That isn't real Socialism!

June 6, 2019

When a country begins to adopt socialist policies, a trend unfolds. First, socialists unanimously applaud the economic progressivism, and hail the country in question as a shining exemplar of what our own affairs should look like. Then, invariably, the country which has tried out socialism begins to look a bit peaky, things start going wrong, shortages of basic commodities occur, political suppression begins, democracy collapses, the government becomes ever more oppressive and tyrannical. Then, the socialists who had previously held up this nation gone awry as a great example get cold feet. They decide to stop advocating the socialist government as it becomes responsible for human rights abuses, starvation, misery, and grinding poverty. Finally, the inevitable phrase comes “well, that wasn’t real socialism”.

 

We see this with the Soviet Union (responsible for the death of around 30 million) Mao’s China (over 40 million, possibly as high as 70 million), the GDR, and of course, most recently, Venezuela. Some apologists say you have to crack a few eggs to make an omelette (or in this case accelerate the dialectical process of history), but after a while you have to ask, where is the damn omelette? All I see is a very high death count and an unparalleled record of bringing about misery and suffering.

 

But in a way, I agree with those who say that real socialism has never been tried, in much the same way that I agree with the far fewer people who say that real capitalism has never been tried. The idea that we have in our heads of these theories of economic organisation are ideal-types, and any real-world implementation of them is necessarily going to have to be a kind of approximation. Every example of socialism is thus inevitably not going to be real socialism, despite the claims by some that it is a scientific theory. So, what about examples of where capitalism has been tried? We see attempts at socialism being a unanimous failure, but can the same be said about entertaining the antithetical economic system? I believe there is compelling evidence to suggest that the answer to this question is no.

 

Let’s take a look at a specific example, one in which free market laissez-faire polices have been introduced to a nation which could be considered a kind of tabula rasa upon which capitalism could exercise itself.

 

Hong Kong was for a long time merely a vassal state of the British Empire, far from the economic powerhouse it is today. We have one man to thank for its development, and that man is John J. Cowperthwaite. John J. Cowperthwaite is not likely a name that you will remember from your history lessons. In fact, it is not likely a name that you will remember at all. He is arguably one of history’s most unsung heroes, and that is a great shame, for he was absolutely instrumental in not only taking Hong Kong’s economy from strength to strength after the Second World War, but also in showing the world that laissez faire economics is workable and brings results.

 

Milton Friedman said, “it would be hard to overestimate the debt that Hong Kong owes to Cowperthwaite”. But he was by no means a self-important man. He had a reputation for being shy, and as an appointed civil servant, he owed no favours to anyone. He arrived in Hong Kong in 1946 as the Assistant financial secretary, with instructions to “come up with a plan for economic growth”. But he came up with no plan, and yet the economy grew. It grew astoundingly. In the decade that he was financial secretary, wages rose by 50% and the percentage of those living in poverty in Hong Kong plummeted from 50 to 15%.

 

What did this son of a Scottish tax collector do to propel so many into prosperity? The answer is that he didn’t do anything. When a British executive approached Cowperthwaite to ask him to develop the merchant banking industry, Cowperthwaite politely palmed him off and told him that he had better find a merchant banker. Similarly, when a legislator suggested to Cowperthwaite that the government should prioritise the development of promising industries, Cowperthwaite refused and asked how the government could possibly know which businesses had potential and which did not.

 

Cowperthwaite flat out refused to collect most economic statistics, from fear that doing so would give bureaucrats and legislators an excuse to meddle in the economy. Of course, this caused upset in Whitehall, and when they commanded a group of civil servants to go over and see just what the hell was going on, Cowperthwaite sent them home as soon as they arrived. Yet still from 1945 to 1997 Hong Kong ran a surplus every financial year – surprising all involved because the surpluses were not planned. Rather, they arose as a result of the market being left free. 

 

It was slightly unfair of me to state that John Cowperthwaite “didn’t do anything”. For though his success was largely down to his non-interventionism, ensuring that there was no intervention was backbreaking work. People were always trying to tinker with the economy. But Cowperthwaite maintained: “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”

 

Today Hong Kong has a GDP per capita at 264% of the world's average, which has doubled in the last 15 years. The World Bank now rates the “ease of doing business” in Hong Kong as the best in the world. It has no taxes on capital gains, interest income or earnings from abroad. Its overall tax burden is just half of that of the United States. Its people are rich and its government small, and for this reason, it makes a fitting example of how capitalism appears to work.

 

Look at other nations that have adopted laissez-faire capitalism around the world and the conclusion is inescapable – if you want to improve the lot of the masses, then there is little else that works even nearly as well. Sure, there may be variations, examples of astounding economic development and improvement in which the state had a larger role to play, but the general trend that capitalism is the greatest force to bring prosperity is undeniable. As we go on into the 21st century, with populism and anti-globalist sentiment on the rise, we would do well to remember this. I’d say the world needs a few more Cowperthwaites, and a no more attempts at real socialism.

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