Do Socialist economic policies make society fairer?
Redistributive mechanisms, typical of socialist societies, cause inequalities in housing.
In 1968 socialist Hungary, approximately 58% of professionals lived in rented State houses, versus the 8.4% of agricultural laborers and 35.9% of unskilled workers.
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Redistributive mechanisms cause inequalities in allowances.
According to an investigation conducted by the Central Statistical Office in Hungary in 1967, after redistribution, per capita allowances in white collar families were about 20% higher than in families of industrial workers.
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The passage from a socialist economy to a more neoliberal one can increase inequalities.
In 1976, China’s national Gini coefficient of income distribution (where 0=total equality and 1=total inequality) was below .30; today, it is estimated at close to .50, among the highest in the world (though still below the levels of nations like South Africa and Brazil).
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Nationalization leads to economic decline.
After Castro took over in 1959, he nationalized 70% of farmland. The CEA researchers noted that in the following period (1963-64) all production fell by a double digit percentage. Output of their biggest crop, sugar, fell by 35%.
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In some countries, income inequality between the rich and the poor has been growing since the end of the Socialist era.
In the United States, the share of the nation’s total income held by the richest - 10% of the population - changed from 40%–45% in the 1920s and 1930s, to 30%–35% from the 1940s to the 1970s, then increased from the early 1980s, reaching 45% in 2005.
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The Nordic socialist model created a good business climate.
The Danish economy is ranked by the World Bank as number 5 in the world with respect to the ease of doing business, with Finland and Sweden coming in at numbers 13 and 14, respectively, out of a total of 173 countries.
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In Sweden, socialist policies led to a major dependency on the public sector, thus damaging the economy.
In 1960, there were 38 “tax-financed” Swedes (i.e. dependent on the public sector) for every 100 “market-financed” (i.e. depending on private enterprise). Thirty years later, that ratio rose to 151:100, with more people depending on the public sector than financing it.
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The Nordic model is nowadays a myth.
According to the Heritage Foundation’s index of economic freedom, Sweden, Norway, Finland, Iceland, and Denmark – socialist strongholds in the 1970s – today rank among the 30 most capitalist countries in the world, with an index score of between 70% and 79.9%.
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Taxation in Nordic socialist countries affects the middle class, thus extending the base rather than putting more taxes on the rich.
In Nordic countries (Denmark, Finland, Iceland, Norway, and Sweden) top tax applies to income that is only 1.5 times the average wage; on the other hand, the top US federal income tax is applied to income that is 8 times the average wage.
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Socialist policies guarantee better social services to citizens.
In 2003, Denmark and Sweden had respectively social expenditures of 23.8% and 29.2% of GDP, versus 22.8% in the UK. In the same year, Denmark spent 1.6% of GDP on child care and early education, Sweden 1.3% and Finland 1.4%, versus 0.3% in the UK.
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Economic development in socialist countries lifts all boats, but at unequal speed.
In China, the rapid improvements in agriculture facilitated migration from rural areas to cities – 200 million by 2010, versus 100 million by the 1990s; however, most migrants still retained their agricultural registration, and were not entitled to full urban citizenship rights.
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An economy based on socialist principles can limit the individual’s freedom.
In Mao’s China, upon completing school, youths were bureaucratically assigned to a job which involved wage grades and a package of benefits. However, they could neither refuse their assignment nor potential relocation unless authorities decided otherwise.
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Income inequality was reduced during the Golden Age of Socialism.
During the decades 1930-1980, the UK and US experienced the only inequality reduction of the century, probably as a response to the egalitarianism of socialist countries. In those years, their Gini coefficient remained stable, below 40% for UK and below 50% for the US.
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Cross-country studies evidenced socialism’s negative effect on GDP.
Replacing U.S. policies with highly socialist ones, such as Venezuela’s, would reduce real GDP at least 40% in the long run, or about $24,000 per year for the average person; Nordic socialist policies would cause a GDP decline of 19% in the long run, or about $11,000 per year.
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Socialist reforms, when properly tailored to the context, can help growth.
In the 1990s, a government-launched initiative to privatize housing in China provided families with subsidized financing to buy the apartments they already lived in. As a result, by 2005 more than 80% of people living in the urban area had become homeowners.
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Socialist countries have a slower economic growth than capitalist ones.
In the former socialist countries (Bulgaria, Czechoslovakia, Hungary, Poland, Romania, Yugoslavia, USSR) the per capita GDP during the period from 1950 to 1989 went from $0 to $5,000; during the same period, the per capita GDP in the US grew from $10,000 to $30,000.
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The mixed system of State Owned Enterprises is not efficient.
During the 1990s, in order to support the economic system, smaller and less profitable Chinese SOEs had to be merged, privatized or closed. Within the remaining ones, cuts were necessary: SOE employment plummeted from 113 million in 1995 to 41 million in 2002.
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In Sweden, more freedom in the market (that is, a shift towards capitalism) was associated with less equality.
In Sweden, between 1993 and 2000, social spending dropped from 22.2% to 16.9% of GDP, economic subsidies from 8.7% to 1.8% and public-sector payroll costs from 18.2% to 15.6%. This affected the Gini coefficient, which grew by around 30% between the mid-1980s and the late 2000s.
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Reforms are necessary to preserve the Nordic model and its equality.
As the demand for welfare services grows and the cost increases, action corresponding to at least 1%–2% of GDP should be undertaken to improve the budget on a permanent basis. Otherwise, present surplus would turn into a public debt that could reach 120% of GDP by 2050.
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After the 1980s, inequalities rose as a result of the Socialist disintegration and consequent neoliberal policies.
While the USSR was disintegrating, the Thatcher/Reagan neoliberal agenda weakened workers’ movements, reduced social spending and caused the top income tax rates to drop to below 50% in 2010.