in favor of a caretaker economy, as characterized above. From the standpoint of the natural theory of property—the foundation of capitalism—the adoption of the basic principles of a caretaker economy means that property titles are redistributed away from actual producers and users of means of production, and away from those who have acquired these means by mutual consent from previous users, to a community of caretakers in which, at the very best, every person remains the caretaker of the things he previously owned. But even in this case each previous user and each contractor would be hurt, as he could no longer sell the means of production and keep the receipt from the sale privately, nor could he privately appropriate the profit from using them the way they are used, and hence the value of the means of production for him would fall. Mutatis mutandis, every nonuser and noncontractor of these means of production would be favored by being promoted to the rank of caretaker of them, with at least partial say over resources which he had previously neither used nor contracted to use, and his income would rise.
In addition to this redistributive scheme there is another one, implied by the prohibition of newly created private capital or by the degree of hampering (dependent as it is on the size of the socialized part of the economy) under which this process must now take place: a redistribution away from people who have forgone possible consumption and instead saved up funds in order to employ them productively, i.e., for the purpose of producing future consumption goods, and who now can no longer do so or who now have fewer options available, toward nonsavers, who in adopting the redistribution scheme, gain a say, however partial, over the saver’s funds.
The socio-economic consequences of a policy of socialization are essentially implied in these formulations. But before taking a more detailed look at them, it might be worthwhile to review and clarify the central features of the real world in which this socialization scheme would purportedly take place. It should be recalled that one is dealing with a changing world; that man, in addition, can learn with respect to this world and so does not necessarily know today what he will know at a later point in time; that there is a scarcity of a multitude of goods and that accordingly man is pressed by a multitude of needs, not all of which he can satisfy at the same time and/or without sacrificing the satisfaction of other needs; because of this, man must choose and order his needs in a scale of preferences according to the rank of urgency that they have for him; also, more specifically, that neither the process of original appropriation of resources perceived as scarce, nor the process of production of new and the upkeep of old means of production, nor the process of contracting, is costless for man; that all of these activities cost at the very least time, which could be spent otherwise, e.g., for leisure activities; and in addition one should not forget that one is dealing with a world characterized by the division of labor, which is to say that one is not talking about a world of self-sufficient producers, but one in which production is carried out for a market of independent consumers.
With this in mind, then, what are the effects of socializing the means of production? To begin with, what are the “economic” consequences, in the colloquial sense of the term? There are three intimately related effects.23 First—and this is the immediate general effect of all types of socialism—there is a relative drop in the rate of investment, the rate of capital formation. Since “socialization” favors the nonuser, the nonproducer, and the noncontractor of means of production and, mutatis mutandis, raises the costs for users, producers, and contractors, there will be fewer people acting in the latter roles. There will be less original appropriation of natural resources whose scarcity is realized, there will be less production of new and less upkeep of old factors of production, and there will be less contracting. For all of these activities involve costs and the costs of performing them have been raised, and there are alternative courses of action, such as leisure-consumption activities, which at the same time have become relatively less costly, and thus more open and available to actors. Along the same line, because everyone’s investment outlets have dried up as it is no longer permissible to convert private savings into private investment, or because the outlets have been limited to the extent to which the economy is socialized, there will therefore be less saving and more consuming, less work and more leisure. After all, you cannot become a capitalist any longer, or your possibility of becoming one has been restricted, and so there is at least one reason less to save! Needless to say, the result of this will be a reduced output of exchangeable goods and a lowering of the living standard in terms of such goods. And since these lowered living standards are forced upon people and are not the natural choice of consumers who deliberately change their relative evaluation of leisure and exchangeable goods as the result of work, i.e., since it is experienced as an unwanted impoverishment, a tendency will evolve to compensate for such losses by going underground, by moonlighting and creating black markets.
Secondly, a policy of the socialization of means of production will result in a wasteful use of such means, i.e., in use which at best satisfies second-rate needs and at worst, satisfies no needs at all but exclusively increases costs.24 The reason for this is the existence and unavoidability of change! Once it is admitted that there can be change in consumer demand, change in technological knowledge, and change in the natural environment in which the process of production has to take place—and all of this indeed takes place constantly and unceasingly—then it must also be admitted that there is a constant and never-ending need to reorganize and reshuffle the whole structure of social production. There is always a need to withdraw old investments from some lines of production and, together with new ones, pour them into other lines, thus making certain productive establishments, certain branches, or even certain sectors of the economy shrink and others expand. Now assume—and this is precisely what is done under a socialization scheme—that it is either completely illegal or extremely difficult to sell the collectively owned means of production into private hands. This process of reorganizing the structure of production will then—even if it does not stop altogether—at least be seriously hampered! The reason is basically a simple one, but still of the utmost importance. Because the means of production either cannot be sold, or selling them is made very difficult for the selling caretaker or the private buyer or both, no market prices for the means of production exist, or the formation of such prices is hindered and made more costly. But then the caretaker-producer of the socialized means of production can no longer correctly establish the actual monetary costs involved in using the resources or in making any changes in the production structure. Nor can he compare these costs with his expected monetary income from sales. In not being permitted to take any offers from other private individuals who might see an alternative way of using some given means of production, or in being restricted from taking such offers, the caretaker simply does not know what he is missing, what the foregone opportunities are, and is not able to correctly assess the monetary costs of withholding the resources. He cannot discover whether his way of using them or changing their use is worth the result in terms of monetary returns, or whether the costs involved are actually higher than the returns and so cause an absolute drop in the value of the output of consumer goods. Nor can he establish whether his way of producing for consumer demand is indeed the most efficient way (as compared with conceivable alternative ways) of satisfying the most urgent consumer needs, or if less urgent needs are being satisfied at the expense of neglecting more urgent ones, thus causing at least a relative drop in the value of the goods produced. Without being able to resort unrestrictedly to the means of economic calculation, there is simply no way of knowing. Of course one could go ahead and try to do one’s best. That might even be successful sometimes, though one would have no way of assuring oneself that it is. But, in any case, the larger the consumer market is which one has to serve, and the more the knowledge regarding preferences of different groups of consumers, special circumstances of historical time and geographical space, and possibilities of technology is dispersed among different individuals, the more likely it is that one will go wrong. A misallocation of means of production, with wastes and shortages as the two sides of the same coin, must ensue. In hampering and of course even more so, in making it outright illegal for private entrepreneurs to bid away means of production from caretakers, a system of socialized production prevents opportunities for improvement from being taken up to the full extent they are perceived. Again, it hardly needs to be pointed out that this, too, contributes to impoverishment.25
Thirdly, socializing the means of production causes relative impoverishment, i.e., a drop in the general standard of living, by leading to an over-utilization of the given factors of production. The reason for this, again, lies in the peculiar position of a caretaker as compared with that of a private owner. A private owner who has the right to sell the factors of production and keep the money receipts privately will, because of this, try to avoid any increase in production which occurs at the expense of the value of the capital employed. His objective is to maximize the value of the products produced plus that of the resources used in producing them because he owns both of them. Thus he will stop producing when the value of the marginal product produced is lower than the depreciation of the capital used to produce it. Accordingly, he will, for instance, reduce the depreciation costs involved in producing, and instead engage in increased conservation, if he anticipates future price rises for the products produced and vice versa. The situation of the caretaker, i.e., the incentive structure which he is facing, is quite different in this respect. Because he cannot sell the means of production, his incentive to not produce, and thereby utilize the capital employed, at the expense of an excessive reduction in capital value is, if not completely gone, then at least relatively reduced. True, since the caretaker in a socialized economy also cannot privately appropriate the receipts from the sale of products, but must hand them over to the community of caretakers at large to be used at their discretion, his incentive to produce and sell products at all is relatively weakened as well. It is precisely this fact that explains the lower rate of capital formation. But as long as the caretaker works and produces at all, his interest in gaining an income evidently exists, even if it cannot be used for purposes of private capital formation, but only for private consumption and/or the creation of private, nonproductively used wealth. The caretaker’s inability to sell the means of production, then, implies that the incentive to increase his private income at the expense of capital value is raised. Accordingly, to the extent that he sees his income dependent on the output of products produced (the salary paid to him by the community of caretakers might be dependent on this!), his incentive will be raised to increase this output at the expense of capital. Furthermore, since the actual caretaker, insofar as he is not identical with the community of caretakers, can never be completely and permanently supervised and thus can derive income from using the means of production for private purposes (i.e., the production of privately used, non- or black-marketed goods) he will be encouraged to increase this output at the expense of capital value to the extent that he sees his income dependent on such private production. In any case, capital consumption and overuse of existing capital will occur; and increased capital consumption once more implies relative impoverishment, since the production of future exchange goods will, as a consequence, be reduced.
While implied in this analysis of the threefold economic consequences of socializing the means of production—reduced investment, misallocation, and overutilization, all of which lead to reduced living standards—in order to reach a full understanding of Russian-type societies it is interesting and indeed important to point out specifically that the above analysis also applies to the productive factor of labor. With respect to labor, too, socialization implies lowered investment, misallocation, and overutilization. First, since the owners of labor factors can no longer become self-employed, or since the opportunity to do so is restricted, on the whole there will be less investment in human capital. Second, since the owners of labor factors can no longer sell their labor services to the highest bidder (for to the extent to which the economy is socialized, separate bidders having independent control over specific complementary factors of production, including the money needed to pay labor, and who take up opportunities and risks independently, on their own account, are no longer allowed to exist!) the monetary cost of using a given labor factor, or of combining it with complementary factors, can no longer be established, and hence all sorts of misallocations of labor will ensue. And third, since the owners of labor factors in a socialized economy own at best only part of the proceeds from their labor while the remainder belongs to the community of caretakers, there will be an increased incentive for these caretakers to supplement their private income at the expense of losses in the capital value embodied in the laborers, so that an overutilization of labor will result.26
Last, but certainly not least, a policy of the socialization of the means of production affects the character structure of society, the importance of which can hardly be exaggerated. As has been pointed out repeatedly, adopting Russian-type socialism instead of capitalism based on the natural theory of property implies giving a relative advantage to nonusers, nonproducers, and noncontractors as regards property titles of the means of production and the income that can be derived from using of these means. If people have an interest in stabilizing and, if possible, increasing their income and they can shift relatively easily from the role of a user-producer or contractor into that of a nonuser, nonproducer, or noncontractor—assumptions, to be sure, whose validity can hardly be disputed—then, responding to the shift in the incentive structure affected by socialization, people will increasingly engage in nonproductive and noncontractual activities and, as time goes on, their personalities will be changed. A former ability to perceive and to anticipate situations of scarcity, to take up productive opportunities, to be aware of technological possibilities, to anticipate changes in demand, to develop marketing strategies and to detect chances for mutually advantageous exchanges, in short: the ability to initiate, to work and to respond to other people’s needs, will be diminished, if not completely extinguished. People will have become different persons, with different skills, who, should the policy suddenly be changed and capitalism reintroduced, could not go back to their former selves immediately and rekindle their old productive spirit, even if they wanted to. They will simply have forgotten how to do it and will have to relearn, slowly, with high psychic costs involved, just as it involved high costs for them to suppress their productive skills in the first place. But this is only half the picture of the social consequences of socialization. It can be completed by recalling the above findings regarding capitalism’s and socialism’s apparent differences. This will bring out the other side of the personality change caused by socializing, complementing the just mentioned loss in productive capacity. The fact must be recalled that socialism, too, must solve the problem of who is to control and coordinate various means of production. Contrary to capitalism’s solution to this problem, though, in socialism the assignment of different positions in the production structure to different people is a political matter, i.e., a matter accomplished irrespective of considerations of previous user-ownership and the existence of contractual, mutually agreeable exchange, but rather by superimposing one person’s will upon that of another (disagreeing) one. Evidently, a person’s position in the production structure has an immediate effect on his income, be it in terms of exchangeable goods, psychic income, status, and the like. Accordingly, as people want to improve their income and want to move into more highly evaluated positions in the hierarchy of caretakers, they increasingly have to use their political talents. It becomes irrelevant, or is at least of reduced importance, to be a more efficient producer or contractor in order to rise in the hierarchy of income recipients. Instead, it is increasingly important to have the peculiar skills of a politician, i.e., a person who through persuasion, demagoguery and intrigue, through promises, bribes, and threats, manages to assemble public support for his own position. Depending on the intensity of the desire for higher incomes, people will have to spend less time developing their productive skills and more time cultivating political talents. And since different people have differing degrees of productive and political talents, different people will rise to the top now, so that one finds increasing numbers of politicians everywhere in the hierarchical order of caretakers. All the way to the very top there will be people incompetent to do the job they are supposed to do. It is no hindrance in a caretaker’s career for him to be dumb, indolent, inefficient, and uncaring, as long as he commands superior political skills, and accordingly people like this will be taking care of the means of production everywhere.27
A look at Russia and other East-bloc countries in which a policy of socialization of means of production has been carried out to a considerable degree can help illustrate the truth of the above conclusions. Even a superficial acquaintance with these countries suffices to see the validity of the first and main conclusion. The general standard of living in the East-bloc countries, though admittedly different from country to country (a difference that itself would have to be explained by the degree of strictness with which the socialization scheme was and presently is carried through in practice), is clearly much lower than that in the so-called capitalist countries of the West. (This is true even though the degree to which Western countries are socialized, though differing from country to country, is itself quite considerable and normally very much underestimated as will become clear in later chapters.) Though the theory does not and cannot make a precise prediction of how drastic the impoverishment effect of a socialization policy will be, except that it will be a noticeable one, it is certainly worth mentioning that when almost complete socialization was first put into effect in immediate post-World War I Russia, this experience cost literally millions of lives, and it required a marked change in policy, the New Economic Policy (NEP), merely a few years later in 1921, reintroducing elements of private ownership, to moderate these disastrous effects to levels that would prove tolerable.28 Indeed, repeated changes in policy made Russia go through a similar experience more than once. Similar, though somewhat less drastic, results from a policy of socialization were experienced in all of the East European countries after World War II. There, too, moderate privatization of small farming, the crafts, or small businesses had to be permitted repeatedly in order to prevent outright economic breakdowns.
Nonetheless, in spite of such reforms, which incidentally prove the point that contrary to socialist propaganda it is private and not social ownership that improves economic performance, and in spite of the fact that moonlighting, illegal productive activities, bartering, and black market trade are ubiquitous phenomena in all of these countries, just as the theory would lead one to expect, and that this underground economy takes up part of the slack and helps to improve things, the standard of living in the East-bloc countries is lamentably low. All sorts of basic consumer goods are entirely lacking, in far too short supply or of extremely poor quality.30
The case of West and East Germany is particularly instructive. Here, history provides us with an example that comes as close to that of a controlled social experiment as one could probably hope to get. A quite homogeneous population, with very much the same history, culture, character structure, work ethics, divided after Hitler-Germany’s defeat in World War II. In West Germany, more because of lucky circumstances than the pressure of public opinion, a remarkably free market economy was adopted, the previous system of all-around price controls abolished in one stroke, and almost complete freedom of movement, trade, and occupation introduced.31 In East Germany, on the other hand, under Soviet Russian dominance, socialization of the means of production, i.e., an expropriation of the previous private owners, was implemented. Two different institutional frameworks, two different incentive structures have thus been applied to the same population. The difference in the results is impressive.32 While both countries do well in their respective blocs, West Germany has the highest standard of living among the major West-European nations and East Germany prides itself in being the most well-off country in the East bloc, the standard of living in the West is so much higher and has become relatively more so over time, that despite the transfer of considerable amounts of money from West to East by government as well as private citizens and increasingly socialist policies in the West, the visitor going from West to East is simply stunned as he enters an almost completely different, impoverished world. As a matter of fact, while all of the East-European countries are plagued by the emigration problem of people wanting to leave for the more prosperous capitalist West with its increased opportunities, and while they all have gradually established tighter border controls, thus turning these countries into sort of gigantic prisoner camps in order to prevent this outflow, the case of Germany is a most striking one. With language differences, traditionally the most severe natural barrier for emigrants, nonexistent, the difference in living standards between the two Germanys proved to be so great and emigration from East to West took on such proportions, that in 1961 the socialist regime in East Germany, in a last desperate step, finally had to close its borders to the West completely. To keep the population in, it had to build a system the likes of which the world had never seen of walls, barbed wire, electrified fences, mine fields, automatic shooting devices, watchtowers, etc., almost 900 miles long, for the sole purpose of preventing its people from running away from the consequences of Russian-type socialism.
Besides exemplifying the main point, the case of the two Germanys, because of its experimental-like character, proves particularly helpful in illustrating the truth of the rest of the theoretically derived conclusions. Looking at comparable social positions, almost nowhere in West Germany will one find people working as little, as slowly, or as negligently (while the working hours, higher in the East, are of course regulated!) as their East German counterparts. Not, to be sure, because of any alleged differences in mentality or work ethics, as those are very much the same historically, but because the incentive to work is considerably reduced by a policy scheme that effectively closes all or most outlets for private investment. Effective work in East Germany is most likely to be found in the underground economy. And in response to the various disincentives to work, and in particular to work in the “officially” controlled economy, there is also a tendency among East Germans to withdraw from public life and to stress the importance of privacy, the family, relatives, and personal friends and connections, significantly exceeding what is seen in the West.33
There is also ample evidence of misallocation, just as the theory would lead one to expect. While the phenomenon of productive factors that are not used (at least not continuously) but are simply inactive because complementary factors are lacking can of course be observed in the West, in the East (and again, in the German case certainly not because of differences in organizational talents) it is observed everywhere as a permanent feature of life. And while it is normally quite difficult in the West, and requires special entrepreneurial talent to point out changes in the use of certain means of production that would result in an overall improvement in the output of consumer goods, this is relatively easy in the East-bloc countries. Almost everyone working in East Germany knows many ways to put the means of production to more urgent uses than ones that are currently being used, where they are evidently wasted and cause shortages of other, more heavily demanded goods. But since they are not able to bid them away and must instead go through tedious political procedures to initiate any changes, nothing much can be or indeed is done.
Experience also corroborates what has been said about the other side of the coin: the overutilization of publicly owned means of production. In West Germany such public goods also exist, and as would be expected, they are in relatively bad shape. But in East Germany, and no differently or in fact even worse in the other Soviet-dominated countries, where all factors of production are socially owned, insufficiently maintained, deteriorating, unrepaired, rusting, even simply vandalized production factors, machinery, and buildings are truly rampant. Further, the ecology crisis is much more dramatic in the East, in spite of the relatively underdeveloped state of the general economy, than in the West—and all this is not, as the case of Germany proves clearly enough, because there are differences in people's “natural” inclination to care and to be careful.
Finally, as regards the theoretically predicted changes in the social and personality structure, complaints about superiors are, of course, quite a common phenomenon everywhere. But in the countries of Russian-type socialism, where the assignment of positions in the hierarchy of caretakers is and must be entirely a political affair, such complaints about downright incompetent, unqualified, and ridiculous superiors are, even if not more loudly voiced, most frequent, most severe, and best-founded, and decent people are most often driven to despair or cynicism as a consequence. And since a few people from East Germany still go to West Germany at an age where they are still members of the labor force, some as escapees but more frequently because a sort of ransom has been paid for them, sufficient material also exists to illustrate the conclusion that in the long run a socialized economy will reduce people’s productive capacities. Among those going to the West there is a significant number who led quite normal productive lives in the East but who, despite the absence of any linguistic and cultural barriers, prove to be incapable of, or have the greatest difficulties, adapting to Western society with its increased demand for productive and competitive skills and spirits.

Theory of Socialism and Capitalism, A

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