Posted by on February 4, 2020 11:44 am
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By Dr. Barbara Kolm, Director, Austrian Economics Center


During the annual World Economic Forum in Davos, Switzerland, which took place in January, the newest edition of the Edelman Trust Barometer was released. The results were shocking to say the least: 56 percent of respondents agreed that “capitalism as it exists today does more harm than good in the world.” The least trust in capitalism can be found in Thailand and India, but also in countries like France.


That capitalism’s popularity is on the decline while socialist ideas are gaining steam has been established over the last years. In the U.S., four in ten people would prefer socialism over capitalism – and 55 percent, i.e. a majority, of women aged 18 to 54 do. The Democratic primaries are filled with calls for more government intervention, particularly by Bernie Sanders and Elizabeth Warren.


The embrace of socialism is scandalous in itself. Last year, we celebrated the 30th anniversary of the fall of the Berlin Wall, which heralded the purported end of socialist ideology, as the Communist empire in the East finally fell. But ever since, socialism – including its disastrous consequences – has returned with a vengeance. One does not need to look to the Soviet Union, Cuba, or Cambodia anymore to see the inevitable failure of socialism. We can see it every day in Venezuela and North Korea, as proponents of Marxism are also increasingly destroying countries like Bolivia.


In the meantime, capitalism has proven to be the most successful economic system out there. Just take the example of Chile, which for decades has been one of the freest economies in the world and has become one of the most prosperous countries not only in Latin America, but increasingly so in the world, boasting an annual GDP growth of 3.77 percent from 1997 to 2019.


Indeed, if we want to look at examples of capitalism, we shouldn’t examine big corporations making deals with governments – precisely those that assemble in Davos every year to, curiously enough, complain about capitalism: that’s cronyism, not a free market economy. We should look at countries like Switzerland, Australia, New Zealand, or Hong Kong – or Scandinavia – to see the immense prosperity that capitalism brings forth.


Capitalism has undoubtedly been the greatest wealth generator. Throughout history, from the hunters and gatherers to medieval peasants (and kings and princes for that matter), humans have lived in material poverty – actually, at the same level of abject poverty for millennia. But the engine of capitalism changed all that forever.


This is not to animate capitalism or markets into beings with their own will. Rather, because of capitalism and free markets, individuals finally had the opportunity to innovate, to be entrepreneurial, to do what they thought was in their personal and their community’s best interest. The results have been nothing short of staggering. One just needs to remember that the poorest in many of today’s Western societies are richer than the King of England was a mere two or three centuries ago.


Of course, critics will argue that capitalism has only led to ‘the rich’ becoming wealthier, but not the poor, pointing to global poverty and hunger and to the inequality prevalent even in Western societies today. For the latter case, not much needs to be said: inequality will always exist in free societies. Why does this matter if everyone is getting richer overall? Indeed, in the West, almost everyone belongs to ‘the 1%’ – or at the very least ‘the top 10%’ – of the world. Instead of seeing the wealth in the U.S. (or UK, France, or Germany) as a fixed amount, we should realize that it is increasing – and with it, the wealth of everyone.


Globally, we should reject the abstruse reports and demands by some NGOs, which every year – around Davos, too – release major inequality reports, always mired in methodological problems. The correct way to solve the problem of poverty is not to impoverish the rich – as socialists have always tried to do – but instead to set free the mechanisms of the market.


Capitalism is not only the greatest wealth generator in the world – it is also the most effective eliminator of poverty in existence. Matt Ridley explained this poignantly by the end of 2019, pointing out that the last decade was the best in humanity’s history in material terms: “We are living through the greatest improvement in human living standards in history. Extreme poverty has fallen below 10 per cent of the world’s population for the first time. It was 60 per cent when I was born. Global inequality has been plunging as Africa and Asia experience faster economic growth than Europe and North America; child mortality has fallen to record low levels; famine virtually went extinct; malaria, polio and heart disease are all in decline.”


Countries like India and Thailand, which have voiced the most concern over capitalism in the Trust Barometer, actually need to intensify efforts to liberate markets and introduce capitalism further, always based on secure property rights and a clear and decisive rule of law for all, including the poor. Without this basis the market economy would indeed be unfair, and in a sense nonexistent, as cronyism and political favoritism would again prevail (and have often done so).


Meanwhile, the West – and countries like France, the UK, and U.S. where socialist ideas are making inroads again – need to understand that they don’t live in market economies per se. Too often, the capitalist system is hindered from functioning properly because of astronomically high taxes, massive regulations and regulatory bodies, immense welfare systems that set the wrong incentives, and cronyism, all of which choke the market to death.


If anything, it is this that should be protested. In fact, for the world to continue its unheralded economic success story, Davos elites and governments around the world should embrace capitalism, not condemn it based on fallacies.


Barbara Kolm is President of the Friedrich A. v. Hayek Institute in Vienna, Austria and Director of the Austrian Economics Center. A worldwide networker, she uses these abilities to promote free market policies; in addition she is a frequent speaker on public policy related issues, especially on deregulation and competition topics, the Future of Europe and Austrian Economics. She is an Associate Professor of Austrian Economics at the University of Donja Gorica, Montenegro and a member of the Board of Business Consultants of the Austrian Federal Economic Chamber and a Member of the Mont Pélerin Society. She is President of the European Center for Economic Growth.