Viewpoint: Socialism's Grease

Why is it that "corruption" is so often associated with capitalism and so rarely with socialism? It ought to be the other way around, as I hope the following true story will show.

About 18 months ago I set forth in search of an apartment in the District of Columbia. I should add that Washington has had rent control laws for the last seven years. I knew, then, that finding a good place would take time, in addition to money. Someone told me about a conveniently located apartment building nearby, so I inquired at the front desk. I was directed to the manager, who looked me over and told me that there were no vacancies but that there might be one soon. Would I care to fill out their application form?

One-bedroom apartments in this building rented for about $300. I reckoned this was about half the going rate for similar uncontrolled apartments elsewhere. Building owners with less than four units are permitted to charge as much as tenants are willing to pay, and it is of course, just this voluntary exchange that is illegal with rent control laws. Moreover, it is this denial of voluntary exchange in conjunction with the denial of ownership rights (usually called "property rights") that is always and everywhere the central feature of socialist economies.

The manager's form inquisitively requested such data as my annual income and much more besides. Erring somewhat on the side of prosperity, I completed the thing. The manager looked it over. Then he looked up at me and said in a quiet voice:

"How much more than $300 would you be willing to pay, Mr. Bethell?"

I hummed and hawed, looking up and down and in every direction except directly at him. "Oh," I said after a bit, "I guess about $150," splitting the difference between the command price and the market price. For a few seconds I couldn't really think clearly about anything because it seemed such an odd question.

"Okay," he said noncommittally, slotting my form into a card index of applicants. By now he seemed rather less interested in the plight of the homeless generally and my case in particular. "Look," he said, "I'm not sure we'll have any vacancies any time soon, but if we do I'll be sure to contact you."

Would you believe that I didn't hear from him again?

I wasn't really sure that this question was an opening—an invitation to bribery—and I'm still not sure, to tell you the truth. But obviously it may very well have been. (Was he just trying to find out what the market value was, perhaps?) It is at any rate certain that when prices are commanded by law not to rise above half market value, you get a big imbalance between supply and demand. (Incidentally, no privately financed apartment buildings are under construction in D.C., and I think none has gone up since rent control was enacted.)

How, then, is superabundant demand to be matched with diminutive supply? The most common socialist solution is queuing: first come, first served. A traveller floating around the world in a balloon could observe the socialist countries by observing the queues.

But why, from the manager's point of view, always take the first in line? If they wait for weeks or months, as they do, why not pick and choose? Why not take…the best. And who might that be? Suppose the mayor called up the manager and said he had a friend who really needed an apartment badly. Suppose another applicant, perhaps more alert than I, had quietly reached into his pocket when the manager popped the question.

In fact, of course, in all socialist countries this is exactly how many scarce goods are allocated: with the help of bribery and influence—that is, by corruption. Business almost has to be done this way, if you think about it. Food and firewood may be queued for, and a number of other consumer items. But bribery saves everyone a lot of time, and it does restore, albeit in corrupt form, the incentives that have been knocked out of the system by making voluntary exchange (market prices) illegal.

By contrast, the market system does not need bribery to make it work because the market price always (by definition) equalizes supply and demand. In so doing, market prices also perform the signal function of equalizing all market participants for a given commodity. The "ticky tacky" leisure-suited nouveau-riche and the trendy preppy of inherited wealth are equally desirable and equally indispensable buyers to the seller whose prices are set at the margin. I suspect it is precisely this socially egalitarian feature of capitalism that a lot of old-money, new-class, neo-liberal types don't like.

Of course, it is true that under capitalism we all do not have the same amount of money in our pockets. Thus, free prices "discriminate" in favor of those who have more of it—a semantically disguised redefinition of money. But in socialist countries people don't have the same amount of money either. And the inequalities of a system in which some give and some receive commands are far greater than the inequalities that arise in a system in which all are permitted to agree.

The point is, however, that when goods are allocated by price, that allocation is inherently impartial; there is just enough for all, and the seller can't afford to turn away customers. Therefore the system works without corruption. Socialism, on the other hand, would creak along even less efficiently than it already does if favoritism, influence, pressure, and bribery were somehow eliminated from its operations.

Tom Bethell is a free-lance writer, a contributing editor of the Washington Monthly, and a columnist for National Review.