Collectivism will always
eventually destroy the economy of any nation, no matter how great it may be.
That’s
a pretty powerful statement. Is it historically supportable? Let’s visit a current
example - Venezuela, to examine the overall process of collectivism, then look
at a few other historical cases and see what we can learn.
Venezuela – 17 Years of
Collectivism
In1980,
Venezuela was deemed to be the fourteenth most economically free country in the
world. Today, it’s a veritable train wreck, having failed in every conceivable
way. How did this happen? Was it just bad luck? No, quite the contrary.
Venezuela’s prosperity was fueled primarily by the export
of oil. The downward spiral began in the 1980’s, as a result of a drop in the
world oil price. Until that time, there had been strong public support for the
free market, but diminished oil receipts resulted in a
decline in living standards for most all Venezuelans, which left
them open to claims by collectivist political candidates that the whole
problem was the free market. In 1999,
they elected Hugo
Chávez, who promised to solve
the problem through collectivism – the promise of a chicken in every pot
.
Mister
Chávezbegan to take from the “haves” and provide
largesse for the “have-nots.” Not surprisingly, he was highly praised by the
have-nots. So, he went further. He nationalized many of Venezuela’s industries.
Industry became less and less profitable, so less and less money flowed through
the system each year. Eventually, the revenue to government was insufficient to
pay for the promised largesse. The leader then died and the new leader,
Nicolás
Maduro
inherited a zombie economy. In desperation, he introduced capital controls and
increased nationalization, and regulations, hoping to squeeze as much as possible from the economy
before it went off the cliff. The result was a fully dysfunctional economy,
replete with massive job losses, increasing shortages and, finally, starvation.
Again,
having once been number fourteen on the list of economically free countries,
Venezuela is now at the very bottom– at number 152, as a direct result of
collectivism.
As
Margaret Thatcher once said, “
The trouble
with socialism is that, eventually, you run out of other people’s money.”
Quite
so. It does take a while, however. A newly collectivist state at first
appears to be solving problems. What
it’s really doing is feeding off of past profits. It gobbles up the economy’s store
of nuts, but when these nuts are gone, that’s it – there’s no more, and the economy
collapses. People starve
Venezuela
now has increasing shortages of food, hyperinflation has set in, the government
is totally corrupt, the government is running out of funds for entitlements and
government healthcare is overburdened and failing. Like Cuba in the 1980’s,
there are no longer and dogs or cats on the streets of Caracas, and for the
same reason as Cuba – they’re being eaten by those with no other source of
protein.
USSR – 74 Years
Vladimir
Lenin introduced collectivism to Russia in 1917. He was able to do so because a
revolution had just been completed by the people of Russia as a result of their
dissatisfaction with a
decline in the
standard of living
of most Russians.
For decades, capitalism existed
within
the primarily communist system, but eventually, the parasite sucked the host
dry. The USSR collapsed in 1991 for the same reason Venezuela is collapsing
today.
China – 29 Years
Mao
Tse-Tung took over China in 1949 with a collectivist regime. But the “10,000
year rule” he promised fell a bit short. It ended in 1978 in an economic dead-end.
It followed the same path as the USSR, but the process was quicker.
Cuba – 57 Years +
Cuba
lasted a bit longer. In the 1950’s, Cubans had become dissatisfied, due to the
decline in the standard of living for the
majority
of Cubans and were ripe
targets for collectivist promises. They welcomed Fidel Castro in 1959. Cuba
limped along for decades, but in recent years, the coffers of the state have
dried up and the only hope to keep paying the salaries to government leaders lies
in the grass-roots cuentapropista movement
- a rebirth of the free market. Collectivism in Cuba is nearing its end.
In
each of the above countries, the pattern has been roughly the same.
- A
formerly prosperous country experiences a period in which the standard of
living for the majority of citizens drops significantly
- The
voters react by electing a new leader who promises a chicken in every pot (in
essence, collectivism, although it is not always called that at the time of the
election).
-
The
new leader begins to rob the producers of wealth to provide largesse for those
with less. This has a direct positive benefit for those with less, resulting in
an increase in voters supporting collectivist promises over a period of years.
-
Over
time, the free market experiences a permanent loss of wealth, resulting in
diminished largesse for those receiving it.
-
The
government imposes increasing capital controls and other regulations, which
deteriorate the free market more severely, causing shortages of goods,
inflation, loss of jobs and eventually starvation and systemic collapse.
-
The
voters choose a new leader who promises fiscal responsibility.
-
With
a return to a freer market, prosperity slowly reappears.
The
pattern is a predictable one, because it’s based on human nature. An economic
downturn occurs. The voters become suckers for false promises. The new
collectivist government appears successful at first, because it’s feeding off
the remains of the free market. But, eventually it destroys the free market and
collectivism crashes and burns.
So,
what does the above review tell us? Has the world learned its lesson? Not at
all. What we can surmise from the above is that,
whenever the standard of living for the majority of citizens drops
significantly in a jurisdiction, the voters will be ripe for empty promises.
In
every such case, collectivism will appear to be the best solution.
Collectivism
is by its very nature is a parasitical system that creates nothing. It
therefore will always
eventually destroy the economy of any
nation where it is implemented, no matter how great that nation may be. The
only uncertainty is the number of years required for destruction.
Today,
we’re witnessing the collapse of the primary jurisdictions of the former “free”
world. They’re operating on a quasi-capitalist system that has been eroded by
repeated injections of collectivism (primarily socialism and fascism).
Increasingly, voters in each of these jurisdictions are becoming convinced that
the promises made by collectivist candidates “just make sense.” As the system continues to spiral downward,
as it inevitably will, the scales are likely to tip, not in the direction of a
return to the free market, but in the direction of full-on collectivism.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
