Socialism Stifles Innovation

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Wednesday, May 20, 2020


Socialism and communism both eliminate the profit motive that drives innovation. 

This profit motive is eliminated either through exorbitant taxation, or assumption of private property that encompasses the means of production and raw materials required for the supplying of the goods and services deemed necessary by the state. In return for this seizure and taxation, each member of the proletariat is allocated the same amount of goods and services, which is determined and distributed by the state. This basket of goods and services is not based on individual need, preferences or what sort of innovative aspirations the citizens may have, only the minimum amount of resources required for their survival as determined by an actuarial committee within the government. The individuals receiving the goods and services are assured of their quality only by the government and have no recourse in the event that they find that which they receive to be unsatisfactory.

Under the aforementioned conditions, especially over time, the social and economic environment is not at all ideal for yielding innovation. When individuals have no extra wealth or capital, they have no means through which to obtain knowledge and materials with which to innovate. Moreover, when constantly concerned with the certainty of one’s own access to necessities, the mind certainly is not pushed to create products or services that would yield utility to those who would prospectively use them. That uncertainty, which is combined with knowledge that the aforementioned uncertainty is widespread amongst the individuals within the society is a powerful enough deterrent. That uncertainty is taken as a signal by all that, even if they did create something to sell, there would be very few if any willing or able to purchase any innovative product or service.

 All of these anecdotal microeconomic examples, while they sound pale in comparison, with regards to the magnitude of the deadweight loss generated, to the elimination of the profit incentive within a society. When profiting from a transaction becomes impossible, the advantages of trade are eliminated. Individuals engage in voluntary transactions specifically because they are willing to pay a certain amount for something that they want and the implication is that they do so because it is the lowest cost method of acquisition of that good or service for that particular individual and the acquisition of that good or service is their preference. 

The difference between the amount a consumer pays for a good or service and how much utility they derive from it, minus whatever it would have cost them to make it themselves, is their own personal profit from the transaction called consumer surplus. The difference in cost of goods sold and sale price is the profit the producer yields, and it is aptly called producer surplus. These two surpluses are the primary and, arguably, sole motivations for every kind of voluntary transaction within any market. When that profit incentive that drives consensual transactions is eliminated, so is the incentive to transact in almost any instance.    

When the incentive to engage in transactions is eliminated, people stop trying to think of new ways to satisfy the preferences of other individuals by yielding them consumer surplus in a new way in exchange for producer surplus. This effectively freezes human progress with regard to innovation.

At that point, all of the utility created on the consumer and producer ends throughout the course of free market operations that preceded the establishment of the communist regime. One of the major costs associated with this elimination of innovation is the disruption of one of its most beneficial indirect products. That indirect product is most beneficial overall in terms of generation of widespread utility is the reduction of suffering that can be delivered through innovation. Examples that come to mind are the reductions in suffering that are downstream of innovations in healthcare treatments, consumer technology, and military technology, all of which yield a tremendous amount of utility to a majority of the individuals in populations in which the benefits of these innovations are experienced.

The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.


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