Excerpts from an article By: Lee Edwards Ph.D. 10/16/2019
Socialists are fond of saying that socialism has never failed because it has never been tried. But in truth, socialism has failed in every country in which it has been tried, from the Soviet Union beginning a century ago to three modern countries that tried but ultimately rejected socialism—Israel, India, and the United Kingdom.
While there were major political differences between the totalitarian rule of the Soviets and the democratic politics of Israel, India, and the U.K., all three of the latter countries adhered to socialist principles, nationalizing their major industries and placing economic decision-making in the hands of the government.
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The Soviet failure has been well documented by historians… After 70 years of Marxism, Soviet farms were unable to feed the people, factories failed to meet their quotas, people lined up for blocks in Moscow and other cities to buy bread and other necessities… With no incentives to compete or modernize, the industrial sector of Eastern and Central Europe became a monument to bureaucratic inefficiency and waste…
And yet, socialism still beguiled leading intellectuals and politicians of the West. They could not resist its siren song, of a world without strife because it was a world without private property. They were convinced that a bureaucracy could make more-informed decisions about the welfare of a people than the people themselves could. They believed, with John Maynard Keynes, that “the state is wise and the market is stupid.”
Israel, India, and the United Kingdom all adopted socialism as an economic model following World War II. The preamble to India’s constitution, for example, begins, “We, the People of India, having solemnly resolved to constitute India into a Sovereign Socialist Secular Democratic Republic . . .” The original settlers of Israel were East European Jews of the Left who sought and built a socialist society. As soon as the guns of World War II fell silent, Britain’s Labour Party nationalized every major industry and acceded to every socialist demand of the unions.
At first, socialism seemed to work in these vastly dissimilar countries. For the first two decades of its existence, Israel’s economy grew at an annual rate of more than 10 percent, leading many to term Israel an “economic miracle.” The average GDP growth rate of India from its founding in 1947 into the 1970s was 3.5 percent, placing India among the more prosperous developing nations. GDP growth in Great Britain averaged 3 percent from 1950 to 1965, along with a 40 percent rise in average real wages, enabling Britain to become one of the world’s more affluent countries.
But the government planners were unable to keep pace with increasing population and overseas competition. After decades of ever declining economic growth and ever rising unemployment, all three countries abandoned socialism and turned toward capitalism and the free market. The resulting prosperity in Israel, India, and the U.K. vindicated free-marketers who had predicted that socialism would inevitably fail to deliver the goods. As British prime minister Margaret Thatcher observed, “the problem with socialism is that you eventually run out of other people’s money.”
Israel
Israel is unique, the only nation where socialism was successful—for a while. …Most early settlers,.., worked either on collective farms called kibbutzim or in state-guaranteed jobs. The kibbutzim were small farming communities in which people did chores in exchange for food and money to live on and pay their bills. There was no private property, people ate in common, and children under 18 lived together and not with their parents. Any money earned on the outside was given to the kibbutz.
Israel’s economic performance seemed to confirm Keynes’s judgment. Real GDP growth from 1955 to 1975 was an astounding 12.6 percent, putting Israel among the fastest-growing economies in the world, with one of the lowest income differentials. However, this rapid growth was accompanied by rising levels of private consumption and, over time, increasing income inequality. There was an increasing demand for economic reform to free the economy from the government’s centralized decision-making. ….
The Israeli “economic miracle” evaporated in 1965 when the country suffered its first major recession. Economic growth halted and unemployment rose threefold from 1965 to 1967.
Because socialism’s roots in Israel were so deep, real reform proceeded slowly. Milton Friedman was asked to draw up a program that would move Israel from socialism toward a free-market economy. His major reforms included fewer government programs and reduced government spending; less government intervention in fiscal, trade, and labor policies; income-tax cuts; and privatization…..
Meanwhile, the government kept borrowing and spending and driving up inflation, which averaged 77 percent for 1978–79 and reached a peak of 450 percent in 1984–85. The government’s share of the economy grew to 76 percent, while fiscal deficits and national debt skyrocketed. The government printed money through loans from the Bank of Israel, which contributed to the inflation by churning out money.
Finally, in January 1983, the bubble burst, and thousands of private citizens and businesses as well as government-run enterprises faced bankruptcy. Israel was close to collapse. At this critical moment, a sympathetic U.S. president, Ronald Reagan, and his secretary of state, George Shultz, came to the rescue. They offered a grant of $1.5 billion if the Israeli government agreed to abandon its socialist rulebook and adopt some form of U.S.-style capitalism, using American-trained professionals…..
The impact of a basic shift in Israeli economic policy was immediate and pervasive. Within a year, inflation tumbled from 450 percent to just 20 percent, a budget deficit of 15 percent of GDP shrank to zero… “The world’s most successful experiment in socialism,” Light wrote, “appears to have resolutely embraced capitalism.”
India
Acceptance of socialism was strong in India long before independence, spurred by widespread resentment against British colonialism and the land-owning princely class and by the efforts of the Communist Party of India, established in 1921. Jawaharlal Nehru adopted socialism as the ruling ideology when he became India’s first prime minister after independence in 1947.
For nearly 30 years, the Indian government adhered to a socialist line, restricting imports, prohibiting foreign direct investment, protecting small companies from competition from large corporations, and maintaining price controls on a wide variety of industries including steel, cement, fertilizers, petroleum, and pharmaceuticals. Any producer who exceeded their licensed capacity faced possible imprisonment….Economic inequality was regulated through taxes—the top personal income tax rate hit a stifling 97.75 percent….
Economic performance from 1965 to 1981 was worse than than at any other time of the post-independence period. As in Israel, economic reform became an imperative. An industrial-policy statement continued the piecemeal retreat from socialism that had begun in 1975, allowing companies to expand their capacity, encouraging investment in a wide variety of industries, and introducing private-sector participation in telecommunications. ….
India’s new middle class grew from 304.2 million in 2004–5 to an amazing 606.3 million in 2011–12, almost one-half of the entire Indian population….
In 2017, India overtook Germany to become the fourth-largest auto market in the world, and it is expected to displace Japan in 2020. That same year, India overtook the U.S. in smartphone sales to become the second-largest smartphone market in the world. Usually described as an agricultural country, India is today 31 percent urbanized. With an annual GDP of $8.7 trillion, India ranks fifth in the world, behind the United States, China, Japan, and Great Britain….
All this has been accomplished because the political leaders of India sought and adopted a better economic system—free enterprise—after some four decades of fitful progress and unequal prosperity under socialism.
United Kingdom
Widely described as “the sick man of Europe” after three decades of socialism, the United Kingdom underwent an economic revolution in the 1970s and 1980s because of one remarkable person—Prime Minister Margaret Thatcher….
The government owned the largest manufacturing firms in such industries as autos and steel. The top individual tax rates were 83 percent on “earned income” and a crushing 98 percent on income from capital. Much of the housing was government-owned. For decades, the U.K. had grown more slowly than economies on the continent. Great Britain was no longer “great” and seemed headed for the economic dust bin….Trade-union demands increased the size of the public sector and public expenditures to 59 percent of GDP. Wage and benefits demands by organized labor led to continual strikes that paralyzed transportation and production….
Newly elected Conservative prime minister Margaret Thatcher, the United Kingdom’s first female PM, took on what she considered her main opponent—the unions. The closed shop, which forced workers to join a union to get a job, was outlawed. Union membership plummeted from a peak of 12 million in the late 1970s to half that by the late 1980s. …
Privatization was a core Thatcher reform. Not only was it fundamental to the improvement of the economy. It was “one of the central means of reversing the corrosive and corrupting effects of socialism,” she wrote in her memoirs. Through privatization that leads to the widest possible ownership by members of the public, “the state’s power is reduced and the power of the people enhanced.” Privatization “is at the center of any programme of reclaiming territory for freedom.” She was as good as her word, selling off government-owned airlines, airports, utilities, and phone, steel, and oil companies….
Some 3.3 million new jobs were created between March 1983 and March 1990. Inflation fell from a high of 27 percent in 1975 to 2.5 percent in 1986. From 1981 to 1989, under a Conservative government, real GDP growth averaged 3.2 percent…. No succeeding British government, Labour or Conservative, has tried to renationalize what Margaret Thatcher denationalized.
China
How then to explain the impressive economic success of a fourth major economy, China, with annual GDP growth of 8 to 10 percent from the 1980s almost to the present? From 1949 to 1976, under Mao Zedong, China was an economic basket case, owing to Mao’s personal mismanagement of the economy. In his avid pursuit of Soviet-style socialism, Mao brought about the Great Leap Forward of 1958–60, which resulted in the deaths of at least 30 million and perhaps as many as 50 million Chinese, and the Cultural Revolution of 1966–76, in which an additional 3 million to 5 million died. Mao left China backward and deeply divided.
Mao’s successor, Deng Xiaoping, turned China in a different direction, seeking to create a mixed economy in which capitalism and socialism would coexist with the Communist Party monitoring and constantly adjusting the proper mix. For the past four decades, China has been the economic marvel of the world for the following reasons:
It has engaged in the calculated theft of intellectual property, especially from the U.S., for decades. It has taken full advantage of globalism and its membership in the World Trade Organization, while ignoring the prescribed rules against such practices as intellectual-property theft. …
It created a middle class of some 300 million people, who enjoy a decent living and at the same time constitute a sizable domestic market for goods and services. It continues to use the forced penal labor to make cheap consumer goods that are sold in Walmart and other Western stores. It allows an enormous black market to exist because Party members profit from its sales.
It permits foreign investors to buy into Chinese companies, but the government—i.e., the Communist Party—always retains a majority interest. It operates an estimated 150,000 state-owned enterprises that guarantee jobs for tens of millions of Chinese. It depends on the energy and experience of the most entrepreneurial people in the world, second only to Americans.
In short, the People’s Republic of China was an economic failure for its first three decades under Mao and Soviet socialism. It began its climb to become the second-largest economy in the world when it abandoned socialism in the late Seventies and initiated its experiment, which so far has been successful, in capitalism with Chinese characteristics….
Conclusion
As we have seen from our examination of Israel, India, and the United Kingdom, the economic system that works best for the greatest number is not socialism with its central controls, utopian promises, and OPM (other people’s money), but the free-market system with its emphasis on competition and entrepreneurship. All three countries tried socialism for decades, and all three finally rejected it for the simplest of reasons—it doesn’t work.
Socialism is guilty of a fatal conceit: It believes its system can make better decisions for the people than they can for themselves. It is the end product of a 19th-century prophet whose prophecies (such as the inevitable disappearance of the middle class) have been proven wrong time and again.
According to the World Bank, more than one billion people have lifted themselves out of poverty in the past 25 years, “one of the greatest human achievements of our time.” Of those billion, approximately 731 million are Chinese, and 168 million Indians. The main driver of this uplift from poverty has been the globalization of the international trading system. China owes most of its success to the trade freedom offered by the U.S. and the rest of the world. The latest edition of Index of Economic Freedom from the Heritage Foundation confirms the global trend toward economic freedom: Economies rated “free” or “mostly free” enjoy incomes that are more than five times higher than the incomes of “repressed economies” such as those of North Korea, Venezuela, and Cuba.
Israel’s socialist miracle turned out to be a mirage, India discarded socialist ideology and chose a more market-oriented path, and the United Kingdom set an example for the rest of the world with its emphasis on privatization and deregulation. Whether we are talking about the actions of an agricultural country of 1.3 billion, or the nation that sparked the industrial revolution, or a small Middle Eastern country populated by some of the smartest people in the world, capitalism tops socialism every time.
This piece originally appeared in National Review
