Can Socialists Support Commerce But Not Capitalism?

Socialists often criticize US trade restrictions on Cuba. A recent example is the flotilla organized by activists attempting to deliver aid to the island that aimed to draw attention to the embargo. Participants and commentators often frame Cuba’s poverty as a direct result of US policy: lift the embargo, the argument goes, and Cuba will prosper.

What should we make of this argument? For one, the primary driver of Cuba’s persistent poverty is the Cuban government’s own economic policies, including state control, chronic misallocation, and long-standing restrictions on private enterprise. These institutional mistakes would keep Cuba poor even without the embargo.

That said, there’s little doubt that trade barriers cause economic harm, and socialists are right to recognize this. But here one might wonder: can socialists coherently object to trade restrictions while also opposing free market capitalism more broadly?

Many think the answer is yes. The socialist target isn’t free exchange as such, but private ownership of productive property. Socialists object to an economy where capitalists own the means of production and workers sell their labor for wages or a salary. Socialism, by contrast, would create a kind of “workplace democracy,” where firms are owned and operated by workers themselves. They’d collectively make decisions about production, investment, and distribution rather than take orders from a single boss. This could mean workers directly voting on major business decisions or periodically electing managers to act on their behalf. Suppose, for example, that a worker-owned pizzeria is deciding whether to shift from traditional pizza to a more upscale artisanal menu. In a traditional capitalist firm, the owner would have the final say. In workplace democracy, the cooks, servers, and other employees would collectively decide how to proceed. While there might be some conflicts between growth and equality, writes Mike Beggs at Jacobin, such a model would aim to “harmonize firm-level democracy with macroeconomic expansion and a solidaristic wage.”

Under this style of socialism, markets would still play an important role. Central planners wouldn’t decide how to allocate resources to the pizzeria or determine how many pizzas it has to bake. Instead, the pizzeria would compete with rival restaurants for customers just as it would under capitalism. The goal is to retain the information markets provide in the form of prices, profits, and losses while “socializing” ownership of firms.

At first glance, it seems as though this version of socialism is perfectly compatible with free trade. You could have an economy in which firms are democratically owned and still allow free trade both within and across borders.

That’s fine as far as it goes. But there’s a tension lurking in the background. Consider that a central justification for free trade is that it enables all parties to voluntarily enter into an economic agreement in the expectation of mutual benefit. As Adam Smith puts the point:

Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

If I want the apples you have, and you want the oranges I have, we’re both better off as a result of a trade. Trade barriers — tariffs, quotas, embargoes, and the like — block these sorts of exchanges. That’s why critics of the Cuba embargo argue that it makes people worse off: it prevents them from engaging in mutually beneficial exchange, which an abundance of research shows is a source of human prosperity.

Once you see trade in this light, it becomes harder to draw a bright line between the kinds of exchanges socialists want to allow and the kinds they want to prohibit. As I mentioned earlier, to qualify as socialist, an economy must not permit capitalists to own the means of production and hire wage laborers. This means that a socialist economy must prohibit freely agreed-upon, mutually beneficial capitalist labor agreements. For instance, suppose Barry doesn’t want to take on the risks and responsibilities that come with being a co-owner of a coffee shop; he’d rather work for a steady wage as a barista for a corporate giant. Nevertheless, a socialist economy wouldn’t allow him to do so. (Otherwise, it would start drifting toward capitalism.)

It’s not clear why trading barista labor for money is all that different from trading apples for oranges. In both cases, people are making voluntary agreements in the expectation that they’ll be better off as a result. Here, then, is the tension. On the one hand, socialists criticize trade restrictions on the grounds that they block mutually beneficial exchange and thereby make people worse off. On the other hand, they want to restrict or eliminate capitalist employment of wage laborers — even when workers voluntarily choose those arrangements.

So something has to give. You can’t easily say, “Let people trade as they see fit because they expect it to benefit them,” while also saying, “But don’t let them sell their labor as they see fit, even when they expect it to benefit them.”

If mutual benefit justifies freely trading apples for oranges, it’s hard to see why it doesn’t also justify freely trading labor for wages. And if workers may trade their labor freely, they may trade it to capitalists — a conclusion that socialist defenders of free trade are sure to find unwelcome.

This post first appeared on The Daily Economy.