On to lecture 11, democratic socialism and communism. We're going to pull behind the hood here, take a look and see in practice maybe some difference between democratic socialism and communism or compare the outcomes of such systems to those of free market or free enterprise economies and see if there really is a difference. One thing we're going to point out here is we're going to look at some politicians in the United States and their attitudes toward democratic socialism and try to get to the root of the matter. Are the words that they're using reflective of what they're actually advocating? All right.
So one thing to keep in mind on the theory side is those some people who are critical of the free enterprise system say, oh, well, you know, the problem is it's not actually free enterprise. It's just. crony capitalism. Their big business gets in bed with the government and they decide who the winners and losers are.
And so free enterprise could be fine if that's what you ended up with, but it never seems to go that way. So I prefer democratic socialism. Well, the idea is to compare apples to apples. So each of these theories in its purest form, as it were, would be free enterprise and democratic socialism. So let's say...
In the pie-in-the-sky world, in a perfect free enterprise world, the government would not be picking winners and losers at all. All exchange would be voluntary. All exchange would be wealth-creating. As two individuals or two parties would enter into an exchange, only if both parties are made better off.
And you could do your own thing. You could decide where to work and what products to buy. And that's the idealized form.
The idealized form of dedication. democratic socialism is, hey, we all get around, sit around together, we vote on what we want to produce, we're going to share stuff that we produce, and we all get a say in what to produce, regardless of income. So everyone's equal in terms of their one vote to determining which products get made, who works where in the system.
And so, you know, when you compare idealized forms, We can compare maybe the forms gone awry, which would be comparing crony capitalism versus communism. So under crony capitalism, government's picking some winners and losers, but there's some free enterprise. Under communism, there is complete government control of both the economy and the political sphere. So it's not there isn't a slate of candidates to vote for.
when it comes to voting to see what gets produced or who works where, there is a one-party platform and you get to vote. Sure, but there's only one name on the ballot, in which case no longer does the little person get to vote or the common person get to vote to meaningfully dictate or advise to the process what products to produce, how to produce them, who gets them. And so there does became more of a class-based society of those making decisions and those having all decisions made for them. But it's important to compare apples to apples. It'd be inappropriate to compare corny capitalism versus democratic socialism or pure free enterprise to communism.
It's probably best to look at idealized forms one versus the next, or maybe even better, look at both of these systems as they've been practiced. As we said, there are no completely free enterprise places in the world. There are some that have high levels of economic freedom, but everyone's got some government intervention in their economy.
And there are no 100% democratic socialist economies either, where the government's making all decisions and there are free and fair elections. In fact, I can't name a single one. So we'll look at that and look at some maybe countries that you're thinking about that you might describe as being democratic socialist.
And we'll see why maybe that's not the right moniker. All right. Let's look at some political quotes. So these are quotes during the 2020 presidential cycle.
So I want to put some quotes up here from people who are running for president of the United States in both the Democratic side and the Republican side. Now. He was a Republican incumbent, Donald Trump running for re-election. So most of these quotes will be from the other side. But what's important to see is that Republican, Democrat, doesn't really matter.
They're going to issue support here for this idea of markets and free enterprise. So Beto O'Rourke, he was a congressman, Democratic congressman from Texas, said, I don't see how we're able to meet any of the fundamental challenges we have as a country without in part harnessing the power of the market. Right. That was not being an advocate for government must make all decisions. It's, hey, markets are powerful.
We need to need to put them to work for us. At the time she was a senator from California, now she's vice president of the United States, vice president Harris. I am not a democratic socialist. Elizabeth Warren, Senator Warren from Massachusetts, seen as one of the leading progressive Democrats in the US Senate.
I am a capitalist to my bones. Pete Buttigieg, who was mayor of South Bend, Indiana. went on to become transportation secretary under President Biden. American capitalism is the most productive economic force known to man. That's a pretty strong statement.
America will never be a socialist country, says President Trump. Well, wait a second. There seems to be a pretty uniform reaction here that when it comes to an economic system of choice, it seems that regardless of what you might be thinking you're hearing on TV or the radio, there is quite a bit of agreement that, yes, markets are powerfully working for the benefit of those in our country, and that, no, we would not look to supplant the market with complete government control. Which brings us probably to Bernie Sanders, who would who's actually not a Democrat or Republican. He is a Democratic Socialist.
He's actually in a minority party, and he's a Democratic Socialist U.S. Senator from Vermont. So let's look at a Bernie quote from the 2020 presidential election. 20 years ago, when people thought about socialism, they were thinking about the Soviet Union, about Albania.
Now they're thinking about Scandinavia. In Vermont, people understand I'm talking about democratic socialism. Okay, we'll pause. Well, Scandinavia, what's Scandinavia? That's a region.
Are we talking about Denmark? Denmark's in Scandinavia. Denmark has a higher economic freedom ranking than the United States. They're actually more capitalist than the United States, or more free enterprise than the United States.
Sweden, Norway, these are all... Finland, they're all top 30 economic freedom countries in the world. So out of 200 some countries, these are not countries that have said, oh, governments are going to own and operate all means of production. I mean, the definition of socialism is the government owns the means of production. They own the machines, tools, and factories.
They own the land. They own your labor. That's not the case in Sweden.
You can work wherever you want. Ikea, the... the big Swedish furniture company. It's a big company. They own their own property.
The government doesn't own IKEA's land. The government doesn't own the IKEA warehouses. The government doesn't tell people they have to work for IKEA.
Sweden's a hyper-capitalist country. It's a hyper-market country. They have private schools.
You pay for public roads. There's markets everywhere. So we have a little maybe misunderstanding of what democratic socialism is, is a term.
and what we probably want to refer to Scandinavia as a region, as would be capitalist economies or free enterprise economies with a large welfare state. So we'll talk welfare state at the end of the discussion today, but these are not socialist countries. Sweden is not a socialist country. Denmark is not a socialist country.
Norway and Finland are not socialist countries. We'll give you some examples of socialist countries. And so it is important to be careful You're running around saying, oh, I'm a socialist, or I'm a democratic socialist. You got to understand what that actually means.
It actually means you are advocating for the government to take ownership of land, the government to take ownership of machines, tools, and factories, and for the government to take ownership of you and your labor. Let's look at some controlled experiments. Again, if we want to look at reality and compare reality in different types of countries over time, you might say that outcomes matter. I mean, when it comes to the morality of choosing an economic system, yes, you're free to say, I think the means justify the ends, or the ends justify the means, or whichever way you want.
Be consistent. Do you say to yourself, you know what, what I want is the most harmonious, purest form of getting along possible, and I could care less if it starves everyone to death. You know, maybe.
Or you might say, you know, I'm willing to put up with some stuff if it means we have higher standards of living, people can eat, they can go to school, they can have access to health care. Well, you decide which type of mix you're looking for here. But what we want to do is compare some outcomes.
And I've got some different groups here of countries. So we'll look at some pairings. So we'll see what happens when you choose two different types of economic systems. apply them on the same type of people. So we're going to try to compare as best as we can, you know, similar ethnicities, racial groups.
We'll hit fast forward in the economic data, and we'll see if there was in fact a difference in outcomes over time based upon economic systems that people chose. So we've got something we're going to look at in turn here. We're going to look at Taiwan slash Hong Kong versus China. So Hong Kong, Taiwan and China, well, they're all part of China. If you go back to World War Two, well, go back to the 1800s, they're all part of China proper.
The British came control. They get a lease on Hong Kong from China in the 1890s to have a hundred year lease. So the economic and political system is going to change in Hong Kong.
It's going to be unique and different after World War Two. during the communist revolution, there was a republic, there was a democratically elected leadership in China. They got chased away by the guns of Mao Zedong and pitchforks, and they fled to the island of Taiwan. So Taiwan is, again, used to be part of China. If you ask people, the government of China, it still is part of China, but it's where the democratic leaders of China fled to and opened up their own government on the island of Taiwan.
So you can see what a democratic, more free enterprise area has done since World War II versus China. We can obviously look at North and South Korea. I encourage you to look at a map sometime, a Google map of the Korean peninsula at night. North Korea doesn't have very many lights, and South Korea is flooded with lights.
And it's not because people hate light. pollution in North Korea, it's because they can't afford power. We look at East versus West Germany. Again, we had a country. It's a natural experiment.
I mean, to the extent that we can in economics and look at controlled experiments, this is how we do it. We're going to look at the same country groups, apply different economic rules, hit fast forward and see how the results diverge. So Germany was broken up after World War II.
East Germany went with the communist model. West Germany went with the... free enterprise model. Venezuela versus Chile. Chile went more in favor of free enterprise in the 1970s.
Venezuela took a hard socialist turn after 2000, a gradual turn before then, and then a hard turn. So we'll see. Same idea here, Zimbabwe versus Botswana.
Botswana is going to go the more free enterprise route. Its neighbor Zimbabwe is going to go a hardcore, get rid of property rights model. Cuba versus Puerto Rico.
Cuba's obviously got a communist dictatorship for the last 50, 60 years plus. And we'll look at Malaysia versus Singapore. So across the globe, it doesn't matter which people group we're going to apply this to. Europeans, Central America, South America, Africa, Asia. It doesn't really matter who we apply these rules to.
What we're going to see is the results are, in fact, pretty consistent. I might leave the Cuba to Puerto Rico one in a sense for you to go do some homework on. All right, China versus Hong Kong versus Taiwan.
So if we're going to go back in history, not much difference. In fact, China is richer than Taiwan, not much far behind Hong Kong in 1820. In 1890s, Britain, the United Kingdom is going to get a lease on Hong Kong. And so we are going to see some divergence here.
and even going into World War I. the British system, common law, democracy, there are people or votes for the leadership. It's a high level of economic freedom. In fact, until the recent Chinese takeover of Hong Kong, Hong Kong had been ranked number one in economic freedom of any place in the world for a long time.
All right, so let's fast forward a bit. Let's get up to World War In 1913, Taiwan's a little bit wealthier than China, but then there was the Maoist revolution. We're going to set up two different economic systems in China and Taiwan come 1950. And let's fast forward from there. So I should mention what these numbers represent. So these are, in a sense, per capita income.
It's output per person. And you say, what kind of dollars are these in? Well, they're in something called...
you know, international dollars. So read less into the exact dollar figure and more in the relative growth of these dollar figures. So we're comparing apples to apples across countries. And so look at more of the size difference than maybe necessarily what it means in the actual dollar itself. All right, well, we're going to fast forward here.
We're going to put the communist system on China. They're going to have centralized ownership of land. They're going to starve millions of people between 1950 and 1975, and their per capita output is only up to $1,000. Taiwan during this time, oh, it's $3,500.
So it's three and a half times what the per capita output is in China. All the while, Hong Kong's sevenfold, 700% higher than China. So again, what's interesting is it's the same ethnicity.
These are the same people groups, the same DNA applied to two different economic systems. This country with the most economic freedom, killing it twice as high of output as Taiwan. And Taiwan is three and a half times larger than China. So the more restrictive China is, the more government control they want, the less their economy grows. Which is why they were, again, maybe they weren't starving these millions of people to death on purpose.
Maybe it's just an accident of their economic system. Well, after 1975, a little thereafter, Mao Zedong dies. Deng Xiaoping decides to start opening up China. So he starts saying, hey, we should engage in trade. We're going to loosen up on property rights.
People can own some private property. They can actually have businesses. If you go to China today, there are private property rights.
China by no means is a free enterprise nirvana. It's still not in the top 70 countries in terms of free enterprise, but it's much higher up the list than it used to be. And so the economy has taken off. By 2016, it was up to 58, 85. But still, look at the gap. Taiwan's at 28,000.
Hong Kong, 35,000. There's still seven times on an annual basis. producing seven times as much output per person.
So per capita income, seven times higher. That's a big economic difference in your ability to meet the needs and wants of you and your family, whether it's food, clothing, shelter, education, health care. A 700% difference is not a small difference.
And again, the story is pretty consistent. The more you're going left to right here, you're going higher in economic freedom. So high levels of economic freedom led to more meeting of needs and wants.
We'll put North and South Korea in here, throw in Vietnam for good measure, because it underwent a communist revolution as well. So there was a Korean War in the 1950s, there was a communist revolution in North Korea. So even here at the beginning, you can already see by 1962, South Korea is starting to diverge from North Korea, which is about the same in terms of...
per capita output during the Korean War or going into the Korean War. Again, 1973, you start to see a bigger gap. And whoa, whoa, what is this?
1973 to 2016, virtually, well, not just virtually, no, growth went backwards. That's 40, 50 years of backwards. Less output per person. That's hard to do.
You really have to have an economic system that doesn't know what it's doing to pull that off. At the same time, South Korea, again, we're taking the same people group, same ethnicity, same strands of DNA, and we're applying a different economic system, and it's at 26,179. Oh, wait a second. That's a 13-fold standard of living difference. That's meaningful for people's lives.
Here, people starve to death, even to today. Here, it's one of the more prosperous countries in the world. Could North Korea be as equally prosperous as South Korea? Absolutely.
Would it need to adopt a different economic system? Most definitely. What about Vietnam? The Vietnam War is going to come to an end in 73, 74. The U.S. is going to pull out, and the communist system is going to be applied. through the whole of Vietnam, which actually caused their economy to shrink.
So they produce less stuff. Again, there's a theme here. Whether you're in China, North Korea, Vietnam, et cetera, mass starvation. It happened in the Soviet Union when they collectivized farms.
And you think, well, why does that happen? Why does this government ownership of land always end in starvation? We've changed incentives.
Incentives matter. If when you grow food, you get to eat some of that food, then you're going to have an incentive to grow more food. If you're growing more food just means no extra stuff for you, then, you know, your incentives are different. All that extra work coming from you means nothing more for you. So you're going to work as hard as you need to work not to get beat, not to be sent to a gulag.
So they went backwards. They actually became one of the poorest countries in the world. And then they started loosening up on the economic screws. They started allowing some private property. They engaged in international trade and they got companies like Nike and Reebok from the United States to come in and build factories.
And they really did take off since 2000. So that was it's been it's been nice to see in their standard of living when I was last in Vietnam. You can definitely see in Ho Chi Minh City how you wouldn't look at this and say it's a communist place. There's all kinds of free enterprise going on. You can see they were not much different than, in fact, poorer than North Korea in 2000. But this is hardly any change in North Korea since 2000, more than a doubling of per capita output in Vietnam because they have embraced markets. And so.
Again, it's a pretty consistent story. The more economic freedom you allow, the higher per capita output is. And so we have more access to food, clothing, shelter, education, health care. Singapore is an island on the south end of Malaysia. So if you think of Malaysia as a couple island groups, Singapore used to be part of Malaysia.
And they broke off. Malaysia has... not nearly the free market economy Singapore has.
Singapore now has the highest level of economic freedom in the world and have developed a meritocracy. I mean, if you want to, no matter where you come from, no matter your ethnicity, you want to come and work hard, you can get ahead in Singapore. Malaysia, however, reserves jobs for certain ethnicities, the native Malays. And so, you know, they specifically discriminate against entrepreneurial. people of Chinese descent.
And so Singapore says, hey, if you want to engage in wealth-creating trades, knock yourself out. Malaysia says, eh, well, only if it's approved by the state. So much more government-controlled cronyism there in Malaysia, Singapore being the more free market version or free enterprise version, and voila, you see a massive divergence in outcomes. Again, this is the same geography.
These are countries that abut each other. Let's go South America. Again, rather than put this slide in for Cuba and Puerto Rico, I encourage you to go do a little self-discovery there. See what the standard of living really is in Cuba.
Is it some democratic socialist nirvana? I mean, A, it's a communist country. There's no political freedom whatsoever.
And, yes, you can be thrown in jail for being a political dissident. Is there? Lots of political dissidents down there in jail, but look at the standard of living. Is it by choice that they're driving cars from the 1950s and 1960s? when they work.
All right. Per capita GDP here for, let's look at Venezuela just versus anybody, say 1975. Venezuela is rocking and rolling. They have more proven oil reserves than any other country in the world.
But 1975, or even let's go back to 1950. They're at 5309 versus Spain, 2173. They're more than twice the output level per capita than Spain. in 1950. They're still higher in 1975. They're twice what Uruguay is. They're more than twice what Chile is.
And then they started thinking late 1990s. Well, actually, in 1970s, they started moving toward government ownership of the oil fields, started nationalizing some things. And then that process accelerated under Hugo Chavez, who wanted to create a democratic socialist state.
So he's in control by 2000 and the economy didn't grow much at all between 2000 and 2016. Well, again, if you go back and look at Chile, that was less than half of what the Venezuelan economy was in terms of per capita output in 1975. By 2016, it's twice as high. It's two times the Venezuelan output. Well, there's two miracles there.
There's the miracle of Chile adopting free enterprise reforms that they did in the 1970s that really accelerated their economic growth rate. And there's the miracle of destroying your economy that is the Venezuelan anti-miracle. Now, we should point out here, if we went a little further, if we went all the way to 2020, between 2014 and 2020, Venezuela has experienced seven straight years of economic contraction.
So... This number was higher going into 2016, and then it was already on a slide, or into 2014, there was this already sliding in 2016. This continued to slide since then. Over 4 million people have fled Venezuela.
They were starving. They were out of work. 4 million people who didn't want to leave their country, but were forced to based on starvation. That was what democratic socialism was. said they were trying to avoid.
They wanted to bring a better life to the middle class and low income people. But what they did is they brought starvation as they nationalized food production and grocery store growth, they nationalized grocery stores and all of a sudden grocery store food dried up and the shelves were bare. It's a very uncomfortable time. You got the president of Venezuela, it's not really funny. on TV talking about how pets should be eaten.
That's how you solve the hunger crisis. Eat your pets. Again, it doesn't have to be that way.
Uruguay and Chile are the more free market ends of South America. And look at their economic performance relative to that of Venezuela. Let's go over to Africa. Let's go to Zimbabwe versus Botswana. Countries that border each other in 1975, they're about the same in terms of per capita income.
Let's fast forward 25 years. 25 years! That's not that long.
I know it seems long to some college students. It's your whole life. But 25 years in the grand scheme of things, not that high.
We've got Zimbabwe taking a big step backwards. We had a president come in, get rid of property rights, confiscate property, kill people, take their stuff, redistribute it to government cronies, no more free and fair elections. They beat up the opponents.
We'll compare that to Botswana that is the more free market or free enterprise country, by far one of the highest levels of free enterprise on the continent of Africa. So we're going to fast forward from 1975, get to 2000. Now it's a dramatic difference, 663 versus 4043. By 2016, it's still, you know, it's a six-fold increase or six-fold higher level of per capita output in Botswana than Zimbabwe. Well, wait a second.
This is a common story. The story, this is not a small divergence in economic prosperity if you choose a centrally planned economy out of the socialist communist pile here. versus the free enterprise pile. two dramatically different levels of outcome. The reason that candidates running for president in the United States of both parties say that free enterprise or capitalism is the way to go is because that's what the data tell us.
We know this to be the case, regardless of where you're located around the globe, that free enterprise allowing mutually beneficial trades creates more wealth. All right, last one we're going to do here, East versus West Germany. You can look at the data in the slide. I'm going to focus on the growth rates coming after the war. So after World War II, 1945, East and West Germany get set up under different rules.
West Germany is a free enterprise, capitalist democracy. East Germany is going to be your centrally planned communist system. 1945 and 1960, West Germany's almost growing twice as fast, 10.9% versus 6.2% in East Germany. Again, we're talking about Germans here.
Germans are Germans. And so we're still trying to take the same type of DNA and applying two different rules to them. Again, you could see this in Berlin because the city itself was split between East Berlin and West Berlin, wall between the two.
And there was one direction people wanted to immigrate. from East Germany to West Germany. That's why East Germany put up the Berlin Wall and shot people when they tried to leave. They could only hold people in by force.
It was that dramatic difference in economic outcomes. If you look all through here, the economy is growing faster in West Germany. So a total 1950 to 1989, the West German economy, the democratic capitalist economy is going to outgrow. on a yearly basis every year in the East German economy.
Now, the Berlin Wall comes down. So, that's why we're ending it here in 1989. The Berlin Wall is going to fall. It's going to fall because people in East Germany are tired and East Berlin are tired of being so much poorer than West Germany.
They say, but they're the same people we are. Why do we have to struggle to eat when they have plentiful food? Why do we have to drive bad cars when they have great automobiles over there.
Why do we have to live in such relative misery? We need to change our economic system. Wonderful story.
Berlin Wall comes down. West and East Germany reunite under a democratic capitalist system, and it's helped everyone involved. Now, that being said, if we fast forward, they reunited in the 1990s. If you fast forward 20 years after that, 25 years after that, you can still see that East Germany not as happy even after they've reunited.
West Germany much happier. So if we're thinking about life, liberty, and pursuit of happiness, well, the country, the parts of Germany, the regions of Germany that were in 1945 moved over into the Western values side here, the free market. democracies, they're happy about it.
They're fulfilled. Now, money can't buy you love. Maybe you can't always buy a happiness, but starving to death doesn't make most people happy either. So even to this day, East Germans, people who stay there, less happy.
Same thing, we're going to roll through a number of pictures here, East and West Germany, disposable income. uh still much higher in west germany than it is in east germany um where do young people want to go young people they grow up in east germany get their rear out of there uh move to west germany so it's uh you know people who live through this system uh uh you know objects in motion tend to stay in motion um people might even be nostalgic for the days and the government told them what to do all the time uh guaranteed them work even if they were told where to go But young people don't like that system. People from other countries, if they're coming to move to Germany, all choose to move virtually to West Germany.
We've got Berlin over here. So Berlin's a thriving city. And it's all free enterprise cities, no longer split between the two. But foreigners are going to come to West Germany.
Unemployment rates are much higher in East Germany. That's why you wouldn't come to go there if you're a foreigner. You're going to go where the jobs are, and the jobs are here in West Germany. So even years after you... removed the artificial, well, it's not all cases artificial.
There was an actual wall in Eastern, between East and West Berlin. But when you change the rules of the game and then fast forward, it's going to take some time to overcome the 40, 50 years of different rules. Those different rules over time really add up.
A three versus 4% growth rate add up over time. Every year it's a compounding type of thing and the standard of living deviates dramatically. I've taken students in Berlin and gone to a number of museums, including a museum of the DDR, which is what they called East Germany.
And you can look at the secret police museum and see all the ways it would spy on people in East Germany. Make sure you're doing what the government wanted you to do. All right.
So we kind of hit that one over and over with different countries and pair groups around the globe. No matter which type of people we apply these two different economic rules to, we get the same type of outcome. Those economies put in a free enterprise system end up wealthier.
They produce greater levels of ability to meet people's needs, food, clothing, shelter, health care, education. All right. But now let's go back to the Sweden, Denmark, Norway, Finland type of question. Wait a second. I thought these were socialist countries.
Well, no, they're not. They are hyper-capitalist countries. Denmark's hyper-capitalist. Sweden is very capitalist. Norway and Finland are, again, their top 30 in the world.
They're on the free enterprise end of the spectrum. So what do they have? What might Bernie Sanders be thinking about? Well, they have a welfare state. So.
Wealth is still created in private transactions with private property. So people still own themselves. They decide where to work in Norway.
The government's not telling you where you have to work. You still have private companies owning machines, tools, and factories. They're not all government-owned. You still have voluntary exchange.
And so wealth is created in the private sector. What a welfare state does is it applies, in many cases, set of tax structures, including but not limited to an income tax. And they say, all right, well, you go make your wealth, you may go make your income, and we're not going to take it all from you. But we're going to take a certain percentage, maybe even up to 50% of your income.
We'll put it in a pool to make sure that we have a bare minimum of needs met for everyone in the economy. So whether it's through healthcare or childcare, education, we're putting in a social safety net. high levels of unemployment insurance.
And we're going to talk about different aspects of the welfare safety net in the U.S. context later in this course. But you would describe the U.S. as a welfare state as well. We don't just have free enterprise. We do collect income taxes, pool money together, and provide some basic resources and meet some basic needs of people all throughout our country. So that's really what we're going to be.
talking about most of this course is the element of the welfare state that we have and where do we want to maybe increase or decrease the size or quality or nature of this welfare state? How much government intervention do we want in the economy and why? That's where some of these next sections are going.
And so let's look at just briefly some of these issues writ large. I mean, so Scandinavia is definitely on the free enterprise end of the spectrum, but then you have to say, well, what goals do we want in a welfare state? Why do we want to provide a minimum standard of living? And what does that minimum standard of living entail, whether you're in Sweden or the United States? On the food side, does it mean steak every night for dinner?
Does it mean protein powder and multivitamins? What's your standard? What's your standard on housing? Is it a tent? Is it keeping rain off?
Is it a place with air conditioning and heating? Is it a luxury hotel? What's your standard of living that's the minimum? So food, clothing, shelter, education.
What's the minimum? We'll talk education later this class as well. How much education should be provided for everyone?
Same thing on health care. So the welfare state. may not always try to get the equality of outcomes, but making outcomes more equal, at least giving people a bare minimum standard that they could feel comfortable not falling beneath. That's going to be in contrast versus equality of opportunities, because if we're going to fund a welfare state, we are going to have to take money from some people, which means we're going to have to, in a sense, penalize their effort in other areas.
And so we're not going to give them an equality of opportunity on the front side to succeed. So it's a tradeoff. This is not a one-size-fits-all answer for any of you taking this course. You can decide where you fit in along the spectrum, how big the welfare state you're going to want to see versus how much.
economic opportunity you want. I have in the bottom here, optimal use of force question mark. Again, you're not going to take money from people and give it to other people to meet their needs through a government without the use of force. Otherwise, you just call it charity and charitable donations.
Let's take just a quick look. We're not going to go too in-depth in this, but we'll take a look at Sweden and Sweden's history with their welfare state. Again, it's still a very capitalist enterprise country.
1871 to 1971, their growth rates and output in Sweden were greater than they were in the rest of Europe. They're greater than the US. Their economy grew more quickly.
You say, wow, this Swedish model is amazing. Well, actually during that time, Sweden was a more free marketplace than it is now. And they had one of the highest levels of education in all of Europe.
This was Lutheranism. So Martin Luther, when he engaged in or got started the Protestant Reformation, one of the big tenets of being a Lutheran was that you need to be able to read the Bible for yourself. And in order to read the Bible for yourself, you had to be literate.
And so Sweden was leading the world, being a very Lutheran country, was leading the world in literacy. So high education did pay off for a long time in the Swedish economy, and they were outgrowing the rest. of Europe and the US.
And then they decided, hey, this is great. We're growing pretty wealthy. Let's turn our attention rather to growing more quickly. We'll switch more of our attention to providing a larger welfare state.
So we'll up tax rates over 50% and we'll provide minimums for people. And they did this 60s and 70s. And fast forward, 1971 to 2005, their economy grew less quickly than Western Europe and less quickly. the United States. So, right, there are trade-offs.
It may not be that you want to be the wealthiest per capita country in the world. Maybe you would be happy to be less wealthy and make sure that the welfare safety net's bigger. That's your decision.
But do understand that when Sweden put this large social safety net on, it did slow down their growth rates, and their per capita income is nowhere close to what it is. in the United States. So they do put up with less stuff. So maybe they share more stuff with each other, but it has come with a cost of producing less output generally.
All right. So to finish up the lecture here, one thing you want to think about yourself when you're looking at comparing economic systems, comparing free enterprise versus democratic socialism or crony capitalism versus communism is, do you just look at the intentions of people or do you look at actual outcomes? Because if you're looking at actual world history, not pie in the sky theory, but actual world history, historical standard, continent after continent after continent, because I could have gone on and on. I could have done the communist, when the communists took over in Mozambique and the economy crashed.
It's a copy and paste type of principle. We see the same story over and over again. If you put the government in control of land, labor, and capital, you get similar results. Starvation, economic decline, people's needs don't get met.
The price signals are not there to coordinate behavior. There's not a mechanism to understand or even care what average citizens even want or desire for their lives. It's not a system that delivers wealth creation. And again, you might say, well, it just sounds materialistic to have wealth creation. Well, wealth is what buys you food, clothing, shelter, education, health care.
So if you don't think you need food, clothing, shelter, education, health care, feel free to pick any economic system you like. But if you're kind of into those things and having those needs and desires met, the economic record is in. Countries that have higher levels of economic freedom do, in fact, provide higher levels of standard of living to their citizens.