The View From 1776

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World Bank policy theorists have just ‘discovered’ the universally disastrous idea of socialistic income redistribution.

Whether they call themselves liberals, Progressives, or socialists, secular materialists cling to the hypothesis that unequal income distribution causes all of society’s problems.  According to the hypothesis, crime and wars would cease to occur if everyone had nearly equal income and if all of society’s goods and services were available at no cost to the individual, only on an as-needed basis.  Everyone would cooperate joyously to achieve the Marxian ideal of “from each according to ability, to each according to need.”

Theoretically, because everyone is working as part of the collectivized ‘democratic’ whole, everyone works harder.  Moreover, because the political state’s planners would be running business, there will be more efficiency and higher productivity levels.

This hypothesis has repeatedly been tested and failed in the laboratory of history, most memorably for us in the catastrophe of President Johnson’s Great Society that created our vast panoply of entitlements to welfare-state payments.  Crime rates soared, education fell into chaos, drug abuse became rampant, illegitimate birth rates rose to levels never before seen anywhere, sexual promiscuity and marital infidelity became accepted patterns, and the highest rates of inflation in the nation’s history wiped out the purchasing power of a whole generation’s life-time savings.

The same story was told in the Soviet Union, Mao’s China, Germany, France, the UK before Margaret Thatcher, and in the Scandinavian countries.

Ignoring all this, locking its vision firmly onto the Brave New World of socialist materialism, the World Bank is about to waste enormous amounts of the world’s financial resources on another expedition to find the pot of gold at the end of the rainbow.

According to a story in the Saturday, February 18, 2006, edition of the Washington Post, “The authors of the World Bank report, “Poverty Reduction and Growth: Virtuous and Vicious Circle,” recognize that a country can’t necessarily grow its way out of poverty and that poverty can be a huge drag on economies and on growth. Poor regions lacking in infrastructure fail to attract investment. Poor families, faced with substandard schools and high costs, are less likely to invest in the education of their children. And, as has been particularly clear in recent years, countries unable to moderate income disparities face social tensions that jeopardize business. As the authors quantify it, when poverty levels increase by 10 percent, growth decreases by 1 percent and investment is reduced by up to 8 percent of a country’s gross domestic product.”

The report writers are saying that a country’s GDP declines because poverty increased.  That is a tautology, a statement that says “Ice is cold because it’s frozen.”

According to the World Bank report writers, the solution is, “Converting the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most critical challenge Latin America faces in implementing better policies that simultaneously stimulate growth and reduce inequality and poverty.”

Let’s look at the experience of Sweden, the poster-child for world socialism.  With some of the highest redistributive taxes in the world, Sweden has near income equality.  Far from raising productivity and incentivizing workers to work harder, Sweden’s socialistic inequality has incentivized workers to game the system and free-load to the maximum.

According to a New York Times article dated September 24, 2002, “A government report this month showed that one in 20 Swedish workers were on sick leave for more than a week last year, double the European Union average, and that paid sick leave averaged nearly 25 days, up from 14 days in 1998. An average of 430,000 Swedish employees, 10 percent of the country’s work force, is on sick leave at any given time.

“According to another study, carried out for the Confederation of Swedish Enterprise by the research firm Temo, 62 percent of the employees interviewed said they had taken sick leave when they were not really sick and that they felt there was nothing wrong in doing so.

“.....The government pays a benefit equal to 80 percent of a person’s salary during sick leave, no matter how long, and an additional 10 percent in what is called “contract insurance” for the first three months. This public outlay has grown to $5.3 billion annually from just over $2 billion in 1998.

“....."What happens is that the person becomes `clientified,’ “ he said. “If the responsibility for recovering is taken away from you, you lose the motivation to get better. If I get up every morning and ask myself if I have any ailments, I will find them.”

“A study he did showed that when the government made benefits more generous, people took more days off. In 1998, Prime Minister Goran Persson increased the government’s benefit from 75 percent to 80 percent of salary, and the average number of days spiked upward each year thereafter, from 11.1 in 1997 to 24.4 in 2001.”

In the Wall Street Journal edition of January 24, 2006. Fredrik Segerfeldt, a
director at Timbro, a think tank based in Stockholm, wrote:

“....Sweden saw impressive productivity growth during the 1990s: 2.5% per year. But productivity growth per capita, a more relevant measurement, topped only four industrialized countries.

“According to Eurostat, Sweden has the EU’s smallest amount of business investment as a share of GDP. The U.N. reports that Sweden is among only 12 countries in the world with a net outflow of investments.

“.... our nominal unemployment rate of 6.3%, according to Eurostat, is the ninth lowest in the EU. Yet even trade union specialists put total unemployment—including those on sick leave, in early retirement or in job retraining programs—at 20-25%. Between 1995 and 2003, employment grew faster in 11 of the 14 other “old” EU countries than in Sweden. In fact, the private sector employs 350,000 fewer people today than in 1965, despite population growth of about one million. The public sector—at the taxpayer’s expense—picks up the slack.

“Lagging employment growth is also a result of the low level of entrepreneurship. The Global Entrepreneurship Monitor reports that only four of the 34 countries it surveyed have a lower level of entrepreneurial activity than Sweden. The number of self-employed Swedes has fallen by half since the early 1960s. Today more Swedes are in early retirement than are self-employed.

“.......Despite an increase of almost 70% in spending since 1979, Sweden’s public health-care system is coming apart at the seams. The Swedish Association of Local Authorities and Regions reports that doctors see an average of four patients a day, down from nine in 1975. According to the Swedish Institute for Health Economics, doctors spend 50-80% of their time on administrative tasks. The number of hospital beds is down by 80% since 1975. More than 50% of patients wait over 12 weeks for an examination and then at least 12 weeks more for treatment.

“........At the heart of the “Swedish social model” are the generous welfare benefits. And it is true that Sweden has the highest proportional government social spending in the EU.”

If income redistribution can’t do the job in Sweden, a country with a high level of education, what reason is there to think that it has a chance in Latin America?

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