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Opposition and criticisms of socialism and arguments for and against
A number of thinkers, economists and historians have raised some issues with socialist theory. These individuals include Milton Friedman, Ayn Rand, Ludwig von Mises, Friedrich Hayek, and Joshua Muravchik, to name a few. Most of their objections and critiques seem directed more at a centrally planned economy (not a part of all proposed socialisms), some at socialism and Marxism in general, but because these distinctions are relatively difficult to tease out of their writings, it is probably useful to take them up in a single context.
Incentives for individuals
According to the critics of socialism, under socialism incentives, like a reward for a work well done, either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by collectively, is a system without an effective incentive mechanism to encourage productive activity. Socialism, say the critics, is based on the theory that incentives don't matter. Critics argue that incentives increase productivity for all people and that the loss of those effects would be disastrous.
One response is Participatory economics in which effort and sacrifice should be rewarded but where there should no inherited wealth and where those with a higher genetic ability should not be rewarded. Other socialists disagree since this would create inequality.
Some socialists argue for a society where high peer pressure prevents laziness. Critics note that peer pressure might be effective in a small group with permanent interaction and where everybody know each other, like among hunter-gatherers, but see no evidence that it works well in larger, more complex societies with larger and constantly changing groups. Furthermore, peer pressure does not prevent exploitation of another group. Many hunter-gatherers have a high degree of violence and wars since different bands try to exploit each other.
Socialists might take a different view of human psychology, a view of motives as depending more on the specifics of nurture and education than on an underlying genetic cause. In this context they might claim that the need for incentives is only the result of the indoctrination of children in the present capitalist society, and that the nurturing of children in a future socialist society will lead to a more altruistic society with no need for personal incentives. Critics argue that there is no evidence for this theory and that much of human drives and motivations are genetically hardcoded.
Incentives for organizations
According to its supporters, a profit system is a monitoring mechanism which continually evaluates the economic performance of every business enterprise. In theory, at least, under capitalism the firms that are the most efficient and most successful at meeting consumer demand are rewarded with profits. Firms that operate inefficiently and fail to serve the perceived public interest are penalized with losses.
By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the consumer demands of their corresponding market segment. A competitive profit system ensures a constant re-optimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to profit (which advocates of capitalism tend to equate with serving the public interest) or suffer the consequences.
Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, critics argue, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. Therefore, they claim that centrally planned economies do not have an effective incentive structure to coordinate economic activity. Slavenka Drakulic made this point in How We Survived Communism & Even Laughed (ISBN 0060975407), where she argued that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machines.
In response, most socialists claim that the incentives in a socialist planned economy should come from the democratic nature of the system. Economic planners have an interest in doing a good job and delivering what the people need because that ensures the people will keep voting for them in elections. If the planners are doing a bad job and the economy is stagnating, the people will vote them out of office and elect a new government with a new economic plan. Thus, democracy ensures a constant re-optimization of resources and moves the socialist economy toward greater levels of efficiency. The kind of system that Slavenka Drakulic and others lived under was not a democratic one, so the planners had no incentive to cater to the needs of the people. Some socialists do not even consider such an undemocratic system to be socialist at all. As a corollary to this argument, socialists claim that inefficient planned economies can only exist for prolonged periods in undemocratic conditions, where the people cannot reward or penalize the state for its performance.
One response from the critics of socialism is that the socialists here seems to recognize the need for incentives and inequality, the leaders are assumed to have a desire for power and are given unequal amounts according to how efficiently they produce. They also note that publicly owned organizations are generally regarded as being less efficient than private companies, see privatization.
The majority of socialists furthermore find the notion that companies serve "the public interest" outright laughable. They argue that the profit/loss motive encourages companies to cut costs and raise profits in ways that do much more harm than good to the public. For example, a company will try to deceive the public in any way it can, and as often as it can. A company will also try to get the maximum work from its employees for the minimum amount of money, keeping wages as low as it can, and, as the capitalists hold high concentrations of capital and may restrict access to vital resources, they claim that the workers are left with little bargaining power. Finally, since the rich have more money than the poor (and therefore there is more profit to be made in serving the rich rather than the poor), they claim capitalism encourages companies to cater to the interests of the rich and ignore the needs of the poor. They also point to drugs companies that have little incentive to produce drugs to cure diseases such as malaria, which primarily affect poor countries that cannot afford to buy them, but those same companies devote huge resources to developing drugs for the relatively trivial complaints of the rich western consumers who can pay.
Supporters of capitalism note that companies compete for workers and thus cannot give arbitrarily low wages. They also note that companies that sell luxury products are few, most money is made by selling products to ordinary people in developed nations. Regarding poor people in developing nations, they note that people in the democratic developed nations could vote to raise taxes in order to increase foreign aid or otherwise give much such help voluntarily, almost everybody in developed nations belong a rich class in comparison. They argue that the little interest among the public for such aid is not something capitalism can be blamed for. Furthermore, nations with more capitalism have less poverty, see capitalism and Index of economic freedom.
Price information
Some forms of socialism propose to abolish markets entirely. All, or nearly all, advocate some form of governmental or other "social" interference with market prices. According to the critics of socialism, the price system in a market economy guides economic activity so flawlessly that most people don't appreciate its importance or see its effect. It is not one single price that is important but the millions of prices that represent to observations and decisions all people and that together rapidly reflects relative scarcity and abundance. This allows efficient and decentralized coordination of economic activity. Adam Smith dubbed this effect the "invisible hand" of the market. A group of planners in a command economy cannot see as much information or respond as rapidly as the more decentralized observations and decisions made by all people in a market economy. See economic calculation problem for a more detailed description of the problem.
Socialists are sharply divided on the claim that market pricing produces allocative efficiency. There are market socialists who believe it is both possible and imperative that socialistic systems take this point into account. David Schweickart, a philosophy professor in the US, has said that socialists must endorse the market because otherwise "everything in the economy is subject to political debate -- every price, every product, every technology" and he says only two possible outcomes can result from this, "either anarchy or, more likely, the subtle or not so subtle shutting down of democratic input."
Socialists opposed to all markets and prices generally argue that markets don't work nearly as well as thought. They note that markets necessarily leads to inequality and that poverty exists in capitalist nations. They also point out that even most economists supporting capitalism acknowledge the existence of various market failures that need to be regulated such as monopolies or externalities. The rules of the market may also be manipulated by those with more power. A command economy tries to replace the invisible hand with a highly visible (and, according to socialists, more efficient) one. The claim is that a more rational result can be achieved by the efforts of economic coordinators rather than by market forces.
The tragedy of the commons
The tragedy of the commons, in its narrowest sense, refers to the situation of certain grazing lands communally owned by British villages in the 16th century. These lands were made available for public use (or, more precisely, the use of those with rights in that common land). According to Garrett Hardin and others, because each individual had more of an incentive to maximize his (or her) own benefit from this common land than to be concerned for its sustainability, the land was eventually overgrazed and became worthless. (However, studies by C.J. Dahlman and others have largely refuted the claim that any such tragedy actually occurred. Access to the commons in the 16th century was constrained by a variety of cultural protocols and was far from equal.)
The line of argument is that when assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property is said to create incentives for conservation and the responsible use of property, public property is said to encourage irresponsibility and waste. In other words, the argument is that if everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it.
One socialist counterargument is that some things are almost inevitably commons, notably air and oceans. While the past and present communist states have an even worse record than capitalist states regarding pollution, many socialists today would argue that was due more to their non-democratic nature than to their socialist aspects and that, in principle, a democratic system of planning could achieve appropriate shared management of such inevitably shared resource. In actual practice, this is what even many otherwise capitalist societies have chosen to do, imposing government regulations to restrict air and water pollution. (Paul Burkett makes a specifically Marxist case for socialism as being better able to address the issue of managing the environment in an article "Ecology and Marx’s Vision of Communism" in Socialism and Democracy, Vol. 17, No. 2 .)
There exists a contrary body of theory on free-market environmentalism, arguing that the most effective direction of reform is continued privatization of the commons . The USA, and some others nations, have experimented with market solutions in the form of emissions trading.
Central Planning
Even anarchists usually advocate some form of coordination, so that different groups of workers function smoothly together, no matter if in a local community or on the scale of the world. Furthermore, it is not possible to vote about everything, if for no other reason than that information gathering, discussion, and voting takes time. Meaning that much power must be given to leaders, at least temporarily.
But central planning or anarchist coordination requires very good knowledge of the future in order to make good decisions. But in the real world it is often impossible to make long term predictions as discussed in chaos theory. In capitalism this is solved by simultaneously trying many possible solutions and letting the real world and competition find the best. But anarchist coordination or central planning means that often one or only a few solution will be chosen. And in many cases these solutions will be the wrong ones due to the faulty forecasting.
Historic Examples
Critics of socialism argue that all historical attempts at its implementation have been transient failures. In communist states large scale human rights violations occurred, see The Black Book of Communism. Almost all former communist states has abandoned the system. Socialists sometimes point to hunter-gatherers as being a successful long-lived form of anarchism but many such societies had low living standards and frequent violence, see Primitivism.
However, adherants to the Marxian doctrine of Historical Materialism argue that true socialism can only develop as a response to the contradictions of bourgeois capitalism; therefore, the failure of those experiments in socialism to date can be attributed to the fact they did not emerge in this manner. In short, many Marxists argue that, in order for a sucessful socialist revolution to occur, capitalism must first dominate the globe. The Soviet Union is a case in point - Tsarist Russia was quasi-feudal, not capitalist, and was overthrown by a small cadre rather than by a mass revolution. So it is argued by some Marxists that the failure of Soviet socialism to sustain itself is actually an affirmation of Historical Materialism.