A Communism FAQ
By Dazo, 2012

Contents
1.	Socialism	2
1.1 What is socialism?	2
1.2 What are some examples of past socialist economies?	3
2.	Liberalism	4
2.1 What about the Economic Freedom Indices?	4
2.3 What about Hong Kong?	5
2.4 What about Chile, Japan, Korea, Taiwan, and Singapore?	5
2.5 But most Americans’ wages can’t be falling, can they? Compensation is increasing.	5
2.6 What about other developed countries?	6





1.	Socialism
1.1 What is socialism?
Socialism, for the purposes of this guide, is the economic system where capital is socially owned, through the government or worker/consumer cooperatives, and goods are produced according to human need rather than private profit. In capitalism, capital is owned by a small portion of society (the capitalists), who require the vast majority of society (the workers and proletarians) to work for them in order to gain access to the goods produced using capital. Socialism returns ownership of capital to workers so that they may own the products of their labor. Socialism is not against work incentives or some amount of economic inequality. Its objective is to advance the well-being of the vast majority of humanity and end the exploitation of workers by the capitalist class which consumes profit far in excess of what it contributes to society.
Global warming is the process where anthropogenic (human-caused) carbon emissions enter the atmosphere and increase global temperature. Global warming is responsible for over a hundred thousand deaths annually from disease transmission and increased natural disaster intensity (IPCC,Costs of climate change, WHO,"Ch. 2, Results: 2.6 Environmental risks"), and the climate damage will worsen over time as carbon accumulates in the atmosphere. (Confalonieri et al. "Chapter 8: Human health"). Anthropogenic Global Warming (AGW) also accelerates the desertification of Africa (Reuters). Social regulation is needed to reduce carbon emissions and stop further destruction of the environment. Free trade is another way in which capitalism maintains the poverty of the vast majority of the world population. The relation between trade openness on economic growth varies with the time interval used for analysis. Publication bias exists in issues related to free trade, with publication bias skewing published results in favor of market liberalism (Doucouliagos). The numerous studies on the short-term relationship between trade and growth in developing countries tend to report a positive relation. In the long run, however, export growth retards development in most developing countries by eliminating high value added domestic industries and supply chains. (Dreger)
The developed world, although small in population, has a near-monopoly on financial capital, and is able to demand terms of trade which are unfavorable to developing countries. Poorer capitalist countries export goods at unfavorable terms-of-trade to purchase products from the richer ones, but as a result the former fails to invest sufficient capital in domestic industry to industrialize. In practice, free trade is a tool used by the developed countries to extract evermore production from developing economies. Most individuals in rich countries are no longer pure proletarians, but labor aristocrats whose support of the capitalist system is bought out by capitalist super-profits from exploitation elsewhere. For this reason, many socialists believe that revolution is most likely to occur first outside the labor-aristocratic states.
1.2 What are some examples of past socialist economies?
Growth rates of socialist economies varied, but on average were faster than most countries at the same level of development (Kenny 1999), and the ones that slowed did so because of their choice of trading partners rather than their economic system itself.
There have been many examples of centrally planned and government owned sectors in western economies, even though they are otherwise nepotistic state capitalist societies that suppress leftist movements. Public healthcare is one sector nationalized in almost all developed countries, to universally excellent result. Introduction of public healthcare was a major contributor to increased life expectancy and economic growth during the mid 20th century (Strittmatter).
References
Health and Economic Development: Evidence from the Introduction of Public Health Care. Strittmatter, 2011. http://ftp.iza.org/dp5901.pdf
The UK’s privatisation experiment: the passage of time permits a sober assessment. Parker, 2004. http://www.cesifo-group.de/portal/pls/portal/docs/1/1189348.PDF.
Public Ownership of Banks and Economic Growth – The Role of Heterogeneity . Korner, 2010. http://www.coll.mpg.de/pdf_dat/2010_41online.pdf
NY Times: An Inconvenient Truth, by Joe Nocera. 2011. http://www.nytimes.com/2011/12/20/opinion/nocera-an-inconvenient-truth.html.
What Does the Eastern European Growth Experience Tell Us About the Policy and Convergence Debates? Charles Kenny, 1999. http://charleskenny.blogs.com/weblog/files/russ6.pdf
What Does the Eastern European Growth Experience Tell Us About the Policy andConvergence Debates? Charles Kenny, 1999.http://charleskenny.blogs.com/weblog/files/russ6.pdf WHO (2009)."Ch. 2, Results: 2.6 Environmental risks"(PDF).
Global health risks:mortality and burden of disease attributable to selected major risks. Geneva,Switzerland: WHO Press. p. 24.ISBN 978 92 4 156387 1.
Confalonieri et al. "Chapter 8: Human health",Executive summary, in IPCC AR4 WG2 2007.
Climate more than land misuse spreading deserts. Reuters.http://www.reuters.com/article/2007/09/12/environment-climate-deserts-dc-idUSL1276068020070912
Publication bias in the economic freedom and economic growth literature. Doucouliagos, 2005.http://dro.deakin.edu.au/view/DU:30002894
A further examination of the export-led growth hypothesis. Dreger, 2012. http://www.fiw.ac.at/fileadmin/Documents/Publikationen/Working_Paper/N_084-DregerHerzer.pdf

2.	Liberalism
2.1 What about the Economic Freedom Indices?
The Fraser and Heritage indices have poor validity as econometric instruments- they don’t measure what they claim to measure. Many of the index subheadings contain institutional quality measures rather than direct measures of government policies.
Some government activities improve institutional quality. For example, government spending, particularly public education, reduces corruption. (Kotera 2012) This creates issues. For example, a section of the Heritage Index covers corruption. Does this mean we should cut spending to anticorruption watchdogs to make room for tax cuts? Protection of private property rights also increase economic freedom. So does this mean we should cut taxes and cut spending on police and courts? These issues do not directly relate to what liberals use the EF to argue for. Privatizing social security and Medicare is not relevant to the measures of property rights or corruption that Heritage uses.
The Heritage website presents the base data. Unfortunately, they don’t break down their country economic freedom listings by sub-sub-component anymore, but we have enough to study. Improving Rule of Law and Corruption are not controversial policies. Regulatory Efficiency includes the ease to set up a business, which does relate to regulatory and accounting requirements, but is also affected by other phenomena such as corruption and quality of public business registries.
Open Markets takes points off if “Some investment laws and practices non-transparent
or inefficiently implemented.” This apparently means that if a country doesn’t enforce its investment laws efficiently enough, then they should enforce them more thoroughly to boost economic freedom. “No transparency and burdensome bureaucracy” and “Inefficient policy implementation and bureaucracy” under investment freedom, and “[the government’s] ability to enforce contracts and prevent fraud” (including insider trading and accounting regulations?) under financial freedom are more examples of the EFI measuring policy outcomes rather than policies. The only EFI elements which consistently measure government policies rather than institutional outcomes are the fiscal and tariff measures.
The Fraser Index has problems as well. “Use of markets” penalizes countries for lowering the threshold at which top marginal tax rates apply- which means tax progressivity can be a form of economic freedom. Some monetary variables measure skill of the central bank in containing inflation volatility (which is a type of countercyclical monetary policy). “Freedom to exchange in capital markets” is hurt by the amount of foreign exchange the central bank holds, but raising interest rates to control inflation will increase purchases of domestic currency by foreigners.
Many of the subcomponents of economic freedom don’t robustly contribute to growth (Carlsson). For the Fraser index, regressing their measure for government size against GDP per capita growth indicates more government spending robustly increases long run growth. Trade barriers seem to increase growth as well. But the main driver of the robust, positive correlation between Fraser Index economic freedom as a whole and GDP growth is the one part of the index which does not relate to reducing the role of government in the economy: protecting private property and having efficient and presumably well-funded courts paid for by sufficient tax dollars.
2.3 What about Hong Kong?
Hong Kong is not particularly wealthy compared to the rest of coastal China. Like Shanghai and Shenzen, its growth came mainly from re-exporting the flood of cheap goods from inland China over the past several decades rather than productive activities taking place in the city itself. It also has a lot going for it, like public healthcare, solid government institutions set up by the British, good public schools, and a natural harbor. The government also owns all the land- that’s like #3 on Marx’s twelve step program for crisis of accumulation recovery.
2.4 What about Chile, Japan, Korea, Taiwan, and Singapore?
All of those countries relied heavily on export promotion and industrial policy. Although taxes and tariffs were nominally low, the government influenced resource allocation through regulated monopolies and planning agencies (the chaebol, zaibatsu/keiretsu, nationalized telecoms and copper, CORFO, etc). The Asian Tigers would likely have a very low economic freedom score during their early takeoff because they were very corrupt and unstable at the time. Their institutional quality only improved later, as a result of development. Most of these countries also had high public investment and good public education systems relative to other countries in their regions. (Maio)
Chile deserves a little more note. Allende erroneously believed that the Chilean economy had substantial excess capacity that could be utilized through high inflation. Despite this mistake, poverty fell and the fall in real wages was halted during his term. Both accomplishments were erased after the military coup. Pinochet subsequently deregulated the banking system, causing a late 70s financial bubble and crash that moved the government to nationalize banking more thoroughly than ever before.
Allende’s most lasting legacies were child labor laws, child nutrition programs, and land reform. The latter destroyed the landed elite and broke rural Chile out of quasi-feudal stagnation to allow subsequent productivity growth in agriculture.
2.5 But most Americans’ wages can’t be falling, can they? Compensation is increasing.
Real compensation in these discussions usually means the Mises.org measure, the ECI (the BLS Employment Cost Index).
According to BLS (2003), “the ECI measures changes in employment costs that are free from the influence of employment shifts among occupations and industries.” It does not account for deskilling of middle class labor and the shift toward lower-paying, service sector occupations.
Mishel (2012) includes health and other benefits and finds that median hourly wages rose 10.7% from 1970 to present. However, 14% of the population is underemployed and working very little or not at all. Living standards have probably fallen.
Purchasing power is still probably growing because of more women entering the work force, affirmative action, and lower savings rates. But hourly wages have not grown much.
2.6 What about other developed countries?
The rest of the world has not reached the same level of material development as the United States. Nevertheless, working class income shares are falling globally.
The top 1 to 10% of income earners, more or less the capitalists, saw their share of national income in most countries decline during World War II as large amounts of capital were destroyed. Demographic trends and increasing life expectancy leveled the income distribution over the next few decades. Around 1980, however, top income shares began increasing again.
Roine (2009) finds that this increase in inequality was mainly due to financial development and economic growth itself, or some time trend correlated with it. The United States is simply the first to notice this because its top income shares were higher to start with.
References
Industrial Policies in Developing Countries: History and Perspectives. Maio, 2008. http://vi.unctad.org/files/wksp/tanzaniadar2011/files/suggested_reading/DiMaio-2008-%20industrial%20policies%20in%20DCs%202008.pdf.
Government size, democracy, and corruption: An empirical investigation. Kotera 2012. http://www.sciencedirect.com/science/article/pii/S0264999312001952.
Which Economic Freedoms Contribute to Growth? Heckleman, 2000. http://www.wfu.edu/~heckeljc/papers/published/Kyklos.pdf
Economic Freedom and Growth: Decomposing the Effects. Carlsson, 2001. http://swopec.hhs.se/gunwpe/papers/gunwpe0033.pdf
BLS ECI methodology, 2003. http://www.bls.gov/opub/mlr/2005/05/art1full.pdf
The wedges between productivity and median compensation growth. Mishel, 2012. http://www.epi.org/files/2012/ib330-productivity-vs-compensation.2012-04-26-16:45:37.pdf
Why have wage shares fallen? A panel analysis of the determinants of functional income distribution. Stockhammer, 2012. http://www.courses.umass.edu/econ804/Stockhammer.pdf
The long-run determinants of inequality: What can we learn from top income data? Roine, 2009. http://www.international.ucla.edu/cms/files/roine_vlachos_waldenstrom.pdf