January 16, 2006

Communism Vs Capitalism.

The following nice formulation came up in a discussion with a cousin.

In any introduction to economics, we are told that there are scarce or limited resources and unlimited wants or needs. Here, of course, we are using the word needs in the most general form. Food, clothing, and housing are needs, but so are millions of others. Health care is a need. A luxury car is a need. A plastic surgery is a need. Producing great works of art is a need. Understanding the nature of the universe is a need. Taking care of one's family for the next ten generations is a need. So on and so forth.

Now how to use the limited resources to fulfil the maximum number of needs is the question.

Communism: Communism intends to uniformize the needs of human beings to a certain common minimum and demands that all the resources be owned by the society as a whole. It then prescribes ways to fulfil those common needs using the common resources. The essential flaw in this is that it does not take into account an individual's right of defining his own needs. However fair the definition of the common minimum need, it is conceivable that there is an individual who has a legitimate need which he can not fulfil in a communist society. Here I use the word legitimate to mean that it is achievable (if given enough resources). Further, the demand that all resources must be owned by the society implies that every individual must be owned by the society (since the labor is the most fundamental resource). This is not desirable.

Capitalism: (as in the ultimate free market system or the laissez-faire capitalism) Capitalism intends to completely individualize the needs of human beings and demands that all the resources be owned by individuals. It then prescribes that in a market of voluntarily interacting human beings, every one will try to fulfil his/her needs. The essential flaw in this is that it does not take into account the case of those individuals whose only resource is their labor and their basic needs. Here I use the word basic to mean those needs that are essential for a decent survival. It is possible in a capitalist society that all the resources will fall into the hands of increasingly smaller set of people and others will have to sell their labor to this small set of people to survive. The word voluntary will then become meaningless as there will be no choice. Further, an individual simply by taking control of a large share of the resources, obtains a carte blanche to fulfil all and any need that he might fancy. A minimal system of law may not be enough to contain the damage such a power might work.

Thus, I believe that either of the above systems, in its ideological extremity, is unworkable and unfair. The solution is to aim for a balance of the two. And this balance might come at a point closer to Capitalism (as in the US) or to Communism (as in most of Europe).


At 4:18 PM, January 22, 2006, Anonymous Missouri said...

You mentioned that the balance could be close to the Communism (as in most of Europe). What about the Communism in China?

At 5:04 PM, January 22, 2006, Blogger Krishna said...

Missouri: Thanks for your comment.

Your question is interesting. I actually am thinking now why I did not include China as an example of balance being close to communism.

Well, I think the kind of communism in China before the economic reforms was very brutal and repressive. And it comes very close to communism I rejected in my post as detrimental to individual freedom. After the economic reforms, I am not really sure what kind of conditions prevail in China. It is true that there are innumerous private enterprises and all the political power is controlled by a party that calls itself communist. Still, I wonder how many desirable socialist policies (like welfare and safety of workers etc) are practiced. I hear many stories on how millions of workers work in all these factors in miserable conditions and there is no attempt to improve their lot. It seems to me that all the focus in China now is on producing more and more without stopping to consider human or environmental consequences. So I am not sure if the balance reached in China is close to communism.

But I think the most important reason why I did not include China is that it is not a democracy. I did not mention this in my post, but I believe that a balance between communism and capitalism is important, but a democratic set up is absolutely vital to any country's welfare. One may produce a lot, but without democracy (and the resulting gaurantess to individual freedom) all that production will not be meaningful.


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