Information and motivation: Reflections on the failure of the socialist economic system

Abstract

The literature on the failure of the socialist economic system is enormous and growing. This paper focuses on the lack of adequate information and motivation as the root cause of that failure. Basic information problems are traced to their origin in the light of long lasting theoretical debates between proponents and opponents of socialism. The critics have been proven essentially right in their arguments regarding the impossibility of rational economic calculation under socialism. As for motivation, the paper adopts the premise prevailing in economics on the dominant role and function of self-interest in a modern economy. Under socialism, as well as under capitalism, self-interest—notwithstanding all attempts to suppress it and to bring out or impose more “noble” behavior—never ceased to motivate, and remained a powerful moving force, revealing itself, both positively and negatively, in every sphere of economic life. Over-all, however, the socialist system could not provide the necessary incentives for the pursuit of self-interest to lead to outcomes socially desirable from the standpoint of central planners. Observations are made on self-interest in the behavior of politicians as expressed in a narrow materialistic sense. It is argued that politicians, like most of their fellow men, were longing for private property rights. This reinforced the self-destructive tendencies within the system and should be recognized as a significant factor contributing to the collapse of the communist state.