That's more of a handwave, not an explanation. And that doesn't mean it's correct. Star Trek is stuffed with many things that are contrary to reality. For example: not so much in TOS, but in TNG, Roddenberry had become unrealistically utopian in his views. The show sucked during its first two seasons because he forbade interpersonal conflict between any of the main characters -- he felt that humanity would have evolved beyond that by the 24th century. This is nonsense. Human nature hasn't changed for tens of thousands of years; that's not going to suddenly about face in a mere couple of centuries, and the idea that advanced technology and lack of resource scarcity will change it is equally nonsense -- that's called technological determinism, and it's founded on the idea that merely having enough makes you inherently good, or rather, leaves your inherent goodness uncorrupted and uncompromised by poverty and want. Well, if that's so, explain greedy, exploiting robber-barons, or third-world dictators, who are evil and oppressive, despite their vast wealth.
Roddenberry wasn't so unrealistic when he was working on TOS in the 60s. Personally, I've always suspected the change in his outlook was a result of spending the 70s and 80s attending conventions, and listening to legions of adoring fans telling him what an elightened visionary he was -- it simply went to his head. So the 24th century Federation is socialism that somehow works. This time. After hundreds of failed attempts in scores of different countries throughout the 20th and 21st centuries.
In fiction, you can dismiss certain things by virtue of a thing called writer's fiat. As I said, that's a handwave, not a reasonable argument.
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