Happy May Day, Capitalist Workers

(Originally published here.)

In many countries, May 1 is a public holiday in honor of “International Workers’ Day.” The day has its roots in the global communist movement which is one reason Americans and Canadians prefer to celebrate Labor Day in September. (In the U.S., May 1 is technically both Loyalty Day and Law Day.) Today seems as good a time as any to take a quick look at what the socialists and communists actually achieved on behalf of workers.

On the positive side of the ledger, agitators gave us things like the eight-hour workday, prohibitions against child labor and the minimum wage. Some economists have argued that each of those laws is a form of discrimination that privileges some workers over others. Most people either doubt the existence of such negative effects, or think they are well worth enduring for the sake of humane working conditions.

All too often, however, we forget to properly account for the costs of socialism and communism. Most scholars believe communism is directly responsible for the deaths of at least 100 million people. Let that sink in.

The single biggest killer was the Great Chinese Famine, which began in the late 1950s and lasted through the early 1960s. (There was another large man-made famine in the Soviet Union during the 1930s). Scholars differ on the exact number of people who died, although most agree on a death toll between 30 million and 40 million. As many as 40 million more weren’t born because of the collapse in fertility associated with rising malnutrition. The best English-language account is probably “Tombstone,” by Yang Jisheng which combines thorough statistical analysis with detailed archival research and heart-rending oral histories.

As Yang explains, the Chinese Famine was not caused by bad weather or pestilence. Rather, it was caused by the failures of centralized planning inherent in the communist system. Mao declared that collectivized farming would vastly increase agricultural productivity. In theory, this would mean the cities could take more food from the countryside, rural land could be reclaimed for industrial projects and farmers could move from fields to factories.

In practice, the vaunted increases in crop yields never occurred. Mao and his advisers dogmatically recommended counterproductive techniques like “close planting” that actually lowered agricultural output. At the same time, arable land stopped being cultivated and farm labor was misdirected toward pointless infrastructure projects. The result was that the supply of food declined dramatically.

An even bigger problem was the government’s seizure of food from Chinese peasants. Being communists, they didn’t believe in a market economy in which farmers grew their own food and sold the surplus to urban residents. Instead, the communists set procurement quotas based on forecasts of agricultural output. The food was then taken by the central authorities in Beijing and reallocated to the rest of the country according to “need.”

This system was tolerable, although far from efficient, before the big push toward collectivization in the late 1950s. That’s because the farmers produced enough to feed everyone while the government made a good-faith effort to actually count what was being produced. Once Mao declared that China had embarked upon a “Great Leap Forward,” however, everyone in the government felt compelled to pretend that crop output was soaring even as it was collapsing.

The resulting food procurement quotas went from unpleasant to severe. Peasants had all of their food taken from them and sent to granaries. Officials beneath Mao were afraid to criticize the obvious failure of collectivization. The few who did were persecuted as “counter-revolutionaries.”

The cost of the famine extended far beyond the actual death toll, of course. Survivors had to live with the harrowing experience of mass starvation — children who ate their dead relatives; parents who murdered their children for food. The totalitarian political system, which was inseparable from the totalitarian economic system, stamped out dissent and enriched privileged insiders. Party cadres would abuse their access to the food granaries as leverage to extract sexual favors from peasants even as entire villages were wiped out. Sometimes there wasn’t even anyone left to move the bodies.

These results shouldn’t have been surprising. Common sense tells us that prices set in competitive markets are useful signals that help us figure out how to allocate finite resources, just as it tells us that unchecked power over the distribution of those resources leads to corruption and mismanagement. For those who don’t trust common sense, there is always “The Use of Knowledge in Society” by Friedrich Hayek, which won him the Nobel Prize, and “When Nations Fail” by Daron Acemoglu and James Robinson. The blindingly obvious takeaway is that markets work. Communism and socialism don’t.

China survived the famine — Mao tried to blame it on a “rightist” conspiracy — but the country was continually racked by turmoil thanks to the inherent flaws of its totalitarian system. It wasn’t until the late 1970s that ordinary Chinese began to experience a rising standard of living. Tellingly, Deng Xiaoping began by reforming the agricultural sector, allowing peasants to sell their surplus at market prices. Chinese real incomes have increased 13-fold since then. Now that’s something worth celebrating.

(Matthew C. Klein is a contributor to the Ticker. Follow him on Twitter.)


About Matthew C. Klein

I write about the economy and financial markets for Bloomberg View. Before that I wrote for The Economist on a fellowship provided by the Marjorie Deane Financial Journalism Foundation. I have worked at the world's largest hedge fund and read every FOMC transcript since May, 1987.
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