The good old-fashioned “list of the insane things Wal-Mart employees are made to suffer” is a minor literary genre of which I will always be fond.
But I do think you may be missing the point, which is that Wal-Mart is a highly profitable corporation and, from what I’ve read, one of the more systemically efficient organizations in human history, whereas the Soviet Union was an economic disaster from day one. Maybe it’s as simple as good execution vs. bad execution, but notwithstanding inefficiencies and/or insanities at the level of what individual employees have to put up with, Wal-Mart does indeed seem to be getting the (faintly repulsive) job done.
Contrary to what everyone is absolutely certain of, Soviet Union was not an economic disaster.
Russia and Eastern Europe were much poorer than USA and Western Europe before Soviet Union even started. During Communism economic growth in Soviet Union and other Communist countries was quite close to global average—and it doesn’t change when you correct for initial income and supposed catch-up effect. The big loser economically were supposedly capitalist countries like India, Chile, Argentina (and most of South America), and UK. The big winner being East Asia, but Western Europe doing somewhat better than average.
There’s a helpful scatterplot in the paper linked.
tl;dr Much higher starting point of Western Europe + better than global average growth of Western Europe together created illusion that Communist countries were unusually economically unsuccessful, while in fact they’ve been fairly unremarkable either way.
I have made your point about econ growth not being so low under Soviet system, if one even believes in economic growth as it’s usually reported. I’m fantastically skeptical of Soviet life expectancy data from Stalin’s life, especially when they are one year short of current (57 Year later!!!) figures. What was the population of the USSR in 1953 and in 1917? What birth rates were reported? Are the data even consistent?
What I have seen in this thread is an amazing collective display of this.
Every single claim like that (“but Soviet gdp is not real”, “what about East vs West Germany”, “what about Stalin killing millions of people” etc. etc.) is refutable with modest effort. What will have no effect on anyone, as in any context only one of the claims is refuted, so people look at their lists of arguments—most still unrefuted—decide by proportion that Communism must have been an economic disaster, and forget about that particular problem and their original extremely low prior probability they attached to it.
As for life expectancy, I’d bet you on intrade the data is self-consistent.
Given the fact that Czarist Russia had poor organization, wars and revolutions create chaos and destroy information, contemporary people have difficulty agreeing to within a factor of two as to how many people the Gulags or Chinese Cultural Revolution killed, and Russian population numbers in 1960 may have been lies (see http://www.heinleinsociety.org/readersgroup/AIM_06-20-2002.html ) I am very skeptical of the claim but much less skeptical of its logical consistency.
I’m seriously curious about the life expectancy consistency (and even more about Cuba’s life expectancy legitimacy, but that’s less easily checked) but not willing to do a serious analysis myself, as it sounds time-consuming. Don’t want to set up an account on in-trade, but it you will do the analysis with even odds for $10 and propose a third party judge who I find credible to look over my counter-arguments and make a decision it would be worth my time to look over your data analysis and look for counter-arguments. My experience on Long Bets though makes me doubt that the third party judging etc can be done all that easily and in that satisfactory a manner, but it’s worth a try.
i definitely don’t accept your claim that the other claims are refutable, but that doesn’t deny me the opportunity to gain a some new factual knowledge cheaply or profitably.
Describing Mexico under the PRI (Institutional Revolutionary Party), which was a member of the Socialist International, and nationalized large chunks of the economy, as “captialist” is something of a stretch.
You are not allowed to do this kind of cherry picking. No country is fully Communist/Capitalist/Socialist/Whateverist so every time you dislike some results you recategorize a country. Criteria must be clear, automatic, and up-front.
I’m not cherry picking. Describing a largely nationalized economy as capitalist is false. If you had called it a socialist mixed economy, that would have been more accurate, as it is, you mentioned socialist mixed economies with largely nationalized production as “capitalist growth failures” which is obviously disingenuous.
As I pointed out in my other comment, this is true of all of those other countries you mentioned as well. Again, as TGGP put it, you do need more categories, or else you might list countries with minimal property rights and nationalized production as capitalist just because they weren’t a member of COMECON or whatever. Instead, it makes more since to list countries according to economic freedom, then measure the relevant statistics wealth/growth/quality of life statistics.
Focusing on success stories of Capitalist growth (Western Europe and East Asia) and not on global average is simply wrong.
South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).
The paper does not include North Korea, but it’s so atypical for a “Communist” country it really shouldn’t be treated as one—it is more like an isolationist militaristic monarchy.
My point is not that East Germany and North Korea are typical communist countries, but that they can be easily compared to a neighboring capitalist country sharing much of the same culture and history: a “natural experiment” in the effect of policy differences.
Also, I think life expectancy is very different from GDP. Death rates appear to go up during economic booms and down during recessions.
First, in the long term, GDP—life expectancy correlation is ridiculously high—just look at gapminder.
Now back to the main subject.
With Korea it’s not much of a natural experiment—it involves two extreme outliers in their camps, so every explanation should also explain why North Korea was so much less successful than almost every Communist country, and why South Korea was so much more successful than almost every Capitalist country.
Anyway, Germany. It is comparable enough to work as a “natural experiment”—but then:
West Germany got plenty of money from USA, while East Germany was looted by Soviets and forced to pay reparations
West Germany traded with rich countries, while East Germany traded with poor countries, and by argument of regional convergence mentioned in the paper we should expect West Germany to do much better.
East Germany was actually the richest Communist country, due to its atypically high starting point.
And the big argument. According to data I’ve been able to find—almost all of the difference comes from very early time—in 1950 West Germany to East Germany GDP per capita ratio was 2.04:1.00. In 1989 it was almost identical 2.14:1.00. So 40 years hardly widened the gap, and 1950 gap can be easily blamed on harshness of Soviet occupation and reparations.
German “natural experiment” provides very little support for Capitalism vs Communism economy. On the other hand it seems to show quite well (together with Japanese / South Korean etc. examples) that American/British occupation is much better thing to happen to you than Soviet occupation.
South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).
Most of those countries were not capitalist, but rather socialist mixed economies. New Zealand is actually rather capitalistic, and has respectable growth for an advanced economy and persistent low unemployment, so I’m not sure what you’re getting at there. Here’s Wikipedia on India:
Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders’ exposure to Fabian socialism. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation, and central planning.[8] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[9] Elaborate licences, regulations and the accompanying red tape, commonly referred to as Licence Raj, were required to set up business in India between 1947 and 1990.
India liberalized starting in the 1980s but mostly since 1991. Growth accelerated rapidly after the state declared bankruptcy (basically) in 1990 and liberalization began. When Chile liberalized its economy, it went from one of the poorest to the wealthiest country in Latin America, which strongly refutes your hypothesis.
Dividing countries into two categories, as TGGP says, is not the best option. Most countries aren’t fully capitalist or communist but rather a mix. On the one extreme you have countries like Singapore, Switzerland and Hong Kong, on the other you have North Korea.
I think much of the problem here comes from something of an equivocation on the meaning of “economic disaster.” A country can post high and growing GDP numbers without benefiting its citizens as much as a country with weaker numbers; the linked paper notes that
real per capita private consumption was lower than straight GDP per capita figures suggest because of very high investment rates and high military expenditures, and the quality of goods that that consumption expenditure could bring was even lower still.”
Communism is good at maintaining top-line growth in an economy because it can simply mandate spending. In much the same way as US government spending can directly add to GDP growth (even if incurring substantial debt), the Soviet Union could make massive military expenditures even while running factories that produced goods not based on consumer desires but state beliefs about those desires or needs.
In short, communism was not an economic disaster in that it effectively industrialized a great many nations and brought consistent top-line growth. It was an economic disaster in that state power allowed or created widespread famines and poor production of consumer goods.
Actually, I’m not by any stretch of the imagination convinced that Wal-mart is a highly profitable corporation by any long-term measure: that is, I’m quite convinced (probability greater than 0.99) that Wal-mart is sacrificing long-term growth and sustainability in favor of superficial short-term gains. Upper management is desperate to do anything to make the stock price budge, long term be damned. Eventually, this superficiality will expose itself as the house of cards it truly is.
The recent news regarding firing over 10,000 employees at Sam’s Club is salt in the wound here. You don’t cut employees if you plan to proactively expand your business, you cut employees to entrench yourself and react defensively to the market moving around you. You especially don’t cut your marketers and salespeople (which is what those people giving out free samples are… err, were… functioning as). You might shift a slice of your labor budget from a less effective strategy to a more effective one, but you don’t simply drop the slice entirely and pocket the change. That will destroy the business, even if it pads the golden parachutes on the way out.
And it’s not like the job cuts are the only piece of evidence. Apparently, in the few years its been since I worked there, they’ve stopped hiring full-time employees entirely: now, all hires are part-time. Thus: second-rate health insurance (not that health insurance ought to come from employers in the first place), no retirement plan (not even the crappy Wal-mart stock they pawned off on full-time employees like me), and easier to fire people on a whim. But this has the hidden cost of needing to re-train people from scratch as the n00bs enter the revolving door, and it also sabotages the quality of labor by destroying any sense of loyalty to the company or enjoyment of the work environment. They then respond to falling labor quality by trying to wring even more out of the employees they have, creating a downward vicious spiral as the best employees walk out the door for greener pastures.
If I had any substantial amount of money invested in Wal-mart (i.e. beyond the pittance of stock accumulated in my 5 year employment, almost too trivial to bother with), I would be pulling it out now for saner investments.
I suppose I should qualify that, as it’s a bit unfair to Buffett.
Yes, Buffett is a professional investor and more expert than me at it, which counts for quite a bit. But he’s also human, and humans don’t do a very good job of anticipating economic activity beyond a horizon of a few years. Importantly, most humans have a laughably brief idea of what constitutes a “long term”.
I’d estimate that Buffett’s bet constitutes quite a few bits of evidence toward the profitability of Wal-mart over, say, a 2 year time horizon. But I was already leaning in that direction, so it doesn’t move my posterior probability by very much. In contrast, I’d estimate that it provides a much smaller number of bits over a 10-year horizon: if I had to name a number, I’d say 2 bits. That’s a nudge in Buffett’s direction, but not a very big one.
Now, Wal-mart is not so foolish as to have played the derivatives shell games that exploded in the financial industry, nor do they have any substantial debt exposure. But I think a big source of risk, unconsidered in the standard analysis and probably unconsidered by Buffett, is their interdependence on China.
Sidebar:
Inflation triggers human biases: it causes people to miscalculate and believe they have more utilons merely because they have more money. (This is the essence of Keynesian stimulus: trick people into diverting their money from savings into spending. Regardless of whether you hold this is good or bad, it is what stimulus does.) Spending within an inflated economy is a complicated matter that I won’t delve into, but international trade is where it gets interesting.
Imagine two countries, A and B, which are trade partners. A injects a stimulus. People in A start buying more goods, including imported goods from B, with their freshly-printed money. This creates a trade imbalance between A and B. When this happens the buyer (implicitly or explicitly) exchanges A’s currency for B’s. On the currency exchange markets, B’s currency goes up (demanded) while A’s goes down (supplied). Thus, in the absence of further intervention, the exchange rate will cause the price of B’s goods to rise in A’s currency until A can no longer afford them, putting the brakes on the trade imbalance.
However, the end of the trade imbalance can cause adjustment problems: when people made plans, they baked in assumptions that simply weren’t true. People in A used to cheap $GOOD are suddenly faced with rising prices. Manufacturers in B were used to steady output but now face a significant slowdown, perhaps turning that new factory from a brilliant investment into a frustrating white elephant.
Magic wand: more stimulus! Now B gets in on the act: B injects stimulus, tricking the people of B into spending instead of saving and filling the factories with busywork. Thanks to imports and foreign investments, money starts to flow out of their country, causing their currency to come back down from the stratosphere. And the cheap currency exchange rates make A look like a good investment now...
But in the end, what has this circle accomplished: both A and B have severely devalued their currencies in relation to any third-party country C, both have depleted their citizen’s savings accounts, and both have huge government debts due to their respective stimuli. Oh, and each has lots of manufacturing capacity that goes to waste unless the other is actively digging a money pit.
End sidebar.
Note that what the U.S. and China have is not quite what I described above. China is inflating, but the U.S. is inflating faster, and the dollar-yuan currency peg means the exchange rate isn’t closing the trade valve. Therefore the trade balance persists, with China the continuous exporter. This creates a huge pileup of U.S. dollars that no one is sure what to do with, and it also means there’s little incentive for people in China to import from U.S. manufacturers. (The Chinese government owns most of the dollars: it printed yuan to buy them and thus fix the price. Therefore the dollars are not in private hands, therefore there is little investment flowing into the U.S. from China.)
China is painfully exposed: the situation is clearly unsustainable, it took herculean effort to keep it from exploding this time around, and it’s going to explode in the not-so-distant future. In desperation to keep the Keynesian pump primed, the Chinese government has plowed enormous amounts of stimulus into their domestic economy: the government funded the construction of an entire city, Ordos, merely to boost GDP. (Spoiler: no one lives there, but prices are sky-high: real estate “always goes up” in China.) The next major economic crisis will probably (0.80) start with China, and will almost certainly (0.98+) bring about a crisis severe enough that it puts China into a recession.
From Wal-mart’s perspective, stimulus in China is a mixed blessing: it provides a tiny relief valve through which piled up U.S. dollars can leave the country, and it also subsidizes Chinese manufacturers to lower prices, but it also creates inflationary pressure within China and thus causes labor and manufacturing prices (measured in yuan, not utilons) to rise dramatically. The whole thing a chaotic powder keg, and the blast is not directionally pointed away from Wal-mart.
In short, expect China starting today to follow a similar 30-year trajectory as the one laid out by Japan starting in 1980, complete with one or more “lost decades”. (The situation is not exactly analogous, but strongly suggestive.)
Apparently, in the few years its been since I worked there, they’ve stopped hiring full-time employees entirely: now, all hires are part-time. Thus: second-rate health insurance (not that health insurance ought to come from employers in the first place), no retirement plan (not even the crappy Wal-mart stock they pawned off on full-time employees like me), and easier to fire people on a whim. But this has the hidden cost of needing to re-train people from scratch as the n00bs enter the revolving door, and it also sabotages the quality of labor by destroying any sense of loyalty to the company or enjoyment of the work environment. They then respond to falling labor quality by trying to wring even more out of the employees they have, creating a downward vicious spiral as the best employees walk out the door for greener pastures.
I’m cautious of debating this on my much-less-than-perfect knowledge. You may well be right overall. But I wonder if you’ve given adequate consideration to the possibility that these kinds of practices may simply be nontraditional, but profitable, solutions to certain equations. Sure, there are hidden costs, but with a company like Wal-Mart, with its track record of ruthlessly squeezing money out of anything they possibly can, my first thought is that they simply calculated that the hidden costs don’t outweigh the gains you enumerate.
Soviet Union performed fairly average economically. Russians are much much poorer than Americans and Western Europeans because they were much much poorer than Americans and Western Europeans in 1913 before Communism ever started. This holds true even when correcting for initial income—Soviet Union economic performance was not atypical for other countries with similar starting income.
Russians are much much poorer than Americans and Western Europeans because they were much much poorer than Americans and Western Europeans in 1913 before Communism ever started.
What explains the greater amount of wealth in America and Western Europe prior to 1913? Could capitalism be a partial explanation? Hong Kong and Singapore were much poorer than America and Western Europe prior to 1913, but now have equal or greater levels of wealth in addition to being more capitalist. Could capitalism also be a partial explanation in this case? If not, what is a more plausible explanation?
I’m happy to see that the paper you link acknowledges in its opening sentence that “the human costs of communism in Eastern Europe were incalculably large”. Ignoring the 20 million murdered by the communist regime in Russia in statistics on economic performance that include per capita income measures seems questionable to me however.
This is cheap attempt at getting applause and deserves a downvote. Discussion is about economic efficiency of government control of economy, not about human rights under Communism, and these two are not obviously related as many Communist countries weren’t particularly genocidal (and Lenin/Stalin/Mao’s genocides existed in context of war), while many Capitalist countries were (~10M deaths due to African slave trade alone—that’s a highly capitalist activity, Nazi Germany was mostly a Capitalist economy, etc.) and it’s neither obvious that median Communist country was more genocidal than median Capitalist country, nor that economic growth and genocides are not directly related.
matthewnewport makes a good point which you seem to ignore. If you’re talking about a per capita increase in wealth, and part of that increase can be accounted for via 20 million people killed (not mirrored in the US) for a country with a population of maybe 180 million or so to start, it doesn’t necessarily make sense to say that their economic performance was the same.
I haven’t done the math though, so I have no opinion on whether there really is a significant difference there.
That was the point? Sorry, I missed it as I never thought anyone would make a suggestion that stupid.
Killing 20 million people—mostly in context of two world wars and civil war between them—cannot possibly increase standards of living of the rest. You basically look at massive destruction of human capital due to wars and revolutions and pretend it’s somehow net positive… This is Malthusianism taken to ridiculous levels. So dropping a few nukes here and there would help the economy?
In any case, even accepting an argument as retarded as that, it doesn’t apply to the vast majority of Communist countries.
In any case, even accepting an argument as retarded as that
There’s no need for language like that. Anyway, for countries where resource wealth (e.g. Russian oil and gas) is a big chunk of the economy, population can indeed have a big effect on per capita wealth (see Kuwait, Saudi Arabia). Likewise, if you have big wealth inequality, e.g. between peasant farmers and urbanites/factory workers, famines among poor farmers can easily raise per capita income.
Killing 20 million people—mostly in context of two world wars and civil war between them—cannot possibly increase standards of living of the rest. … This is Malthusianism taken to ridiculous levels.
Just an FYI: This position you’re arguing against is exactly what Gregory Clark) argues in “A Farewell to Alms [sic]”, minus the bit about destruction of capital. (See the links to reviews that summarize it.)
While I don’t agree with his thesis, it’s a serious attempt to show that massive die-offs (like through plagues) increased per-capita income. He shows records in England of the prices for capital (wealth-producing) goods like cattle going down as the population went down, thus making it easier for someone to make a living. This was, of course, before the 18th-century, and in that time the world actually did match Malthus’s theories because of the lack of technological breakthroughs necessary to sustain higher populations.
Name calling aside, you missed the point again. It’s not Malthusianism, it’s algebra.
per capita wealth equals wealth divided by population
By simple algebra, killing people without decreasing wealth increases per capita wealth, and thus a significant percentage of the population dying will artificially look like economic growth if you’re measuring growth per capita.
taw’s question-wrapped-in-barbed wire is how you keep wealth level despite killing people, since presumably those people were adding to the economy by both producing and consuming goods.
That is a good question, but I don’t see it in taw’s comment, even between the lines. taw seemed to think someone was implying that the economy would actually get better by killing poor people, thus the reference to Malthus.
I could easily contrive a scenario where one kills 20 million people without significantly decreasing wealth, and I noted that I don’t know whether this was such a case. Note CarlShulman’s observation below.
The good old-fashioned “list of the insane things Wal-Mart employees are made to suffer” is a minor literary genre of which I will always be fond.
But I do think you may be missing the point, which is that Wal-Mart is a highly profitable corporation and, from what I’ve read, one of the more systemically efficient organizations in human history, whereas the Soviet Union was an economic disaster from day one. Maybe it’s as simple as good execution vs. bad execution, but notwithstanding inefficiencies and/or insanities at the level of what individual employees have to put up with, Wal-Mart does indeed seem to be getting the (faintly repulsive) job done.
Contrary to what everyone is absolutely certain of, Soviet Union was not an economic disaster.
Russia and Eastern Europe were much poorer than USA and Western Europe before Soviet Union even started. During Communism economic growth in Soviet Union and other Communist countries was quite close to global average—and it doesn’t change when you correct for initial income and supposed catch-up effect. The big loser economically were supposedly capitalist countries like India, Chile, Argentina (and most of South America), and UK. The big winner being East Asia, but Western Europe doing somewhat better than average.
There’s a helpful scatterplot in the paper linked.
tl;dr Much higher starting point of Western Europe + better than global average growth of Western Europe together created illusion that Communist countries were unusually economically unsuccessful, while in fact they’ve been fairly unremarkable either way.
What about North vs South Korea? And were East vs West Germany so different?
A point near the end of the linked paper seems in some ways to support Caplan’s take on Soviet industrialization.
Theories that Soviet growth was fake are nonsense. If you don’t trust GDP you can look at hard to fake proxies like life expectancy.
1917 Russia − 29 years (last full year before the war)
1953 Russia − 65 years (at time of death of Stalin)
For comparison, during the same time life expectancy in Capitalist Mexico (closest dot on 1913 gapminder chart) grew only from 30 to 52.
I think you need to think in more categories than just capitalist and communist.
I have made your point about econ growth not being so low under Soviet system, if one even believes in economic growth as it’s usually reported. I’m fantastically skeptical of Soviet life expectancy data from Stalin’s life, especially when they are one year short of current (57 Year later!!!) figures. What was the population of the USSR in 1953 and in 1917? What birth rates were reported? Are the data even consistent?
What I have seen in this thread is an amazing collective display of this.
Every single claim like that (“but Soviet gdp is not real”, “what about East vs West Germany”, “what about Stalin killing millions of people” etc. etc.) is refutable with modest effort. What will have no effect on anyone, as in any context only one of the claims is refuted, so people look at their lists of arguments—most still unrefuted—decide by proportion that Communism must have been an economic disaster, and forget about that particular problem and their original extremely low prior probability they attached to it.
As for life expectancy, I’d bet you on intrade the data is self-consistent.
Given the fact that Czarist Russia had poor organization, wars and revolutions create chaos and destroy information, contemporary people have difficulty agreeing to within a factor of two as to how many people the Gulags or Chinese Cultural Revolution killed, and Russian population numbers in 1960 may have been lies (see http://www.heinleinsociety.org/readersgroup/AIM_06-20-2002.html ) I am very skeptical of the claim but much less skeptical of its logical consistency.
I’m seriously curious about the life expectancy consistency (and even more about Cuba’s life expectancy legitimacy, but that’s less easily checked) but not willing to do a serious analysis myself, as it sounds time-consuming. Don’t want to set up an account on in-trade, but it you will do the analysis with even odds for $10 and propose a third party judge who I find credible to look over my counter-arguments and make a decision it would be worth my time to look over your data analysis and look for counter-arguments. My experience on Long Bets though makes me doubt that the third party judging etc can be done all that easily and in that satisfactory a manner, but it’s worth a try.
i definitely don’t accept your claim that the other claims are refutable, but that doesn’t deny me the opportunity to gain a some new factual knowledge cheaply or profitably.
I’m confused—your link suggests one thing, but your comment text could mean the exact opposite. What are you arguing?
Describing Mexico under the PRI (Institutional Revolutionary Party), which was a member of the Socialist International, and nationalized large chunks of the economy, as “captialist” is something of a stretch.
You are not allowed to do this kind of cherry picking. No country is fully Communist/Capitalist/Socialist/Whateverist so every time you dislike some results you recategorize a country. Criteria must be clear, automatic, and up-front.
Also, half of the world is ruled by member parties of Socialist International. Socialist International = Social-Democrats = Capitalists.
= *falls out of chair*
I’m not cherry picking. Describing a largely nationalized economy as capitalist is false. If you had called it a socialist mixed economy, that would have been more accurate, as it is, you mentioned socialist mixed economies with largely nationalized production as “capitalist growth failures” which is obviously disingenuous.
As I pointed out in my other comment, this is true of all of those other countries you mentioned as well. Again, as TGGP put it, you do need more categories, or else you might list countries with minimal property rights and nationalized production as capitalist just because they weren’t a member of COMECON or whatever. Instead, it makes more since to list countries according to economic freedom, then measure the relevant statistics wealth/growth/quality of life statistics.
Focusing on success stories of Capitalist growth (Western Europe and East Asia) and not on global average is simply wrong.
South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).
The paper does not include North Korea, but it’s so atypical for a “Communist” country it really shouldn’t be treated as one—it is more like an isolationist militaristic monarchy.
My point is not that East Germany and North Korea are typical communist countries, but that they can be easily compared to a neighboring capitalist country sharing much of the same culture and history: a “natural experiment” in the effect of policy differences.
Also, I think life expectancy is very different from GDP. Death rates appear to go up during economic booms and down during recessions.
First, in the long term, GDP—life expectancy correlation is ridiculously high—just look at gapminder.
Now back to the main subject.
With Korea it’s not much of a natural experiment—it involves two extreme outliers in their camps, so every explanation should also explain why North Korea was so much less successful than almost every Communist country, and why South Korea was so much more successful than almost every Capitalist country.
Anyway, Germany. It is comparable enough to work as a “natural experiment”—but then:
West Germany got plenty of money from USA, while East Germany was looted by Soviets and forced to pay reparations
West Germany traded with rich countries, while East Germany traded with poor countries, and by argument of regional convergence mentioned in the paper we should expect West Germany to do much better.
East Germany was actually the richest Communist country, due to its atypically high starting point.
And the big argument. According to data I’ve been able to find—almost all of the difference comes from very early time—in 1950 West Germany to East Germany GDP per capita ratio was 2.04:1.00. In 1989 it was almost identical 2.14:1.00. So 40 years hardly widened the gap, and 1950 gap can be easily blamed on harshness of Soviet occupation and reparations.
German “natural experiment” provides very little support for Capitalism vs Communism economy. On the other hand it seems to show quite well (together with Japanese / South Korean etc. examples) that American/British occupation is much better thing to happen to you than Soviet occupation.
Most of those countries were not capitalist, but rather socialist mixed economies. New Zealand is actually rather capitalistic, and has respectable growth for an advanced economy and persistent low unemployment, so I’m not sure what you’re getting at there. Here’s Wikipedia on India:
India liberalized starting in the 1980s but mostly since 1991. Growth accelerated rapidly after the state declared bankruptcy (basically) in 1990 and liberalization began. When Chile liberalized its economy, it went from one of the poorest to the wealthiest country in Latin America, which strongly refutes your hypothesis.
Dividing countries into two categories, as TGGP says, is not the best option. Most countries aren’t fully capitalist or communist but rather a mix. On the one extreme you have countries like Singapore, Switzerland and Hong Kong, on the other you have North Korea.
I think much of the problem here comes from something of an equivocation on the meaning of “economic disaster.” A country can post high and growing GDP numbers without benefiting its citizens as much as a country with weaker numbers; the linked paper notes that
Communism is good at maintaining top-line growth in an economy because it can simply mandate spending. In much the same way as US government spending can directly add to GDP growth (even if incurring substantial debt), the Soviet Union could make massive military expenditures even while running factories that produced goods not based on consumer desires but state beliefs about those desires or needs.
In short, communism was not an economic disaster in that it effectively industrialized a great many nations and brought consistent top-line growth. It was an economic disaster in that state power allowed or created widespread famines and poor production of consumer goods.
Actually, I’m not by any stretch of the imagination convinced that Wal-mart is a highly profitable corporation by any long-term measure: that is, I’m quite convinced (probability greater than 0.99) that Wal-mart is sacrificing long-term growth and sustainability in favor of superficial short-term gains. Upper management is desperate to do anything to make the stock price budge, long term be damned. Eventually, this superficiality will expose itself as the house of cards it truly is.
The recent news regarding firing over 10,000 employees at Sam’s Club is salt in the wound here. You don’t cut employees if you plan to proactively expand your business, you cut employees to entrench yourself and react defensively to the market moving around you. You especially don’t cut your marketers and salespeople (which is what those people giving out free samples are… err, were… functioning as). You might shift a slice of your labor budget from a less effective strategy to a more effective one, but you don’t simply drop the slice entirely and pocket the change. That will destroy the business, even if it pads the golden parachutes on the way out.
And it’s not like the job cuts are the only piece of evidence. Apparently, in the few years its been since I worked there, they’ve stopped hiring full-time employees entirely: now, all hires are part-time. Thus: second-rate health insurance (not that health insurance ought to come from employers in the first place), no retirement plan (not even the crappy Wal-mart stock they pawned off on full-time employees like me), and easier to fire people on a whim. But this has the hidden cost of needing to re-train people from scratch as the n00bs enter the revolving door, and it also sabotages the quality of labor by destroying any sense of loyalty to the company or enjoyment of the work environment. They then respond to falling labor quality by trying to wring even more out of the employees they have, creating a downward vicious spiral as the best employees walk out the door for greener pastures.
If I had any substantial amount of money invested in Wal-mart (i.e. beyond the pittance of stock accumulated in my 5 year employment, almost too trivial to bother with), I would be pulling it out now for saner investments.
http://money.cnn.com/2009/11/16/news/companies/berkshire_walmart/index.htm
Buffett increased his stake in Walmart in Nov 2009.
And on the timescale of 5 or even 10 years, he may even be right. Yay for him.
I suppose I should qualify that, as it’s a bit unfair to Buffett.
Yes, Buffett is a professional investor and more expert than me at it, which counts for quite a bit. But he’s also human, and humans don’t do a very good job of anticipating economic activity beyond a horizon of a few years. Importantly, most humans have a laughably brief idea of what constitutes a “long term”.
I’d estimate that Buffett’s bet constitutes quite a few bits of evidence toward the profitability of Wal-mart over, say, a 2 year time horizon. But I was already leaning in that direction, so it doesn’t move my posterior probability by very much. In contrast, I’d estimate that it provides a much smaller number of bits over a 10-year horizon: if I had to name a number, I’d say 2 bits. That’s a nudge in Buffett’s direction, but not a very big one.
Now, Wal-mart is not so foolish as to have played the derivatives shell games that exploded in the financial industry, nor do they have any substantial debt exposure. But I think a big source of risk, unconsidered in the standard analysis and probably unconsidered by Buffett, is their interdependence on China.
Sidebar:
Inflation triggers human biases: it causes people to miscalculate and believe they have more utilons merely because they have more money. (This is the essence of Keynesian stimulus: trick people into diverting their money from savings into spending. Regardless of whether you hold this is good or bad, it is what stimulus does.) Spending within an inflated economy is a complicated matter that I won’t delve into, but international trade is where it gets interesting.
Imagine two countries, A and B, which are trade partners. A injects a stimulus. People in A start buying more goods, including imported goods from B, with their freshly-printed money. This creates a trade imbalance between A and B. When this happens the buyer (implicitly or explicitly) exchanges A’s currency for B’s. On the currency exchange markets, B’s currency goes up (demanded) while A’s goes down (supplied). Thus, in the absence of further intervention, the exchange rate will cause the price of B’s goods to rise in A’s currency until A can no longer afford them, putting the brakes on the trade imbalance.
However, the end of the trade imbalance can cause adjustment problems: when people made plans, they baked in assumptions that simply weren’t true. People in A used to cheap $GOOD are suddenly faced with rising prices. Manufacturers in B were used to steady output but now face a significant slowdown, perhaps turning that new factory from a brilliant investment into a frustrating white elephant.
Magic wand: more stimulus! Now B gets in on the act: B injects stimulus, tricking the people of B into spending instead of saving and filling the factories with busywork. Thanks to imports and foreign investments, money starts to flow out of their country, causing their currency to come back down from the stratosphere. And the cheap currency exchange rates make A look like a good investment now...
But in the end, what has this circle accomplished: both A and B have severely devalued their currencies in relation to any third-party country C, both have depleted their citizen’s savings accounts, and both have huge government debts due to their respective stimuli. Oh, and each has lots of manufacturing capacity that goes to waste unless the other is actively digging a money pit.
End sidebar.
Note that what the U.S. and China have is not quite what I described above. China is inflating, but the U.S. is inflating faster, and the dollar-yuan currency peg means the exchange rate isn’t closing the trade valve. Therefore the trade balance persists, with China the continuous exporter. This creates a huge pileup of U.S. dollars that no one is sure what to do with, and it also means there’s little incentive for people in China to import from U.S. manufacturers. (The Chinese government owns most of the dollars: it printed yuan to buy them and thus fix the price. Therefore the dollars are not in private hands, therefore there is little investment flowing into the U.S. from China.)
China is painfully exposed: the situation is clearly unsustainable, it took herculean effort to keep it from exploding this time around, and it’s going to explode in the not-so-distant future. In desperation to keep the Keynesian pump primed, the Chinese government has plowed enormous amounts of stimulus into their domestic economy: the government funded the construction of an entire city, Ordos, merely to boost GDP. (Spoiler: no one lives there, but prices are sky-high: real estate “always goes up” in China.) The next major economic crisis will probably (0.80) start with China, and will almost certainly (0.98+) bring about a crisis severe enough that it puts China into a recession.
From Wal-mart’s perspective, stimulus in China is a mixed blessing: it provides a tiny relief valve through which piled up U.S. dollars can leave the country, and it also subsidizes Chinese manufacturers to lower prices, but it also creates inflationary pressure within China and thus causes labor and manufacturing prices (measured in yuan, not utilons) to rise dramatically. The whole thing a chaotic powder keg, and the blast is not directionally pointed away from Wal-mart.
In short, expect China starting today to follow a similar 30-year trajectory as the one laid out by Japan starting in 1980, complete with one or more “lost decades”. (The situation is not exactly analogous, but strongly suggestive.)
I’m cautious of debating this on my much-less-than-perfect knowledge. You may well be right overall. But I wonder if you’ve given adequate consideration to the possibility that these kinds of practices may simply be nontraditional, but profitable, solutions to certain equations. Sure, there are hidden costs, but with a company like Wal-Mart, with its track record of ruthlessly squeezing money out of anything they possibly can, my first thought is that they simply calculated that the hidden costs don’t outweigh the gains you enumerate.
Even if Wal-Mart fails at some point, it will not be because of resurgence of mom and pop stores, but because of other huge retail corporations.
Did the Soviet Union even have superficial short-term gains?
Soviet Union performed fairly average economically. Russians are much much poorer than Americans and Western Europeans because they were much much poorer than Americans and Western Europeans in 1913 before Communism ever started. This holds true even when correcting for initial income—Soviet Union economic performance was not atypical for other countries with similar starting income.
Relevant paper with all the data.
What explains the greater amount of wealth in America and Western Europe prior to 1913? Could capitalism be a partial explanation? Hong Kong and Singapore were much poorer than America and Western Europe prior to 1913, but now have equal or greater levels of wealth in addition to being more capitalist. Could capitalism also be a partial explanation in this case? If not, what is a more plausible explanation?
I’m happy to see that the paper you link acknowledges in its opening sentence that “the human costs of communism in Eastern Europe were incalculably large”. Ignoring the 20 million murdered by the communist regime in Russia in statistics on economic performance that include per capita income measures seems questionable to me however.
This is cheap attempt at getting applause and deserves a downvote. Discussion is about economic efficiency of government control of economy, not about human rights under Communism, and these two are not obviously related as many Communist countries weren’t particularly genocidal (and Lenin/Stalin/Mao’s genocides existed in context of war), while many Capitalist countries were (~10M deaths due to African slave trade alone—that’s a highly capitalist activity, Nazi Germany was mostly a Capitalist economy, etc.) and it’s neither obvious that median Communist country was more genocidal than median Capitalist country, nor that economic growth and genocides are not directly related.
matthewnewport makes a good point which you seem to ignore. If you’re talking about a per capita increase in wealth, and part of that increase can be accounted for via 20 million people killed (not mirrored in the US) for a country with a population of maybe 180 million or so to start, it doesn’t necessarily make sense to say that their economic performance was the same.
I haven’t done the math though, so I have no opinion on whether there really is a significant difference there.
That was the point? Sorry, I missed it as I never thought anyone would make a suggestion that stupid.
Killing 20 million people—mostly in context of two world wars and civil war between them—cannot possibly increase standards of living of the rest. You basically look at massive destruction of human capital due to wars and revolutions and pretend it’s somehow net positive… This is Malthusianism taken to ridiculous levels. So dropping a few nukes here and there would help the economy?
In any case, even accepting an argument as retarded as that, it doesn’t apply to the vast majority of Communist countries.
There’s no need for language like that. Anyway, for countries where resource wealth (e.g. Russian oil and gas) is a big chunk of the economy, population can indeed have a big effect on per capita wealth (see Kuwait, Saudi Arabia). Likewise, if you have big wealth inequality, e.g. between peasant farmers and urbanites/factory workers, famines among poor farmers can easily raise per capita income.
Just an FYI: This position you’re arguing against is exactly what Gregory Clark) argues in “A Farewell to Alms [sic]”, minus the bit about destruction of capital. (See the links to reviews that summarize it.)
While I don’t agree with his thesis, it’s a serious attempt to show that massive die-offs (like through plagues) increased per-capita income. He shows records in England of the prices for capital (wealth-producing) goods like cattle going down as the population went down, thus making it easier for someone to make a living. This was, of course, before the 18th-century, and in that time the world actually did match Malthus’s theories because of the lack of technological breakthroughs necessary to sustain higher populations.
Name calling aside, you missed the point again. It’s not Malthusianism, it’s algebra.
per capita wealth equals wealth divided by population
By simple algebra, killing people without decreasing wealth increases per capita wealth, and thus a significant percentage of the population dying will artificially look like economic growth if you’re measuring growth per capita.
taw’s question-wrapped-in-barbed wire is how you keep wealth level despite killing people, since presumably those people were adding to the economy by both producing and consuming goods.
That is a good question, but I don’t see it in taw’s comment, even between the lines. taw seemed to think someone was implying that the economy would actually get better by killing poor people, thus the reference to Malthus.
I could easily contrive a scenario where one kills 20 million people without significantly decreasing wealth, and I noted that I don’t know whether this was such a case. Note CarlShulman’s observation below.
Funny. I totally knew all that in the back of my head. I’m puzzled about why I didn’t return any of that myself.
Scary.
Compared to Russia under the Tsars, the Soviet Union was much wealthier.