u/SometimesRight10

Marx predicted that increasing tensions between the proletariats and the bourgeoise would ultimately result in a socialist revolution. But he did not anticipate society's response. Marx did not foresee reforms to capitalism that would relieve, at least in part, some of capitalism's predicted class tensions. Societal reforms have included:

• labor unions,
• progressive taxation,
• social insurance,
• antitrust,
• regulation,
• corporate governance,
• monetary policy,
• and democratic political reform.

Did Marx fail to anticipate that these class tensions would be resolved by making incremental changes to capitalism, allowing it to survive? Or, is the revolution coming?

Suppose a socialist economy consists primarily of worker-owned cooperatives. What incentives cause an established cooperative to expand? If a cooperative's existing members already receive the firm's surplus, expansion requires them to share future surplus with newly hired workers. Why would existing members voluntarily incur the costs and risks of expansion when they could instead keep the cooperative smaller and divide its existing surplus among themselves? More broadly, how does a worker-cooperative system create incentives for investment, entrepreneurship, risk-taking, and expansion when the people making those decisions do not receive an exclusive claim on the resulting gains?

One of the most important features of capitalism is creative destruction (CD): old technologies—and sometimes entire ways of doing things—are displaced by new, more productive technologies. Competition gives firms a powerful incentive to innovate because firms that fail to adopt better technologies risk being displaced by competitors.

But CD creates an important political problem. The people who benefit from existing technologies have an incentive to resist innovations that threaten their economic position. This can apply to both capitalists and workers. An incumbent firm may resist a new technology because it threatens its profits, while workers may resist it because it threatens their jobs.

This problem is not new. In Why Nations Fail, Acemoglu and Robinson use the example of William Lee, who invented a mechanical stocking frame in England in 1589. The machine could substantially increase the productivity of knitting, but Queen Elizabeth I refused to grant Lee a patent because of concerns about the effect of the machine on hand knitters. James I subsequently refused as well. The episode illustrates how political power can be used to suppress technologies that threaten existing economic interests.

The important issue, therefore, isn't simply whether a society has technological innovators. It is whether its political and economic institutions allow those innovations to displace established interests.

Modern capitalist economies are certainly not immune from this problem. Existing firms can lobby for tariffs, subsidies, regulations, or other protections against competitors, while workers and unions can lobby against technologies that threaten employment. Capitalism therefore does not guarantee creative destruction; it creates competitive pressures toward it, while political institutions determine how effectively those pressures can be resisted.

This raises an important question for socialism.

If a socialist system gives workers substantially greater political control over economic decisions, what institutional mechanism would prevent workers, unions, or worker-controlled enterprises from using that political power to block technologies that increase productivity but reduce employment in their industry?

The challenge isn't to prevent workers from being harmed by technological change. A society may reasonably want to compensate workers who lose their jobs or help them transition to new occupations.

The harder question is whether a socialist system can protect workers from the costs of creative destruction without protecting existing industries from creative destruction itself.

That seems to me to be an important institutional question that any socialist economic system needs to answer.

Marx saw capitalism not as an economic failure, but as history's most powerful engine of wealth creation and technological progress. In The Communist Manifesto, Capital, and the Grundrisse, he praised capitalism's extraordinary capacity to industrialize society, revolutionize production, stimulate technological innovation, and develop the productive forces on an unprecedented scale.

Work	Section	Why it matters
Manifesto of the Communist Party	Chapter I: "Bourgeois and Proletarians"	Marx's most vivid praise of capitalism's revolutionary productive power, globalization, and technological dynamism.
Capital, Volume I	Chapter 15: "Machinery and Modern Industry"	Explains how competition compels innovation and raises labor productivity.
Capital, Volume I	Chapter 32: "The Historical Tendency of Capitalist Accumulation"	Describes capitalism as first developing the productive forces before becoming, in Marx's view, a constraint on further development.
Grundrisse	"Fragment on Machines"	Discusses the growing role of science, technology, and knowledge as direct forces of production.

This raises an important question. Modern economists generally argue that capitalism's sustained productivity depends on institutions that foster continuous innovation, entrepreneurship, decentralized decision-making, investment, competitive markets, and effective capital allocation. Marx clearly recognized the remarkable productive results these institutions generated under capitalism. Yet nowhere in his writings does he explain in comparable detail how a socialist or communist economy would preserve or replace the economic functions they perform.

Marx devoted thousands of pages to analyzing capitalism—especially in Capital—but comparatively little to explaining how a mature socialist economy would determine prices, allocate investment, finance innovation, bear entrepreneurial risk, direct scarce capital toward its most productive uses, or solve the economic calculation problem. If these institutions are indeed essential to capitalism's extraordinary productivity, what institutions under socialism will perform the same functions? Until that question is answered convincingly, it remains uncertain whether socialism could sustain the same level of innovation, productivity, and prosperity that capitalism has historically achieved.

This leads me to my question: Will we all be poorer under socialism and communism? I am interested in knowing what Marx would say.

Many socialist proposals implicitly assume that businesses can be transferred from private owners to the state or workers while continuing to generate the same output, profits, and innovative capacity. Yet a firm's value depends on far more than its physical assets. It also reflects entrepreneurship, management expertise, organizational capital, access to investment capital, customer relationships, supplier networks, and the incentives created by private ownership.

Changing ownership can alter each of these factors, reducing productivity and profitability. History offers numerous examples. After the Bolshevik Revolution, widespread nationalization in the Soviet Union contributed to a collapse in industrial and agricultural output before the introduction of the New Economic Policy partially restored market incentives. Cuba's nationalization of private industry after 1959 was followed by the emigration of many entrepreneurs and managers, declining productivity, and decades of economic stagnation. Venezuela's nationalization of the oil industry under Hugo Chávez and Nicolás Maduro led to chronic underinvestment, loss of technical expertise, and a dramatic decline in oil production despite possessing some of the world's largest proven reserves. Even in the United Kingdom, many of the industries nationalized after World War II—including coal, steel, rail, and automobiles—became associated with low productivity, chronic financial losses, and insufficient investment, leading to widespread privatization during the 1980s.

These examples do not prove that every public enterprise must fail, but they do demonstrate that ownership is not merely a legal title. A firm's value is embodied in the institutions, incentives, and organizational capabilities that sustain its success. Any proposal to socialize businesses must therefore explain not only how ownership changes, but how these often-intangible sources of value will be preserved or improved.

I am interested in how those who believe in socialism according to Marx would respond to the above. I am not interested in other brands of socialism and how they would handle this problem.  

Before arguing about whether capitalism should be replaced, consider this question: Who first described it as the most revolutionary wealth-creating system in human history? Many would assume the answer was Adam Smith, Friedrich Hayek, or Milton Friedman. The answer is none of them. The following description comes from the thinker whose name has become almost synonymous with the critique of capitalism.

Capitalism has proven to be the most dynamic wealth-generating economic system in history. In a relatively short period, it transformed societies through industrialization, mechanization, scientific discovery, and unprecedented increases in productivity. It harnessed steam power, railroads, modern manufacturing, chemistry, and communications to expand humanity's productive capacity beyond anything achieved by previous civilizations. Rather than merely increasing output, it fundamentally reshaped agriculture, transportation, commerce, and the organization of work, laying the foundation for modern economic growth.

A defining characteristic of capitalism is its relentless drive to innovate. Firms cannot remain competitive without continually improving production methods, adopting new technologies, and finding more efficient ways to satisfy consumers. Competition compels businesses to lower costs, increase productivity, and invest in research and development, creating a constant process of economic renewal. This dynamic extends beyond national borders, as the search for new markets and commercial opportunities fosters international trade, the spread of technology, and the integration of the global economy.

Capitalism's greatest achievement has been its ability to transform knowledge into productive power. Scientific discoveries are rapidly incorporated into industry, allowing advances in engineering, manufacturing, medicine, and communications to raise living standards on an unprecedented scale. The result is an economic system that continually expands humanity's capacity to produce goods and services while creating new industries and occupations. Its remarkable ability to generate wealth stems not from preserving existing methods of production, but from continuously revolutionizing them through innovation, investment, and technological progress.

If these observations sound like they were written by a champion of free markets, they were not. They summarize the economic achievements of capitalism as recognized by Karl Marx himself. Whatever conclusions one draws about socialism or capitalism, it is difficult to have a serious debate without first acknowledging this remarkable point of agreement: even capitalism's greatest critic believed it had unleashed productive forces unlike anything the world had ever seen.

I am particularly interested in socialists’ view of Marx’s description of capitalism. Was he wrong?

Because of its rapid industrialization between 1928 and 1960, the Soviet Union is often touted as the poster child for socialism’s success. The cost of that “success” is never mentioned, and neither is the economic collapse that followed.

In their book, Why Nations Fail, Daron Acemoglu and James Robinson, the 2024 Nobel Prize winners for economics, argue that the Soviets operate using “extractive institutions.” Extractive institutions, which include the Soviet style centralized economy, are political and economic systems that concentrate wealth and power in the hands of a few, often at the expense of the majority. These institutions impede economic growth and development by failing to incentivize innovation and broader economic participation. 

Inclusive institutions, on the other hand, promote economic growth by ensuring a level playing field, protecting property rights, creating a government responsive to the needs of its people, and encouraging investment in new technologies and skills.  

Extractive institutions under command economies can generate rapid economic growth—but only for a limited period. These economies grow through resource mobilization; they do not grow through innovation.

Growth by Resource Mobilization

Poor countries like Russia often have enormous amounts of unused labor and resources. Before Stalin, Russia was largely an agrarian society, where most people worked on marginally productive farms, and there was very little industrial production.

An authoritarian government can rapidly increase production by directing those resources.

Examples include moving peasants into factories; forcing high savings that can be used for expanding industrial capacity; building steel mills; constructing infrastructure; and expanding military production. As a result, GDP rises quickly.

This looks impressive.

Beginning in 1928, Stalin launched the Five-Year Plans which included forced collectivization, state ownership, central planning, enormous industrial investment, forced labor, and elimination of private enterprise. Millions died during collectivization and famine.

Despite this horrific human cost, industrial output expanded dramatically.

But it is fundamentally different from sustained economic growth, which requires innovation.

Innovation Requires Freedom

Innovation depends upon people being willing to invent, experiment, take risks, challenge existing firms, and fail repeatedly. Inclusive institutions make these activities worthwhile because innovators expect to benefit from their successes. Extractive institutions discourage them because governments can confiscate profits, imprison entrepreneurs, prohibit competition, and nationalize businesses. Without incentives, innovation slows dramatically.

Can an authoritarian state with extractive institutions still become rich? Extractive institutions can generate rapid economic growth—but only for a limited period, according to Acemoglu and Robinson.

The Knowledge Problem

No central planner can fully know what consumers want, which technologies will succeed, and which production methods are most efficient. Markets reveal this information through prices, profits, and losses. The Soviet planning system lacked these feedback mechanisms.

As a result, shortages became chronic; surpluses accumulated; quality suffered; and innovation lagged. Political incentives and information problems reinforce one another.

Creative Destruction 

Innovation destroys existing industries while creating new ones. For example, automobiles destroyed carriage makers; computers replaced typewriters; streaming replaced DVDs; and artificial intelligence is disrupting many knowledge-intensive tasks today. This “creative destruction”, a term originally developed by economist Joseph Schumpeter, describes how innovation progresses. 

However, to protect their profits, existing firms often resist such disruption. So do political elites of extractive governments. Extractive governments especially fear creative destruction because new technologies can also threaten political power. For example, independent media, decentralized finance, internet communication, and private industry. Thus, authoritarian governments often suppress innovations that could weaken their control.  

Post 1960 Russia

After 1960, the Soviet economy remained capable of producing large quantities of industrial output, maintaining a formidable military, and supporting major scientific achievements. However, its productivity growth slowed steadily as the gains from rapid industrialization were exhausted. Central planning proved effective at mobilizing resources for industrial expansion but increasingly ineffective at fostering the continuous innovation, efficient resource allocation, and responsiveness to consumer demand required in a mature economy.

In broad terms, the USSR evolved from an economy that was exceptionally good at building capacity to one that struggled to use that capacity efficiently. By the 1980s, declining productivity—not merely slower investment—had become the principal constraint on economic growth and a major contributor to the Soviet Union's eventual collapse.

COMMENTS: 

Happy to entertain comments defending the Soviet economy as a successful example of socialism.