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Saturday, March 30, 2024

Does ‘Science’ Prove Mises Wrong on Socialism?

No. Not even close.

Image: Berlin Wall, March 11, 1970. (Image Credit: Roger W - Flickr | CC BY 2.0 DEED)

In response to the many shortcomings of the Soviet Union, Mao Zedong’s China, and Venezuela, the refrain “It wasn’t real socialism” has emerged as a rallying cry among apologists of socialism. Some readily admit the failures of these regimes and attribute the failures to capitalism rather than socialism. Some refuse to recognize the failure whatsoever; they see these experiments as genuine instances of “real socialism” and perceive them to be unequivocal successes.

How can this happen? Don’t we have mountains of evidence that these regimes were catastrophic failures? That is definitely the case, but these socialists also claim to have mountains of evidence in their favor—at least enough to catch a capitalist off guard. Most Americans have been taught their whole lives that the USSR was hell on earth, but how are they to react when they’re given sources that say things like how CIA data shows that Soviet citizens lived better lives than Americans or that the Soviet Union abolished homelessness? These claims are obviously false, but skeptics of capitalism and America writ large find them enticing.

Most shocking of all, the socialists claim that they have definitive proof that socialism is better than capitalism. They point to a 1986 study that compared “socialist” countries to “capitalist” ones. The study uses the physical quality of life index, which examines things like the infant mortality rate, life expectancy, daily caloric intake, doctors per capita, and adult literacy of any given nation. The study concludes that “the data indicated that the socialist countries generally have achieved better physical quality of life outcomes than the capitalist countries at equivalent levels of economic development.”

Bad Science?

The paper looks at over a hundred countries and divides them into various groups based on their economic systems. The only additional control variable is economic development, which is measured using the gross national product per capita. The economic systems are split into centrally planned (socialist) and market (capitalist) using classifications from the United Nations. The results from the paper appear to contradict the fact that, in a centrally planned economy, economic calculation is technically impossible.

According to Hans-Hermann Hoppe, socialism “must be conceptualized as an institutionalized interference with or aggression against private property and private property claims.” A socialist economy abolishes the very institution of private property. Ludwig von Mises demonstrated that with the abolition of private property (and by extension, the exchange of capital goods), price signals can no longer show producers where resources are more efficiently and rationally allocated. When a good costs fifty dollars to produce but can only be sold for five dollars, it’s clear that the final product is less valuable to consumers than the inputs themselves. With no such signals, central planners are firing shots in the dark.

If socialist economies are epistemically incapable of producing better outcomes, why do the data show otherwise? Capitalist countries do outperform socialist ones. However, since these capitalist countries are “high income,” they apparently don’t count. How countries are compared using “economic development” ensures that Japan, Finland, Canada, the United States, Denmark, Norway, Sweden, and Switzerland are not compared to the likes of the USSR, Cuba, and China. This is a case of deliberate sample selection bias.

An economic system is not the only factor in a nation’s relative success. Other factors such as geography, religion, and war can affect economic growth and physical well-being. In the study, almost every country under the capitalist category is located in Africa, while almost none of the socialist countries are from the continent. Africa not only has some of the least-hospitable geography, but the period of the study was filled with war and conflicts.

The study does not account for countless variables that were impacting the quality of life in these countries. The authors didn’t even try. That just makes it bad science.

Bad Data?

For the sake of argument, we could assume that all of these comparisons are fair and that we don’t need more variables controlled for. Even so, we’d still run into numerous problems.

The authors of the study say they get their data from the World Bank, but most of the data from socialist countries came from their respective governments. To be fair, the authors didn’t have immediate access to the information we have today, but their modern-day parrots have no excuse. In 1989, two Soviet-born economists, Vladimir Popov and Nikolai Shmelev, published a book that revealed the absolute disarray of the Soviet economy. In The Turning Point, they revealed that official statistics were distorted through the “outright falsification of data” and argued that these statistics at the time required “major revision.”

The historians S. G. Wheatcroft, Mark Harrison, and R. W. Davies argued in 1994 that these distortions happened because there were “strong incentives to participants in the system at every level to exaggerate their reported results.” This was just one of the many consequences of the quotas introduced by central planning. While not everyone knew these things during the Cold War, they are common knowledge today.

The falsification of data didn’t stop with the Soviet Union. Today, socialist regimes like Cuba continuously release unreliable statistics that make their citizens appear much better off than they are. Apologists claim that Cuba has a longer life expectancy than the United States, but this has been refuted time and time again. Economist Roberto Gonzalez found evidence that Cuban doctors seemed to be reclassifying early neonatal (infant) deaths as late fetal deaths to meet quotas. This would make the infant mortality rate appear much lower than it is. Thus, socialist statistics are consistently untrustworthy.

It Wasn’t Real Capitalism!

Even if we very generously accept the socialists’ conceit that all the data are perfectly reliable, the issues with the 1986 study don’t stop there. As previously established, the study’s authors used UN classifications to separate the socialist countries from the capitalist ones. The problem? The UN got things horribly wrong; the authors knew this. The UN failed to classify both Cuba and Yugoslavia as centrally planned economies, yet they’re both labeled “socialist” in the study. The authors corrected the UN’s mistake but only partially. Cuba and Yugoslavia were not the only mislabeled countries. At least nineteen centrally planned economies were labeled “market economies” by the UN.

Syria was labeled a market or capitalist economy by both the UN and the authors of the 1986 study. Syria’s Arab Socialist Ba’ath Party became its ruling party in 1963. In October of that year, the Syrian congress adopted propositions with terms like “class struggle” and “scientific socialism.” By 1986, the government dominated the economy, accounting for three-fifths of the gross domestic product. Is it fair to label a country as a capitalist failure when the private sector accounts for less than half of the economy?

Another country the study proudly labeled as “capitalist” was Burma (now called Myanmar). From 1962 to 1988, Myanmar was under a plan called the Burmese Way to Socialism. In February 1963, the Enterprise Nationalization Law was decreed. All major industries were nationalized, including oil, banks, newspapers, and more. Over fifteen thousand private firms were nationalized, and Myanmar became a Soviet-style planned economy.

These two examples show that the economic classifications used in the study are almost complete nonsense. The mislabeled countries were some of the poorest performers in the study, so these mistakes significantly skewed the final results.

The Counterevidence

Since the ’80s, it is fair to say that empirical analysis has improved significantly. More recent and rigorous studies tend to find very different results than those two Marxists did in 1986. A 2018 study examined forty-four Eurasian countries for variables like religion, geography, cultural ancestry, and communism to see their impacts on the Human Development Index (HDI), health, income, and education. The “communism” variable is equivalent to the classification of “socialism” in the 1986 study. The authors found that communism “significantly negatively predicts HDI, income, and health indices.” These results from a more rigorous study paint a much different story than the commonly cited 1986 paper.

In 2013, a paper by economists Joshua Hall and Robert Lawson examined over four hundred academic papers that utilized the Fraser Economic Freedom of The World index and examined its effect on various measures of quality of life. What is the Economic Freedom of the World index? According to the authors, in the index, “higher scores are accorded to nations with more secure property, freer trade, more stable money and prices, less government spending, and fewer regulations.”

The economists discovered that “over two-thirds” of the studies found economic freedom corresponding with good outcomes such as “faster growth, better living standards, more happiness, etc.” Less than 4 percent of them found economic freedom to be associated with a poor outcome such as increased income inequality. The empirical evidence overwhelmingly suggests that capitalism provides a substantially better quality of life with “almost no negative tradeoffs.”

Conclusion

Shirley Cereseto and Howard Waitzkin’s 1986 paper fails to prove that a socialist economic system is superior to a capitalist one in terms of the physical quality of life. The data are fraught with flaws and do not come close to disproving Mises’s thesis that socialist calculation is impossible. Furthermore, rigorous scientific research and historical analysis empirically verify Mises’s theoretical conclusions.

This article originally appeared in Mises Wire.