Fallacies of the left and right

I’ve been surprised how much discussion has occurred in response to my neoliberalism post.  Perhaps that was because Paul Krugman responded.  In any case, I’d like to briefly discuss what I regard as some fallacies of the left and right on the subject of market reforms.  I’ll start with the left:

1.  Forgetting that things were even worse in the past.  Many developing countries have deplorable working conditions, environmental standards, income inequality, human rights abuses, etc.  If these countries have adopted free market reforms, it is easy to look at these problems and forget that conditions were even worse before the reforms occurred.  It is hard for someone who grew up in a rich country to understand just how difficult life is in a developing country.  When you see deplorable conditions, it is hard to imagine how they could have been much worse in previous decades.  But all one has to do is walk across the border from China to North Korea, to see what China was like before the reforms.  As big as China’s problems are (and they are huge) North Korea is far worse off.  China’s living standards aren’t just higher than North Korea, they are dramatically higher.  Most don’t recall that China was poorer than India before the reforms began in 1979.

2.  Assuming that Dickensian conditions implies a country must be capitalist.  Many people on the left seem to create left/right mental boxes for countries based on their perception of working conditions.  Thus a country with poor working conditions and low wages (again China is a good example) is assumed to be “capitalist” and a country with good working conditions and a high level of equality (such as Denmark) is assumed to be “socialist.”  Actually it is much more complicated.  Economically speaking, China is a half-communist country with low levels of social insurance, whereas Denmark is an extremely free market economy with a large welfare state. 

3.  Assuming that economic reforms failed because real GDP growth didn’t increase after 1980.  I’ve already addressed that in another post.  Growth slowed everywhere, but the neoliberal reformers saw growth slow less than the non-reformers

4.  Assuming the Soviet Union went into a depression after economic reforms began.  Actually the real GDP of the Soviet Union collapsed before economic reforms began in 1992.  And the places that reformed the most slowly, recovered the most slowly.  Those that didn’t reform at all (such as North Korea) saw an almost complete collapse of their economies.  Economic reforms didn’t cause a Depression in the Soviet bloc.  Rather a “Great Depression” in the Soviet bloc caused economic reforms to occur.  This misconception occurred because conditions continued to deteriorate for some time after the reforms began in 1992, and this is when people began to focus on the issue in the West.  So they saw horrific economic problems, and assumed they were caused by the reforms.  In Russia, people probably had trouble distinguishing between Gorbachev’s reforms (which weren’t market reforms but rather attempts to make communism work better) and true market reforms.

5.  Assuming neoliberal reforms are associated with authoritarian governments.  Many people seem to think China adopted free market reforms after the 1989 crackdown at Tiananmen.  Exactly the reverse; the free market reformers were discredited by the protesters (who supported reform) and thus the Chinese government moved back toward statist policies.  In Argentina, the generals who ruled the country adopted statist policies, and market reforms were associated with the movement toward democracy in the 1990s.  In Chile, the generals that overthrew Allende opposed free market reforms, and only turned toward them (out of desperation) in 1975 when their statist policies put Chile into a depression.  There is an EXTREMELY strong correlation between neoliberalism and democracy.  Look at the Heritage list of economic freedom and you will see that most of the high scorers are democratic (although the top 2 countries are not, or at least not entirely.)  I plan to read Naomi Klein’s book this summer–I’m told it has some of these misconceptions.

6.  Capitalism is based on greed.  In fact, it is almost impossible to make capitalism work without altruism.  If people are not civic-minded you will not get free markets.  This is because individual producers are much better off if protected from competition.  Businesses generally do not support capitalism in their own industry.  To get a free market system you need people willing to put aside their special interests and support open and transparent economic governance.  After 1980, the countries that moved most rapidly toward free markets (Denmark, New Zealand, etc) were the countries whose citizens score highest on polls of civic-minded attitudes (and generally lowest on corruption indices.)  The most statist of the developed economies (i.e. Greece) also exhibit the least civic-minded attitudes in surveys.  If neoliberalism was a right-wing plot to enrich capitalists, you’d expect exactly the opposite pattern–you’d expect the most civic-minded or idealistic countries to be the least like to adopt neoliberal reforms.

7.  Assuming increased income inequality negates the gains from freer markets.  I’m not saying this can never occur (deregulating the gains in finance while the government continues to socialize the losses might be one counterexample) but in general there is little evidence that free markets produce lots of inequality.  If you look at the 8 categories in the Heritage index other than size of government, then Denmark is actually the most free market economy on earth.  Yet it also has the most equal distribution of income.  International differences in income equality are strongly correlated with ethnic diversity.  Even in relative equal Europe, inequality is associated with the presence of ethnic groups like the Roma (aka gypsies.)  In Australia the greatest inequality is associated with the presence of  indigenous people (aka aborigines.)

8.  European countries have more progressive tax systems than the US.  Not true.  Because supply-side problems are REAL, the more social democratic countries of Europe have found it necessary to have much more regressive taxes than the US.  They need highly efficient tax systems to raise enough revenue for their extensive social insurance programs.

Here are some fallacies on the right:

1.  Countries with big government tend to be poorer.  As Statsguy showed in a recent post, it is just the opposite.  In developed countries governments tend to spend a higher share of GDP.  I do think that, ceteris paribus, beyond 20% of GDP larger government lowers GDP.  But the effect isn’t strong enough to prevent countries like Denmark and Sweden from having high living standards, despite their large governments.

2.  Denmark and Sweden are socialist countries.  I’ve already indicated that they are capitalist countries with high levels of social insurance.  Denmark has freer markets than the USA.

3.  Singapore and Hong Kong are not really capitalist.  This is the opposite from point two.  Just as some on the right focus too much on size of government, others focus too much on  a few deviations from free markets that they have read about in these two countries.  There is a tendency to forget that in every single country in the world the government plays a major role in the economy, including the US.  Singapore and HK do some things we don’t do (for instance their governments control much of the housing stock) but we do lots of things they don’t.  There is always a tendency to notice flaws in others that we don’t notice in ourselves.  I am amazed how often people mention the $500 fine for throwing gum on the sidewalk in Singapore, but I rarely see people mention that we have 500,000 people in prison for using drugs.  Which is the greater outrage?  This isn’t to excuse abuses in other countries (I’d still rather live here), but merely to point out that no country comes close to being the sort of libertarian paradise than many on the right would like to see.  You can have a lot of markets and still be rigidly communist.  Even North Korea occasionally allows farmer’s markets.  And you can have a lot of statism and still be one of the most free market countries in the world.  The US deviates from pure capitalism in literally 1000s of ways.  You can’t even be a hairdresser or a taxi driver w/o a government permit.

4.  Europe/Canada/Australia, etc, are much more socialist than the US.  This is not true.  In the Heritage rankings the US is right in the mix, slightly more capitalist than most, but less capitalist than a few of these countries.  Bryan Caplan recently linked to a survey that showed the US government spends more dollars (PPP) on health care (per capita) than all other countries save oil -rich Norway.  Many of these countries have privatized industries and services that are still traditionally done by government in the US.  (BTW, if we are already spending so much, why do we have to spend even more to pay for Obama-care?  Answer:  It doesn’t include meaningful cost controls.)

5.  Capitalism is based on individualism.  Actually just the opposite.  Fukuyama showed that large private corporations thrive in cultures where people work well in groups, and don’t do well in cultures where people are distrustful of those outside the family.  This is why the Nordic economies are the most multinational corporation-dominated economies on earth.  The industries that are privately-owned in the Nordic countries are often state-run in less group-oriented cultures.  I admit to knowing little about Ayn Rand (and assume I’ll get pushback here) but based on what I have read about her prickly and individualistic personality, I wonder of a country of Ayn Rands could produce a successful capitalist system.

Update 5/29/10:  I hope all my discussion of culture didn’t lead you to think I am a cultural determinist.  I’m not.  Doc Merlin mentioned reverse causation in the comments, and I buy the Adam Smith/Deirdre McCloskey argument that markets make society behave better.


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45 Responses to “Fallacies of the left and right”

  1. Gravatar of aretae aretae
    28. May 2010 at 19:30

    Scott,

    As always, you’re very insightful. However, I think you’re mistaken on one MINOR point…that I’ve looked into recently. Leftist point 5. While that was my understanding as well, and I read some work in the Economist in the 90s suggesting as much, I’ve seen other stuff more recently that questions that:

    In the Bruce Bueno de Mesquita-edited book “Governing for Prosperity”, it is suggested that while moderate democracies are worth some GDP growth, more democratic institutions (more than moderate) tend to cost GDP. The book is fascinating reading…even if you only chased that graph, which is decidedly parabolic.

  2. Gravatar of Can You Bleed a Stone? « It Don't Mean Much, These Seats are Cheap Can You Bleed a Stone? « It Don't Mean Much, These Seats are Cheap
    28. May 2010 at 21:08

    [...] You Bleed a Stone? by Niklas Blanchard under Complexity Economics Scott Sumner wonders: I admit to knowing little about Ayn Rand (and assume I’ll get pushback here) but based on what I [...]

  3. Gravatar of dieter dieter
    28. May 2010 at 21:15

    “5. Capitalism is based on individualism.
    Actually just the opposite. Fukuyama showed that large private corporations thrive in cultures where people work well in groups, and don’t do well in cultures where people are distrustful of those outside the family.”

    I wouldn’t describe kinship oriented societes, such as muslim immigrant groups as “individualistic”.

    But you do have a point. Self-proclaimed western hyperindividualists frequently show of their “individualism” by owning MacBooks or Fixies. Western society is not individualistic but rather better described as voluntarily and selectively (multi)collectivist.

    wrt 8.: Even without supply side problems, the revenue just wouldn’t be there. There is only so much high income wealth to spread.

    2. Denmark and Sweden are socialist countries.

    This isn’t just a fallacy by the right, but also believed by the left as well. It is also how these countries and their representatives define themselves. Anti-globalisation leftists, such as Attac, constantly present these countries as examples to make their case against liberalization.

    Another fallacy on the american right is american exceptionalism or specifically the notion that the USA is the nation of small business, enterpreneurs and selfemployment. The US ranks rather low in these fields, while Greece, I believe, ranks first in the EU.
    Lots of small businesses is possibly a result of kinship orientation and insofar a bad sign.

  4. Gravatar of rob rob
    28. May 2010 at 21:38

    most of my friends are very liberal and their main opposition to capitalism, like mine when i was younger, was the lame uptight attitude and silly costumes of its defenders. sometimes still when i see kudlow on cnbc i think “that’s it, im a communist again”. i also sometimes yearn to be a communist when i hear limbaugh or hannity or any of those guys.

    most leftists arent FOR anything, they are just against things. but it’s easy to be against things. it’s easy to poick out the flaws. it’s easy to say: this is fucked!

    i believe that is the reason Krugman wont take much of a stand FOR anything. the position of the liberal is to be against not in favor of.

    i dont believe that is entirely a bad thing. the world needs its cynics. but cynicism as a movement aint that great.

  5. Gravatar of Lorenzo from Oz Lorenzo from Oz
    28. May 2010 at 21:46

    What a great list, and post. See, this is why I like reading your blog so much :)

  6. Gravatar of The_Orlonater The_Orlonater
    28. May 2010 at 22:16

    Absolutely wonderful post. The world is much more complicated than the left and right box, the socialist and capitalist box, etc. Evaluating public policy should take other factors into account.

  7. Gravatar of Guy S Guy S
    28. May 2010 at 22:24

    Outstanding as usual. Very good summary of “clowns to the left of me, jokers to the right”

  8. Gravatar of Doc Merlin Doc Merlin
    29. May 2010 at 00:52

    Great post!
    One disagreement:
    ‘but based on what I have read about her prickly and individualistic personality, I wonder of a country of Ayn Rands could produce a successful capitalist system.’

    I think you have the causation backwards, I don’t think an extremely capitalist country could produce an Ayn Rand. It took the Soviet Union to produce someone like her.
    On the other hand capitalism tends to produce people who are more trusting of strangers because with well functioning markets, strangers tend to be trustworthy. (There has been some experimental work on this, and Adam Smith talks about this in “The Theory Of Moral Sentiments”)

  9. Gravatar of scott sumner scott sumner
    29. May 2010 at 05:13

    aretae, I define democracy to include decentralization–so I don’t consider countries like India to be all that democratic. Perhaps that effects his results. My model here is Switzerland, which over the past 100 years had the most successful economy in Europe. Admittedly that’s just one observation. I also think the US is a good example. Although it is big, it was relatively decentralized when it got rich (1770s-1920s)

    dieter–All very good points. I agree the left also views Sweden and Denmark as being more socialist than they are.

    rob, Yes, one also needs to be realistic about what is possible.

    Thanks Lorenzo.

    Thanks the Orlonator.

    Guy S. Just reading that line brings back bad memories of 70s music. :)

    Doc Merlin, Very good point. I may do an update.

  10. Gravatar of Christopher Hylarides Christopher Hylarides
    29. May 2010 at 05:56

    RE Naomi Klein’s book

    Just a warning, but it’s got almost nothing to do with economics. It’s a documented hate on for Milton Friedman and the entire book goes on about how evil the dictators were in South America. Because most of them were anti-communist (but not necessarily capitalist, but she calls them that), she tries to tie it into a huge conspiracy theory with bits of true information. She goes on and on about specific cases of lost jobs, but doesn’t mention anywhere that most of those people got new jobs later on in new industries. She ignores any of the successes that came later in Chile or elsewhere. You’ll be ripping holes left, right, and centre through the entire book. I’ve also seen her speak. She rarely takes questions directly and almost never engages in debates.

    If the book was called “The Fascist Doctrine” then it would have been a much more compelling document on the evils of that system. I couldn’t even finish the book. I had to finally stop at “some of the workers that lost their jobs committed suicide, the Chicago School must also be held responsible for these deaths”.

  11. Gravatar of david david
    29. May 2010 at 06:10

    re II.3: really unfortunate choice of example; Singapore doesn’t have masses of people locked in jail for drug possession because it executes or canes people for drug possession. Go with your “masses of city, state, and federal regulations” argument instead, that worked better :P

  12. Gravatar of Christopher Hylarides Christopher Hylarides
    29. May 2010 at 06:18

    @david Singapore also doesn’t execute as many people as the USA throws in jail for dug offenses. People don’t commit as much crime there. Most of the reasons are cultural, as asia’s Confucianist influence encourages a deferment to authority which is also why governments change so rarely in Korea, Japan, and Singapore.

  13. Gravatar of Brian Moore Brian Moore
    29. May 2010 at 06:22

    re: “Capitalism is based on individualism” as a myth.

    I think you are definitely right that this is not strictly true, but I’m not sure that individualism plays no role. (I’m not implying that you were claiming this.)

    Just as a society that has many bureaucratic rules against starting new businesses might suffer because of it, a non-individualist society (whatever that means) that was intolerant of new ideas that entrepreneurs might espouse might suffer the same stagnation.

    While certainly individualism is not necessary, I think a diversity in citizens is helpful to a capitalist economy. “Individualistic” people can take roles in a capitalist system that are enhanced by their individualism, and those who don’t value it can take jobs that don’t emphasize them. (I’m not making any value judgments on which is better, just that the diversity of style is probably useful.)

  14. Gravatar of mbk mbk
    29. May 2010 at 06:44

    Great list.

    A lot of these fallacies, and then some, are caused by selective perception of course. For instance in the US many discussions about taxes and regulations only talk about the federal side. Once you add the taxes and regulations of the states, the US comes out more taxed and less free than often proclaimed. That includes community regulations – I still remember the 9 ft high list of prohibited activities on the local beach in L.A. when I lived there. No one in his right mind would have put up such a thing on a beach in “heavily statist and unfree” … say, France (where I lived just before hitting L.A.). Not to mention that there it would have been ignored anyway. But in the US-libertarian mind, somehow only federal government is “really” bad, and so, only federal intrusions seem to really count.

    Another example, the fear of many that introducing a VAT in the US would mean instant economic Armageddon when so many US states have sales taxes already (and even the Singapore goods and services tax is a VAT, it’s just not called by that name).

    Small note on Singapore and HK: HK and SG are really very different in kind in terms of how they came to be and how they are governed. I would not put them in the same category. That being said, isn’t it rather the other way around? I thought both were considered model countries by the international libertarian right. I don’t recall anybody calling them ‘not really capitalist’. And, the fines issue for gum in SG is a red herring. This has got to be one of the most hyped and least relevant issues regarding life in SG. The US has a lot of really draconian laws in sensitive areas too (security, drugs, child protection, prostitution etc) and in any case this is an area of criminal law and has nothing to do with economic freedom. If anything I’d say the international (read: US) libertarian right seems ill informed about the influence of the SG government in the economy. Just because it’s cost efficient doesn’t mean it’s not the prime mover.

  15. Gravatar of david david
    29. May 2010 at 06:57

    @Christopher Hylarides

    Singapore has the highest executions per capita in the world, so…

    I do agree on the low crime rate, though. But it’s worth noting that neighboring Johor state has the highest violent crime in Malaysia. In part, Singapore exports its unemployment.

    I have my doubts about the Confucian attitudes hypothesis; Singapore’s leadership is very much British-influenced. It’s not just the history of British colonialism; the local political parties during self-government were clones of the British Labor and Conservative party despite the anticolonialist message. The political elite are virtually all first-language-English Western-educated people.

    Compare Hong Kong (say), which has historically had much worse corruption and violent crime problems than Singapore. What Confucian deference? Or Taiwan.

    The “Asian values” thesis is something Kuan Yew and Mahathir invented fairly recently; prior to that, Singapore’s government explicitly modeled itself on Sweden in policy literature and committed itself to the destruction of local Chinese culture (e.g., the shift away from prevailing dialects towards Mandarin, government control and Anglicization of the traditional Chinese institutions of school and business associations). But challenges to the PAP from the left had collapsed whilst ethnic challenges from the right began threatening PAP dominance; at the same time, UMNO in Malaysia was facing similar pressures over a crackdown on opposition and a solidification of power in the hands of the Malay wing of the ruling coalition. Cue “Asian values”.

  16. Gravatar of Rob (2) Rob (2)
    29. May 2010 at 06:58

    “re: ‘Capitalism is based on individualism’ as a myth.”

    A quibble on this one. Capitalism is based on individual property rights, no? To me, this is more the position that’s taken.

    As to “individualism,” per say, it’s complicated, and the argument relies on parsing behavioral orientations around which it is very difficult to draw national boundaries. Still, there is an obligatory Hofstede point in here, which opens up predictable debates — somebody has to say it…

    According to Hofstede’s work, the Nordic countries are highly individualistic. Here is Sweden, for example: http://www.geert-hofstede.com/hofstede_sweden.shtml What they are not is highly assertive and competitive. (By contrast, Japan is measured as low in individualism and high in assertiveness/competitiveness.) These things can be considered different.

    I also think it’s possible for individualistic people to work well in groups, as long as the groups are based on practical relations and meritocratic values. And you definitely see successful, large, private corporations with more and less group oriented ways of working. This whole idea of relating individualism to economic forms could be a red herring.

  17. Gravatar of david david
    29. May 2010 at 07:08

    Side note: I like mbk’s “Just because it’s cost efficient doesn’t mean it’s not the prime mover”. Very well put.

  18. Gravatar of Tom_CZ Tom_CZ
    29. May 2010 at 07:38

    Scott,

    great post as always. I really enjoy reading your blog.

    I would just like to comment on your point about the Soviet Union. I think that market reforms indeed contributed to the economic decline in post-communist countries, though the collapse of USSR was the main reason for the decline. Large part of GDP in former Czechoslovakia (a close example for me) was produced in heavily subsidized industries that did not produce consumption goods for households, such as arms industry. Removing those subsidies resulted into a collapse of such industries. Household consumption was not affected, but it still looks like a collapse when looking at GDP.

  19. Gravatar of gnikivar gnikivar
    29. May 2010 at 07:49

    Great list, but a couple of quibbles. First, you said that India wasn’t that decentralized in one of your comments. States in India have substantial responsibility with regards to health, education and tax policies. Equally telling, India is one of the few countries in the world where more people vote in local elections than in national elections. The per capita income of Gujarat, India’s wealthiest state, is 6 times higher than that of its poorest, Bihar. The most commonly cited reason is the different quality of local government, showing just how important local government is in India.

  20. Gravatar of Christopher Hylarides Christopher Hylarides
    29. May 2010 at 09:11

    @david I agree with respect to British influence and Singapore is more multicultural than most of the rest of Asia, but its leaders being foreign born doesn’t necessarily conflict with deferment if the “masses”, which are still majority Chinese, aren’t. While Singapore has a high per capita execution rate, it’s not the same as the incarceration rate as the US. Going further down that road will lead us to the murky arguments about whether harsh/tough punishment deters crime, which at best the results are very mixed.

    Both HK and Taiwan had huge social upheaval during those times as millions of refugees fled Red China and overwhelmed local resources. Korea for the frist decade or two after the war had the same issue. As soon as things settled down, people “relaxed” more. But I don’t doubt for a fact that good government policies are important. If one system is corrupt from the top down, you get the problems that the Philippines or Malaysia got. I’m not saying it’s just Confucianism (sorry if I left that impression), but local customs and norms play an important part in regional economic development.

  21. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    29. May 2010 at 10:29

    A very good post.

  22. Gravatar of Lawrence Lawrence
    29. May 2010 at 13:39

    Scott, I thought this was a great, balanced post and I don’t think we are far apart at all.

  23. Gravatar of Jason Jason
    29. May 2010 at 14:42

    Left: 6. Capitalism is based on greed.
    Right: 5. Capitalism is based on individualism.

    I think part of this has to do with “Capitalism” as a banner word (a bete noire in WTO protests and a cause celebre in the Tea Party protests). What business interests tend to try to do is actually anti-free market — entrenching themselves because increased competition means lower profits. As things like this get pushed under in name of capitalism, it gets the stink of greed.

    Yglesias pointed out what I think is a similar use of the word “freedom” on the right in this:

    http://yglesias.thinkprogress.org/archives/2010/04/freedoms-just-another-word-for-im-an-orthodox-conservative-with-orthodox-conservative-views.php

    On the right, I think there is partially the inverse of what Krugman describes here:

    http://krugman.blogs.nytimes.com/2010/04/03/we-are-not-mirror-images/

    i.e. because they think the left is socialist as a matter of principle, the right feels they must be the completely individualist mirror image. They forget that Locke said it was in the individual’s rational self-interest to voluntarily give up some freedom and create the social contract.

    I wonder if this can be summed up in one’s view of pricing negative externalities? Creating them in order to forward your own business ends is greed, and pricing them is anti-individualism. Therefore we need sufficient balance of regulation to prevent the creation of negative externalities and/or sufficient socialism to put the right price on the ones we can’t (or would rather not) fix with regulation.

    [My preference in this, and probably why I'm a liberal, is to tax negative externalities -- a) because it is easier to understand, and b) because it is easier to fix the balance by simply lowering or raising the tax. Carbon tax for global warming; a bank tax for financial regulation; taxing cigarettes to offset social insurance costs; taxing high incomes to offset the costs of income inequality.]

  24. Gravatar of scott sumner scott sumner
    30. May 2010 at 07:07

    Christopher, The quotations I have seen from the book are pretty embarrassing. It calls into question the editorial process at publishers.

    David, Wouldn’t you rather be caned than put in prison? I sure would.

    Christopher, Good points, but don’t governments in Korea and Taiwan change nearly as often as in the US? (of course their history of democracy is very short.

    Brian; You said;

    “Just as a society that has many bureaucratic rules against starting new businesses might suffer because of it, a non-individualist society (whatever that means) that was intolerant of new ideas that entrepreneurs might espouse might suffer the same stagnation.”

    Good point. I guess here I was thinking about the Nordic countries–which are pretty innovative economies (in terms of patents, etc) and are viewed as community-minded. But individualism is a vague term that cuts across many unrelated issues, and on some of those definitions you are right.

    mbk, That’s a very good point about France and the US. I have noticed the same. We are very paternalistic and litigious.

    I favor a VAT to replace the corporate income tax (which falls on consumers anyway) but not in addition to our current taxes.

    Those are very good points about HK and Singapore (and the US), but if you read back through my earlier comment sections in other posts there are always those claiming Singapore is not very laissez-faire, and pointing to all sorts of government interventions. They certainly dispute its number 2 ranking. So it’s an argument I often hear. I heard people on the left use it as well, as an argument for why planning works.

    David, I’m no fan of executions, but isn’t life in prison just as bad? If I was sentenced to life in prison, I’d just kill myself anyway. The US was pretty libertarian in the late 1800s (according to Bryan Caplan), and we executed lots of people.

    You said;

    “Compare Hong Kong (say), which has historically had much worse corruption and violent crime problems than Singapore. What Confucian deference? Or Taiwan.”

    Very good point. This generalization about conformity (while true in some dimensions), is also misleading in others. Aren’t there fistfights in the Taiwan legislature? China’s had all sorts of anti-authority movements from the Cultural Revolution to Tiananmen Square. They have about 80,000 small scale riots a year over property disputes. So as always with culture “it’s complicated.”

    You said;

    “The “Asian values” thesis is something Kuan Yew and Mahathir invented fairly recently; prior to that, Singapore’s government explicitly modeled itself on Sweden in policy literature”

    Another example is sexual attitudes and family values. In some ways East Asia is more puritanical the the West (indeed much more) but in other important ways they are much less puritanical than the West. “Asian values” is very misleading.

    Rob(2), See my earlier replies. There are many definitions of individualistic, by some you are right and by others I am right.

    Tom CZ, Thanks. You said;

    “I would just like to comment on your point about the Soviet Union. I think that market reforms indeed contributed to the economic decline in post-communist countries,”

    You might be right, but I just don’t see much evidence. The biggest collapse in the Soviet Union occurred before the reforms, and the faster reforming countries generally did better. That’s a powerful argument that cuts the other way. But I do agree that the reforms weren’t handled well in many countries, and this caused additional problems.

    You are exactly right about the collapse in measured GDP.

    gnikivar, I defer to your expertise. Sometimes I am shocked when I read that the central government of India chooses textbooks for all schools, or that the government owned rail company has a million workers. And I believe some regulations that prevent workers from being fired are national. The bottom line is that I think India is simply much too big. I agree that areas like Gujarat have done better than Bihar, but if it were on its own it might have had even more ability to reform. Still I accept your correction. It is relatively decentralized–the main problem is size.

    By the way states like Uttar Pradesh (180m?) have more people than most countries. It would arguably be too big if it was a single country.

    Another interesting example of big is bad is Japan. Japan was once much richer than the 4 “tiger” economies. Within 15 years it will be poorer than all 4. This despite the fact that Japan has an enviable culture. Hard-working, well educated, organized.

    Christopher, Those are all good points about Asian history. Even Japan had a lot of labor turmoil in the 1950s. I’m surprised you lump Malaysia and the Philippines together. I always thought Malaysia was halfway between the Philippines and Singapore (economically.)

    Don, Thanks,

    Lawrence, Thanks, I thought you’d like it more than the other one.

    Jason, Good points and I mostly agree. A few quibbles. You are right about taxing carbon but not cigarettes. People who have studied the numbers find much lower externalities (including public health costs) than most people imagine. The optimal tax is surprisingly low. (It sounds morbid, but smokers also collect much less Social Security. Of course that’s not saying smoking is wise, just less of an externality than people think.) It’s also a super-regressive tax.

    I have doubts about the bank tax, but agree we need regulation as long as we have deposit insurance. I have an open mind on the whole issue, and agree that taxes are usually the way to go. I wish we could develop a bank tax that directly targeted the public policy problems created by reckless banks taking on too much risk.

  25. Gravatar of Mark A. Sadowski Mark A. Sadowski
    30. May 2010 at 16:57

    Scott,
    You wrote:
    “The biggest collapse in the Soviet Union occurred before the reforms, and the faster reforming countries generally did better.”

    The first part I disagree with. The latter part I agree with.

    Using Angus Maddison’s reasonably well respected data set GDP per capita in the former USSR declined from $7123 in 1989 in 1990$ to $6423 in 1991. It then fell to a low of $3915 in 1996. Certainly there was a depression before reforms but for much of the former USSR the depression accelerated after reforms.

    Nevertheless I agree with your latter statement. The Baltic states were the most neoliberal and grew the fastest, at least through 2007.

  26. Gravatar of mbk mbk
    30. May 2010 at 17:46

    I have to say one more word on this Asian values thing. Superficially it may have been a spur of the moment concoction of the 1990s. But there is a real feeling in East Asia and South East Asia that the Western liberal democracy model is not the only possible one and also not the only desirable one (take that Fukuyama!). To a Westerner that hurts of course, but it is there.

    In my reading the big, dark, overhanging problem with the Confucian element of “Asian values” is the individualism part, or rather, the low value assigned to it in this model. The East Asian type organization of society makes for effective and efficient business administration whenever there is a model to follow. But when there isn’t, or when conditions change, there is a problem. Innovation, personal initiative, sticking one’s head out, etc – in biological terms, evolvability – are the weak point of the Asian values narrative. When Kishore Mahbubani wrote “Can Asians think?” he had East Asians, implicitly Confucian-influenced traditions, in mind.

    I do agree with Scott, that the central tenet of free market economies (“capitalism”) since Adam Smith is the unwitting cooperation between trading partners under increasing division of labour. But individualism counts a lot when starting a business or when defending a new idea against some status quo. One shouldn’t look for correlations between individualism and capitalism, but between individualism and both entrepreneurship and innovation. And this individualism, this innovative power, is still very much located in the US, to some non trivial extent, Europe, and not that much in East Asia. I venture that South Asia (a.k.a. India) has a bigger chance to become a significant global source for innovation than China for that matter.

    There is one country that comes to mind that shows how a country can become successful and yet fail to rejuvenate, reinvent, out-innovate itself. It had a different, less individualistic, more organized society, with a good degree of government economic planning, widely believed at its heyday to be the source of its success. And it was very successful, it reached the top of the global economic food chain and was touted as the new model that would overtake the West. And then it crashed. So far, nothing unusual – lots of countries in the West have crashed before. But this country never really recovered, because once at the top of the food chain, and with they hype deflated, it could not generate sufficient autochthonous innovation. It could not regenerate itself. Since it already was at the top, at that point it could have moved forward only by leading, not by following or improving best practices. It could not do this, and I venture, in part because of its value system. That country is Japan of course. In other words, to judge the long run it takes more than a generation or two.

  27. Gravatar of Fentex Fentex
    30. May 2010 at 21:21

    7. Assuming increased income inequality negates the gains from freer markets.

    A minor logical quibble;

    The argument made under that heading doesn’t address the point expressed. Whether or not any free market encourages inequality is a different question from whether inequality cancels out gains.

    The point that free markets in Denmark haven’t created inequality doesn’t address what the consequences of inequality would have been.

  28. Gravatar of Fentex Fentex
    30. May 2010 at 21:26

    While I’m quibbling, and being a citizen of New Zealand, I think the implication that New Zealands levels of civic mindiness or degree of corruption changed during, or were related to, our economic reforms of the 1980′s is false.

    Nether changed noticeably, even though I’m tempted to claim a reduction in civility among us that may just be my aging annoyance with other people.

  29. Gravatar of Doc Merlin Doc Merlin
    30. May 2010 at 21:56

    @mbk: Excellent post.
    The problem is even worse than you say, because values can change in a generation or two, it becomes very difficult to judge the long term prospects of a nation. Look at Argentina. It went from long term growth and prosperity into ruin and default, largely due to how the ideology and voting patterns changed consequently how policy changed which harmed the culture further.

  30. Gravatar of Philip Walker Philip Walker
    31. May 2010 at 05:58

    I am amazed how often people mention the $500 fine for throwing gum on the sidewalk in Singapore, but I rarely see people mention that we have 500,000 people in prison for using drugs. Which is the greater outrage?

    Bad example: Singapore skips the prison stage, and sends their drug users directly to the grave.

  31. Gravatar of scott sumner scott sumner
    31. May 2010 at 06:02

    Mark, I have my doubts about that. The Soviet economy was doing poorly during the last half of the 1980s, and yet official statistics look good. The transition to a market economy radically changed the economic data. Instead of having an incentive to over-report output data, now companies had an incentive to under-report (for tax reasons). There was also a massive amount of useless economic activity that was shutdown (in highly polluting and negative value-added heavy industries, national defense, etc.

    Just to be clear, I do not dispute that fact that things continued to get worse from 1992-96 or that those were extremely bad years in an absolute sense. But there is a reason why Gorbachev is an very unpopular figure in Russia (I saw polls suggesting only 2% had a favorable impression) the economy did extremely poorly under his direction, right from the beginning in 1985. He was even more unpopular than Yeltsin.

    mbk, You said;

    “I have to say one more word on this Asian values thing. Superficially it may have been a spur of the moment concoction of the 1990s. But there is a real feeling in East Asia and South East Asia that the Western liberal democracy model is not the only possible one and also not the only desirable one (take that Fukuyama!). To a Westerner that hurts of course, but it is there.”

    I disagree, as Asian countries get richer, they become democratic, just as Fukuyama predicted. His predictions have proven amazing accurate so far, and I think will continue to so so. Within 50 years China will also be democratic. I am confident of that.

    A few decades ago people said Asian values were not consistent with democracy. Then lots of Asian countries started becoming democratic.

    You said;

    “In my reading the big, dark, overhanging problem with the Confucian element of “Asian values” is the individualism part, or rather, the low value assigned to it in this model. The East Asian type organization of society makes for effective and efficient business administration whenever there is a model to follow. But when there isn’t, or when conditions change, there is a problem. Innovation, personal initiative, sticking one’s head out, etc – in biological terms, evolvability – are the weak point of the Asian values narrative. When Kishore Mahbubani wrote “Can Asians think?” he had East Asians, implicitly Confucian-influenced traditions, in mind.”

    I’ve heard people claim the opposite, that Westerners work together much more effectively in corporate organizations. When Western companies set up in China they have a hard time trying to get people to work together for the good of the organization, rather than for themselves. I’m not saying this is true, but this perception is certainly out there in the business world.

    Also note that Chinese and Japanese cultures are vastly different.

    You said;

    “I do agree with Scott, that the central tenet of free market economies (“capitalism”) since Adam Smith is the unwitting cooperation between trading partners under increasing division of labour”

    That wasn’t my main argument. My main argument is that capitalism requires cooperation within large organizations (governments, corporations, etc.) But the other type of cooperation is also important–I agree.

    It is not clear to me that the Japanese are not very innovative. Haven’t they developed lots of interesting variations on consumer products, robots, etc? Doesn’t that require innovation? They are also very innovative in the visual arts (prints, films, architecture, etc.) I do agree that the breakthrough innovations in science and technology usually come from the West.

    I believe that Japan’s problems are political. Of course political problems are related to culture, but not in any deterministic way (as is obvious from the two Koreas). It is too soon to say whether Japan will be able to solve its political problems. So far they haven’t.

    BTW, Japan never led the world, despite what Japan boosters said in the 1980s.

    Fentex, What I meant is that some claim that freer markets will create so much extra inequality that it cancels out the benefits from extra efficiency. If free markets don’t in fact create greater inequality, then the premise of that argument is wrong, as is the entire argument.

    You said;

    “While I’m quibbling, and being a citizen of New Zealand, I think the implication that New Zealands levels of civic mindiness or degree of corruption changed during, or were related to, our economic reforms of the 1980’s is false.
    Nether changed noticeably, even though I’m tempted to claim a reduction in civility among us that may just be my aging annoyance with other people.”

    I agree. I meant to say that the reforms occurred more rapidly because NZ had a more civic-minded culture in 1980, not that the culture became more civic-minded. In the update I think I also spoke out in favor of reverse causality. But the process of markets causing cultures to change would occur very slowly, and mostly in places that did not already have the sort of civic-minded culture that NZ has.

  32. Gravatar of Philip Walker Philip Walker
    31. May 2010 at 06:02

    (Feel free to delete my comment; I’ve just read the comments thread and seen the point made.)

  33. Gravatar of scott sumner scott sumner
    31. May 2010 at 06:05

    Philip, I almost never delete comments.

  34. Gravatar of TheMoneyIllusion » Greece: Is there a third way? TheMoneyIllusion » Greece: Is there a third way?
    31. May 2010 at 07:36

    [...] that second paragraph sound slightly familiar?  I guess I have to exempt Yglesias from the group of those on the left who suffer from the [...]

  35. Gravatar of mbk mbk
    31. May 2010 at 08:26

    Scott,

    I think you misunderstood me on several points. I don’t think we disagree, but we are talking about different things.

    You said: “I disagree, as Asian countries get richer, they become democratic, just as Fukuyama predicted.” I never said more wealth didn’t lead to more democracy. I’d suspect this quite possibly to be true – look at Thailand right now, the upheaval is not connected to any increased poverty. To the contrary, it looks like increased assertiveness because of increased wealth of a larger fraction of the population. I said that there has been the *opinion* among leaders and thinkers here in the region, that “Asian values” work better and are more desirable for Asia’s future path. To expand on this, this is actually composed of two lines of thought, 1) that liberty and democracy are no better than alternative forms of society, in maximizing society’s wealth production (material / utilitarian argument) and 2) that in general Asian values may be more desirable for the region (moral argument). 1 and 2 are not the same thing, and both are just opinions that are frequently heard in E/SE Asian media, especially 1, and not my own predictions of what is actually going to happen. I am much more inclined to believe that like you say any increasingly affluent society may want to become an increasingly democratic one, if only for reasons of dignity, and that values are universal, not ethnicity bound.

    You said “I’ve heard people claim the opposite, that Westerners work together much more effectively in corporate organizations.”. Again that wasn’t my point. My point was that in East Asian cultures the good of society is understood as coming before the good of the individual. The individual is understood as existing only out of the good graces of society’s structures. As such his first duty is to subordinate himself into his roles within society. His individuality is what’s left after he’s done with that. In a sloppy way you could say that duty in every role, in the family, the corporation, the state, is more important than anything else. The phrase often used is that the individual is expected “to play his part”. This produces conformism with all its drawbacks, and a kind duty fulfillment that is not based on true cooperation from insight or even self interest. People don’t actually cooperate. They just play their part. It’s duty. In addition, your part is understood as being somehow fixed. Initiative will get you nowhere. As such this behavior may be neither efficient, nor joyful, nor innovative, within an organization. But it will work in the way that a well oiled bureaucracy works if (and only if) rules exist that can be followed.

    You said: “When Western companies set up in China they have a hard time trying to get people to work together for the good of the organization, rather than for themselves.” Different story: individuals will take the foreign company’s ideas to replicate them in a spin off because they perceive that they will always have a subaltern role in the Western company, that they have no chance to move up, while in their own spin off they will be boss. Same story of the perception that roles are fixed once they are cast.

    Yes Japanese culture and Chinese culture, never mind Thai etc cultures, are all different. But this was about “Confucianism” as background influence, its preference of duty to society over individual fulfillment, and of societal stability over evolution.

  36. Gravatar of ssumner ssumner
    1. June 2010 at 06:13

    mbk, Many people in East Asia tend to be in denial about the facts of history. If you say that 30 million people starved in China (perhaps the worst single event in world history) and 30 million people didn’t starve in democratic India, they brush it off like it’s a minor point. Those deaths are off their radar screen. Democratic governments do perform better, only by cherry-picking the data do they reach the opposite conclusion. I realize that you are just reporting what the elites say, and you don’t necessarily agree, but I’m not surprised the elites want to rule without interference from the masses.

    You said;

    You said “I’ve heard people claim the opposite, that Westerners work together much more effectively in corporate organizations.”. Again that wasn’t my point. My point was that in East Asian cultures the good of society is understood as coming before the good of the individual. The individual is understood as existing only out of the good graces of society’s structures. As such his first duty is to subordinate himself into his roles within society.

    I did understand that this is what you are saying, and I still don’t agree. China has about 80,000 riots a year. The US has approximately zero. How does that show that Asians are more likely to conform to their role in society?

    You said;

    “Yes Japanese culture and Chinese culture, never mind Thai etc cultures, are all different. But this was about “Confucianism” as background influence, its preference of duty to society over individual fulfillment, and of societal stability over evolution.”

    Here’s another example. Taiwanese businessmen in China (which are very numerous) generally have second wives, or mistresses. Is this part of their duty to society? Or individual fulfillment? When I look at Asian societies I see people trying to achieve individual fulfillment (in better or worse ways) not people simply conforming to “Asian values” whatever they are.

    I do agree that Confucian values explain some of the differences between east and west, it’s just that I think these generalizations tend to be too simple.

    Here’s another example. A few farmers blocked a needed runway at Narita airport in Tokyo for something like 10 years. In the US they would have been quickly forced off their land. In Japan, their individual rights trumped the well-being of 30 million people, and the Tokyo government had a really hard time getting them to move. Who’s more important in that case? The individual? Or society?

  37. Gravatar of mbk mbk
    1. June 2010 at 09:10

    Scott,

    “When I look at Asian societies I see people trying to achieve individual fulfillment (in better or worse ways) not people simply conforming to “Asian values” whatever they are.”

    But of course. This is part of the game: public face kept at all costs, private desire fulfilled in hiding. Lots of dark, hidden secrets in Asia. People will privately tell you in your face that they desire X, and in the same breath, that they fully support X being outlawed, without a trace of cognitive disconnect. [The US equivalent is a Bill Bennett quip I darkly remember, roughly about what he called "constructive hypocrisy].

    Narita: I know of this but haven’t followed it. My guess: Farmers managed to put the government in a position where using gov power would have forced a loss of face. In Asia the strategy is often to try and get your opponent to make the first bad PR move (hurt people / lose your cool = lose face). In any case I think whatever happened at Narita is rather the exception that proves the rule.

    Overall: The tensions between individuals’ desires vs society’s never disappears even if it is mandated that one side should win, just like market mechanisms don’t disappear whenever markets are distorted or outlawed. They just find different ways of expressing themselves. In E/SE Asia the public emphasis is on order and societal cohesion. That doesn’t mean individual desires just disappear. But there are subtleties that are not fully grasped by the Western idea of, loosely, “in each Asian there is a little Western individualist trying to come out”. There is a lot of research on what’s called the context dependent perception of the self in Asian cultures; people on average perceive themselves as different personalities depending on the social context they are placed in. Say,
    http://dx.doi.org/10.1111/j.1467-6494.2007.00477.x (sorry I can’t find an ungated version).

    Think of it this way: in Europe the major hypocrisy is in the public condemnation of wealth vs the private desire of it. In the US it is in the public condemnation of immoral acts vs the private desire for them. In E Asia it is the public exhortation of society over the individual vs the private desire to get your own way.

  38. Gravatar of ssumner ssumner
    2. June 2010 at 05:31

    mbk, Those all seem like reasonable views to me. I think we are actually pretty close. There are differences, some of which match stereotypes, but it is also very complicated, and contingent on all sorts of factors.

  39. Gravatar of Sudarsan Sudarsan
    4. June 2010 at 09:47

    That was an amazing post Scott. Your subtle but important point about how Denmark and Sweden are free market countries with high levels of social insurance is excellent. Given the intellectual level of arguments seen in the media today (You are Hitler … No, YOU are Hitler), posts like yours are a breath of fresh air.

    The one small input I would make is to your point about India (gnikivar already expressed a similar version). In some ways India is far more decentralized (and more democratic) that the US could ever be. In many villages in India, almost the entire governance of the village is conducted by the panchayat (Village council). The government simply does not have the ability or the desire to interfere. These villages comprise of a substantial segment of the population. This leads to many local elections being far more consequential to the citizens than even national elections (electoral spending per person, electoral attendance in many local races are far more than national ones)

    However, in other areas (rail transportation), the government has complete ownership and control. Although in that specific case (Rail Transportation), the government does a decent job providing extremely low cost transport to the masses (similar to the United States Postal service). India’s labor regulations are far more onerous than most western countries.
    My point is that making a general statement (Like India is not democratic or not decentralized) is too general as there are many subtleties involved. In certain areas, India has far more freedom at a local level that the United States. In others, the central government has far more control.

  40. Gravatar of scott sumner scott sumner
    5. June 2010 at 09:53

    Sundarsan, I stand corrected. Would you agree than some of the more centralized and less democratic features of India are in the areas important for modern economic development (like transport and labor laws.)

  41. Gravatar of scott sumner scott sumner
    5. June 2010 at 09:54

    Sorry, I mean Sudarsan.

  42. Gravatar of Sudarsan Sudarsan
    7. June 2010 at 08:31

    No problem about my name, still havent forgiven my parents for making it so complex :).

    Definitely. Labor laws (backed up with a slow/corrupt court system) in particular have held India’s development back substantially.

    The transportation system was inherited by the Indian government (from the british) and it lacks innovation since it is government controlled. Hopefully, the indian government, which has shown a trend towards privatization and free market reforms in the last few decades, will continue this trend.

  43. Gravatar of ssumner ssumner
    8. June 2010 at 14:09

    Sudarsan, Agreed

  44. Gravatar of Lynoure Braakman Lynoure Braakman
    26. June 2010 at 02:49

    “The industries that are privately-owned in the Nordic countries are often state-run in less group-oriented cultures.”

    I live in Finland (a Nordic country) and find it really hard to find industries that found fit this. Can you (or someone) give examples?

  45. Gravatar of ssumner ssumner
    26. June 2010 at 06:41

    Lynoure, I don’t know about Finland, but the Nordic countries have done a fair bit of privatization of airports, air traffic control, K-12 schools, postal, water systems, road, fire departments, etc. I believe some passenger trains have been privatized, but am not sure how many.

    Those are things done by government in America

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