* (This is my article today in thelobbyist.)
As more countries around the world have abandoned
socialism and economic central and embraced the market economy, their economies
have progressed significantly and poverty has been drastically reduced. This is
particularly true in socialist China and Vietnam, and the former Soviet
republics and Eastern Europe.
One result of the free market economy and economic
freedom though, is more inequality among the people. But this is not mainly due
to “the poor being exploited and downtrodden” but rather the efficient and
ambitious were without limit in economic mobility and prosperity. Consider
these two situations.
Under socialism, if the average per capita income of the
very poor was $1 per day and that of
communist party officials and their cronies was $100 per day, then that’s a
1:100 income gap between the two extreme income groups.
Under a free market economy, if the average per capita
income of the very poor was $5 per day but that of the very efficient and lucky
was $50,000 a day, then that’s a 1:10,000 income gap between the two extreme
income groups.
Inequality is worse under the latter but the overall condition
of the poor is better than under a socialist economy. If this is not true, those
countries that abandoned socialism two to three decades ago should have gone
back to economic central planning and state ownership of all businesses, land
and other means of production.
Nonetheless, social morality and even the politics of
envy has taken the upper hand in most public policies around the world recently.
The result is the expansion of welfare populism worldwide, from the developed
Europe and North America to the middle income and poorer countries mostly in
the south.
By giving more power to government to intervene almost
arbitrarily in many aspects of entrepreneurship and ordinary lives of the
people, welfare populism has resulted in economic and social distortions.
During the Economic Freedom Network (EFN) Asia Conference
held in Hong Kong last November 6-7, 2012 attended by this writer, welfare
populism was extensively discussed with some country case studies. The event
was jointly sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and
the Lion Rock Institute, a free market think tank in Hong Kong.
Among the country experiences discussed were that of
Thailand, South Korea, China, Europe and Latin America. Below is a summary of
presentation for these countries and continents.
1. Thailand: by
Dr. Deunden Nikomborirak, Thailand Development Research Institute (TDRI),
“Welfare populism in Thailand”.
Among the prominent welfarist policies were the rice
pledging scheme, first car, free computer tablets for first graders , minimum
salary for bachelor degree holders, and senior citizen financial support.
The economic and social distortions were not good. In the
case of the rice pledging scheme, the price
tag was a hefty $35 billion benefitting three million not-so-poor farmers, it increased
the public debt significantly, high corruption was suspected, many farmers did
not care much about rice quality and productivity, and smaller rice traders
were edged out.
For the first car program, the price tag was $1 billion
and resulted in more traffic congestion as the number of new cars on the roads
increased from 78,000 to 100,000 a month, the average road speed in Bangkok is
only 16.7 km/hour and is declining by 1 km/hour a year. And Bangkok residents
with asthma has increased from 5 percent to 10-15 percent.
The free tablets for first graders resulted in addiction
to computer games by the young students, worsened by insufficient or no
broadband access, and inability to write of these students.
2. South Korea:
by Dr. Choi Byung-Il, Korea Economic Research Institute (KERI), “Welfare populism
in Korea”.
The prominent populist policies were income support,
public pension and insurance for all (health, employment, industrial accident
insurance, etc.), minimum wage, free child care, universal school meal. All
political parties, administration or in the opposition, promise a more welfare
state if they are in power.
The results were indeed distortionary as the projected
cost of these additional spending is estimated at $520 billion on top of
existing welfare programs. This will require tax hike or public debt hike in
the near future. These programs will spike welfare spending to reach 45 percent
of GDP and public debt will reach 216 percent of GDP. Without welfare reform,
Korea’s future will be similar to Greece and Argentina.
3. China: Dr. Mao
Shoulong, Academy of Public Policy, Renmin University, “Welfare populism in
China”.
The more recent populist programs or demands are school
free lunch, free school bus, anti-chemical p-xylene. Dr. Mao discussed the policy
priorities of the different China leadership.
During Mao Tse Tung period, continue global revolution
and liberate other people around the world, but China degraded to poverty.
During Deng Xiaoping and Jiang Zemin period, cope with
poverty, economic development through market economy.
During Hu Jintao period, from overcoming poverty to
addressing inequality, from anti-poverty first to GDP first plus
anti-inequality and stability.
4. Europe and
Latin America: by Dr. Francisco Luis Perez Exposito, Tamkang University,
Taiwan, “The surge of Neo-populism in Latin America and Europe in the XXI
Century”.
Such neo-populism is characterized by being left leaning,
anti-capitalist, rejection of austerity and welfare cuts, more welfare rights.
In Europe populism, they are allied with nationalism
philosophy, anti-EU, anti-Islam, anti-foreign workers and anti-regional
integration.
In Latin America, they are leaning towards nationalism
and socialism, anti-capitalism, anti-imperialism and foreign interests, and anti-neoliberalism.
These neo-populist groups in both continents have prospered by blaming others (foreign and
locals alike), looking for scapegoats and virtual vengeance.
The economic distortion of welfare populism is clear in
the ever-rising public debt of many developed welfare states, below.
High welfare programs even financed by heavy borrowings
are supposed to increase the productivity of the people so they can later repay
those debts plus interest. Unfortunately, the law of unintended consequences
kicked in once again. What resulted was increased dependency of the people to
the state and the corruption of individual values, relegated more personal
responsibility to the background and pushed more government responsibility in many aspects of
the people’s lives.
There is a need for many governments to stick to their
primary function: to promulgate the rule of law and protect the citizens’ right
to life, liberty and private property. Forcing social equality and promoting a
culture of dependency and entitlement is not the way to encourage the people,
poor and non-poor alike, to strive more to improve their own lives and that of
their communities.
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See also:
EFN Asia 11: Populism vs. Economic Freedom, the HK Conference, September 11, 2012
EFN Asia 12: Day 1 of Conference 2012, November 07, 2012
EFN Asia 13: Welfare Populism and Poverty, November 13, 2012
EFN Asia 14: Conference 2012 Resolution on Populism, November 21, 2012
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