no third solution

Blogging about liberty, anarchy, economics and politics

Entrepreneurship & Socialism

September 28th, 2007

Is there a role for entrepreneurs under socialism? And if so, what would that be?

The general idea with socialism, as far as I can tell, is that everyone gets to reap the rewards of success, collectively. If I invent a great time-saving device, I am not enriched by it any more than anyone else. Of course, the incentive to invest is for all but the greatest (and cheapest) inventions, approximately zero, or in most cases actually negative. This is where the whole Marxist idea of “Socialist Man” comes in to play: people are not supposed to act in their own interest, but rather with the interests of some ill-defined “collective,” such that if everyone does so, everyone is alleged to benefit to a greater extent than under capitalism. Of course this lofty goal is inhibited both by man’s nature, and the fact that the strategy fails a Paretian test – we are all familiar with the idea of the free-rider, which of course does not and cannot exist when property rights are well-defined and enforceable. Following from a (probable) cherry-picking of Proudhon’s statement, “property is theft,” all brands of communism disdain the idea of private property, which suffice it to say, all but ensures that free-riders will exist.

The socialists will utter such drivel as, “Well, it’s OK to own property individually, you just shouldn’t own productive property.” This is of course nonsense, because the entrepreneur’s defining characteristic is the ability to use, arrange, or produce things in a manner hitherto unimaginable. A branch and a rock and a piece of sinew are no more productive than grain of sand – until and unless some primitive man discovers how he can combine those to make a spear, thus greatly reducing the labor required to kill mastodons and bears. Now, this primitive man might decide out of the goodness of his heart, to give the spear to a neighbor, reckoning that he is capable of making another one in short order. Or, he may exchange that spear or teach his neighbor how to make one, for a few of his neighbors fish, under the same assumption. But, according to the socialist doctrine, the spear must become communal property by virtue of its having been made productive.

By what measure, though, was this spear brought into existence, other than man’s own productive capacity? To assert that the spear made by man is communal property is to assert that man’s labor, and likewise his body which directs that labor, is also communal property. We can draw no alternative conclusion.

Entrepreneurs bear nearly all of the risk that others are unwilling to undertake. Of course, everyone knows a “millionaire next-door” type, or a successful local businessman, who has made thousands or millions of dollars in one venture or another. These successes are only indicative of the entrepreneur’s ability to satisfy the desires of his customers. But these success stories are only the tip of the proverbial iceberg, the dark underbelly of which is comprised of the many, many business ventures which fail, every day of every year.

But the serious problem is this: We are aware, although somewhat less familiar with, these failed enterprises. In most cities, there is a gas station, a grocery store, or a restaurant which has changed ownership a dozen times in as many years – representing a dozen failures. Socialism would deny the opportunity for one man to succeed (at satisfying his clients) in order that dozens more may perpetually fail at the very same task.

Who, under socialism, bears the burden of incompetent entrepreneurship? Why, everybody, of course! And it is the worst sort of loser-mentality which desires to share individual failure and incompetence with his neighbors. We must conclude that there is no role for entrepreneurs under socialism, since one of their defining characteristics is to bear disproportionate amounts of risk – risk that society emphatically does not want to bear, even at a lower threshold (and concomitant lower return). For of course, if “society” was willing to bear these risks at a lower premium than the entrepreneur, they would’ve already done so.

The person (or persons) who volunteer to bear risk insulate “society” from the costs of being wrong. Under socialism, on the contrary, everyone is forced to bear whatever risk is determined appropriate by the collective, encouraging failure and incompetence by spreading the risk of failure to others who want no part of it.  By removing the market-generated incentives for success, socialism guarantees failure writ large.

no third solution

Blogging about liberty, anarchy, economics and politics