Economic Theory

IEA publish new comprehensive book, “Socialism: the failed idea that never dies”


Housing and Planning

A IEA new report on the UK's housing crisis

Government and Institutions

IEA releases the next in a series of research on use of public money to lobby government

IEA releases new, comprehensive book on socialism

Today the Institute of Economic Affairs unveils a new book from our Head of Political Economy Dr Kristian Niemietz: ‘Socialism: the failed idea that never dies’.

This one-of-a-kind, comprehensive book systematically charts the rise and fall of some of the most prolific socialist experiments in history – from the Soviet Union and Maoist China, to Venezuela and Castro’s Cuba. In each example from the past century, these regimes were celebrated and supported by members of the Western elite – right up until they failed.

Every attempt to build a socialist society has ended in varying degrees of economic failure and political repression. But rather than renounce socialism as a failed idea, the overwhelming response from those who defended these experiments is that such examples do not represent ‘real socialism’, as ‘real socialism has never been tried’.

While contemporary socialists distance themselves from historical examples of socialism, author Dr Kristian Niemietz highlights how they fail to explain what exactly they would do differently to make a socialist utopia work practically. They define ‘real’ socialism in terms of the outcomes they would like to see, rather than the institutional setup that would produce such outcomes.

This book is a crucial contribution to the debate, particularly now that socialism is back in vogue. It brings to light the fallacies of the arguments of those who continue to defend socialism, willfully ignoring the real-world evidence.

Niemietz sets out why socialist economies eventually stagnate and fail, and he calls on policymakers to pay more attention to international best practice. Searching for progressive solutions to issues on a policy-by-policy basis, he argues, would be far more fruitful than chasing after the next socialist utopia.

‘Not real socialism’: the case of Venezuela

As long as a socialist experiment is in its prime, its socialist credentials are rarely in doubt. But when things go wrong, this very quickly changes.

The reception of socialism in Western countries tends to go through three distinct phases:

  1. The honeymoon period

  2. The excuses-and-whataboutery period

  3. The not-real-socialism stage

This pattern can be found in almost every real-world socialist experiment. ‘Socialism: the failed idea that never dies’ charts these phases using several examples, one of which is Venezuela. Many well-known commentators, politicians, academics and authors have hailed Venezuela as the ‘Socialism of the 21st Century’. But now these same people claim that it was never ‘real socialism’.

The honeymoon period

•   Venezuela-mania began in 2005 – it was upheld by its supporters, not just as a huge success story in its own right, but also a model to be replicated around the world.

•   Then-president Hugo Chavez promised a return to the free-spending ways of the 1970s and the oil price explosion meant he could deliver on that. Government spending increased from less than 30 per cent of GDP to over 40 per cent.

•   Chavez introduced microeconomic interventions such as price controls and exchange rate controls, which then begat further interventions.

The excuses-and-whataboutery period

•  When these interventions did not work or when private actors did not behave the way the government wanted, they railed against the industry, intervened, and ‘revenge nationalisations’ began.

•   These nationalisations were not led by strategic considerations. The government did not have a recognisable theory about which sectors should be state run and which sectors private ownership was tolerable. Rather, they used nationalisations to punish ‘uncooperative’ private sector actors.

•   Chavez’s ‘Socialism of the 21st Century’ became an ad hoc ‘revenge socialism’, characterised by contempt for the rule of law and private property rights.

•   The rapid expansion of public spending programmes increased the scope for, and inevitably led to, corruption, patronage and nepotism.

The demise and ‘not-real-socialism’ stage

•   Venezuela’s economic woes soon turned into a full-blown crisis, which provoked widespread discontent in response to which the government increasingly resorted to authoritarian measures.

•   As a consequence, Venezuela ceased to be a showcase that Western socialists would triumphantly hold against their opponents.

•   Since the consequences of economic implosion in Venezuela have become clear, the common response among those who previously supported the regime has been to downplay the socialist aspects of Venezuela’s economy and to present its crisis as general case of ‘mismanagement’ and ‘poor leadership’.

Why socialist economies fail

Lack of knowledge

Socialism’s relative failure and capitalism’s relative success has much more to do with capitalism’s capacity to generate economically relevant knowledge.

•  Market prices have proven to be an indispensable way of disseminating information about conditions of supply and demand.

•  Planned economies have no way of replicating this knowledge-collecting, knowledge-disseminating function of market prices.

•  Deprivation of information leads to worse economic decisions.

Lack of market competition

Market competition is an ongoing trial and error process coupled with extensive feedback mechanisms. We don’t know from the outset how to organise a successful enterprise or industry (let alone an entire economy). We find out by trying lots of things, with most of them failing.

•  Socialist economics lacks the knowledge-creating capacity of competition.

Commenting on the publication of the book, author Dr Kristian Niemietz, Head of Political Economy at the Institute of Economic Affairs, said:

“There can be no doubt that socialism is back in fashion again. Especially among Millennials, socialism is now considered ‘hip’, ‘edgy’ and ‘cool’.

“But the fact that it’s popular doesn’t make it right. Over the past hundred years, there have been more than two dozen attempts to build a socialist society, all of which have ended in varying degrees of economic failure, and political repression. Socialists’ response to this devastating record is to simply shrug all these examples off as ‘not real socialism’.

“As I show in this book, the not-real-socialism defence is only ever deployed after the event, that is, after a socialist experiment has already been widely discredited. Virtually all socialist projects have gone through honeymoon periods, during which they were enthusiastically praised by plenty of prominent Western intellectuals. It is only when their failures can no longer be denied that they get retroactively reclassified as ‘not real socialism’. Socialism is always the ‘real’ thing for a while – until it becomes an embarrassment for the socialist cause, at which point it suddenly ceases to be so.”

Notes to editors:

For media enquiries please contact Nerissa Chesterfield, Head of Communications: [email protected]  020 7799 8920 or 07791 390 268

To download ‘Socialism: the failed idea that never dies’ written by Dr Kristian Niemietz, Head of Political Economy at the Institute of Economic Affairs, click here.

The IEA will be hosting a panel discussion to address the arguments of the book on the 14th March at the IEA offices. To attend the event, please contact [email protected]

In August 2018, the IEA published ‘The Mirage of Democratic Socialism’, an alternative history of socialism, which reiterates the classical liberal critique of socialism and is included as an epilogue in this new book. Click here to download.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.

The IEA is a registered educational charity and independent of all political parties.