Socialism Suppresses Entrepreneurship

The hallmark of free markets (or capitalism) is entrepreneurship. The entrepreneur seeks and acts so as to obtain profit. Because he operates in a world in which the future is unknown, his activity may result in profit or loss.

Entrepreneurs buy and sell property of all kinds in the quest for profit. They expose their wealth to their appraisals of future unknown values, and they profit or lose as time passes and future demands and supplies become reality.

Financial markets for securities are a related hallmark of capitalism. They provide security prices that enable entrepreneurs to take or liquidate positions at relatively low costs. These same prices provide information for entrepreneurial estimates.

Socialism’s key defining function is the suppression of entrepreneurial activity. That is what deals a blow to capitalism, because capitalism doesn’t exist without entrepreneurs and it does exist with their presence.

We may even define socialism as an economic system that suppresses entrepreneurs. Then the degree of socialism in a social-political system depends upon the degree to which it suppresses entrepreneurship. The USSR was a highly socialist system. Its high degree of socialism was mitigated somewhat by entrepreneurs in black markets and by the use of prices generated outside the country in capitalist-entrepreneurial systems. The U.S. is a capitalist system but its capitalism is being destroyed by the suppression of entrepreneurship in a number of important markets.

Socialist measures suppress the entrepreneur. They suppress voluntary activity of individuals and groups seeking profit. This directly causes the vast inefficiencies of socialism and the failures of socialism to result in wealth accumulation.

Entrepreneurs necessarily are responsible for the results of their activity; they bear the profits and losses. Suppression of entrepreneurs suppresses the responsibility for results. This suppresses the feedback provided by owning the results of one’s speculations about the future. This is another reason why socialism introduces inefficiency into the economic system.

Standard definitions of socialism include a phrase like “social ownership of the means of production”. Such ownership suppresses private property and entrepreneurial activity, which is why the suppression definition works well to identify the presence of anti-capitalist elements.

The Social Security program is socialist by both definitions. According to the standard definition, a portion of ownership of a worker’s income stream passes into government hands (or social ownership). Without that tax, the worker as potential entrepreneur would have had responsibility for his capital and would have consumed or invested it according to his estimates of the future. Social Security suppresses this entrepreneurial activity.

The U.S. government regulates features in the automobile. This is socialist. Ownership entails control; the government has assumed partial ownership of auto production. Auto industry entrepreneurs have reduced scope for their activity; their activity has been suppressed.

Elizabeth Warren proposes a bill to alter radically the ownership structure of corporations. The government itself will not be one of the owners under the new structure, but groups that it designates will become part-owners. This is socialism one step removed, with favored agents of government taking on the “social ownership”. Entrepreneurs in the form of existing shareholders will lose control. They will be suppressed. This indicates the socialism of her measure clearly.

The Federal Reserve Board is set up by government with almost unlimited power to buy and sell securities. This is socialist. The FED overpowers and checks capitalist entrepreneurs, affecting market prices and diverting entrepreneurial decisions from a free market course. The FED socializes money. Acting as an agent of government, the FED is socialist; it’s only one step removed from outright government control over money and capital markets.

The Green New Deal is socialist. “It refers…to a massive program of investments in clean-energy jobs and infrastructure, meant to transform not just the energy sector, but the entire economy.” The program suppresses entrepreneurial activity across the board. Government takes control.

Medicare for All and Single-Payer are socialist measures, as are Medicare and Obamacare. To varying degrees, all of these suppress entrepreneurial decision-making, replacing them by edicts, laws and regulations of various kinds. The failures of health-care and medical systems trace back to the injections of socialism into the many health-care and medical industries.

The largest single “enterprise” in America and the world is the U.S. military or the Pentagon. The Pentagon central planners appraise the future and decide how to invest in the military capital goods. The Pentagon is socialist at the core. Its planners do not respond to signals of profit and loss that are produced by consumers satisfied or not by the defense goods they are purchasing. Such goods are not sold to consumers. Entrepreneurial activity in the production of defense-related goods is severely suppressed.

There is such entrepreneurial activity to some extent among suppliers. The suppliers strive to win contracts in what appears to be entrepreneurial fashion. However, they simultaneously strive to influence the Pentagon planners or themselves be planners. The same people who in one year may work for the Pentagon may in the following year work for a supplier or a lobbyist and vice versa.


10:11 am on March 26, 2019