The Economics of Animal Farm.

• Author: Hamlen Jr., William A.

William A. Hamlen, Jr. [*]

This paper uses George Orwell's fictional story Animal Farm to make a comparison between Orwell's predictions and the Chinese experience with communism. An analogy is made between two characters from his novel, Napoleon the Boar, who attains power, and Boxer the horse, who does not. These are analogous to members and nonmembers of the Communist party, respectively. Readily available data by Griffen and Renwei (1988) are then used to compare the economic conditions of approximately 22,000 individuals. The empirical results strongly support many of Orwell's predictions. A theoretical predatory growth model that potentially explains the results is also introduced.

All animals are equal but some animals are more equal than others.

George Orwell (1946)

1. Introduction

   Economic theory readily supports the existence of a public sector. Adam Smith recognized the need for centralization of the national defense and the judicial and monetary systems. The contemporary theory of public goods extends the justification of centralization to those areas where the optimal output of some goods and services cannot be attained without coordinated action, usually through the public sector. Communism, on the other hand, represents, at least in theory, the extreme extension of the public sector.

   Communist economic philosophies and systems rose to power through revolutions over the past century motivated by the Marxian promises of reduced income inequality and improvement in the general welfare of the population relative to the competing free market paradigm espoused earlier by Adam Smith. However, in recent years most of these communist systems have initiated reforms favoring reductions in economic centralization and encouragement of free markets. A common view of this transition, prominent in the press, is that while communist governments originally implemented extensive socialist policies that initially reduced income inequalities, the average standard of living of the peoples within communist systems has subsequently fallen below those living within countries that permit greater amounts of market freedom. Therefore, in order to improve the well-being of its citizens, those in power within the communist countries have wisely chosen to seek a reduction in the degree of economic centralization.

   An alternative perspective on this recent transition is to attribute it more to realization of economic self-interest of those in power (or at least of those supporting them) and less to their benevolence toward the rest of society. In this alternative view, the Communist party in each country represents just another form of a predatory power group that tends to exclude members and seeks to maintain power and to reap the maximum benefits from those excluded from the group. While such groups often voice demands for economic equality, that is, "from each according to his ability, to each according to his need," because of human nature and the gravity of self-interest they eventually and inevitably undertake policies that result in new income inequalities favoring themselves, that is, "from each according to his ability, to each according to his membership."

   This description of communism as a self-serving and predatory power group is conveniently portrayed in George Orwell's fictional classic Animal Farm (1946), hence the title of this paper. In the second section, the main economic predictions of Orwell's novel are reviewed and used as a reference for the rest of the paper. In the third section, several regressions, using empirical data from China, are presented that support Orwell's predictions. Unconventionally, the model follows the empirical results, as the latter stand on their own in support of Orwell's predictions. The fourth section presents a simple growth model that embodies the assumptions underlying Orwell's economics of Animal Farm. In the fifth section, the simulations of the growth model produce some of the specific peculiarities obtained in the empirical results and provide a potential explanation, based on self-interest, for the willingness of the communist leaders to reduce the degree of centralization.

   With respect to the current literature, the reader will find throughout the paper that it spans a number of different areas of research. On the empirical side, the study makes use of a data set on households in China, originally obtained by Griffen and Renwei (1988) and recently used by Khan et al. (1992), Knight and Shi (1993), and Liu (1998) to estimate the returns on human capital in China. In this paper, the data are used to show that Chinese elite, as indicated by membership in the Communist party, were able to maintain their elite economic status after the transition to a more market-oriented economy. This result agrees with a similar study by Bird, Frick, and Wagner (1998) for the case of the East German transition.

   On the theoretical side, this paper draws on the ideas of Becker (1983) by modeling a situation where one dominant political group in power designs economic policies to benefit itself but not without being influenced by the behavior and response of another group. Unlike Becker's model, which is placed in a democratic setting and allows the dominated group to nevertheless have active political influence, here the setting is a constrained dictatorship where the influence of dominated group on the dominant group is purely economic, not political. Specifically, the dominant party uses a Stackelberg-type (leader-follower) approach to optimization. Also, unlike Becker's model, this paper makes use of a growth model. The primary theoretical result obtained from the model is that certain peculiarities of the empirical results are explained by the theoretical growth model. However, also within this growth context, the model produces convergent growth rates of disposable income for Napoleon and Boxer, but Napoleon's l evel of disposable income ultimately exceeds Boxer's. Also, the growth rates are lower for higher tax rates, conclusions that are supported by Baumol's (1986) study of growth rates. The growth model presented in this paper results in economic inequality decreasing in the initial stages of growth but then increasing in the later stages of growth. Kuznets (1955, 1963) predicted the opposite situation for growth in a democratic, free market situation.

2. Analogy to Animal Farm

   The two main characters in Orwell's Animal Farm are taken here to be representative of two groups: Napoleon, the boar who lacks productive skills but is able to grasp power and subsequently becomes the net beneficiary of the socialized system, and Boxer, the horse who is endowed with highly productive skills but does not acquire power and gradually depletes his resources as the net loser in the system. Napoleon holds power in a self-serving manner. This is in contrast to the espoused rhetoric of communism and also to that of a purely competitive economy, which, as Negishi (1960) proved, acts as if to maximize the weighted sum of the utilities of all individuals. However, Napoleon does not have absolute authority and must earn the tolerance of his policies by the other members of the society, in this example Boxer. He does this in the Machiavellian tradition by implementing uniform, egalitarian principles in those areas that are more observable while reserving his self-enhancing preferential policies for less observable areas. This is illustrated in Orwell's narrative when Napoleon initially abolishes private ownership and seeks to establish a total socialist state. However, at some point in the growth process following the revolution, Napoleon is found to have reestablished the market system, and in fact Napoleon himself has quietly become a leader of the new entrepreneurial class. Napoleon's motives for reintroducing the market system are clearly those of self-interest and growth of the system that he now controls, not that of basic reform of the political economy.

   Before the revolution, Mr. Jones, the original overseer of the farm, is regarded as a useless and wasteful parasite within the community. After the revolution, Napoleon reconsiders this view and determines that it is indeed essential to devote a significant proportion of the farm's total resources toward assisting him in his new and important position as the farm's overseer. There is, of course, some change in status for some animals in the transition from Mr. Jones to Mr. Napoleon. Some who were less essential within the original system are now highly rewarded by Napoleon. Others find their relative position diminished. From Boxer's perspective, the passage of time, as well as the change of overseer, brings few lasting benefits, and in fact he finds himself clearly worse off as his daily allocation decreases and his productive capital stock depreciates without replacement.

   In Napoleon's initial leadership of the animal farm, investment in human (animal) capital stock, such as education, is deemed wasteful. Again, somewhere into the growth process, Napoleon is found to have reconsidered this decision and devoted considerable resources to education, along with appropriate remunerations for the attainment of the proper education. However, Napoleon's policies toward education are found to have a disproportional benefit to himself and his own offspring. In contrast, Boxer depletes his productive capital stock. In the end, Napoleon the boar's self-serving leadership seems hardly different from that of the man, Mr. Jones. In fact, to quote Orwell, "The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which" (p. 155).

3. Empirical Evidence

   A microdata set on Chinese households, made available by Griffen and Renwei (1988), conveniently provides an opportunity to test Orwell's analogy of the transition from a communist economy to a market-oriented economy...