What is uneconomic under capitalism does not become economic under socialism.

Jurriaan Bendien J.Bendien at wolmail.nl
Fri Dec 13 15:25:00 MST 2002

Mark wrote:

"If in a socialist state, lets call it Xanadu, Factory X is told to make
Widget Y because it has been decided (somehow, either by bureaucrats or by
workers' democracy or however) that society needs Widget Y, then fine. But
if Widget Y is *not* being manufactured in a nearby capitalist state,
Slumville, because there's no market or it's unprofitable, then why,
actually, or how, can it suddenly become profitable to make Widget Y in
socialist Xanadu? It cannot. It is being manufactured in Xanadu because of
different social priorities, or because of some perceived need which the
market somehow doesn't signal. It does not become more economic under
socialism, and in fact socialism inevitably tends to be overall less
economic, more unprofitable, than capitalism, because so many production
decisions are made for reasons other than profitability."

I don't follow your argument here. If in the socialist state there is a
recognised mass demand for Widget Y, then it may be profitable and more
economic to produce it - regardless of whether in a capitalist country it is
uneconomic because for some reason the production costs to the enterprise
are too high relative to the revenue gained from supply. The argument hinges
on a particular definition of "economic" as "profitable", and on what level
the cost-revenue accounting is actually done. Capitalist accounting takes
places at the level of the enterprise, socialist accounting is coordinated
at the level of society as a whole. It is quite easy to show that what is
uneconomic at the level of the enterprise may be very economic at the level
of society as a whole, and vice versa. If Widget Y is not produced, because
of cost considerations, then it may indeed cause economic havoc to the
extent that various construction projects cannot be completed, and that is a
cost which must be accounted for as well. But it is a cost which does not
show up in the company balance-sheet. One of the reasons that the capitalist
state has developed industries and infrastructure through subsidies and
credit is because they were vital to the economy and economic efficiency,
even although it was (at least initially) not profitable for private
enterprise to develop them, for example because of the huge initial capital
outlay required (e.g. transport networks) or conjuncturally large price
fluctuations (e.g. agriculture). So then you have "uneconomic" projects
which are carried out by the state for private enterprise to become

>From the point of view of capitalism, unemployment is "economic" and
necessary for economic efficiency (indeed the capitalist state pays
employers to re-employ the employed !), from a socialist point of view
unemployment is not economic or efficient. In a capitalist economy,
profitability may increase, while real net output decreases, etc. So what
are we talking about ? I realise that in conventional economics, "economic"
MEANS profitable, but it is precisely that assumption which needs to be
questioned, surely ? Isn't that what Marx is about ? (I think I am siding
with Barry on this one).

If you say "What is uneconomic under capitalism does not become economic
under socialism" then you imply that if it had been economic, then
capitalism WOULD have produced it at a profit. But that carries too much
faith in capitalist economic rationality and efficiency, it ignores the real
world of capitalist competition, where competitors are blocked even if they
produce a perfectly good "economic" product. If you look at the real history
of choices between technological alternatives under capitalism, you will see
it had not so much to do with overall efficiency considerations, but
everything to do with market position, competition, political power and
profitability considerations. Microsoft is a case in point.

In an imperialist world, if you compare a country featuring
state-coordinated economic development with a country featuring development
by private enterprise only, assuming a similar level of labour productivity
at the start in both countries, then economic growth in the former country
is faster than in the latter. I cannot think of any exception to this rule
(any takers ?). That is a very basic, primitive argument in favour of
socialist economy.

The relative inefficiency incurred by a socialist economy has little to do
with "economic" or "uneconomic", it has to do with making economic decisions
through political processes, in which disputes arise over what is economic
or efficient or beneficial which transcend the profitability criterion. But
you have got to be joking if you think those disputes do not occur in a
capitalist economy.

I guess I will have to latch on to my Widget next time (sigh).


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