Exclusive to STR
- 1 -
[ *** null set *** ]
There are no formerly-poor nations that have adopted socialist governments and then become prosperous.
- 2 -
A Note on Terminology
The public's definition of "socialism" is vague at best. For a discussion of the term, complete with dictionary definitions, see my October 2007 column Capitalism Is Not Freedom, and Socialism Is Not Love. Here, I am mostly discussing government social policies that involve transfer payments and other government help to individuals and groups (for example, nationalized healthcare); it is only in Communist nations where the socialist "ideal" (and dictionary definition) of having the State own and operate all means of production and distribution is actually implemented – which, in turn, is why Communist nations, since the Russian Revolution in 1917, have always been among the most abysmal hell-holes on the planet. (Communist China has transitioned from actual Communism, as practiced under Mao, to a semi-capitalism akin to National Socialism as practiced under Hitler – and even that limited, partial shift to personal freedom, property rights, and free markets has had a stunningly positive effect for the Chinese people).
- 3 -
The List Annotated
Back to the list: As mentioned, the number of poor nations that have adopted coercive-socialist governments and then become prosperous is "zero." The "coercive" part is in the nature of government itself – at the very least, funding for government activities is obtained via coercion – and this should be made explicit because non-coercive, non-government socialism (a family or a voluntary commune, for example) is a very different and far more positive thing. Having made the point, I will use the conventional abbreviations ("socialist government" or simply "socialist" or "socialism") from here on, but the damage that coercion does to socialism, and indeed to the cornerstone duality of love and freedom, should always be kept in mind.
While no poor nation has ever adopted a socialist government and then prospered, there are a great many nations that have adopted socialist governments, or various levels of socialist-style government policy despite not calling themselves socialist, and then either remained poor, or become poor, or in some cases merely become less prosperous as their existing high level of wealth began evaporating.
Government socialism erodes prosperity, which means that nations without much prosperity to start with do very poorly after adopting socialist policies; see much of Africa today or, again, any Communist nation. Wealthy nations can adopt socialist policies (using the more casual and common meaning of the term) and remain fairly well-off for years or decades, but the drain on wealth is real. Perhaps the best-known and most highly-regarded example of a socialist nation is Sweden, which was the third wealthiest nation in 1970* (having created most of the wealth and wealth-generating machinery it now enjoys before becoming a modern socialist state) but has slipped to 22nd place as the cost and unintended consequences of social programs and high tax rates have worked their negative magic. Sweden is still a fairly wealthy nation, with GDP per capita of $39,600 (versus $48,000 in the United States ; figures above are from the CIA Factbook and Wikipedia). But higher taxes mean that Swedes have even less disposable income than those numbers make it appear; if Sweden were admitted to the U.S. as a state, it would be among the poorest. On the other hand, the cost of medical care, in particular, is baked into the heavy Swedish taxload (but don't forget the long wait times for treatment and other problems you'd expect when hospitals are run by politicians).
* Or see better-formatted PDF version with charts and graphs here.
One of the most important and positive differences for Sweden , compared to the U.S. , has nothing to do with socialism: Sweden isn't trying to maintain a global empire. That means it isn't paying for hundreds of military bases around the planet or outspending nearly all other nations combined on its military, as the United States is doing. Sweden thus has a far larger proportion of its wealth available for other things – not because of socialist-style policies but because the United States (which has plenty of socialist policies of its own) has come to spend nearly half its federal budget on its military and on other things related to maintenance of an empire (see also here).
Even with the huge financial advantage that comes from not trying to dominate the world, the negative long-term effects of socialist policies in Sweden have been serious. For example, the Wikipedia article on Sweden points out that the number of jobs in the Swedish private sector has not grown since 1950 and "none of the top 50 companies on the Stockholm stock exchange has been started since 1970." (Note: the same article later says that two of the top 50 companies were founded after 1970; either way, it appears Sweden is not doing well at building new businesses). And those in the Swedish government apparently understand that however they might feel about socialism, socialism is not the way to create wealth, because when Sweden fell on hard times a few years ago (Sweden's GDP fell by 5% in the early 1990s), the government cut spending and reduced elements of the welfare state while also privatizing some public goods and services. In short, more socialism was not the prescription for dealing with an economic problem; quite the opposite – something Americans clearly need to learn.
It should be pointed out that Sweden does not call itself a socialist nation, and in fact does not practice anything approaching "true", dictionary-definition socialism. For one example, "Sweden is a world leader in privatized pensions" per the Wikipedia article, and the major engines of wealth-creation – Volvo, Ericsson, Electrolux, and other privately-owned corporations, nearly all of which predate the transformation of the country into semi-socialism – enjoy corporate tax rates far lower than in the United States. Also unlike the U.S. , Sweden has eliminated its inheritance tax (death tax). Sweden is a Parliamentary democracy and Constitutional monarchy with a strong capitalist sector to create wealth; like the U.S., Sweden has government-supplied safety nets, transfer payments, and other features commonly thought of as socialist; Sweden just has more of these features than does the United States.
While Sweden has done a better than average job of controlling government corruption and "pork" and avoiding corporate and individual "gaming" of the system, these factors are, like rust, eternally corrosive – constantly eating away at the integrity of the system. Welfare and disability fraud, growing bureaucratic bloat, and other factors represent ever-increasing drains on Swedish resources. Swedish unemployment, for example – and not unlike in the United States – is far higher in real terms than the government admits:
"Telling the truth might not be popular, but I wish that Edling's report [which suggests Swedish unemployment is actually close to 20%] would be translated and sent to all fans of the welfare state around the world. It shows that the Swedish welfare state has systematically destroyed personal responsibility and work ethics. . . . A system that pays people not to work eventually creates a mentality where many people choose not to work." -- Nima Sanandaji , Sweden , Capitalism, and the Welfare State
Finally, because more government socialism means more government, it should be no surprise that Sweden has become not only less prosperous but also less free and dramatically less safe from violent crime in recent years (also consider using Google Translate to read this page of news from Sweden, which reports a huge increase in rape in recent years). Contributing to the problem is a disturbing erosion of the right to free speech and other basic protections:
"Dahn Pettersson, a local politician, has been fined 18,000 kronor for writing that 95 percent of all heroin brought in comes via Albanians from Kosovo. . . . In Sweden , saying that Muslim Albanians are behind much of the drug traffic in Europe (a fact) is a crime. Making derogatory statements about the native population, however, is just fine." -- "Fjordman", The Death of Sweden
In the same column, "Fjordman" makes the point that such things are not isolated incidents:
"The primary reason why I write so much about Sweden is because it is the most totalitarian country in the Western world, and should thus serve as a warning to others. The second reason is that Sweden , like my own country [ Norway ], now needs some 'tough love.' Too many Swedes still cling on to the myth of the 'Swedish model' while their country is disintegrating underneath their feet. If Sweden the nation is to be saved – if it still can be saved, I'm not so sure – then Sweden the ideological beacon for mankind must be smashed, because vanity now blocks sanity."
To sum up: Even Sweden , the poster child for government socialism, shows the inevitable problems caused by using government to run so much of society. In addition to the common problems of big government generally (such as creeping totalitarianism, misdirection of resources, and erosion of civil society), socialist policy prevents poor nations from becoming prosperous and grinds away the existing prosperity of formerly wealthy nations. Wealthy nations with healthy traditions and strong work ethics can "go socialist" and remain lovely places for years or even decades as they slowly disintegrate, but without significant wealth and wealth-creating apparatus to begin with, socialism is a non-starter.
Given that the United States is, in fact, no longer a "wealthy" nation but instead the most indebted nation in history and has lost much of its former productive capacity, the Obama administration's push towards more socialist policy does not bode well for Americans. If Americans are actually foolish enough to want a socialist government, they need to first create some wealth for socialist programs to operate with – which would require a return to our free-market, small-government principles.
- 4 -
Why Those Results are Inevitable
Short answer: human nature.
Slightly longer answer: the nature of life itself.
Despite how obvious those answers are, many people seem not to understand them. Somehow, many of the same people who believe that government should "adjust" human behavior via rewards and penalties – higher taxes on tobacco or alcohol, for instance, or fines (such as speeding tickets), or prison sentences, or specific income tax deductions (e.g., for mortgage interest or for purchasing a hybrid car) – also believe, rather bizarrely, that when government penalizes the creation of wealth with high taxation or onerous regulation and rewards non-productivity with transfer payments and corporate welfare and other forms of wealth redistribution, human behavior does not change in response.
The reality is quite simple:
Penalize a behavior and you get less of it, and/or unintended consequences.
Reward (or protect) a behavior and you get more of it, and/or unintended consequences.
This is true with cats, dogs, pigeons, and all other animals, including humans. Yes, there are nuances and seeming exceptions, but few things about life are more broadly true: make a behavior more difficult or painful in some fashion, and organisms will tend to display that behavior less often, or will attempt to shield themselves from the unpleasant effects when they do display the behavior – and not always in ways you might expect. Reward an organism for doing something, and the organism will be more likely to repeat that behavior; here also, unintended consequences (including "gaming the system") are likely and may be significant.
This is perhaps the most fundamental and important macro-behavior genetic programming in the animal kingdom: avoid pain and seek out reward. Would life have survived for long without such programming?
Income taxation is a fine on income. Increasing that fine is likely to cause aversive conditioning and result in changed behavior. Sample result: Bono and U2 moved their financial affairs to the Netherlands in 2006 after the Irish government changed the tax code in a way that would have cost Bono and his bandmates huge amounts of money. That is, the band responded to an increase in the fine on their income by removing their income from the taxing authority's jurisdiction. If someone like Bono, who is famous for complaining that governments should spend more tax money helping the poor, prefers to spend his money as he chooses rather than have it taken by politicians under threat of force, then how likely is it that other high earners are unaffected by attempts to confiscate more of their income?
Government-provided welfare payments, be it to the poor or the rich, are rewards for non-productivity and for misallocation of production and resources. Use tax dollars to subsidize a corporation's foreign advertising or anything else it does, and the pressure for efficient operation is reduced. Pay unemployed single mothers to stay home, and you not only encourage them to not find jobs but – if the mothers must remain single to qualify for the "free" money – you also ensure that millions of children will grow up with unmarried parents and, in many cases, without their fathers, as has happened in the United States.
"While it is widely recognized that this type of means-tested program discourages work, it is less commonly understood that means-tested aid also discourages marriage and rewards single parenthood. Subsidized housing and other means-tested welfare programs penalize marriage because a single mother will suffer a substantial reduction or elimination of benefits whenever she marries an employed male." -- Millennial Housing Commission Policy Option Paper, 2001
Farm subsidies, tariffs, and price supports are excellent examples of the harm done by government giveaways and other forms of protection to business (sometimes called "socialism for the rich"). Not only is the loss of productivity sometimes obvious (as when farmers are paid to not plant crops – which the U.S. actually does, and the "farmers" may be living in Manhattan) but a vivid example exists to show how dramatic the improvement can be when farm subsidies and protective regulations are almost entirely withdrawn. New Zealand did exactly that in the 1980s and the results have been spectacular, including a large increase in the real income of New Zealand farmers and in the value of their farmland. Farm Subsidy Reform Dividends: The Case of New Zealand (PDF) by Ralph Lattimore summarizes the long-term benefits of ending most farm subsidies in that country as follows:
20 years on
• Competitiveness up
• Output up
• Value added up
• Incomes up
• Land prices up
• Employment down
• Size of farm sector rose from 5 to 7% GDP
• Exports stabilized around 55%
Consumers did well also; food prices mostly fell or remained stable and a larger variety of foods became available or easier to get. (Prior to the reforms, a prescription was apparently required for New Zealanders to buy margarine!) Before the reforms, farmers in general strongly opposed the idea of reform, and the corrupting and distorting effect of "free" money or other forms of government protectionism shows in the continued resistance to such reform among farmers in America and elsewhere, despite the positive result for farmers in New Zealand .
- 5 -
Helping Ourselves into Poverty and Tyranny
The general principle behind the New Zealand experience – that government "help" reduces efficiency, weakens the industry or other favored group, drives up prices and reduces choices for the consumer, generally making things worse for all concerned – is one that needs to be widely learned. Today, however, most of the world seems headed in the opposite direction. For that matter, the experience of the United States (especially in the 1800s), Hong Kong under the British, Switzerland from the 1800s until recently, and other places that have experienced dramatic growth in prosperity and human well-being as a result of minimizing government interference – that experience, also, is being widely forgotten or misperceived. Increasingly, people in the United States and in many other places believe that government central planning and control are needed for prosperity. This trend will not end well, because – as classical liberal and Nobel-winning economist F. A. Hayek put it – government socialism is truly "The Road To Serfdom."
It is worth adding a brief description of classical liberalism, because this viewpoint was the heart of America at its founding and during the period when the United States created most of the wealth that America was, until recently, famous for. Here is the approach to society that made the United States both the envy of the world and a haven for mankind:
"[A]t the heart of classical liberalism", wrote Nancy L. Rosenblum and Robert C. Post, is a prescription: "Nurture voluntary associations. Limit the size, and more importantly, the scope of government. So long as the state provides a basic rule of law that steers people away from destructive or parasitic ways of life and in the direction of productive ways of life, society runs itself. If you want people to flourish, let them run their own lives." [Emphasis added] -- Nancy L. Rosenblum and Robert C. Post, Civil Society and Government, as quoted in the Wikipedia article on classical liberalism.
Even the tiny amount of power (by today's standards) given to government in our Constitution was enough to corrode, corrupt, and ultimately destroy the Constitution's own restraint of power that our ancestors had insisted upon. Nearly all of today's problems for America, including the economic crisis now engulfing the U.S. and indeed the entire world, have their distant roots in that miscalculation of more than 200 years ago. Our small and limited government became the crowbar needed by those who lust for power, and the result is a level of dictatorial control in 2009 undreamed of by the British king in 1776.
- - - - -
There are yet more ways that government intervention (i.e., central planning, in even the smallest degree) can screw up the market and the economy. In particular, government or central bank policy can encourage malinvestment, as we have seen so dramatically in the recent series of financial bubbles and crashes – the tech bubble of the late 1990s and the housing bubble that followed, in particular. The disaster in housing was a double-whammy because the damage from monetary inflation (the primary cause of any large bubble – a large increase in the money supply has to go somewhere; likewise, without such an increase in the money supply, any bubble has limited fuel) was compounded by malregulation going back to the Carter administration (the Community Reinvestment Act, in particular) and made worse during the Clinton years (see also here). The federal government encouraged and even indirectly required lending (at least by Fannie Mae and Freddie Mac, via the Federal Housing Enterprises Financial Safety and Soundness Act of 1992) to people whose income or credit history simply disqualified them – people who were unwilling or unable or otherwise unlikely to pay. How very progressive, and as we see now, how incredibly foolish and destructive. Helping the poor is one thing; using government to do so is something else entirely.
"The CRA [Community Reinvestment Act] coerces banks into making loans based on political correctness, and little else, to people who can't afford them. Enforced like never before by the Clinton administration, the regulation destroyed credit standards across the mortgage industry, created the subprime market, and caused the housing bubble that has now burst and left us with the worst housing and banking crises since the Great Depression.
"The CRA should be abolished, along with the government-sponsored enterprises that fueled the secondary market for subprimes — under pressure from Clinton, who ordered HUD to set quotas for 'affirmative action' lending at Fannie Mae and Freddie Mac."
-- Stop Covering Up And Kill The CRA, Investor's Business Daily
Please don't think I am just slamming the Democrats on this; Republicans are equally to blame. Government malfeasance and stupidity in the U.S. is almost always bipartisan in nature, and under the Bush administration, financial-sector problems grew dramatically and ignited into the firestorm of subprime lending and other financial insanity that has now engulfed the entire world in a crisis.
Perhaps the most important reason that government socialism ultimately fails to meet human needs long-term is that government itself is a coercive power structure – exactly the kind of thing that attracts and enables psychopaths, as even a brief listing of government "leaders" over the years and centuries will confirm. And really: What healthy and compassionate person wants coercive power over others?
"It is said that power corrupts, but actually it's more true that power attracts the corruptible. The sane are usually attracted by other things than power." -- Physicist and SciFi author David Brin
- 6 -
Predictions for America 's Increasing Government Socialism
I have previously made the point in some detail that government is The Worst Way to do Anything. Unfortunately, the new Obama administration has promised to hugely increase the use of government to "get things done" and much of the U.S. public is cheering the administration on in this regard. If more government means less freedom and prosperity – as it does, even when government power is used as wisely and ethically as possible (something increasingly rare in the United States ) – then this country is headed for even harder times in the years ahead.
With government socialism (including de facto nationalization of the financial and insurance industries, for starters) increasingly both the reality here in the U.S. and the "change" so many are hoping for, especially in regards to healthcare*, the future is clear: Americans are on that road to serfdom that Hayek described so well. (The bailouts, for just one example, are incredibly expensive and damaging; here is Ron Paul exposing some of the waste and nastiness, including billions of dollars to expand the police state, contained in the new, expected-to-pass $825 billion stimulus package – a bill that "delivers an additional debt burden of $6,700 to every American man, woman and child."). Expect less wealth, less freedom, more malinvestment, more malregulation, more corruption, more corporatism, more cruelty, and a general downtrend for quality of life in these United States, unless and until the nation moves back towards its philosophic and historic roots of free markets and human liberty.
* For reasons that socialized healthcare will make things worse see here, here, and here, or my column Health Care: Are Corporatist and Coercive-Socialist the Only Choices? For a look at why the various government "stimulus" packages will prolong the economic crisis, click here for an article by J. D. Tuccille.
- 7 -
Take Your Pick: Love and Freedom, or Their Opposites
Classical liberals knew – but seldom spelled out in detail – that liberty was valuable in large part because it fostered a compassionate and healthy society. The cruelty of power – of kings and slavemasters and even petty government bureaucrats – was well understood.
Today, that understanding has been lost and the truth turned on its head. To regain our prosperity, our freedom, and our status as a beacon and example to the world – which the United States actually was, for a time – we must heal the perceived rift between love and freedom. We must rebuild a free society and this time must also formally and explicitly acknowledge the need for love and compassion, while actively (and not by government edict) encouraging those qualities.
Neither love nor freedom can be created by government action, and both qualities are in fact endangered and corrupted by government power. With the exponential growth in technology now heading into the vertical part of the curve, time is running out for mankind to correct the error of using inherently violent and coercive institutions to run society.