In the first place, it is helpful to define collectivism and failure. Collectivism refers to any and all economic and political systems where goods and services are publicly owned and operated; it is also popularly known as communism and socialism, among other terms. Failure is defined as failing to satiate the maximum number of persons’ desires as feasible, or, more generally, failing to supply persons with their basic needs (healthy food, clothing in good repair, shelter from the elements).
There are many theories as to why collectivism fails, most of them having to do with incentive structures. This view is not necessarily wrong, but it is very limited, and does not account for the range of human emotions and motivations. Monetary incentives do impact human behavior; this is not in dispute. However, it is foolish to assert that human behavior is always and ever motivated by monetary incentives—as some economists seem wont to do—or that it is always a primary motivation. As such, it is helpful to look at the failure of collectivism more broadly.
One thing that is interesting about those who are more inclined toward the collectivist persuasion (henceforth called leftists) is that they are generally observed to be hypocrites, in the sense that they often demand collective action for something—say, welfare to help the poor—but do not themselves make any individual effort towards that end. More commonly, those of the leftist persuasion believe that their personal contribution to relieving the plight of the less-fortunate—however defined—is “raising awareness.” Thus, leftists often talk about helping the poor, in the name of raising awareness, but never themselves get around to actually helping the poor.
Ultimately, this is nothing more than status-mongering. Instead of actually doing something, the collectivists live in a world of ideals, wherein it is better (read: higher-status) to signal one’s affiliation to an ideal than to actually live by it. It is therefore better to preach selfless sacrifice in the name of helping others than to teach profit motive. While profit motive, as Adam Smith observed, can be a significant motivator, it is, in the eyes of leftists, a morally inferior motivator. Thus, one must call for selfless concern, and raise awareness for said type of concern. But one need not concern oneself with getting one’s hands dirty.
Thus, one potential explanation for the failures of collectivism is that a collectivist society places more emphasis on signaling group affiliation than actually getting things done. This stands in contrast to an individualist-oriented society, which by definition avoids group affiliation. The individualist society, then, has only personal accomplishment as a status signal, which strongly encourages productivity because the only way one has status is to create it for oneself. Collectivists, though, always try to appropriate others’ status for themselves. In essence, the collective identity enables some individual to credit for something even though said individuals have not actually done anything that can be meaningfully described as productive.
The collective political economy, then, is one based on higher-order status signaling, and not more direct (and productive) lower-order status signaling. As such, it is more likely to fail because most participants are too busy chasing status to make things. Basically, it’s better to signal status and identity than do actually do something.