Kim Iskyan: That’s Not Really Socialism

December 28, 2020

Biden Isn’t Bringing Socialism to America… It’s Already Here

By Kim Iskyan

Come January 20, 2021, the U.S. is going to become the U.S.S. – that is, the United Socialist States.

At least that’s what you might think if you’ve been listening to President Donald Trump…
“Biden is a Trojan horse for socialism.”
Donald Trump, August 27, 2020

And Vice President-elect Kamala Harris, Trump says, is something even worse than a socialist…
“She’s worse than a socialist, she is a communist.”
Donald Trump, October 8, 2020

Now, President-elect Joe Biden disagrees…
“There’s not one single syllable I’ve ever said that could lead you to believe that I was a
socialist or a communist.”Joe Biden, October 5, 2020

… and so does Harris…
“I am not a socialist.”
Kamala Harris, November 23, 2019

Listening to the Republicans… everyone from Trump, to the head of the Republican National Convention (“Democrats have chosen to go down the road to socialism”), to former U.S. ambassador to the United Nations (and 2024 Republican presidential hopeful) Nikki Haley (“[Democrats’] vision for America is socialism”), to a Trump supporter in Arizona quoted in the New York Times (“I won’t accept a Biden victory. I don’t want to live under Communist rule”)… it sounds as if we’re headed for an apocalyptic clash of ideology as those socialist Democrats come to power.

For decades in the United States, labeling an opponent as a socialist or communist has been the political equivalent of setting off a stink bomb in a stuffy math classroom.

Most Americans old enough to remember the Cold War associate the concepts of “communism” and “socialism” with the old Soviet Union. Those guys were the furry-hatted, vodka-drinking villains. And communism, as practiced in the old Iron Curtain nations, collapsed in on itself.

Old perceptions die hard… An NBC News and Wall Street Journal poll taken in February 2019 found that just 18% of Americans viewed the term “socialism” positively, while 50% saw it in a negative light. (The figures were almost exactly the opposite – 50% positive, 19% negative – for the word “capitalism.”)

Given the negative reflex in the collective muscle memory of many Americans toward socialism, it’s low-hanging fruit for politicians to smear opponents as “socialists.” (And of course, their job is a lot easier when high-profile Democrats like Bernie Sanders and Alexandria Ocasio-Cortez embrace the term.) And so it’s been easy for Trump and co. to cry “socialism.”

But… cheap politicking and Cold War reflexiveness isn’t helping us out. I know this sounds like heresy… but listen to what historian Heather Cox Richardson has written on the subject…

The American obsession with socialism has virtually nothing to do with actual international socialism, which developed in the early twentieth century. International socialism is based on the ideas of political theorist Karl Marx, who believed that, as the working class was crushed under the wealthy during late stage capitalism, it would rise up to take control of the factories, farms, utilities, and so on, taking over the means of production.

So why does that matter? Well… there’s a big difference between the sorts of ideas that Karl Marx promoted – and what people in the United States call “socialism.” One is a toxic economic disaster – and the other might look surprisingly familiar.

Real Socialism Is Ugly

Before we get to the details… you should know I understand how disastrous Cold War-style socialism can be… I had a front-row seat to the economic absurdities it creates. In the mid-1990s, I lived in the former Soviet republic Kyrgyzstan as part of a U.S. government-funded project to build a stock market. From there, I had a front-row seat to the economic perversion and devastation that seven decades of Soviet-style socialism caused.

The idea behind my Kyrgyzstan adventure was to give people there a forum to trade shares. To even think about a stock market – while the entire post-Soviet economy was suffering a devastating economic collapse (Kyrgyzstan’s GDP shrunk by half from 1990 to 1995) – might sound like using a Band-Aid for a gunshot wound… but it made some sense at the time.

After the Soviet Union fell apart in the early 1990s, the 15 Soviet republics became independent. With the end of socialism, thousands of previously government-owned companies – there was no other type of enterprise – were privatized. In other words, control of the means of production was returned to the people.

This meant that workers at these companies – from brick-making plants (more on them in a moment) to bakeries to jet-engine producers – were suddenly shareholders of the companies they worked for. Uncle Sam, terrified that socialism in the USSR was napping but not dead in the coffin, figured that it could toss some dirt on the grave by creating stock markets.

That way, employees – now brand-new shareholders – could trade their shares (which were called “privatization vouchers”). Boris and Natasha would buy and sell shares, make lots of money, and fall in love with capitalism – and Marx could safely rot away in the dustbin of history.

The first step, though, was to convince senior management – who were the biggest shareholders of recently privatized firms – to list their company’s shares on the stock exchange. That’s where I came into the picture – as capitalism’s evangelist pitching the general directors of dozens of Kyrgyz companies on the virtues of a stock market listing.

I’d sometimes wax poetic about the virtues of the stock market – It’s a rally! Buy the dips! It’s a long-term buy! это oчень xорошо! (“This is great!”) – under the stern gaze of a portrait of Vladimir Lenin hanging on the wall in the executive office.

Some of the company heads had caught on fast to the whole capitalism thing… and had already given it a big black eye. They’d made a straightforward proposal to their employees (who were of course also minority shareholders of the newly privatized firms): “Give me your shares or lose your job.” Those CEOs were the ones driving white Mercedes, and the last thing on their mind was listing the shares of their companies.

But most companies in Kyrgyzstan (and much of the former Soviet Union) weren’t worth any more than a snowflake in Siberia. They were completely worthless…

You see, under a planned economy, economic rationality – details like cost and price and time value of money and cost of capital – doesn’t matter. Keeping people busy for a nominal wage (“We pretend to work, and they pretend to pay,” an old Soviet joke went) was the objective.

I saw this in 1996 at a brick factory not far outside of Bishkek, the country’s capital. I was doing my stock market recruitment pitch. Under a capitalist system, the factory would have to be in close proximity to a source of clay, which is the main ingredient of bricks. Its customers would also have to be nearby. Clay and bricks are heavy and expensive to transport – and you don’t have an economically viable brick business if you’re not close to your key inputs and customers.

Under socialism, though, none of this mattered. In his drafty office, the head of the brick plant proudly explained to me that – until just a few years before – the clay used to make bricks was brought in from Armenia and Azerbaijan (2,300 miles away). Finished bricks were used in construction projects in the Baltics (2,900 miles away from the plant). Meanwhile, there had been a shortage of bricks in Kyrgyzstan… even though his plant was the largest in the region.

The cost of clay and sending bricks to customers across the USSR was irrelevant (and no one would think to track it anyway). To anyone with a capitalist cell in his body – for whom margins, costs, marketplace positioning, and business strategy mean something – none of it made any sense at all.

And in the cold, dark light of capitalism, it all fell apart. When I visited, the brick plant’s parking lot of the sprawling factory was empty. My footsteps echoed eerily down the silent hallway of the administration building. The only other person there was the tea lady, who brought in some local cognac after the factory head and I had finished our tea.

The plant completely closed for good a few months later. The company’s shares – worthless anyway – never saw the light of the stock exchange. I never heard from the general director again.

That’s in-real-life socialism, which is when the government owns and operates factories and equipment that drive economic growth.

That’s Not What They’re Talking About

Some Trump supporters believe that Biden and his henchmen – or even that crazed self-described “Democratic socialist” Bernie Sanders looming in the background – have in mind public ownership of America’s means of production. Taking over the means of production, and then engineering value destruction on the scale of my Kyrgyz brick-plant buddy, is not on anyone’s agenda. (“[Biden] has handed control to the socialists and Marxists and left-wing extremists,” Trump said in mid-October.)

The American brand of socialism relates more to specific policy areas, with health care at the top of the list. For example, a YouGov survey conducted in December last year found that 58% of Americans defined “a health care system that generally uses public-sector doctors and hospitals, where payment for treatment comes from general taxation” as socialist.

Other policies that set off socialist alarm bells, like those 1950s duck-and-cover nuclear drill sirens, include utility companies being run by the government, free childcare for all parents, government-run schools, and firearm restrictions. During the recent presidential campaign, Trump tagged the Green New Deal policy and a federal tax on the net worth of wealthy Americans as socialist. (Those policies were not part of the Biden presidential platform, and neither was broader health insurance coverage.)

But the scarlet “S” didn’t work, at least in the race for the White House… “The socialist label does not necessarily carry as much negative weight as Mr. Trump assumed. When pollsters ask Mr. Biden’s critics to name their concerns about him, ‘socialism’ ranks low on the list,” the New York Times explained on October 14. (Centrist Democrats blamed the views of their more liberal colleagues for losses in the House of Representatives, where the Democratic party performed worse than expected.)

And the inconvenient truth is that many Americans actually endorse policies that are easily branded as “socialist.” A Gallup poll last year found that just over two-thirds of Americans think money and wealth should be distributed more evenly… and three-quarters think the very wealthy should be taxed more heavily.

As political risk consultancy GZERO Media explained…

Americans don’t like “socialists,” but they do like social security, federal safety standards for food and medicine, unemployment insurance, federal disaster relief, and child labor laws. Younger voters, in particular, associate socialism with Scandinavia, not the Soviet Union… this is less a story about political philosophy than about political branding.

Trump’s Been Drinking the Kool-Aid, Too

And the biggest and most inconvenient truth of all is that the guy who tried to get reelected on the back of calling others “socialist”… might in fact be the biggest socialist of all.

As National Public Radio explains…

President Trump and Republicans in Congress have themselves blurred the lines between capitalism and socialism, passing the CARES [Coronavirus Aid, Relief and Economic Security] Act to aid businesses and providing $600 payments to unemployed workers in the coronavirus pandemic. Trump has also opened federal coffers to rescue farmers who have been hurt by his trade disputes with China and other nations.

Decidedly capitalist Forbes magazine compared CARES with the platform of former Democratic presidential candidate Bernie Sanders, and found that the Trump coronavirus bailout “dwarf[ed]” Sanders’ ideas. “[CARES] is both a corporate and individual socialist-type plan of unprecedented magnitude,” Forbes said.

Trump was humming from the socialist playbook well before his government was inspired by the coronavirus to take a hard socialist turn that would make even President Franklin Delano Roosevelt (the father of Social Security) blush in his grave. For example, the Trump government’s massive bailouts of American farmers – which followed a collapse in foreign demand for American agricultural products because of Trump’s ill-conceived trade wars – are undeniably socialist.

So are demands that American companies reconfigure their supply chains to reduce exposure to China. (It’s not quite as bad as forcing brick makers to buy clay from thousands of miles away, but it’s a slippery slope.) Similarly socialist is calling on other countries to buy more American products. And Trump’s efforts to bail out the U.S. coal industry – which, by any objective economic measure, should not exist – are infused with the sweet stench of (politically convenient) socialism.

Maybe the new Biden administration will, like Trump, have selective hues of socialism. Most likely, though, some policies that have nothing to do with socialism will be called “socialist,” as shorthand for “I don’t like this policy, but I can’t explain why, so I’ll take the easy way out.”

Case in point: Nearly two-thirds of Republicans polled in December last year characterized “The government completely or almost completely restricts the ownership of firearms” as a socialist policy. This is silly… and needless to say, when he wrote Das Kapital, Marx didn’t have in mind the “gunshow loophole,” or the God-given right of red-blooded Americans to their own private arsenal of semiautomatic assault weapons. Socialism doesn’t care about your guns.

But whatever “socialism” – actual or imagined – arrives in the coming years in the U.S., it isn’t going to be anything worse (or “more socialist”) than we’ve seen over the past four years. And anyway, the American vision of socialism is – thankfully – a far cry from the real thing.

Kim Iskyan is a frequent contributor to American Consequences. Kim is one of the most experienced and well-traveled financial writers in the world today. From covering Iran’s emerging stock market… to landing in Ukraine in the middle of a war… to booking a flight to Thailand as soon as martial law was declared – Kim has been there and helped investors figure out the risks and the opportunities in these “blown out” markets.

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Regards,

Kim Iskyan
With P.J. O’Rourke
and American Consequences Editorial Staff
December 28, 2020