The Socialist Disaster
Early June of 2019, Bernie Sanders spoke at length on his vision for America. He called for guaranteed college education and healthcare “for all ”. He calls for the end of paying into private healthcare or paying for a college degree. He shared his dream of America becoming a socialist paradise like no other. Often these left-wing socialist politicians point to perceived success stories such as the Scandinavian countries like Sweden, Denmark, and Finland. The mouths of socialist politicians and their young constituents water when they hear about the immense benefits and programs provided to citizens. They cite such countries as an example of what we must do to help bring prosperity to all Americans is the institution of socialism.
The definition of socialism could go as follows: government controlling free markets and nationalizing industries.
However, they would be mistaken to call such countries socialist. “Socialist” is one of the last words I, economists, and the leaders of these countries use to describe these nations. In fact, the Prime Minister of Denmark, Lars Løkke Rasmussen, during a lecture at Harvard University, said “I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”
Let us compare the two economies. Most socialists call for the government ownership of the means of production and high regulations and quotas that force firms to produce at a certain level or production. Socialists often set price ceilings for certain goods and put in place heavy production caps. These often hinder economic growth and prevent firms from operating at economic equilibrium. This eventually leads to production shortages as firms attempt to maximize their profit or simply stay in business. This is the unfortunate case with Venezuela.
Upon the inauguration of the socialist revolutionary Hugo Chavez, strict economic policies were put in place and the government nationalized the large petroleum companies. Along with this, they set prices for firms instead of allowing the market to find equilibrium. After the death of Chavez, a new leader, Nicolas Maduro, was elected to the presidency. Maduro’s restrictions were even worse and has caused massive inflation by printing money to fund social programs. In just the past three years the inflation rate of the Venezuelan bolívar rose over 53,798,500%. In more visual terms, a cup of coffee in Venezuela costs approximately one million bolívars . People are living on the streets as the money that they once worked hard for has been devalued and is now worth nothing. Quite a socialist paradise.
Now let us look at the systems in Scandinavian countries often applauded for their successful integration of socialism into their countries. American socialists often point to the heavy regulations placed on firms to pay for benefits and increase social welfare.
This however, could not be further from the truth.
These Scandinavian countries are not socialist by any measure and certain parts of their market are freer than ours. A major selling point that socialists like Bernie Sanders and Alexandria Ocasio-Cortez speak about is raising the minimum wage. In fact, just this July, Sander brought forward a new bill in the senate that proposed increase the minimum wage to fifteen dollars an hour. Ironically, he paid his staffers much less than the minimum wage he proposed and only made a change in their salary upon the intervention of a labor union . The current federal minimum wage is $7.25 and various states have passed laws that have increased their minimum wage such as Connecticut where the minimum wage stands at $10.10 . Many of those who champion these minimum wage increases are consumed with the idea of Scandinavian socialist policy but would be shocked to know, almost none of the Scandinavian countries have a minimum wage. The government is completely absent from the table when discussing the issue of salaries. There is no federal minimum wage like the US and employees must work with unions and their companies to raise their wages. If a union is unsuccessful, there is no government power willing to interfere and turn their demands into legislation. This is very much unlike in the United States where the government sets minimum wage laws and provides subsidies and other incentives to unions . In fact, the United States government spent $177 Million on paying employees not including office space and travel expenses. This practice was partially ended by a Trump Administration executive order that cut several union benefits and forced them to pay the market price for goods such as government office space. However, the government continues to provide large subsidies to unions with little to no discretion . In the area of employment, one could easily reason that these Scandinavian countries practice a freer market than what it currently practiced in the United States. The negotiation process and final wage for employees is between them, a union, and the company they work for. The government cannot force any side to make concessions and in the end, the economy does much better, and firms and their employees are much happier.
The most head spinning part of the democratic socialists argument is that we should put in place this system even though it has never been tried before. This however, is a blatant lie.
I present to you three case studies where it was tried. India, Brazil, and the worst of them all, Venezuela. For a comparison to show how well they could have done, we will simultaneously discuss South Korea.
The Republic of Korea, or South Korea, was once a part of a larger Korea that included what we now know as North Korea. After the Korean War ended in 1953, the country split into two with a communist dictatorship running the North and a new provisional government in the South. The North was full of industry and infrastructure from before the war while the South was simply agriculture. This created a significant uphill battle for the South Koreans from the start. However, they chose not to take up communism and instead adopted the capitalistic system used by their Korean War ally, the United States. Although the country had to endure several autocratic dictators throughout its development, the economy of the country grew rapidly as the government, which did impose political regulations, did not put in place many economic regulations . This time of economic growth was known as the “Miracle on the Han River.” The government, using foreign aid from countries such as the United States, provided only enough money to create these industries and help firms form. Beyond that, they did little for these firms and instead, focused on letting the free market do its work. The government planted the seed and allowed the global economy to water and nourish it. The Global National Income (GNI) grew at a tremendous rate never seen before. From a GNI per Capita of less than 100 USD in 1952, the country’s GNI per Capita rose to 1,500 USD, a 1400% increase. This period of growth did not stop and has continued to increase to approximately 38,000 USD in 2017. New globally dominant firms sprung up in South Korea such as LG, Hyundai Motors, and Samsung. These firms have created massive amounts of wealth across South Korea and turned South Korea into a global trading hub and the world’s 13th largest economy . However, throughout that entire process, there was little government planning behind South Korea’s economic success.
Their neighbors into the North, however, have not done so well. Despite retaining the majority of the industrial equipment and developed areas of Korea during the post-war partition, North Korea has fallen into economic despair. The economy of North Korea is centrally planned and is a complete command economy. Private corporations do not exist and the government controls all factors of production. In the Heritage Foundation’s “2019 Index of Economic Freedom,” of all countries ranked, North Korea came in last place as the most restrictive economy. It is impossible for private corporations to flourish and a majority of exports are made up by the government owned coal industry. Income from many of these industries flows directly to the elite in society including the dictator, Kim Jong Un. While the system was meant to increase wealth for the poor, it has caused the average annual income to drop to as little as 1000 USD when converted. This means families across Korea are living on less than three dollars per day. When your people are left to starve, you know there is a problem with the system.
However, one could argue that North Korea is an extreme example of command markets gone wrong. Fine.
I bring up the nation of India. My homeland.
In the early 1950s India was rising up from its new found freedom from colonization. The partition of India and Pakistan had occurred almost three years previous. South Korea had also just been formed and they were trying to build their nation as well however, South Korea chose capitalism, while India chose to adopt a socialist government modeled after the USSR. The government, led by then Prime Minister, Jawaharlal Nehru, created a giant bureaucracy to help control the businesses and nationalize many of them. Nehru did not want a dictatorship however, so he created a democratic system that is very similar to what many so-called democratic socialist want to implement in the United States. One significant example of nationalization is the airline, Air India. At the time it was known as TATA Air Lines and was a very successful private company owned by an Indian businessman. Seeing the profits, the government nationalized the company and took control. Since then, the company has been on the decline and many have pointed to the government’s over regulation of their own company and the excessive power they used to control . Several new airlines rose to prominence seeing how Air India was failing and enjoyed the market system which forced them to compete and very few failed in the long run. The Indian government has proven that it is incapable of running a firm profitably which is a major point about socialism. The government never learned its lesson and continued to nationalize industries and put in place bureaucratic mechanisms that held back economic prosperity in the nation. The government put in place several roadblocks to the opening of businesses such as licenses. The large bureaucracy made it extremely difficult to receive a license and only those with large amounts of wealth could bribe their way through the system. This discouraged the creation of businesses, especially among the middle and lower class. This drove those in poverty further into despair and unemployment has not gotten better by any means. India is one of the poorest countries in Asia and is currently the 68th poorest country in the world . A majority of the countries who are further in poverty are located in Africa and have been stricken either by war, disease, or longer periods of imperialism and colonization. Although India has suffered with these problems, they are not as significant in India and the country has partially managed to control many of these problems through the large bureaucracy in comparison to the temporary and unstable governments of several African countries. In fact, at one point, India held the most amount of people in poverty of any country. Fortunately, India’s economic situation has improved since the 90s but the reason was capitalism. In 1991, Prime Minister P.V. Narasimha Rao was elected to be the Prime Minister of India. Along with his finance minister, Manmohan Singh, a well known economist, the government worked to liberate the economy from excessive government controls. The government abolished the licensing system, decreased tariffs and interest rates, and ended many public monopolies . In 2007, India had the fastest growing economy in the world . Current Prime Minister Narendra Modi has decreased regulations even further and broken up government owned monopolies in the coal industry and the insurance industry . However, poverty remains a serious problem in India, with a rate of 21%, as socialism has dug the country into a very deep hole, and capitalism is slowly helping them climb up . Time will show the magic of capitalism and how the government walking away from businesses is good for everyone.
This brings us to a crossroads about economic principles and beliefs in the United States. We have the political right and several on the left holding tightly to capitalism as they know it is the only system that works, while new congressmen and women have entered and embraced socialism along with their senior idol, Bernie Sanders. They call for a system of Universal Healthcare for all that abolishes private healthcare completely. They call for extremely high taxes throughout to pay for healthcare and several other benefits. They want the government to run industries such as coal and energy as they don’t trust the private corporations or individuals .
They are trying to play a game that has been played many times and lost almost every time. Insanity, as defined by many different people over time has most famously been, “doing the same thing over and over, and expecting a different result.” Socialists are playing a dangerous game and are putting our country at risk of an economic and political disaster. Their policies will drive social and economic decisions and will likely lead to the United States falling from the helm of a global economic superpower, to a developing country that could eventually be consumed by poverty and hunger. We as citizens must be vigilant of such politicians and must take the initiative to make sure that the United States never becomes a socialist nation defined by sectarian chaos, poverty, and economic dependence. We must retain our international stature as a symbol of democracy and freedom. When that status waivers, it will have lasting consequences not only on the United States, but the entire world.
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