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Socialism: How Bad Can It Be?

By Kubair Jha
March 2020

          Socialism, the economic philosophy driven by social equality, has been deemed by many as a reasonable alternative to capitalism, especially in recent years.  Its separation from the stigma surrounding communism has led many to believe that it is a viable alternative to capitalism, where in reality such a system leads to economic instability.  In his article, “Norway: an Eden with Wifi,” Kuper paints an idyllic picture of life in Norway through his interviews with locals: the only problems shown with Norway in the article is the daily ennui the citizens experience from not needing to work hard to maintain their lavish lifestyle.  Perhaps Kuper chose not to explore the dichotomy of capitalism and socialism in his article, but by publishing an article consisting of mainly pro-socialist sentiment in a capitalist country, his work begets the question: is capitalism really the better system?  Yes–according to leading economists including Janet Yellen, Milton Friedman, and Paul Krugman; capitalism is the best economic system.  This, in turn, leads to how Norway, a country whose public wealth within total national wealth is 60%, can still prosper despite economists’ recommendations.  Kuper mentions that Norway’s publicly-owned oil reserves are responsible for the nation’s wealth but provides no explanation as to how socialism managed to succeed.  Through the examination of Kuper’s article and various other sources and statistics exploring the dichotomy between capitalism and socialism, it is evident that Norway’s socialism succeeded where various other countries’ have failed is because Norway not only possessed vast amounts of wealth before its transition to socialism but also chose to embrace elements of capitalism necessary to make their economy prosper.

          Vast national and public wealth are necessary steps for the success of a socialist country as only nations with a similar abundance of resources have been able to prosper through socialism.  Despite this, there has recently been a push towards democratic socialism by some members of the left-wing.  Bernie Sanders, one of the last remaining democratic presidential candidates and a self-proclaimed democratic socialist, believes that working-class Americans need social equality.  Sanders often relates the issues in the United States with Nordic issues before their shift to socialism, but just like Kuper, he fails to recognize the underlying reasons why those countries prospered.  Kuper spends the majority of his article reveling in the vast wealth in Norway but only briefly touches upon how such wealth was acquired and distributed.  Natural resources such as oil and natural gas belong to the people of Norway, and when massive oil deposits were discovered, the profits were spread throughout the country.  As stated in article 112 of Norway’s constitution, “Every person has a right to an environment that is conducive to health and to natural surroundings whose productivity and diversity are preserved. Natural resources should be made use of on the basis of comprehensive long-term considerations whereby this right will be safeguarded for future generations as well.”  The article goes on to further explain how the nation’s natural resources belong to the people, which has resulted in above 60% of Norway’s total national wealth being public wealth.  Kuper and Sanders both fail to mention that such national and public wealth is a necessary step for the success of a socialist country as only nations with a similar abundance of resources have prospered similarly through socialism.

          Despite Norway’s economic success and quality of  life through socialism, it is crucial to consider how capitalist policies have influenced the Norwegian economic structure.  In a study titled “Cutthroat Capitalism versus Cuddly Socialism: Are Americans More Meritocratic and Efficiency-Seeking than Scandinavians?” top Norwegian economists Ingvild Almås, Alexander W. Cappelen, and Bertil Tungodden conducted an international social preference experiment where Americans and Norwegians made distributive choices in identical environments.  Their experiment found that American and Norwegian citizens’ views on economic fairness and equality differ and both groups assign major importance to efficiency in identical situations.  Americans in the test readily accepted a larger amount of inequality in their environments and neither group’s choices changed significantly in the event of wealth redistribution.  This study shows how the two nations’ ideologies differ, which depict the conditions in which socialism can incorporate some capitalistic policies.  Norwegian citizens still readily accepted a large amount of social inequality, which bends the core belief of socialism.  This change, although only about citizens’ sentiment and not policies, gives an insight into how the Norwegian model includes many elements of capitalism which make it possible for socialism to function.  In addition to ideological differences, the Norwegian socialist system also has much less government interference in business affairs and no minimum wage.  The Norwegian government also also provides families with vouchers for each child that can be used to a variety of schools, including public schools, charter schools, and for-profit schools.  However, this use of government funds to endow for-profit organizations is an epitome of the many capitalistic features in Norway’s economic structure.  These unassuming features are essential examples as to why Democratic Socialism in Norway deviates from the other examples of socialism.

          Venezuela, a country which has endured the second-highest inflation rate in human history, is a testament to the perils of Socialism.  While the nation’s recent crisis started due to the extraneous printing of money, prior safeguards were not in place to correct the state of the economy.  The hyperinflation began in the first year of Nicolás Maduro's presidency and was likely caused by printing money and a large deficit.  Running a deficit and printing money only exacerbated the crisis and the nation watched the price of oil plummet at the same time.  The oil crash affected Venezuela due to its economic dependence on its massive oil reserves for federal funds.  The large government deficit led to food and medicinal shortages as well as rampant crime as the government failed to provide its citizens with basic infrastructure.  However, despite the crisis, Venezuela fared much worse than most other nations would due to their economic system: socialism.  Not only was federal money necessary to provide for infrastructure such as food for grocery stores and basic necessities, but the decrease in government funds also halted oil production, which led to an even greater government spending deficit, even less oil production, and so on.  Despite the nation’s reserves holding over 1 trillion barrels of oil, people lost their jobs and watched as their life savings became worth the price of bread or less.  A capitalistic system would have prevented the nation’s dependence on one resource, such as oil, for their national funds.  Even today, crude oil extraction accounts for over 50% of the country’s GDP, and despite their reserves of  trillions of barrels of oil underground, the profitability of the operation and entire national stability is in jeopardy.  As oil prices will undoubtedly continue to swing in the future, a nation so reliant on oil will feel the effects of oil’s volatility.  In order to keep their oil operation working throughout different oil prices, the nation incurred a huge amount of foreign debt and was unable to raise more money to continue funding necessary relief programs for its citizens.  This set the stage for the economic failure of the country as Maduro’s government was ousted and the country saw the second highest hyperinflation in all of human history: 130,060% inflation in 2018 alone.  While the connection between socialism and the events leading up to the economic crash may not be self-evident, a clear connection can easily be drawn.  Not only would a more capitalistic system in Venezuela have increased confidence in the government and could have led to enough increased government borrowing to tide the country over the high oil prices.  In addition, a more private system would have ended up in much more tax revenue and more sources of income for the government that would not fluctuate nearly as much as the price of oil changes.  A privatized market would have led to businesses in many different sectors, many of which could have helped provide people with goods and services during an oil price hike and could have withheld unrest enough to prevent a forceful change of government.  Venezuela is a perfect example of a country which had a huge amount of oil and potential wealth before turning to socialism.  However, since the government refused to incorporate necessary elements of capitalism in the economy, the nation was doomed to fail.  It is clear that Norway is an exception and not an average case of socialism.

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