After the end of the Second World War, the Soviet inspired communism and socialism started to spread through large parts of the world.
Some of it (the communism bit) was pushed by the Soviets themselves with the weight of their big army. And some of it (the socialism bit) the countries adopted on their own. India is a good example of the latter trend.
In fact, for a very long time, the bet was that the Soviets would win and the Soviet economy would become larger than the American one. But that never materialised. In fact, this idea was even a part of the most read economics text book during those days, written by the American economist Paul Samuelson.
As Daniel Acemoglu and James A. Robinson write in Why Nations Fail – The Origins of Power, Prosperity and Poverty: “In the 1961 edition, Samuelson predicted that Soviet national income would overtake that of the United States possibly by 1984, but probably by 1997. In the 1980 edition there was little change in the analysis, though the two dates were delayed to 2002 and 2012.”
But nothing like that happened. By the time Mikhail Gorbachev became the General Secretary of the Soviet Union in 1985, the Americans and the rest of the West, had won. Gorbachev was more practical than the previous Soviet leaders and even launched the policies of glasnost (“openness”) and perestroika (“restructuring”) to get the moribund Soviet economy going.
The story goes (and it is perhaps apocryphal) that Gorbachev sent a key aide to London to learn a thing or two about what the British were doing well, which the Soviets clearly weren’t.
The British played good hosts and Gorbachev’s aide was taken for a tour of the city with places like the London Stock Exchange and the London School of Economics being on the itinerary.
As Yuval Noah Harari writes in Homo Deus—A Brief History of Tomorrow: “After a few hours, the Soviet expert burst out: ‘Just one moment, please… We have been going back and forth across London for a whole day now, and there’s one thing I cannot understand. Back in Moscow, our finest minds are working on the bread supply system, and yet there are such long queues in every bakery and grocery store.”
Gorbachev’s aide was surprised that in London there were no lines in front of supermarkets and shops for bread, even though millions of people lived in the city. The aide ended up saying: “I haven’t seen a single bread queue. Please take me to meet the person in charge of supplying bread to London. I must learn his secret.”
Of course, it need not be said, there was no one in charge for supplying bread to the city of London. And this is precisely why there were no queues. As Donald J. Boudreaux writes in The Essential Hayek: “There is no overarching—no “central”—plan for the whole…That larger outcome is… spontaneously ordered.”
This is precisely the secret of success of capitalism. Unlike in communism there was no central processing unit to supply bread to the city of London. As Harari writes: “The information flows freely between millions of consumers and producers, bakers and tycoons, farmers and scientists. Market forces determine the price of bread, the number of loaves baked each day and the research-and-development priorities.”
And this is why capitalism won at the end of the day. As Harari puts it: “Distributed data processing works better than centralised data processing, at least in periods of accelerating technological changes…When all the data is accumulated in one secret bunker, and all important decisions are taken by a group of elderly apparatchiks, you can produce nuclear bombs by the cartload, but you won’t get an Apple of a Wikipedia.”
Or even a Facebook for that matter.
The column originally appeared in Bangalore Mirror on October 26, 2016