Economic Indicators

When Measured by Real-World Outcomes, Capitalism Delivers

Nathan Robinson is an erudite socialist who frequently argues for the superiority of socialism over capitalism. He is the editor of Current Affairs and is the author of Why You Should Be a Socialist (All Points Books, 2019). He’s made quite a lucrative career out of pushing for socialism. More specifically, he argues that socialism outperforms markets by nearly every measure, most especially including environmental preservation, income growth, and female empowerment. Yet, if we actually examine the record of markets versus socialist regimes, we find that markets perform much better. Here are a few examples.

Environmental Quality

There is a positive relationship between environmental quality and income over the long term referred to as the Kuznet curve. Higher incomes reduce the incentive to engage in environmentally destructive activities. People in affluent countries are exposed to a wider variety of jobs, so they are less likely to resort to unsustainable practices. According to a 2006 report released by the Proceedings of the National Academy of Sciences of the United States of America, national wealth is linked to forest growth. Wealth affords countries the opportunity to prioritize the environment. In fact, forestation is on the increase in richer countries, however the story in poorer countries is one of recession.

With rising affluence agriculture becomes less important, lowering the demand for land use. Researchers have also provided evidence showing environmental Kuznet curve effects pertaining to biodiversity. Essentially, richer countries can accommodate programs slated to protect threatened species. Moreover, wealth puts them in a better position to mitigate the costs of environmental regulations. The benefit of luxury generates a duty that extends to even nonhuman entities. Poor people lack the time to romanticize the environment and are often poor due to the repression of free markets. Economic freedom is the mechanism by which ordinary people freely create wealth, which enables them to appreciate the beauty of the environment. In the absence of economic freedom, environmental degradation is the result.

Seth Norton in his article “Population Growth, Economic Freedom and the Rule of Law” posits that countries with high economic freedom score higher on measures of environmental quality than their counterparts with medium and low economic freedom. Furthermore, analyses of communism and capitalism illustrate that the environmental record is better under the latter. Assessing both systems in a recent piece, economist Shawn Regan articulates a cogent case for the superiority of capitalism:

By one estimate, in the late 1980s, particulate air pollution was 13 times higher per unit of GDP in Central and Eastern Europe than in Western Europe. Levels of gaseous air pollution were twice as high as this. Wastewater pollution was three times higher. And people’s health was suffering as a result. Respiratory illnesses from pollution were rampant. In East Germany, 60 percent of the population suffered from respiratory ailments. In Leningrad (now St. Petersburg), nearly half of all children had intestinal disorders caused by contaminated water. Children in Poland were found to have five times more lead in their blood than in Western Europe.

Echoing the insights of economist Murray Feshbach and journalist Alfred Friendly, Regan indicts socialism: “When historians finally conduct an autopsy of the Soviet Union and Soviet Communism, they may reach the verdict of death by ecocide.” Because socialism is not driven by market signals, it misallocates resources, leading to wastage and pollution. Furthermore, when property rights are secure, people are unlikely to pollute the environment. Ownership motivates individuals to become responsible stewards of the environment. Though the rhetoric of socialists is rosy, the evidence overwhelmingly indicates that socialism has been a complete disaster.

Income Growth

If socialists are interested in ameliorating the living standards of the poor by raising wages, then capitalism is the ideal system. The 2020 Economic Freedom of the World report published by the Fraser Institute reveals some interesting facts that challenge the outlook of socialists:

  • Nations in the top quartile of economic freedom had an average per-capita GDP of $44,198 in 2018, compared to $5,754 for nations in the bottom quartile (PPP constant 2017, international$).
  • In the top quartile, the average income of the poorest 10% was $12,293, compared to $1,558 in the bottom quartile (PPP constant 2017, international$). Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations.
  • In the top quartile, 1.7% of the population experience extreme poverty (US$1.90 a day) compared to 31.5% in the lowest quartile.

Similarly, poor people in China and India recorded a sharp increase in their incomes after the adoption of promarket reforms. For example, the poorest Chinese currently earn fives times as much as they did over twenty years ago. In addition, a study published by the Cato Institute in 2009 titled “Socialism Kills: The Human Cost of Delayed Economic Reform in India” opines that implementing reforms in 1971 instead of 1991 would have reduced the poverty rate tremendously:

Had India benefited from earlier reforms and faster growth, the number of poor might have declined very substantially, from 309 million in 1971 to 197 million in 2004, and further to 174 million by 2008. This would have meant a huge decrease of 135 million in the absolute number of poor people between 1971 and 2008.

Likewise, another estimate reveals that had it not been for Michelle Bachelet’s statist policies, Chile would report growth rates of 4 percent of year, hence limiting the reach of poverty.

Relatedly, workers also fare better under flexible labor markets engendered by capitalism. By increasing the cost of labor, heavy regulation makes employing workers unattractive. Additionally, economic literature informs us that high labor income taxes are associated with fewer working hours and lower earnings. Steven Davis and Magnus Henrekson in “Tax Effects on Work Activity, Industry Mix and Shadow Economy Size: Evidence from Rich-Country Comparisons” assert that “higher tax rates on labor income and consumption expenditures lead to less work time in the market sector, more work time in the household sector, a bigger underground economy, and smaller value added and employment shares in industries that rely heavily on low wage, low skill labor inputs.” On the other hand, research indicates that when employment protection policies become an obstacle to firing workers, unemployment will increase. Employers are less likely to risk employing new workers under such policies. Highly regulated labor markets do not improve working conditions.

Female Empowerment

Further, despite the rantings of critics, free markets empower women. As Rosemarie Fike noted in Impact of Economic Freedom and Women’s Well-Being, markets induce favorable outcomes for women:

  • “Women are almost twice as likely to participate in the labour market in nations with high levels of economic freedom compared to nations with low levels.”
  • “The share of women earning wages in economically free countries is three times than it is in nations with low levels.”
  • “Women in countries with high economic freedom are more likely to have a bank account.”
  • “Women living in economically free countries are less likely to die in child birth relative to their peers in countries with low levels of economic freedom.”
  • “On average, women in economically free countries outlive their counterparts in less free countries by 17 years.”

Free markets require the removal of special privileges, therefore individuals regardless of sex or race are offered the liberty to work and innovate. Writing about the success of capitalism, Chelsea Follett demonstrates that in contrast to capitalism, the socialist economies failed to deliver for women:

In practice, wherever socialism has been enacted, women were expected both to work outside the home and to do all the housework as well. And in centrally planned economic systems without any market incentive to fulfil human needs, it is women’s needs that were forgotten first. Right up until the fall of communism in the Eastern Bloc countries, communist factories failed to manufacture even the most basic items for women, such as sanitary products. Those who romanticize socialism as liberating for women would do well to learn about the actual hardships women suffered, such as the stories of the women of the Gulag…. Communist officials saw women as just another means of punishing men, rather than as individuals with distinct identities.

Meanwhile, innovations fostered by free markets disproportionately benefit women. For example, we can attribute the longer life expectancy of women in capitalist countries to innovations in healthcare inspired by the free market. Also, due to labor-saving devices domestic duties are less strenuous for women. As such, true champions of female empowerment must endorse capitalism to be consistent.

Not that I expect these facts to have much effect on whether or not writers like Robinson will support markets. In many socialist circles, it appears that what really matters is declaring one’s devotion to socialist notions of equality. Whether or not socialism actually works in improving the lives of ordinary people seems to be of far less importance.