If any public policy lesson stands out from the experience of the 20th century, it is that socialism doesn’t work. I use the word “socialism” in its technical sense of government ownership of the means of production—or, in lay language, government operation of business enterprises.
Socialism in this narrow sense must be distinguished from the modern welfare state, in which the government allocates a large share of economic resources but does not presume to produce them.
Nearly all of the truly horrific massacres of the 20th century—those in which people were slaughtered by the millions—were perpetrated by socialist governments. Hitler’s National Socialist Germany, Stalin’s Union of Soviet Socialist Republics, and China’s communist government were, of course, the worse offenders. (The only non-socialist state with a record anywhere comparable was Imperial Japan.) Compared with those socialist regimes, more recent perpetrators of terror, such as radical Islam, are models of gentility.
However, one does not have to resort to horrific cases to communicate the record of socialism. Socialism in its softer forms offers lessons as well. Government ownership of business enterprise almost bankrupted Great Britain, Canada, and New Zealand. It did bankrupt Greece. Everywhere it has greatly retarded economic progress. That is why so many countries have joined the global movement toward privatization.
Perhaps surprisingly, the major nation learning least from the failures of socialism has been the United States. Enterprises such as airports and passenger trains, which are now private in Great Britain, have remained thoroughly socialized in the United States. With some exceptions, the current U.S. trend actually is toward more socialism.
This trend seems to defy common sense. The lessons of the 20th century aside, the 21st century also has witnessed an almost constant stream of news about the failures of government enterprises. Social Security and other state-run insurance plans flirt with bankruptcy. State-run school systems and federally-owned veterans’ hospitals are a constant source of disaster stories. Those stories probably would be worse if not for government practices that disguise the magnitude of socialism’s costs.
Yet the storm of demand for this or that government-run project continues to blow with ever greater fury.
One example is Missoula, Montana, my former home, which benefits from a competent water company that delivers pure water at a reasonable price—but persists in demagogic efforts to “nationalize” the company. (Admittedly, Montana has a “prairie socialist” history.) Even in a state like Colorado, which historically has been oriented toward free enterprise, the pressure for more and more government-operated business continues to grow.
Thus, units of Colorado government persist in expanding their transportation holdings, despite insufficient ridership and towering deficits. Instead of privatizing its airport, as sensible governments have done, the City and County of Denver has not only elected to retain it, but has gone into the land-development business. The City of Lakewood, where I live, wants to follow suit—apparently thinking that it is better placed than professional developers to create a new “neighborhood.” Talk about a triumph of hope over experience!
The utter irrationality of such efforts induces one to ask (1) why is America still engaging in socialism, when most of the world is moving away from it; and (2) how can we protect ourselves?
The short answer to the first question is that politicians and bureaucrats have strong incentives to misuse public resources by pretending that they are businessmen, and state and federal constitutions permit them to do so. The incentives are there because government-owned enterprises offer the politicians and bureaucrats who control them opportunities to reward friends and punish enemies. Politicians and bureaucrats also can win public support by depicting great potential benefits while suppressing full information about costs. Lakewood, Colorado, offers an excellent example: Officials tout the purported benefits of a light rail line through the city. But they say little about the system’s sparse ridership, the economic drain from its cost, and how the system “crowds out” more thrifty private alternatives.
Pro-socialist incentives can be changed in a number of ways. Discussing all of them is beyond the scope of this article. One example, however, is to hold politicians who promote or operate government-run enterprises personally liable for their deficits, at least in some situations.
Additionally, we need to amend state and federal constitutions to provide citizens with greater protection.
It’s been done before. In the 19th century, most states amended their constitutions to require balanced budgets and to limit state debt. They did so after several states went bankrupt because politicians refused to stop overspending on infrastructure projects.
Here are some examples of how we can respond at the state constitutional level:
- Constitutional provisions that authorize or require the state to operate certain enterprises, such as pension funds, should be repealed.
- Government pension funds should be transitioned to private ownership, subject to normal state regulation.
- School financing provisions should be amended so that state dollars follow the student rather than being funneled automatically into bureaucratic monopolies.
- Municipal ownership of businesses should be banned. Except in the most unusual situations, municipalities should be required to contract for most services rather than provide them in-house.
- State constitutions should require government accounting practices to adhere as closely as possible to their private-sector counterparts.
- Finally, politicians and government employees should receive fixed financial rewards, added to their pay, for adopting innovations that save taxpayer money.
Rob Natelson is Senior Fellow in Constitutional Jurisprudence at the Independence Institute in Denver. His constitutional studies frequently are referenced by justices and parties at the U.S. Supreme Court.