Socialism and Risk Management

So what does socialism have to do with risk management? Everything! Socialism, whether it is in the form of a kibuttz, or Robert Owen's New harmony, or Karl Marx's Communism, is ultimately about the provision of a safety net for all workers. High but unequal and uncertain levels of income are sacrificed for equality. Or to put more poetically in the words of Marx, from each according to his ability, to each according to his need. It is a form of risk reduction based on pooling of risks and of resources. Much like social security or insurance, it works because individual losses (and gains) are shared across a wider population. And of course losses are usually feared more than gains are valued, so such insurance is deemed to have value. The problem with such socialism (and for that matter, communism and insurance) is moral hazard. The old Soviet joke "we pretend to work and they pretend to pay us" captures it all. Moral Hazard is endemic to risk sharing particularly when the potential outcomes are partly under the control of the individuals themselves. The fire insurance that encourages arson, the seatbelts that encourage fast driving, the federal deposit insurance that discourages due dilligence in banks. Most of political philosophy is actually an extension of this idea, the production and the distribution of resources in an uncertain world. Unfortunately our positions on such political ideas are usually coloured by our current states, and the inherent moral hazard associated with that state as we try to game the system for our personal benefit. Philosophers like John Stuart Mill, Rawlings have said much the same from the liberal tradition.Howver even some conservative thinkers, particularly communitarians, have realized that we are part of a society and our survival as individuals depends on our building networks that share opportunities and risks within that society.