Paul Krugman pondering what went wrong with communism.

“The Soviet triumph in World War II was, above all, a victory of production. Despite huge losses in the first months of the war, despite mass dislocations of population and the German occupation of many of the country’s key manufacturing centers, Soviet industry managed to build tanks, artillery, and aircraft that were technologically a match for Germany’s weapons, and to do so at a rate that consistently exceeded anything their opponents thought was possible. Indeed, the decisive German defeats at Stalingrad and Kursk came about precisely because the Germans launched offensives against what they imagined to be a weaker opponent, and were taken by surprise when counterattacked by thousands of tanks whose existence they had never suspected….”

 

So why then did communism fade out in favor of capitalism? Pressure caused by globalization? Inability to keep up with rapid technological progress? He continues…

…A market system, of course, works whether people believe in it or not. You may dislike capitalism, even feel that as a system it will eventually fail, yet do your job well because your family needs the money you earn. Capitalism can run, even flourish, in a society of selfish cynics. But a non-market economy cannot. The personal incentives for workers to do their jobs well, for managers to make good decisions, are simply too weak. In the later years of the Soviet Union, workers knew that they would be paid regardless of how hard they tried; managers knew that promotions would depend more on political connections than on performance; and nobody was offered rewards large enough to justify taking unpopular positions or any sort of serious risk. (There can’t have been more than a few dozen people in the Soviet Union – all of them politicians – who had the kind of lavish life style enjoyed by tens of thousands of successful entrepreneurs and executives in the United States). So why did the system ever work? Because people believed in it. I don’t mean that people went singing to their jobs, praising the motherland. I do mean that they did not take as much advantage of the system as they might have (and did, in the system’s later years). And I also mean that because people in authority believed in the system, they were willing to impose brutal punishments on those who did try to take advantage. (Stalin used to shoot unsuccessful generals).

We see this kind of thing all the time, in microcosm. The market does not require people to believe in it; but the centrally planned economies that live inside a market economy, known as corporations, do. Everybody knows that financial incentives alone are not enough to make a company succeed; it must also build morale, a sense of mission, which makes people work at least somewhat for the good of the company rather than think only of what is good for them. Luckily, under capitalism an individual company can fail without taking the whole society down with it – or it can be reformed without a bloody revolution.

 

Why did people stop believing in socialism? Part of the answer is simply the passage of time: you can’t expect revolutionary fervor to last for 70 years. But perhaps also the unexpected resurgence of capitalism played a role. By the 1980s Russia’s elite was all too aware that the country, instead of overtaking the capitalist nations, was slipping behind – that Russia was failing to take advantage of new technology, that if anyone was challenging the West it was the rising nations of Asia. Communism lost any claim to the mandate of history well before it actually fell apart, and perhaps that is why it fell apart

 

In the end, then, capitalism triumphed because it is a system that is robust to cynicism, that assumes that each man is out for himself. For much of the past century and a half men have dreamed of something better, of an economy that drew on man’s better nature. But dreams, it turns out, can’t keep a system going over the long term; selfishness can.”

http://web.mit.edu/krugman/www/Russia.htm

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