Socialism, Part I

"The nail that sticks up gets hammered down" Japanese proverb.

Firstly, we must contend with the view that in the UK we tend to use socialism in a manner which is rather different from the way it is used elsewhere. Socialism elsewhere is either synonymous with Communism or considered as an interim stage towards Communism, but usually in the UK we consider it as an end in itself somewhere between Communism and capitalism. However, in the rest of Europe this is normally described as Social Democracy. Since I have discussed Communism I am more interested in socialism as we perceive it in the UK, i.e. that which is known as social democracy elsewhere in Europe.

For the purposes of discussion I'm going to focus in Swedish socialism. The reason why I am doing this is that Sweden is a purer form of socialism and is often considered a model for the British Labour Party.

To understand Swedish socialism we must first dispel a myth. Sweden does not have a particularly egalitarian social model. Apart from having a royal family, Sweden also has an "aristocracy" consisting of wealthy industrialist families. Amongst the wealthiest of these is the Wallenberg family. The Wallenberg family own Sweden's Enskilda Bank and an investment fund by the name of Investor AB. It is not actually known how much the Wallenberg family is worth. Estimates vary from £5bn to £20bn. The Wallenberg family itself insists it is not rich, as the money is merely funneled into various charities, but there is little evidence of this. The Wallenberg family is easily the most powerful in Sweden, with 30% ownership of all listed Swedish companies, including Ericsson and Electrolux, but they are far from being the only super-rich families in Sweden.

The Swedish Social Democratic Party was formed in 1989. It split in 1917 shortly after the Communist Revolution in Russia, with the Communists leaving the party to leave the Swedish Social Democratic Party as we see it today. Sweden is, of course, rather close to Russia, so one can certainly imagine that rich industrialists like the Wallenberg family were rather concerned about the influence of Marxism over their own employees. Something needed to be done to protect the interests of these families. Swedish Socialism was invented to provide this protection.

Basically the idea was that the capitalists would, in effect, buy off the working class. This would be achieved by giving them a greater slice of the cake in terms of the output of the production. But they were not to get their hands on the means of production. There would also be a "quid pro quo". Swedish workers were to aim to conform to a model of citizenship. This would be enforced by authoritarian policing of a plethora of new laws, strict education emphasising the perfection of Swedish social democracy and the imposition of a new social order where consensus would replace open criticism and debate. A welfare state was introduced, but the Swedes understood immediately the "moral hazard" that would accompany a welfare state. In order to prevent the growth of an unemployable underclass, Sweden embarked on a programme of eugenics. Between 1935 and 1975 over 60,000 people, almost all of them women, were sterilised to ensure that their children could not be a burden on the state. Naturally such programs were of interest to the German Nazis who had by the 30's risen to prominence, and there was considerable co-operation between the two states:-

"A darker chapter is being written now about the Wallenberg family and its extensive business empire, as Sweden confronts dismaying new evidence that the country's wartime collaboration was more extensive than is widely known, and that the Wallenberg family profited from secret dealings with the Nazis. For instance, documents from World War II contain evidence that Jacob and Marcus Wallenberg, Raoul's cousins, used their Enskilda Bank to help the Nazis dispose of assets seized from Dutch Jews who died in the Holocaust."

-Walter V. Robinson, Boston Globe.

Next time you visit IKEA, you might like to consider that its founder, Ingvar Kamprad, was a Nazi sympthiser (oh, and he is estimated to be worth $31bn!).

A strongly nationalistic education and a long history without significant immigration has ensured that Swedish Nazi sympathies remain strong even today. In recent years the grip of the Social Democratic Party has weakened and immigration has grown, but new immigrants are rarely welcomed into Swedish society. Swedes have long practiced the "shunning" of those that do not fit in with a group, and this ensures the total ostracism of newcomers to Swedish society.

Sweden has long since left the policies of eugenics behind. These days it prefers the mechanism by which children are taken from their parents by the state in order to improve the quality of the Swedish "folk". This article by Siv Westerberg, a Swedish children's lawyer, puts the facts plainly and gives an idea of what life is actually like in Sweden.

Fundamentally, Socialism in Sweden is about combining left-wing welfare state economics with authoritarianism. The Swedish people are pressured by the system they live within to conform to a strict model for the ideal Swedish citizen. Middle-class, compliant, uniform and dull. This state is relentlessly de-humanising. Where once Sweden was the home of great thinkers and artists, it is now only the home of pop stars and former tennis players. Where are the great thinkers and writers of modern Sweden? All over Europe, where Social Democracy reigns, this de-humanising process is promoted. The individual gets hammered in, intellectual talent is suppressed. Such a society appears to be stable and successful - but in the manner in which a termites nest might be said to be stable and successful. Is this what a human society should be about?

In Part II I will take a closer look at Socialism in the UK, and compare it with the European model.

Communism

Back in the middle of the industrial revolution, Karl Marx took a look at the way the working class were living and was not impressed. Clearly they were poor, and living hand to mouth in most cases, whilst on the other hand those with their hands on the means of production were extremely wealthy. These wealthy capitalists could not be challenged by the working class, unless the working class rose up in a revolution and took the wealth back from the capitalists by
force. Marx believed that once this was done everybody would live as one big happy classless family. He was totally wrong however, as was demonstrated by the first real-world implementation of Marxism which was to be known as communism.

In the communist system it is realised that all the rich people have their hands on the means of production. As a result they are in an unassailable position whereby the rich keep all the wealth to themselves and eveyone else gets the scraps from the table. Communism sought to address this by taking ownership of the means of production off the wealthy and collecting it all together in one place. These "collectives" of ownership needed to be controlled by someone - and that someone would be a representative of the communist state. So now you can see the clear difference. In the capitalist system all the means of production and hence all the wealth
is controlled by a small number of people and everyone else is a slave to the system. In the communist system all the means of production and hence all the wealth is controlled by a small number of people and everyone else is a slave to the system. See the difference? In the former case the people on top are called "capitalists" and in the latter case they are called "communists". Big deal. In fact you can already see that the capitalist system at least has the advantage that the power that goes with wealth is slightly separated from the power that comes from politics.

Now, it gets worse...

As I said, I believe society is like a living biological mechanism. If you take the head of that organism and swap it for a completely different head you are asking for trouble. The new head is unlikely to know anything that the old head knew. The patient is likely to suffer severe trauma during the operation. And yet that is just what a communist revolution does. Wise heads are despatched and replaced with fresh new, but unwise heads - and this is done wholesale.
Consequently nobody knows what they should be doing (but nobody wants to admit it). A lot of people are killed during the process of revolution.

And the problems continued, because it was not just the head of the biological mechanism that was replaced, but many of the internal organs were transplanted to, leading to rejection of those new organs...

Communism started to suffer from the Laws of Unintended Consequences. The point of a communist revolution was to make the employees better off by reducing the "inefficient" cut-throat competition of the capitalist system. The state would set the prices of production in order to alleviate the burden on the employees. The problems of this become obvious with farming. If you reduce the incentive to sell more produce but suggest that under communism farmers should not work so hard then the farmer will simply produce enough food for his own family and then take a long rest. This is a very bad thing. And when the communists realised that food production was falling they needed to do something about it. They couldn't blame their own system (due to the psychological problem known as an "escalated commitment to a failed course of action") so they had to blame the farmers. Obviously it must be a conspiracy. The farmers need to be oppressed. Send them to the gulag. Replace them with new "communist" farmers. The communist farmers don't know what they are doing so farm production falls again. It must be another conspiracy right? So more oppression and murder and imprisonment results. Production continues to fall and what is worse the employees are now working under the threat of the gun where previously under the capitalist system they were working merely under the threat of being layed off.

Communism appeals to the emloyees by reason of making their life easier, but inherently if you make their life easier then production must fall. If production falls then the employees must be materially worse off. To raise production without re-introducing the incentives that would lead to class distinction that communism attempts to avoid, you must resort to brute force. Simple.


The fact is that all revolutions of any kind are primed to expect resistance and primed to oppress that resistance by violence. Consequently the failings of a revolution will be seen not as failings in reality but as "resistance" which must be violently repressed.

You were probably taught in school that Stalin was a violent man that oppressed his people. But the reality is that communist revolution always results in failure, which is then perceived as "resistance" to the revolution, and this always results in continued violent repression of the people. Right now it is happening in Burma, and Cuba, and Zimbabwe and many other places. It is the idea at the base of these revolutions that is fundamentally flawed, which results in a need for the regime to impose its failed beliefs by force, which in turn means that there must be a violent oppressor at the top of the regime. If the leader of the regime doesn't fulfill that requirement by becoming increasingly violent, then the regime will tend to replace him with someone that is prepared to be a violent oppressor. This is why all these communist regimes have gone the same way. They are trapped in a mechanism of their own creation where the violence and oppression and failure are inevitable right from the start. Once again a "god" created from the mechanism of society.

Capitalism is bad, but communism is far worse, because it is fatally flawed and in the end can only be imposed by continued brute force.

But what of that flavour in between pure communism and pure capitalism we usually refer to as socialism? More about that tomorrow....

Capitalism: Part II

This is how capitalism works:-

Lets consider ten pig farmers. They are all farming the same size plot of land with the same pigs. They live far from each other but brings their pigs to be auctioned at the town market every so often, which is the only time they meet. The auction is a "free market". Note that it has certain regulations but acts as a legal framework within which certain specified goods can be traded openly. The pigs are sold at market at competitive rates. The pig farmers struggle to make a living, because the market place has many things to sell and because the pig farmers compete against each other. The customers are also struggling because they have to pay more for their meat - ten pig farmers serving one market may not achieve maximum efficiency.

For the sake of argument we will assume that one pig farmer has some good fortune. He inherits some land. His pig farm is now twice as big as before. He can relax a little and sell the surplus meat at auction. He has no interest in driving out the competition - he just uses the extra wealth from selling more meat to have an easier life. Whilst he complains about his competitors he has respect for them. He knows they have to work hard and that he has just been fortunate.

Amongst other things he spends some of his extra wealth on an education for his eldest son, so that he can be sure that his beloved son will have a good start in life. His son learns about all sort of new-fangled ideas, one of which is called "capitalism".

Years pass and the pig farms are now all in the hands of the sons of our original farmers. Our capitalist pig farmer is eager to prove that he can achieve everything his father did and so much more! He intends to use "capitalism" to demonstrate just how big and important he really is! He starts selling his pigs at auction for 10% less than the usual price. His competitors are thrown into disarray. How can they manage to compete? Not realizing that the supply of cheap pigs is stricty limited, they cut their own prices. This cut-throat competition is too much for one pig farmer. He decides to throw in the towel. He needs to sell his farm - but no-one wants to buy it. They don't have the money you see. All except one. Our capitalist pig farmer was already wealthier than the rest - so he buys the pig farm that is for sale. And since he is the only buyer in town he gets it for a knock down price too. Now he has a pig farm three times as big as the nearest competition. The process repeats again, and another pig farmer gets driven out of the competition. We now have one capitalist pig farmer with 7 others. Notice that our capitalist pig farmer has only a small proportion of the total market. Nevertheless he has an effective monopoly. Not only does he set the price of pig meat at auction, he also puts the squeeze on his suppliers eager to get his high volume business. He also sets the price of pig farms, as he is the only one that can afford to pay for more land.

The 7 others are getting worried. There are mutterings at auction. Four of the pig farmers decide to get together to form one big farm. Fantastic! Now they have a farm big enough to compete with our capitalist pig farmer. This is called "consolidation". Sadly they still have 4 farmers living off the same farm so their costs are not competitive. Consolidation seldom works. Unless one of the pig farmers takes the deeds of the other farmers and then throws the other farmers off their land (asset stripping) then they won't be able to compete with our capitalist. So they go out of business too, leaving 4 more farms for sale.

Now we have four farms for sale, a capitalist pig farmer with four farms and three other small farmers. But there are another four farms for sale. All four pig farmers decide they have to snap up these remaining farms. The three small pig farmers haven't got any money to buy these farms, so they go to the bank. They all go to the same bank to take out the debt to buy the farms. It may seem strange that the bank is happy to lend to all three - after all, it looks like only one of the farmers has much of a chance of being succesful - but the bank doesn't care about this as we shall see in a later blog post.

The remaining four farms do not sell for a knock down price like the first two. Now we have more money in the system in the form of debt so that means the demand side for the farms is awash with liquidity causing asset inflation. Nevertheless we assume that the four farms are sold to the farmers that have taken out debt. The farmers with debt are going to struggle to compete with our capitalist. They have interest to pay after all. Eventually most will go out of business. We can imagine that we end up with our original capitalist farmer with four farms and our debtor big farmer who has gradually built up to 7 farms. However, our debtor farmer cannot compete easily with our original capitalist because he has a lot of interest to pay.

At this point our two pig farmers can continue to compete until it's last man standing (the American Dream?) or they can decide that further competition is not worthwhile. The risk vs reward ratio is not good. They form an informal cartel. We do a lot of these in the UK - supermarkets and mobile phones perhaps?

Left to its own devices capitalism will drive out all competition, force down wages but keep prices up (Notice that the purpose of competition was never to decrease prices - it was always aimed at increasing wealth for the winner. After the initial 10% discount on prices the consumer never saw another discount, even with improving efficiency at the farms). In the end all the real wealth - the production capacity - ends up in the hands of a very few. Everyone else is dirt poor (just like Ethiopia). It looks a bit like feudalism but without the guns. The wealth merely passes down in the same families. But did these families deserve such wealth? Our original capitalist merely inherited good fortune. He had no special skills or talents. That wealth stays in the family for ever, since the ones with their hands on the means of production are in an unassailable position. The Duke of Westminster's family have been wealthy for a 1000 years, despite being nothing special. Of course they have blue blood allegedly - but if ever there was a pathetic self-justification for clinging to wealth you don't deserve, that must be one of the best.

Capitalism as a system does have a major flaw. If everyone who works in the capitalist system is dirt poor, who do the capitalists sell to? Well this started to become a problem in the latter part of the industrial revolution, and the answers to this conundrum spawned socialism and consumerism. I'll discuss these another day.

Now you may think that if I'm anti-capitalist I must be a Communist. But this is based on a false dichotomy. Communism is even worse than capitalism, as we shall see in my next post. But in the meantime it is worht reflecting that capitalism sprang up in this example by accident. The free market gave birth to it. It was an inevitable result of the free market, but it rapidly developed a life of its own. No-one person really controlled it. Deus Ex Machina? The god of capitalism created from the machine of the free market.