Socialism Sucks Page 2

  Although Sweden is still mostly free today, it used to be even freer. Our Swedish friend, Johan Norberg, has told the story of how laissez-faire economic reforms made Sweden rich.9 In his telling, back in the early 1860s his ancestors were so poor that they had to mix tree bark into their bread recipe when they were short on flour. Incomes in Sweden at that time were on par with those in the Congo today. Meanwhile, life expectancies were half as long and infant mortality rates three times as high as they are in many modern poor countries.

  But nineteenth-century economic reformers liberalized Sweden’s economy and created a prosperous, capitalist country. Our personal favorite reformer, Lars Johan Hierta, is honored with a copper statue about a kilometer from the Duvel Café. We like Lars because he championed free speech, equal rights for women, business freedom, free trade, small government, and the repeal of public drunkenness laws (as long as the drunk didn’t threaten anyone). Cheers to that!

  Ben and Bob, along with fellow economist Brad Hobbs, enjoy some excellent but highly taxed Belgian beer in Sweden.

  Hierta and other reformers eventually implemented many of their policies, and Sweden grew rapidly. Between 1850 and 1950 incomes increased eightfold, life expectancy rose twenty-eight years, and infant mortality fell from 15 to 2 percent. By 1950 Sweden was one of the richest countries in the world, and it still had a small government. Its total tax burden, at 19 percent of gross domestic product (GDP), was lower than that of the United States and other European countries.

  It’s only relatively recently that Sweden’s tax burden and size of government have ballooned. Government spending exploded from 31 to 60 percent of GDP in the twenty years between 1960 and 1980. High taxes and big government spending alone don’t constitute socialism, but they do have consequences. As Sweden’s government grew, its economy stagnated. It was the fourth-richest country in the OECD (a group of rich countries) in 1970, but by 2000 it had fallen to fourteenth place. Sweden grew most when it was freer than it is today. But even today, it remains relatively economically free and prosperous, and its policies are far from socialist.

  If Sweden isn’t socialist, then what is? This is where Americans seem to be confused. Propagandists like Michael Moore don’t help when they tweet out things like “Most polls now show young adults (18-35) across America prefer socialism (fairness) to capitalism (selfishness).” Socialism doesn’t simply equal “fairness.” What it really equals is the abolition of private property; in a socialist economy, the government decides what will be produced, how, and for whom.

  Most countries are neither purely capitalist nor purely socialist. All capitalist economies allow, for good or ill, some government ownership of resources and centralized economic planning. Likewise, most socialist countries allow some degree of economic freedom—or they would suffer even worse economic consequences.

  The Soviet Union during its period of War Communism (1918–21) and China during the Great Leap Forward (1958–62) came closest to abolishing private property. After each of these massive failures, the Communist governments offered limited private ownership of some means of production and allowed small markets to operate, though socialism predominated.

  Today, there are only three countries that remain nearly entirely socialist: North Korea, Venezuela, and Cuba. Other officially socialist countries, like China, are only nominally so, but actually allow for so much private ownership and control that they qualify as mixed economies.

  We’ll visit these places and also three former Soviet countries that are trying to reform—Russia, Ukraine, and Georgia. We’ll combine our firsthand travel observations with economic theory, history, and empirical social science to try and understand what’s going on in these places.

  For us, as travelers, socialist economic policies can be an inconvenience, but for those who live under them, they can impose brutal and unnecessary suffering, which makes us angry—and might make you angry too.

  So, with that warning, pack your carry-on, order a stiff drink from the flight attendant, and let’s embark on our tour of the unfree world.

  CHAPTER ONE

  STARVING SOCIALISM: VENEZUELA

  JANUARY 2017

  “You guys need to go to Venezuela,” our old friend, Marshall Stocker, told us over lobster and beer in New Hampshire in late July 2016. Marshall is a sort of “adventure capitalist.” He was in Egypt doing real estate deals during the Arab Spring before he had to cut his losses and get out of town. Now he runs an emerging markets mutual fund for a big firm in Boston. Bob and I enjoy following his Facebook page, which highlights his travels to exotic locales like the jungles of Myanmar or the Mongolian desert as he looks for countries to invest in.

  We agreed. Venezuela was on our list, but Venezuela is a complete fucking mess. Our wives, Lisa and Tracy, had already laid down the law—we weren’t allowed to get killed or end up in prison while working on this book. I suppose bigger life insurance policies would’ve appeased them somewhat, but hey—neither of us has a death wish, either.

  Marshall had a suggestion that made the trip sound safer and more practical. “Just fly into Colombia and travel to the Venezuelan border. You can check out what’s going on from there and maybe venture across. That’ll be safe enough. Besides, there’s a lot of crazy economic activity on the border.”

  The more we thought about it, the better the idea sounded. Venezuela, the most recent darling of socialism’s proponents, isn’t tarnished with the same long history of political repression as other countries. Venezuela was an example of “democratic” socialism. At least until recently, it was the model that Western intellectuals admired and held up for emulation as a socialist paradise. Now things are falling apart, but the apologists still insist the country’s problems have nothing to do with socialism.

  Western intellectuals, whom Lenin called “useful idiots,” tend to overlook or make excuses for socialist regimes’ economic failures and humanitarian atrocities. Today, the idiots are running out of places to admire. Almost no sane person holds up North Korea as a model state.1 While Castro apologists still tout Cuban health care and education, most everyone else recognizes that Cuba’s Communist regime is politically repressive and economically backward.

  Venezuela was supposed to be different. In 1992, Colonel Hugo Chávez was jailed for two years after a failed coup attempt. He then became a politician and won the 1998 presidential election with 56.2 percent of the vote, in what was viewed as a more or less fair election. Chávez established a new constitution in 1999 and was reelected a year later with 59.8 percent of the vote.

  To many observers, Chávez’s brand of “Bolívarian Socialism” (named after the nineteenth-century anti-colonialist revolutionary Simón Bolívar) seemed to be a success. In 2011, Bernie Sanders claimed, “These days, the American dream is more apt to be realized in South America, in places such as Ecuador, Venezuela and Argentina, where incomes are actually more equal today than they are in the land of Horatio Alger. Who’s the banana republic now?”2

  Similarly, upon Chávez’s death in 2013, the website Salon published an article titled “Hugo Chávez’s Economic Miracle” which claimed that “Chávez racked up an economic record that a legacy-obsessed American president could only dream of achieving.”3

  We needed to experience this socialist paradise for ourselves. After following the news stories about trade on the Colombia-Venezuela border for a few months, we scheduled our trip. On January 2, 2017, still sporting our respective New Year’s hangovers, we took a short overnight flight from Dallas to Bogotá and continued on to Cúcuta the next morning.

  Cúcuta was a pleasant surprise. Colombia’s sixth-largest city, with a population of 650,000, Cúcuta boasted an impressive skyline, attractive architecture, and well-maintained office buildings. The streets, though sometimes congested, were in good condition. There were a variety of restaurants and shopping options within a short walk of our downtown hotel. When we went out for drinks at night, we felt as safe as we would anywhere else in L
atin America.

  We weren’t there to see Cúcuta, though. We were there because Cúcuta is on the west bank of the shallow and muddy Río Táchira, where two bridges and other, unofficial river crossings connect Colombia with Venezuela. This was where Venezuelans, in their early socialist days, had once smuggled goods into Colombia to be sold for market prices, and thus a profit. Today, it’s where Venezuelans buy staple goods that are unavailable at home.

  On our way to the Santander Bridge, which was the smaller of the two official crossings, we met up with Julian Villabona, a reporter with the PanAm Post. A mutual friend had introduced us to Julian, and he agreed to help us speak with people at the border while he wrote his own story for the Post’s website.

  After a short drive, the four-lane, paved road terminated at a dusty intersection near the Santander Bridge, which was closed to vehicular traffic. There were around a dozen small permanent roadside stores and at least twice as many temporary roadside stands, which offered a wide variety of basic goods and necessities—flour, cooking oil, sugar, toilet paper, candy, beans—as well as bigger-ticket items, like tires, that were in short supply in Venezuela.

  The bridge swarmed with foot traffic. Every day, thousands of Venezuelans come with suitcases, bags, carts, backpacks, and crates, and load them with whatever they can afford and carry home. These weren’t impoverished Venezuelans; these were members of the middle class who had the means to travel to the border and buy goods.

  When we reached the Colombian checkpoint, halfway across the bridge, Julian asked what we wanted to do. The Colombian border police were checking passports only haphazardly; we could walk right into Venezuela if we wanted—but could we come back into Colombia?

  Thousands crossed back and forth across this bridge between Venezuela and Colombia every day in search of basic necessities.

  Julian had a brief conversation with the guard, who shrugged his shoulders, convincing Julian that reentry was no hay problema for two gringo economists and their guide, and we crossed into Venezuela. The Venezuelan checkpoint had a lone man in uniform. He didn’t care about us either; he was too busy sorting through a woman’s bags and confiscating items for himself.

  Compared with the hustle and bustle of the shops on the Colombian side of the river, the Venezuelan side was eerily quiet. The official duty-free store had long since been abandoned. The only other establishment was a large gas station that had an attendant dutifully waiting at every pump.

  The Venezuelan government subsidizes gasoline prices so that, at about fifty cents a gallon, Venezuela enjoys some of the world’s cheapest gas. But even with fuel that cheap, there were no customers for the well-staffed gas station; Venezuela’s socialist planners apparently hadn’t foreseen that a bridge closed to vehicles might not have many customers.

  As we walked toward the village of Ureña, Julian became visibly uncomfortable. Though we didn’t have bags of goods to steal, Bob and I were the only Americans in sight, making us targets for robbery or kidnapping. We agreed it was best not to hang around too long in Venezuela, and technically, without visas, we were there illegally. We eventually switched directions, joined the Venezuelans heading west, and returned to Colombia without incident.

  After perusing a few shops, we found what we required—Bahia, a Colombian cerveza. The shop fronted the dirt road and sported a few plastic chairs and a table. The music was loud, but the beer was cold and we had a good view of the comings and goings.

  What we observed was a damned shame. Venezuela once boasted one of the freest economies in the world, according to Bob’s index. In 1970, Venezuela scored 7.2, making it the world’s tenth-freest economy. And when Venezuela’s economy was free, the country was relatively prosperous. According to the World Bank, in 1967 the average Venezuelan was $1,995 richer than the average Spaniard.

  But by 2014, the average Venezuelan earned only about $200 more than he had in 1967. In nearly fifty years, Venezuelans experienced essentially zero economic growth, while Spaniards had seen their average income more than double. And by some estimates, Venezuelan incomes have dropped 50 percent since 2014—so the economy has moved from stagnation to collapse. Today, Venezuela ranks dead last in the economic freedom index, with a score of about 3.4

  As economists, Bob and I know that economic freedom almost inevitably leads to good economic outcomes, because free people have both the incentive and the ability to improve their own lives, and, in the process, the lives of others. Adam Smith put it best in his book The Wealth of Nations when he wrote of an “invisible hand” that guided individual economic self-interest to a greater good. As Smith put it: “Every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it . . . he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”5

  This “invisible hand” requires two things: freedom and the rule of law. Law is needed to secure property rights, and people need freedom to voluntarily trade goods and services at freely set prices.

  Sitting in a market in Colombia, you can see in practice what economists can explain in theory. Free markets and market prices convey important information. They tell consumers whether a good is plentiful (and therefore cheap) or scarce (and therefore expensive). In turn, what consumers are willing to pay informs producers and entrepreneurs what goods are most valuable—something that can vary by time, place, and customer. The goal of the entrepreneur is to make money, not to promote economic efficiency or economic development. But by meeting customer demand, entrepreneurs inevitably make an economy more efficient and successful, provided that the pricing system is accurate, which is what a free and open market ensures. Anything that impedes free trade also impedes the accuracy of prices.

  Even more fundamental is private property, which makes it possible to own, and therefore buy and sell, goods. Other factors are at play too, of course. Inflation, caused by the government’s reckless printing of money, distorts prices. Taxes and regulations do the same by placing additional costs on trade.

  When Venezuela was a freer economy, it was relatively prosperous. But as the government became more involved in regulating the economy, it became progressively less free, less efficient, and less productive. When Chávez came to power, this process was already well underway; he only doubled down on it and turned economic regression into economic disaster. Venezuela’s insecure property rights, nationalized industries, punitive taxes, monetary inflation, and business-stifling regulations resulted in what we saw in vivid and heartbreaking detail at the Santander Bridge on the Colombian-Venezuelan border: impoverished middle-class Venezuelans, lugging home bundles of sugar, rice, beans, and diapers. We saw what economic theory can mean in economic fact.

  Desperate Venezuelans line up trying to get an entry visa to Colombia. An estimated four million Venezuelans have fled the country since the crisis began.

  The next morning, we went to the Simón Bolívar Bridge. Again, the Colombian side was alive with commerce, only more so: a chaotic jumble of people, delivery vehicles, buses, cabs, motorcycles, and push carts, maneuvering through a labyrinth of clogged, dusty roads lined with shops.

  Vendors called out to Venezuelans coming into Colombia, and one woman’s cry in particular—“¡Compramos pelo!”—caught our attention.

  “Let’s talk to her,” I said. “I read about this.”

  Denise was known as a “dragger”—a middleman. She explained that she was finding Venezuelan women who wanted to sell their hair. She would bring them to a makeshift barbershop where their hair would be cut and used to make extensions.

  “¿Cuánto cuesta?”

  I wanted to know what she paid women for their hair. She shook her head, saying something I didn’t understand. Julian explained, “She thinks you want to sell your hair. She doesn’t want it. It’s t
oo short and red to be marketable.”

  Julian told her what I meant to say in Spanish, and she said the price varied depending on the quality and the length, but for very good, long hair, maybe as much as eighty U.S. dollars.

  According to a Reuters article I’d read, mid-length hair fetched around sixty thousand Colombian pesos, which, at the time, was about twenty U.S. dollars. That might not sound like much, but it’s about what a Venezuelan with a minimum wage job and food rations earns in a month. Here at the border, even twenty bucks would help bring home valuable necessities.

  We ventured briefly into Venezuela again, but all the action was on the Colombian side of the border, so we came back and talked to Venezuelans lugging their heavy bags in the hot sun. Most seemed nervous and on guard—robberies are prevalent—and spoke only briefly and warily, telling us they came to buy necessities; they were generally more talkative entering Colombia than leaving it.

  One obviously middle-class couple, Paulo and Ana María, talked at length with us. They had come from Ciudad Bolívar in far eastern Venezuela to buy supplies. According to Google Maps, Ciudad Bolívar is about 780 miles to the east, an estimated eighteen hours by car. The journey took them three days, they said, because it was too dangerous to drive at night.

  Paulo told us, “We’ve come to buy rice, medicine, soap, shampoo, and other things, like car parts, unavailable at home.” They had been coming to Colombia every three months, he added, but this was their last trip because “the danger from bandits is getting too great.”