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Thursday, March 10, 2011

Social insurance, socialism, and the equivalence to Stalinism

by John MacBeath Watkins

One of the odder things about our political conversation in this country is that those who oppose socialism define it very differently from those who advocate it.

Here's the Wikipedia definition of socialism:

Socialism is an economic and political theory advocating public or common ownership and cooperative management of the means of production and allocation of resources.[1][2][3]
That's very different from social democracy, which aspires to retain capitalism while achieving some degree of social justice through the welfare state. This is a distinction largely lost on the conservative critics of socialism, who equate social democrats with Stalinists and Nazis. Although F.A. Hayek claimed that Stalinism and Nazism were the same, because both were totalitarian, the Nazis came to power with the support of business interests and were never in favor of expropriating the means of production. Their biological determinism caused them to reason that the people running businesses were those genetically suited to run them, and they condemned "class war" as a crime against nature.

While social democrats hoped to make capitalism and democracy compatible with socialist ethics, Nazism sought to accommodate capitalism and totalitarianism in harmony with racism, nationalism and social Darwinism.

Liberals (well, what we now call liberals) don't fully appreciate the influence of Hayek on the right. Hayek wrote during WW II in Britain against excessive planning, and maintained that ownership of the means of production was a bulwark of liberty. Yet the German mittelstand was never deprived of its property, and the many medium-sized enterprises were an important part of the war effort, as were such enterprises in Britain and America. The design of one of the best German fighter aircraft of WW II, the Fw 190, was significant in part because it was designed to be built in small sub-assemblies at enterprises small enough that they did not make a good target for an air raid.

This tells us a couple of things: 1) Capitalism is apparently a strong enough system to operate even under totalitarian government. 2) The continuing existence of capitalism is no insurance against totalitarian government.

And what of social democracy? Has the welfare state resulted in oppression by jack-booted thugs? Are Sweden and Denmark pocked with gulags? Um, no.

Perhaps in deciding what government should do and what it should not do, we should think in terms of public goods and private goods. We have plenty of evidence that governments do a terrible job of running a shoe-making enterprise or producing fashionable clothing. On the other hand, providing for the common defense, enforcing laws, and building lighthouses are things private industry just has no incentive to do, unless it is paid by the government.

What do these things have in common? Well, they all have some similarity to insurance. You don't know you'll need a policeman, but it's clear someone will, and we all benefit from a law-abiding society. Left to individual decisions about whether to invest in these things, the best deal is for someone else to pay for them so that they can benefit at no cost. Governments excel at social insurance because they can levy payment for the insurance on all of those who potentially benefit. Private industry sucks at social insurance because they do not have such an inclusive risk pool  Their options include charging a high rate for those who end up using a service, or for the more ethically challenged, collecting insurance payments and then attempting to shift the cost to someone else, often the person who has paid for the insurance. The temptation, therefore, is to charge high premiums and pay as little as possible in benefits, as this rationally optimizes profits.

The problem is finding the line between social insurance and social control of the means of production. In Britain, the National Health Service runs clinics, which would appear to be owning the means of production, so why is it so efficient at delivering its service and why is it so well loved by the British?

Well, it is in effect a very large HMO, and Britain does not restrict private insurance or private clinics from competing with it. There does seem to be a well-established pattern in which countries such as Switzerland and the United States, which rely on private insurance, have much higher costs for equivalent outcomes to the British system. It would appear that the HMO model is more efficient than fee for service whether it is run by private industry or by the state.

But conservatives have attacked social insurance as well as social control of the means of production as "socialism." Rhetorically, this is similar to the use of the term "weapons of mass destruction" to justify in advance a war in Iraq based on the fear of nuclear weapons, and in retrospect on poison gas (which didn't work out anyway, because Hussein had canceled that program as well.)

Which does not seem to me to satisfy the basic question, why do conservatives seem to fear social insurance as much as social control of the means of production? I don't recall the opposition to the government taking a stake in General Motors as being any more violent than the opposition to reforming the way health insurance markets work. Of course, it was pretty obvious that the government did not wish to keep a permanent stake in GM, but keep in mind that the reforms to health insurance markets the conservatives opposed and labeled "socialism" were the same reforms many conservatives had endorsed only a few years earlier.

Perhaps the issue is not what the ideology of conservatives lead them to believe so much as the needs of conservatism as a movement. I'm sure that argument has some validity, but conservative ideologues have had it in for Social Security since the 1930s. Perhaps the fact that insurance of any sort benefits from collectivism rather than individualism makes conservatives uncomfortable with it, but they don't seem to mind when insurance companies are privately owned.

The fact I find curious is that even after Social Security and Medicare failed to turn America into a Stalinist state, the charge of socialism in regard to social insurance retained any force. I suspect that the issue goes to something deeper in the hearts of the believers: The social justice sought by the liberals is in contradiction to the conservatives' concept of a just world. Perhaps the real divide is between those who believe social insurance is needed to provide social justice and those who prefer to believe that whatever results the market produces are social justice. Steve Benen, blogger at the Washington Monthly, keeps writing about how "Republicans just don't like the unemployed." What he fails to recognize is that there is a psychological explanation that makes sense of this. If you are a conservative, you want the world to remain much as it is, and to want that, you have to believe that we live in a just world.

My posts on Hayek, by the way, are here:


  1. Marvelous writeup


  3. According to that link, Social Security went bust in 2010. Remember all the old people not getting their checks? Neither do I.