9) Socialism Destroys Incentive
From the Foundation for Economic Education:
Assume that an individual, Clem, is a member of a socialist commune. Assume that there are 1,000 members of the commune and that the output is divided equally among the members. (For the sake of simplicity we will ignore matters such as capital investment.) Let’s say that the production of the commune totals 100,000 bushels of wheat a year, or an average of 100 bushels per member. At a price of, say, $5.00 per bushel total receipts for the commune are $500,000, or $500 per member. The question is: How is Clem likely to behave? Will he work hard? Will he shirk?
Let’s assume that Clem is both naturally industrious and socially conscientious. He is concerned about the overall good of the commune. As a result, Clem works very hard and increases his production from 100 to 150 bushels of wheat a year. This increases the annual output of the commune from 100,000 to 100,050 bushels. At $5.00 per bushel the income of the commune increases from $500,000 to $500,250. Since total income is divided equally among the members, the income of each member rises from $500 to $500.25 a year. Thus, because of his extra work Clem’s production increased 50 per cent. But his income increased by a mere 25C or by 0.05 per cent. Moreover, the income of the other 999 members also increased by 25c even though they did not work any harder and their productivity did not increase.
Clearly, Clem’s activities benefited everyone in the commune except himself Everyone else had his income increase without increasing his work. But Clem’s income increased only 25c despite increasing his work load by 50 per cent. While the benefits of the extra production were diffused throughout the commune, the costs were concentrated on Clem. Given the distributional policies of the socialist commune it is clear that Clem’s decision to increase his work was “irrational,” and it is highly unlikely that he would continue his Stakhanovite exertions, thereby subjecting himself to continued exploitation by the other members of the commune. In short, the distributional policies of socialism penalize industrious behavior.