Comparative Economic Systems

By guest author Randall G. Holcombe
May 11, 2019

From the 1950s through the 1980s, university economics departments in the United States commonly offered a course in Comparative Economic Systems. The course primarily compared capitalism with socialism, and these courses rapidly disappeared after the collapse of the Berlin Wall in 1989. Perhaps it is time to bring them back.

The Comparative Economic Systems courses taught in the second half of the twentieth century tended to be relatively friendly toward socialism, because academic economists tended to think that economic planning done by experts (in other words, people like themselves) could allocate resources more rationally than when resource allocation was left to the uncertainties of the market.

The many problems with market allocation of resources, such as externalities, public goods, monopolies, and macroeconomic instability, would require government management anyway, so pure market allocation of resources seemed infeasible in any event. A mixed economy, somewhere between capitalism and socialism, could address problems like this, so from a public policy perspective, the question was whether to have a mixture of market allocation along with government planning or go all the way to pure socialism.

Much content in a Comparative Economic Systems course focused on the various ways that government planning could be implemented to allocate resources more efficiently, with the thought that expert management of the economy would lead to greater productivity than in a market economy, which is guided by the often short-sighted and irrational demands of consumers.

After the collapse of the Berlin Wall in 1989 followed by the break-up of the Soviet Union in 1991, the debate between the merits of capitalism versus socialism was temporarily settled. Capitalism had won, and in the 1990s even most of the former supporters of central economic planning recognized that market allocation of resources produces prosperity, while government economic planning produces stagnation and, in the end, misery.

In the 1990s courses in Comparative Economic Systems evolved into courses on Economies in Transition. The old courses, which focused heavily on centrally planned economies, focused on those same economies as they were transitioning away from socialism toward capitalism. But over time, those courses tended to fade away.

Essentially, in the 1990s, there was only one economic system from an academic standpoint, which was the market system. The focus became how markets work, and how government intervention might be used to make markets work better.

Now, three decades after the collapse of the Berlin Wall, it may be time to bring back courses in Comparative Economic Systems. Officials elected to national office, such as Bernie Sanders and Alexandria Ocasio-Cortez, confidently advocate socialism as superior to capitalism, and college students today were not born when twentieth century socialism was debated as a viable alternative to capitalism.

There remain a few examples of socialist economies that students and politicians alike could reference as evidence regarding how socialism works. Venezuela, Cuba, and North Korea are the best examples. But self-avowed socialists instead point to Scandinavian countries like Sweden as their models of a socialist order.

Those countries have their own problems, which may be less visible to people like Sanders and Ocasio-Cortez because they are looking from thousands of miles away, but regardless of the merits of those countries, they are not socialist. They rely on private ownership of the means of production, they have low regulatory barriers to starting and operating businesses, and their private sectors are heavily oriented toward markets and toward competing in the global economy. They have big welfare states, but welfare statism (which has its own problems) is not socialism.

In the twentieth century, capitalism and socialism could be compared directly by comparing countries like the United States with countries like the Soviet Union. That’s not so true in the twenty-first century, so college students are more likely to view socialism as a theoretically ideal system, and are therefore drawn to it.

Perhaps it is time to revive courses in Comparative Economic Systems, so that students get a better understanding of what socialism is (it is not the welfare state, and it is not big government), how it actually works, and are given a realistic assessment about the challenges that would face central economic planners, along with real-world lessons about why the socialist experiment in the Soviet Union failed after seven decades of experience.

In the 1990s, teaching Comparative Economic Systems seemed pointless because it was so obvious that central economic planning was not a viable alternative to capitalism. Now, with socialism’s rising popularity among college students and others, it may be time to bring that course back.

Republished from Independent.org.