Question:

If on your vacation you arrive in a new country and do not know which economic system rules there, how can you find out whether it is capitalism or socialism?

Answer:

Go to the best beach on a warm summer day - enjoy the swim and relax in the sun. After a while, when the need of an ice cream arises, look around to see where the ice cream sellers are located.

If all the ice cream sellers have set up shop in the middle of the beach you are in a capitalist country. However, if the ice cream sellers are evenly distributed along the beach you are in a socialist country.

Explanation:

Under socialism production and distribution decisions are taken with the view to care for people’s needs. So to ensure that everybody have easy access to ice cream the sellers are licensed to serve equally along the beach. People get their ice cream where they are and stay all along the beach.

Under capitalism production and distribution are organised according to ‘free enterprise’, so the sellers themselves determine where to put up shop. Since every seller wants to maximize his profit they all chose the middle of the beach and clump together there. People have to move to the center to have their ice cream and the beach get congested there, while only people abstaining ice cream stay further out.

What happens next?

Under socialism there is no competition between the sellers - they each serve their part of the beach and are not allowed to expand into the others turfs. They have their customers and that is it. Ice Cream is ice cream. Price is price. Need is served.

Under capitalism there is competition among the sellers. So each is looking for a way to steal the other’s customers - by undercutting prices, product differentiation and advertising. Ice Cream is no longer just a need to be served, it becomes a commodity to grow a business on. After a while a winner emerges from the competition. Most of the sellers go out of business - a monopoly remains - but ice cream may still be sold under many labels and different wrappings. Prices not longer go down, rather they go up.

If your country is a island!

Under socialism you will stay on your island and enjoy your ice cream, that’s it! No need to expand the ice cream production when everyone is well served. Rather focus on producing other useful things!

Under capitalism - for a while advertising and other tricks do tease people into eating more and more ice cream, even as they get fatter and fatter. But in the end it will only cost more and convince fewer - after all there is a limit to how much ice cream everyone can eat. Domestic production growth starts slowing and profits level off. So your growing ice cream monopoly is forced into looking for other markets - abroad.

Unluckily - if you live on a socialistic island and your neighbor country is capitalistic, may be he is looking at you! What will he see? Not what you see! He will see business opportunities: A poor socialistic people, each eating only half the number of ice creams that he sells in his own capitalistic country. He sees the socialistic neighbor country clearly in need of ‘development’ and of course he is here to help!

So he visit his socialistic neighbor and offer his assistance. But too bad - these people don’t know their own best. Socialism they say, is not about free enterprise and building businesses, and by the way, they have the ice cream they need.

Now, he needs help - from his government - to put some diplomatic pressure on the unruly neighbor. Surely his government must do something - here next door is an island with plentiful business opportunities - not just in ice cream production, but in nearly any other trade - most of them in the same position as he - domestic opportunities have been exploited, the reason to go abroad is real!

We have tried for many years, says his government, but the bastards are stubborn - they insist on socialism, even if everybody can see that it is a failure. But we now get this request from a lot of you and our patience is running out. We will offer them a deal to cut out this socialistic nonsense - and if they don’t take it we will erase their socialistic civilization by gunboats and bombs. Then they surely will be open to free enterprise.