Strategic Socialism Might Work

Suppose you identify a business opportunity where there are many customers that need your service.  You have the skills to provide the service but none of the customers can pay you for it.  Would you begin?

Maybe not, but suppose that the service is needed greatly.  What then?  Lobby the government for the money?

In the beginning that tactic will work but it has within itself the seeds of failure.

In the long run, the inability of the customer to pay is invariably a deal breaker.

Governments have no money of their own.  When the government provides the resources to buy the service they take the money from others and allocate it to the perceived need.  That is the failure seed.  They assume that the resource will always be available. 

To assume the resources are always available is a stretch.  When you spend money on one thing you automatically spend it on nothing else.  You can spend a given dollar just once.  If you have taken the money from wealth production to pay for some non-economic good you will eventually take money needed to enhance production.  It is near certain that most government policy people have no idea of how businesses work and cannot judge where the line is.

As costs to produce increase, (taxes and regulation), some producers reduce their effort, others move away, and fewer people choose to enter the production space.  Rising costs of social services with diminishing wealth production is an impossible burden.

No system that provides a value can exist without the resources to deliver it.  Socialism’s latent assumption is that the resources to carry out the program will exist and be sufficient.  They illogicaly and simultaneously assume and deny the value of free enterprise.

So the socialist approach, while well-meaning and even needed, must fail unless:

  1. People respect the production space and optimize its capabilities.  Essentially provide producers with incentives to produce wealth.
  2. The cost to provide necessary services is made ruthlessly efficient.  Optimize availability, delivery systems and cost structures.
  3. Delete moral hazards created by providing the service.  No one who does not need it is incentivized to use it.

Most Western governments today seem to be on a path that overlooks all three of those conditions.  When the resources become too little to provide all the promised services and benefits,  what will stop first? Something will.

Herb Stein’s law says if a thing cannot go on forever, it will stop.

A thought from 80 years ago.

Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is – the strong horse that pulls the whole cart.  – Winston Churchill.

If someone adopts the socialist view, that private enterprise is a cow to be milked, then surely they must have the wit to address how best to keep the cow in top shape to provide the best and most milk.

Their own best interest demands that strategic piece.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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