[Market Economy Guide] The Lesson of Cabbage

In a planned economy, even if cabbage prices soar, there is no profit in harvesting them

…That is why the former Soviet Union failed at socialism and turned to reform and opening

This is something that happened in a communist country. In the cities, vegetables were scarce and prices had skyrocketed, yet in rural fields unharvested vegetables were left to rot. It is something unimaginable in capitalist countries like ours. In a capitalist country, merchants would have immediately driven trucks to the countryside, bought cabbages, taken them to the cities, and still made a profit from distribution. So why did no one do that in a communist country?

An ideal society?

The reason is that communist countries prohibit private property. Since all means of production are owned by the state, no one can own a truck, and because there is no freedom of movement, no one can go to the countryside to buy vegetables. The same goes for the people who grow cabbages. Because they do not own either the land or the cabbages, they cannot sell them freely for money. Even if selling cabbages would generate a profit, that profit would belong not to them but to the state, so they have no incentive to sell them. They are not even interested. Whether vegetables become scarce in the cities or perfectly good produce rots in rural fields, it is not “their problem” but “someone else’s problem.”

In this way, under a communist planned economy, the state takes charge of both production and distribution, leaving no room for individual initiative. As a result, producers simply produce according to what state economic agencies dictate, and consumers merely consume what is rationed to them, without any further involvement. Moreover, under a thoroughly state-controlled planned economy, there is no telling what disadvantage one might suffer for stepping forward and trying to stand out. Better to keep one’s head down: whatever errors may exist in the production and distribution of vegetables, and whatever good solutions may exist, it is safer to remain silent and endure. Because of this, state economic agencies often end up proposing economic adjustments divorced from reality and failing as a result.

Repeated overproduction and acute shortages

“Communist cabbage” vividly shows how incomplete the planned economies of communist states are, and how impossible from the outset is the dream of designing an ideal society through human reason. A real economy contains diverse and complex variables and changes constantly, so it is absolutely impossible to grasp every detail, take everything into account, and design the most optimized economic plan. This is precisely where the error of the centrally planned economy advocated by communists arises. Even Lenin, who led the Russian Revolution, said in 1916 that the “bookkeeping and control” necessary for operating a socialist economy “consist of very simple acts such as supervision, record-keeping, and issuing receipts. Anyone who can read, write, and do addition, subtraction, multiplication, and division can do it.” He even argued that with training, a cook could do it as well. In this way, socialists were excessively confident in human intellectual ability and asserted that people could control all information and manage the economy through planning. This intellectual arrogance was the decisive factor that led communist planned economies to failure.

Unless this is acknowledged, a second and third “communist cabbage” will inevitably occur. In fact, China also experienced a “communist cabbage” incident during the period when it insisted on a pure socialist planned economy. In Manchuria, so much grain, including corn, was produced that warehouses could not store it all and some of it rotted away, while in inland regions people starved to death amid severe food shortages. What an absurd man-made disaster that was.

Collapse after the 1980s

At this point, a remark by French President Charles de Gaulle carries considerable significance. Charles de Gaulle said, “How can anyone govern a country with 246 kinds of cheese?”—acknowledging that while one might govern France, one could not plan the entire French economy.

In this way, human intellectual capacity has clear limits, making artificial social design impossible from the outset. In fact, the political and economic experiments aimed at designing the ideal society envisioned by socialists collapsed beginning with the oil shocks of the 1970s, ending in miserable failure. The reason was that after the oil shocks, communist planned economies could not properly respond to the rapid changes in the global economy and lost their ability to manage economic affairs. If the Soviet Union, leader of the communist bloc, recorded an economic growth rate of 0% in the 1980s, there is little need to say more about other communist countries. As labor productivity fell, economic growth dropped sharply, and national economies faltered, people’s lives also became more difficult. Chronic shortages of daily necessities and food gave rise to mounting internal discontent. In the end, socialist countries including the Soviet Union introduced reform and opening and a market economy system in order to resolve their economic crises, and this resulted in the widespread collapse of socialist regimes.

■ Please remember

Charles de Gaulle said, “How can anyone govern a country with 246 kinds of cheese?”—acknowledging that while one might govern France, one could not plan the entire French economy. In this way, human intellectual capacity has clear limits, making artificial social design impossible from the outset.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 배추의 교훈

Author: Sung-no Choi

Date: 2020-04-13

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=9&idx=22550