Is socialism bad for the economy?

[nygreenguy]

Norway is also full of entrepreneurs like Wiggo Dalmo. Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium. A 2010 study released by the U.S. Small Business Administration reported a similar result: Although America remains near the top of the world in terms of entrepreneurial aspirations -- that is, the percentage of people who want to start new things—in terms of actual start-up activity, our country has fallen behind not just Norway but also Canada, Denmark, and Switzerland.

But there is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. "It's actually quite hard to say how tax policy affects the economy," says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world's highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.

Moreover, the typical arguments peddled by business groups and in the editorial pages of The Wall Street Journal— the idea, for instance, that George W. Bush's tax cuts in 2001 and 2003 created economic growth—are problematic. The unemployment rate rose following the passage of both tax-cut packages, and economic growth during Bush's eight years in office badly lagged growth during the Clinton presidency, before the tax cuts were passed.

And so the case of Norway—one of the most entrepreneurial, most heavily taxed countries in the world—should give us pause. What if we have been wrong about taxes? What if tax cuts are nothing like weapons or textbooks? What if they don't matter as much as we think they do?

But it takes more than perks to keep a worker motivated in Norway. In a country with low unemployment and generous unemployment benefits, a worker's threat to quit is more credible than it is in the United States, giving workers more leverage over employers. And though Norway makes it easy to lay off workers in cases of economic hardship, firing an employee for cause typically takes months, and employers generally end up paying at least three months' severance. "You have to be a much more democratic manager," says Bjørn Holte, founder and CEO of bMenu, an Oslo-based start-up that makes mobile versions of websites. Holte pays himself $125,000 a year. His lowest-paid employee makes more than $60,000. "You can't just treat them like machines," he says. "If you do, they'll be gone."
http://www.inc.com/magazine/20110201/in ... alism.html

A good article and I am curious as to what others think about this any the many nuggets within it.

[East of Eden]

Cuba was one of the most prosperous nations in Latin America prior to Castro and socialism. My father and grandfather visited there often.

http://www2.fiu.edu/~fcf/cubaprecastro21698.html

Cuba is one of the most prosperous nations in Latin America, and possibly the most prosperous free nation among the Antilles. Considering their scarce natural resources, I think that's very worth noting. Economy of Cuba.

According to that article, a third of the population of Cuba lived in poverty prior to the Revolution. That doesn't sound too prosperous to me, it sounds like the story of every Latinamerican country: a small and very wealthy high class, supported by extremely spread poverty, and millions living under inhuman conditions. Poverty in Latin America is worse than it is in the States, not just in numbers, but also in quality of life. The situation in Cuba prior to socialism was very serious, and while I agree with you that Cuba has huge social and political problems that need to be fixed, I disagree that it can be used as an example of failed socialism.

You think Cuba is prosperous and free? They have trouble feeding themselves. http://www.economist.com/node/15769891

Castro has certainly made things more equal, everyone has been brought down to a poverty level.

[micatala]

Cuba was one of the most prosperous nations in Latin America prior to Castro and socialism. My father and grandfather visited there often.

http://www2.fiu.edu/~fcf/cubaprecastro21698.html

Cuba is one of the most prosperous nations in Latin America, and possibly the most prosperous free nation among the Antilles. Considering their scarce natural resources, I think that's very worth noting. Economy of Cuba.

According to that article, a third of the population of Cuba lived in poverty prior to the Revolution. That doesn't sound too prosperous to me, it sounds like the story of every Latinamerican country: a small and very wealthy high class, supported by extremely spread poverty, and millions living under inhuman conditions. Poverty in Latin America is worse than it is in the States, not just in numbers, but also in quality of life. The situation in Cuba prior to socialism was very serious, and while I agree with you that Cuba has huge social and political problems that need to be fixed, I disagree that it can be used as an example of failed socialism.

You think Cuba is prosperous and free? They have trouble feeding themselves. http://www.economist.com/node/15769891

Castro has certainly made things more equal, everyone has been brought down to a poverty level.

I agree, Cuba has a lot of problems, and some of these stem from poor policies.

However, this does not negate Darius' point. First, note the article you cite says this.

Nobody starves, but hard-currency supermarkets go for weeks without basics such as milk and bread.

I am not sure the same could have been said under the pre-Castro dictatorship of Battista (sp?).

AND keep in mind that at least some of Cuba's woes can be attributed to the decades long embargo of the country on the part of the U.S. If this was lifted, it certainly wouldn't solve all the problems, but it would help. Sanctions have an effect.

Note that recent headlines point to problems Iran is having, partly because of sanctions.


I do think Cuba would be better off if it freed up its economy a lot more than it has. But again, let's not pretend that won't have some negative consequences as well.

We need to balance the free market with appropriate government regulations to prevent or ameliorate the inevitable negative effects of free market capitalism. One of those is an inefficient, expensive, and unfair health care system, like what we've been experiencing in this country for many decades.

[Lux]

You think Cuba is prosperous and free? They have trouble feeding themselves. http://www.economist.com/node/15769891

By "free" I mean they're an independent nation, which is certainly not the case for some of the Antilles.

It's true that there are problems in Cuba, and it's not the first time I've heard that their agriculture is poorly ran. Like I said in one of my earlier posts, they have to rely very heavily on importation. The fact that they still haven't recovered from the fall of their main ally and economic sponsor is telling, but the lack of investment in the agricultural sector in Cuba comes from the fact that their resources are very limited to begin with, and the country can't really afford to make such a long term investment at the time.

Castro has certainly made things more equal, everyone has been brought down to a poverty level

Since the vast majority of Cubans have access to the basic necessities and 98.2% of adult Cubans have jobs, I don't know what you mean by poverty level here. The USA's poverty level is considerably nicer than the Latin American poverty level, as you probably know since you descend from Hispanics.

Like the article points out, nobody starves... and while that may not seem like much, it's still an improvement from the pre-revolution Cuba.

[East of Eden]

I am not sure the same could have been said under the pre-Castro dictatorship of Battista (sp?).

According to my father, that was not the case.

AND keep in mind that at least some of Cuba's woes can be attributed to the decades long embargo of the country on the part of the U.S. If this was lifted, it certainly wouldn't solve all the problems, but it would help. Sanctions have an effect.

Except that the rest of the world didn't have sanctions on Cuba. Not only that, but the USSR gave Cuba lots of money to act as an anti-American proxy. I will mention again that 10% of Cuba's population have left all and risked their lives to escape Cuba. That wasn't happening under Batista.

Cuba is a textbook example of an 'Animal Farm' like failure of socialism. There's a story of graffiti in Cuba written under the slogan 'Socialism or Death', which read 'What's the Difference?'

Anyone interested in this subject should read "Against All Hope" by Armando Valladares. This man is a true hero who spent decades in jail for making a comment against Castro at his work.

[Lux]

I will mention again that 10% of Cuba's population have left all and risked their lives to escape Cuba. That wasn't happening under Batista.

At least in part because they could leave freely. The fact that people aren't allowed to leave Cuba is a very serious political - not economic - issue. Can you explain how it's pertinent to socialism?

[micatala]

I am not sure the same could have been said under the pre-Castro dictatorship of Battista (sp?).

According to my father, that was not the case.

With all due respect to your father, this is not exactly compelling evidence.

People typically do not engage in revolutions for trivial reasons. If the situation under Battista had not been egregiously bad, it is not likely Castro and his colleagues would have succeeded.

AND keep in mind that at least some of Cuba's woes can be attributed to the decades long embargo of the country on the part of the U.S. If this was lifted, it certainly wouldn't solve all the problems, but it would help. Sanctions have an effect.

Except that the rest of the world didn't have sanctions on Cuba. Not only that, but the USSR gave Cuba lots of money to act as an anti-American proxy. I will mention again that 10% of Cuba's population have left all and risked their lives to escape Cuba. That wasn't happening under Batista.

Very selective citation of evidence here.

Yes, other countries don't have sanctions against Cuba. However, we are a very close neighbor and a huge economy. Sanctions from us have a huge effect. Sanctions from France would have much less of an effect. Sanctions from a small neighboring country, like the Bahamas, also less of an effect.

Yes, the USSR had given Cuba lots of support and I quite agree they did so for geo-political reasons and their support masked a lot of the problems in Cuba.

None of this negates my previous point. If we lifted out sanctions, that would help Cuba's economy. This is acknowledged by pretty much everyone knowledgeable of the situation on both sides.

Cuba is a textbook example of an 'Animal Farm' like failure of socialism. There's a story of graffiti in Cuba written under the slogan 'Socialism or Death', which read 'What's the Difference?'

A nice soundbite, but not a particularly substantive point.

Again, I am not arguing that Cuba does not have problems, or even that their level of socialism is a good thing.

I am saying the situation could be worse, and in many ways was worse, before Castro came into power. I would agree that in some ways Castro has made the situation worse, especially of course for his political opponents.

I will point to another example. The Sandinistas, as far as their overall effect on the country and its people, are way better than the Samosa regime they replaced. I think this is true both economically and from a freedom standpoint. Samosa was a brutal dictator with a large cadre of thugs. The Sandinistas may not have been ideal, but they were certainly an improvement. The fact that Reagan recruited (via the CIA) and supported these thugs does not speak well for our policy towards Nicaragua in the 1980's.

Anyone interested in this subject should read "Against All Hope" by Armando Valladares. This man is a true hero who spent decades in jail for making a comment against Castro at his work.

Again, you seem to think the world is black and white. One can acknowledge that the Castro regime has many injustices and other problems and still acknowledge that some alternatives to Castro could be worse.

Putin is not good. He is still better than Stalin.

[East of Eden]

With all due respect to your father, this is not exactly compelling evidence.

People typically do not engage in revolutions for trivial reasons.

Neither do they typically leave family and possessions behind,get on a raft in shark infested waters to come to the US for trivial reasons.

If the situation under Battista had not been egregiously bad, it is not likely Castro and his colleagues would have succeeded.

Revolutions often bring is a worse govennment that what was replaced, as we see in Iran.

Yes, other countries don't have sanctions against Cuba. However, we are a very close neighbor and a huge economy. Sanctions from us have a huge effect. Sanctions from France would have much less of an effect. Sanctions from a small neighboring country, like the Bahamas, also less of an effect.

Or could it be their failures are due to socialism? Cuba was going south before the US imposed sanctions.

None of this negates my previous point. If we lifted out sanctions, that would help Cuba's economy. This is acknowledged by pretty much everyone knowledgeable of the situation on both sides.

What else would help is if Cuba de-socialized, as China did to great effect.

A nice soundbite, but not a particularly substantive point.

So the opinions of those forced to live under Castro are irrelevant, huh?

I am saying the situation could be worse, and in many ways was worse, before Castro came into power. I would agree that in some ways Castro has made the situation worse, especially of course for his political opponents.

I will point to another example. The Sandinistas, as far as their overall effect on the country and its people, are way better than the Samosa regime they replaced. I think this is true both economically and from a freedom standpoint. Samosa was a brutal dictator with a large cadre of thugs. The Sandinistas may not have been ideal, but they were certainly an improvement. The fact that Reagan recruited (via the CIA) and supported these thugs does not speak well for our policy towards Nicaragua in the 1980's.

And FDR was allied with Stalin, so? I supported Reagan's efforts. Batista and Samoza were preferable to what followed, being authoritarians but not totalitarians as Communists are, and they were not Soviet proxys either. Sometimes our choices are the lesser of two evils.

Again, you seem to think the world is black and white. One can acknowledge that the Castro regime has many injustices and other problems and still acknowledge that some alternatives to Castro could be worse.

No more than you, who seem to think of Batista and Samoza as pure 'black'. They had many faults, but they didn't run their countries as prisons.

Putin is not good. He is still better than Stalin.

Agreed, but the correct analogy would be Batista and Samoza were Putin,, what followed was more like their fellow Communist Stalin.

[East of Eden]

Getting back to the OP, here is an article on levels of socialism in the Arab world, which shows that those nations with more government employees have worse, more stagnant economies:


Is Egypt Hopeless? With a third of the population employed by the state, Egypt may be past the tipping point that allows a modern economy to grow. By DANIEL HENNINGER.

With luck and support from the world's democracies, Egypt's people will get a credible political system. What they won't get—now or possibly ever—is an economy able to produce real jobs for their country's large, young population. Establishing a democratic system in Egypt is a walk in the park compared to allowing a 21st-century economy to come to life there.

Egypt isn't just a sad story of political oppression. Egypt is an object lesson for other nations, including ours, struggling to produce enough jobs for young workers.

While Egypt has floundered, some have noted that Turkey's economy has flourished, notwithstanding a strong Islamic presence in both countries. How come?

Everyone cites a favorite datum—Egypt produced Nasser and Mubarak while Turkey got Ataturk and free-market economist Turgut Ozal as prime minister in the 1980s. But here's mine: In Egypt, the percentage of the working population employed by the state is 35%. In Turkey, it's 13%.

One is tempted to ask: What more do you need to know?

The economic literature is vast on the smothering effects of large, inefficient public sectors. If Egypt is now exhibit A for these studies in torpid economies, then exhibits B, C, D and E would be Jordan, Yemen, Tunisia and Algeria, the other nations that erupted the past several weeks. In Jordan nearly 50% of the employed population works for the state. This is an economy?

Consistent data on public work forces across nations is hard to find, but IMD, the Swiss business school, produces a comparison of public-sector employment as a percentage of total population for its Competitiveness Yearbook. It shows a striking correlation between economic success in emerging economies and relatively low populations of public employees, notably in Asia.

Korea, Indonesia, India, Malaysia, Taiwan, Thailand and even China (at 8.3%) have low public employment as a percentage of total population. In Singapore, it's less than 3%. Also on the list, below 15%, are Colombia, Peru and Chile, three of South America's strongest economies. A low number doesn't guarantee strong growth, but a high number probably kills it.

The argument being made here is that past some tipping point of a population employed by the state, an economy starts to choke. Egypt is far past that point. In Tahrir Square you are watching the economic and psychological dislocation caused by this misallocation of national energy. This isn't just about a new government. It is a sit-down strike for a better economy.

Egypt faces a hard economic riddle: How does any place that has passed the public-sector tipping point escape these chains? (The crony capitalism of the younger Mubarak, Gamal, merely created a school of golden pilot fish alongside the public whale.)

The U.S. is hardly the place Egypt should look for an answer. Public-sector costs have driven New York, California and New Jersey to the edge of the fiscal cliff. Govs. Chris Christie and Andrew Cuomo are getting good notices for their ideas. But so far they haven't solved anything. Large populations of public workers could burden these states for years in their competition with leaner states. Hosni Mubarak also promised public-sector reform—20 years ago.

With a third of the population employed by the state, Egypt may be past the tipping point what allows a modern economy to grow.
.Podcast: Listen to the audio of Wonder Land here. .But hey, there's always tourism. A major complaint from Egypt is that the protesters are killing tourism. Whether Egypt, France, Italy, or New York City, tourists' cash flow is the last prop beneath economies staggered by the weight of public costs they can't unwind. Egypt has the pyramids, New York has Times Square.

At Davos last month, British Prime Minister David Cameron eloquently sounded the pro-growth trumpet and chided pessimists who "say that slow-growth status for Europe is inevitable." But in a thought-provoking article last month for The Wall Street Journal Europe, "How Big Government Killed Britain's Regions," former U.K. economics official Warwick Lightfoot argued that years of high public-sector wage and benefit settlements had "de-marketized" labor costs in the U.K.'s regions—Wales, Scotland, northern Ireland and the north of England. "The private sector," he said, "cannot flourish because price signals cannot operate properly in the labor market."

Amid the current crisis, Mr. Mubarak decreed a 15% wage and pension increase for public workers. Decades of U.S. governors and mayors did the same thing, poisoning local markets.

California isn't Egypt, yet. But politicians everywhere make the same mistakes, thinking the real economy is always out there somewhere, producing jobs and tax revenue. They think it's sort of like magic. But it isn't.

The first great lesson being learned in the 21st century is that neither the state nor the stork can bring jobs to life in a modern economy. Good luck to Egypt and all other nations on the wrong end of this learning curve.

Write to henninger@wsj.com

[micatala]

With all due respect to your father, this is not exactly compelling evidence.

People typically do not engage in revolutions for trivial reasons.

Neither do they typically leave family and possessions behind,get on a raft in shark infested waters to come to the US for trivial reasons.

Agreed, but this still does not negate my point. I have acknowledged Cuba has problems. You seem to be unable to acknowledge either that there are things worse than socialism, or those aspects of Cuban society that actually got better under Castro, or that there are other reasons for Cuba's problems than solely socialism.

The world is not black and white.

If the situation under Battista had not been egregiously bad, it is not likely Castro and his colleagues would have succeeded.

Revolutions often bring is a worse govennment that what was replaced, as we see in Iran.

I would mostly agree. I am curious how many people we have had tortured, disappeared, or executed in Iran per year since 1980 versus what happened under the Shah.

Yes, other countries don't have sanctions against Cuba. However, we are a very close neighbor and a huge economy. Sanctions from us have a huge effect. Sanctions from France would have much less of an effect. Sanctions from a small neighboring country, like the Bahamas, also less of an effect.

Or could it be their failures are due to socialism? Cuba was going south before the US imposed sanctions.

You may be right, although it would be good to look at their situation over time. My point is simply that sanctions have made their situation measurably worse than it would have been otherwise, all else being equal.

None of this negates my previous point. If we lifted out sanctions, that would help Cuba's economy. This is acknowledged by pretty much everyone knowledgeable of the situation on both sides.

What else would help is if Cuba de-socialized, as China did to great effect.

I would agree that less socialism in Cuba would probably be a good thing. THis still does not negate my previous point, though.

A nice soundbite, but not a particularly substantive point.

So the opinions of those forced to live under Castro are irrelevant, huh?

Not irrelevant, but not particularly objective as evidence.

If we were to measure the "badness" of a regime we should, in my view, do so in objective terms and not simply use subjective opinions, even if they are well-founded in personal experience. Things I would use would be:

1) Political prisoners per capita
2) Instances of torture or execution based on political ideology per capita per year
3) The legitimacy of democratic processes. This might be hard to measure, but there is an organization called the Polity IV project that has provided a pretty robust measure of this, and provided a numerical measure for each country on a 0 to 10 scale, and done it over time. I do think Cuba was at 0 the last time I checked.
4) Measures of poverty, malnutrition, child mortality, life expectancy.
5) Measure of public goods provided by the government. Cuba would probably rate high on most objective measures for their health care system.

I am saying the situation could be worse, and in many ways was worse, before Castro came into power. I would agree that in some ways Castro has made the situation worse, especially of course for his political opponents.

I will point to another example. The Sandinistas, as far as their overall effect on the country and its people, are way better than the Samosa regime they replaced. I think this is true both economically and from a freedom standpoint. Samosa was a brutal dictator with a large cadre of thugs. The Sandinistas may not have been ideal, but they were certainly an improvement. The fact that Reagan recruited (via the CIA) and supported these thugs does not speak well for our policy towards Nicaragua in the 1980's.

And FDR was allied with Stalin, so? I supported Reagan's efforts. Batista and Samoza were preferable to what followed, being authoritarians but not totalitarians as Communists are, and they were not Soviet proxys either. Sometimes our choices are the lesser of two evils.

I would disagree that the Sandinistas were worse than Samosa. What evidence do you have to support Samosa was better? Were the people better off or worse off? If they were allied with the Soviets geo-politically, that by itself does not make them worse.

Did the Sandinistas kill or imprison people more than Samosa and for no other reason than they were political opponents?

Again, you seem to think the world is black and white. One can acknowledge that the Castro regime has many injustices and other problems and still acknowledge that some alternatives to Castro could be worse.

No more than you, who seem to think of Batista and Samoza as pure 'black'. They had many faults, but they didn't run their countries as prisons.

The Sandinistas certainly had their problems, some of their own making, and some due to Reagan's support of the contras, who unfortunately contained some of the Somozista thugs. I will note that they allowed elections, and the 1984 election was considered by many international observers to be largely free and fair. The Sandinistas were in fact voted out of office in 1990.



I would allow Samosa provided stability. So did Saddam Hussein.

Putin is not good. He is still better than Stalin.

Agreed, but the correct analogy would be Batista and Samoza were Putin,, what followed was more like their fellow Communist Stalin.

The suggestion that the Sandinistas were akin to Stalin in their practices is ludicrous.

Why don't you document the number of deaths under the Sandinistas with those under the Samosas? Why don't you document the levels of corruption in both regimes? How about the fairness of the elections? I doubt that you could show in anything approaching an objective way that the Sandinistas were significantly worse for their people than Samoza. AND keep in mind the Samosa's had U.S. support for nearly all of their reign, while the Sandinistas had to start fighting for their lives from early on.

and pardon my inconistent spelling.