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Socialism leads to poor investments that deprive citizens of services – Maltsev

Carthage College professor Yuri Maltsev discusses planned socialist economies. Camerawork: Nicholas Boyd. Editing: Darlene Creamer.

1st February 2013

By: Schalk Burger

Creamer Media Senior Deputy Editor

  

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Socialism leads to poor investment of public funds, depriving the most vulnerable people of valuable services, says US Carthage College professor Yuri Maltsev, who was also one of a team of Soviet economists who worked on President Mikhail Gorbachev’s perestroika reform packages.

A private investor will be deprived of his or her ability to make another investment if he or she made a bad investment. This feedback mechanism does not exist under State-planned socialist economies. A State can continue to make bad investment decisions, with few consequences, reducing the developmental impact of money invested, he says.

Speaking in Johannesburg on a platform provided by the Free Market Foundation, Maltsev argued that socialism was an “incessant war against human nature”.

“The examples of socialist economies worldwide have, thus far, degenerated into socialist monarchies where the ruling elite must protect their lifestyles by sharing power with only a small inner circle, while the rest of the population languishes in poverty, with few effective services,” he said, adding that Cuba, North Korea, Laos and Vietnam were islands of socialism.

The lack of censure when a bad investment had been made results in socialist systems often providing free services of universally bad quality, of which Cuba’s social healthcare system was an example. Maltsev highlighted that the social healthcare systems in Canada and Sweden were being reviewed towards a more privatised model, owing to problems with cost and quality.

“Even the philosophical model of com-munism says that socialism can only exist once the State has withered away. However, every socialist system is based on massive control by the State. These are irreconcilable,” averred Maltsev.

Further, the artificial jobs created under socialist systems were often substandard and demeaning, resulting in a waste of human life, as the person cold not realise himself or herself by working creatively in a field about which he or she was passionate.

“The planning required to manage all individuals’ decisions and the multitudinous elements of any economy is too vast for any organisation or government to achieve. That is why the results of planned economies are so poor.

Look at the City of Johannesburg. You have thousands of shops, jobs, choices and chances and none of them have been planned by the State,” enthused Maltsev.

He pointed to the steel mills built in former Soviet Eastern European countries as examples of bad planning. These mills collapsed soon after the fall of the Soviet Union because they were not built to supply a discrete market demand.

“How can a government have a better idea of how to manage mines than miners? The bad investments made by socialist governments result in these countries functioning below their potential. The current debates about nationalisation in South Africa are depressing. Uncertainty is worse than bad news for investors,” he argued.

Russia, which at one time had a sliding tax rate of up to 90% for wealthier taxpayers, introduced a flat tax rate of 13%, which had resulted in a 300% increase in taxes paid. It seemed that people regarded 13% as fair and paid their taxes, noted Maltsev, adding that this resulted in significantly more tax revenue being generated.

“Governments do not know what to do in an economy. Analyse some of the former Soviet Union countries. The most radical departure from Soviet socialist economic principles of State control, which happened in Estonia, has resulted in a fifteenfold increase in wealth per capita within one generation.

“In South Africa, government is already bloated and the tax rates are high. The rigid labour legislation means that labour rates are uncompetitive. Government does not realise that, if companies cannot fire people, then they will not hire people,” said Maltsev.

Promoting entrepreneurship was an effective way to provide opportunities for people. Too much regulation prevented the poorest people from entering the economy and it imposed higher costs on the economy. By removing regulations, States could create more opportunities for the poorest people, argued Maltsev.

Government should become smaller rather than bigger. For example, more than 16-billion work hours a year were donated by volunteers in the US, demonstrating that civil society provided more help to the less privileged parts of society than a government, he said.

“If you have a good social fabric, then a country would not need a government to distribute food stamps. The message is that people must ensure that government is controlled by the people.”

Free Market Foundation chairperson Herman Mashaba agrees, saying that people in South Africa must be vocal about their choices and raise their issues in defence of the future of the country.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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