Communism is a Ponzi Scheme
Author’s Note: This article is an experiment in how concise a complex sociological essay can be while still being robust. There are thus voluminous footnotes to back up the assertions, but the essay itself is simple and straightforward as possible. You will really enjoy the footnotes.
This is not a political blog. But Society Is a Technology, and it’s worth convincing people that some societal technologies, like Nazism and Communism, deserve to reside outside the Overton Window of civilized consideration.
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Communism is the biggest Ponzi Scheme of all time.
Communism uses the human impulses toward empathy and community to get people to establish a system where everyone gives of their own work to support everyone else1.
But because the system is unstable in groups bigger than about 300 people2 (because everyone doesn't personally know each other well), rules and enforcement of rules must be put in place to force some of the people to contribute.
Then people realize that if you have to contribute 70% of your work, you can just do less work. 70% of 20 hours is easier than 70% of 40 hours.3
Then further, harsher enforcement is required, then surveillance as part of the enforcement.
Around this time people realize two things.
The economic situation is falling apart4 because no one is incentivized to work hard and no one is incentivized to take economic risks because ownership is banned or risky.
Because the system is communal, dissent kills the Commune. Everyone has to fully contribute or it fails.
So you have scarcer resources and more demand for forcing compliance on an increasingly disillusioned populace.
To keep the System "working" you have to set up a full-blown police state5. Which means Winners (leaders) and Losers (everyone else).
And whenever there is a strongly hierarchical power structure, wealth flows uphill.
The only people with accumulated wealth are those at the top of the pyramid6.
This happens in ALL Communist7 states. Every. Single. One.
Thus Communism always devolves into a Ponzi Scheme.
In our intuitive model for how a family works, family members behave altruistically toward each other. Yet in market economies each participant acts selfishly. (Becker, G. S. (1981). Altruism in the Family and Selfishness in the Market Place. Economica, 48(189), 1–15.) Communism is based on extending the intuitive collectivist home economics to the larger society.
The kibbutzim in Israel are examples of voluntary socialist collectives. The average size of the collectives today is around 400 people. But after losing people in the 1980 and 1990s all but 60 of Israel’s original 273 collective farms have privatized abandoning the socialist way of life. Kibbutzim are a good example of voluntary collectivist communities as they have official support of the Israeli government
In 1973 Soviet peasants were allowed private plots totaling 2% of arable land, yet these accounted for 25% of agricultural value. (Smith, Hedrick (1976). The Russians. Crown. p. 201. ISBN 0-8129-0521-0.)
The only time private plots were completely banned, famine took millions of lives. (Gregory, Paul R.; Stuart, Robert C. (1990). Soviet Economic Structure and Performance. New York: Harper Collins. pp. 294–5 and 114.)
It is very hard to quantify economic output under socialist systems as the fundamental problem in socialist economies is quality and subsequently mismatch in between available goods and the actual need for them. For example society enterprises aimed meet their production targets by ignoring quality and choice of products. Much Soviet manufacturing was sheer value detraction, as Ronald McKinnon (1991) put it. For instance, Soviet fishermen caught excellent fresh fish. But rather than sell it on the market, they processed it into (often inedible) fish conserves, reducing the fish’s value to almost zero. This value detraction was recorded, incorrectly, as value added in national accounts and thus included in the GDP. (The Myth of Output Collapse after Communism)
So instead we look at the most basic measure of success for an economic system. Is it able to feed its people. Sadly socialist systems are responsible for six out of the worst ten famines in the 20th century.
Another example is China, one of the greatest success in eliminating extreme poverty. “In the same year – 1981 – the population of China was 1 billion. Of these 1 billion Chinese 88% were living in extreme poverty. This means that out of all the 1.9 billion extreme poor 0.88 billion were Chinese. Almost half.” (Our World in Data) From when China introduced capitalistic reforms in the early 1970s and the early 1980s to now China reduced its the percentage of its people in extreme poverty from 88% to almost 0% now.
Incredible repression needs to be in place to keep people from trading amongst themselves. This trading is variously called the black market or the informal economy. In the Soviet Union it was tiny, due to severe repression. Just 3 to 4% of Soviet GNP per Gur Ofer and Aaron Vinokur‘s interviews with Soviet émigrés in the early 1970s. (1992, p. 100).
With the start of transition, the underground economy expanded everywhere. But it soon shrank both in successful reform countries and the most repressive state-controlled economies— while continuing to grow in partially reformed economies. It peaked in 1991 in the most successful transition economies (Poland, Hungary, and Estonia), while in less reformist countries (Russia, Ukraine, and Azerbaijan) it was still rising in 1995. In general, it peaked when official GDP hit its nadir.
On the whole, the unofficial economy expanded tremendously. The average unregistered share of real GDP in former Soviet countries rose from 12 percent in 1989 to 36 percent in 1994. In the extremes of Azerbaijan and Georgia, it exceeded 60 percent of GDP, as it presumably did in war-torn Armenia. In East-Central Europe, by contrast, the unofficial share rose from 17 percent in 1989 to 21 percent in 1992 but then dwindled to 19 percent in 1995. (The Myth of Output Collapse after Communism)
Once internal repression ceased or even reduced in intensity, people started trading amongst themselves again.
Communist leaders have a tendency to amass vast fortunes for themselves. Fidel Castro, who liked to claim that a modest fisherman’s hut was his only asset, had an estimated $1.2 billion dollars at the time of his death as estimated by Forbes in 2006.
Kim Jong-il’s total net worth is unknown, but he kept a $5 billion dollar emergency fund in Swiss banks.
Wen Jiabao, Chinese premier for ten years, amassed a fortune for his family worth an estimated to be worth $3.3 billion dollars.
And it isn’t just communist rulers who are rich. The well connected do well also. The sons and daughters of the Chinese ruling elite are called princelings for good reason. They have amassed a fortunes and can be seen driving around in Ferraris. While China’s parliament has about 100 billionaires in it depending how well the stock market is doing that year.
The well connected are also insulated from the harshness and deprivations of the socialist system. N. Nikolaev writing in Pravda a official USSR party paper in 1986 said “We can no longer close our eyes, to the fact that party, government, trade-union and managerial … officials sometimes deepen existing inequalities through their use of special canteens, special shops and special hospitals. … Let the boss go with everybody else to an ordinary store, and stand in line like everyone else. And then perhaps those lines that we’re all sick and tired of will be eliminated more quickly.” The special stores were called Beryozka and were always stocked with goods, while ordinary people often had to wait hours just to get basic staples.
By Communist I mean broadly any type of fully nationalizing Socialism. I am not criticizing having some level of Socialism in free market society, nor am I conflating a little bit of Socialism with Communism. I am saying that fully nationalizing Socialism, where private property is effectively banned, is a huge error. Many Communists will argue their flavor has never been tried. But whenever broadly or fully nationalizing (seizing the means of production) extreme Socialism is implemented, great suffering and societal failure always follow.
It strikes me that in some ways this article is merely a restatement of the Pareto Principle, which applies across ALL societies, not simply communist ones. Resources inevitably run uphill and the vast majority of resources aggregate in the minimum number of hands over time in a power law distribution. Perhaps there is a closer thematic similarity between Ponzi Schemes and Totalitarianisms than seen in other such contrasts, but the overall process seems to be far more generic. If anything, a Ponzi Scheme and perhaps quasi-Mafia centralized tyrannies as well are probably natural processes at their purest.