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BOHANON & CUROTT: Socialism sounds cool—until you study results

April 6, 2018

Economic Analysis by Cecil Bohanon & Nick CurottA recent poll indicated 44 percent of millennials say they’d rather live in a socialist economy than a capitalist one. Perhaps that’s because they think socialism is about sharing, while capitalism is about making money. The first is cool, the second is yucky! Yet, interestingly, it is the capitalist economy that is facilitating a sharing revolution in transportation that would make Karl Marx blush.

Consider the lowly bicycle. The idea of bicycle sharing is simple. Grab an available bicycle, ride to your destination, and drop the bike off for the next user. But experiments were not promising when bikes were just put out on the street for general use. No one monitored users. The result was that bicycles either disappeared or were misused and abused. Moreover, maintenance of the system depended on the continued charity of the donating civic organization or local government.

In beach towns and other resort areas, bicycle renting had been a long-established practice. A merchant rented bicycles to a user for set times and set fees holding the user’s driver’s license as security. This gave a strong incentive not only to return the bicycle but to return it in good order. It also made bicycle renting—or sharing—a financially sustainable operation.

Technological advances such as GPS technology allowed other advances in bike sharing. Today, entrepreneurs leave bikes on the street throughout the world. The bikes remain locked until the user provides a credit card or a phone app—linked to a credit card—that releases the bike for use. The app monitors the bike’s location and charges the customer for use. Market incentives ensure responsible use, and the system is self-financing—it does not rely on the kindness of strangers or the fleecing of non-using taxpayers.

So, markets facilitate sharing much more effectually than any non-market sharing arrangement ever could. Then why do markets still get such a bad rap? Especially when the 20th century was a referendum on how socialistic, centrally planned economies—ostensibly established in the interests of sharing—actually worked? Even a casual reading of the history of the Soviet Union or Maoist China indicates their record was abysmal.

Unfortunately, the end of the Cold War did not end the fascination with socialism. The once-wealthy nation of Venezuela is now trapped in a poverty-stricken, authoritarian dystopia—all in the name of socialist ideals. Let’s hope millennial bike sharers come to appreciate that capitalism reality outperforms socialism.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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