The idea that capitalism goes hand in hand with social marginalisation does not fit reality

Capitalism is a great system – for filling the pockets of the already rich. But this prosperity comes at the expense of common people, who struggle hard to afford basic services such as health care in the unforgiving market system. This is a common critique against economic freedom. During the 19th and 20th century leftist intellectuals would still argue that socialism and state planning could create greater prosperity than markets. Reality proved these ideas wrong – big time. It is today quite evident, even for those who would ideologically wish otherwise, that free markets are best at fostering innovation and growth. So the critique against markets has changed. Today it is more along the line: well, yes, capitalism creates prosperity, but only for a small handful. If you are an ordinary guy who wants to live a long and healthy life, avoid capitalist countries which are all about the survival of the fittest. However, even this theory struggles in the face of reality.

To find out if markets really translate to poor social outcomes, let’s look at the United Kingdom. According to the Index of Economic Freedom, the country has the 13th freest economy in the world. Since the UK is amongst the more market oriented countries we should expect – assuming the socialist critique to be true – that the country has appalling levels of human progress. To test this theory, we can turn to the Human Development Index. This United Nations project has for long examined how good countries fare in terms of equality, educational opportunities, health and other welfare measures. A quick glance at the latest data shows that the UK is a country with a high rate of human development – more precisely ranked at 14th place internationally. This means that the UK is a place where the great majority live long and prosperous lives, with widespread access to health, education and social services. Good social outcomes and capitalism is, at the very least, not an impossible mix.

Perhaps this is not surprising, since the UK combines free markets with a relatively large welfare state. Places which have a higher economic freedom ranking that the UK tend to have much slimmer welfare states. What happens if we instead of the UK look at the 5 most capitalist places on the planet? According to the Index of Economic Freedom four former UK colonies are the most market oriented places in the world, namely: Hong Kong, Singapore, New Zealand and Australia. In fifth place comes Switzerland. These free-market Meccas have low levels of taxation and correspondingly limited frame of public services offered to citizens. Of course, societies with small welfare services can ill afford generous social security and other social goods such as universal health care. Surely the most capitalist places on the planet fit the leftist critique, having systems that rewards the rich and the rich only?

The Human Development Index is all about the welfare opportunities for ordinary people. It is therefore telling that the 5 most capitalist places in the world have good rankings in this global welfare index. Australia has the second highest ranking in the human development index (after oil-rich Norway). Capitalist Switzerland ranks at an impressive global 3rd place. Also New Zealand (7th ranking) and Singapore (9th) outpace the UK. Hong Kong ranks only one spot (15th) below the UK. On the other hand, super-capitalist Hong Kong has the highest life expectancy at birth in this group (an impressive 83.4 years, second only to Japan globally). As shown in the comparison below, the UK has a lower life expectancy than all of the 5 most capitalist places in the world. Stunningly, even the inequality in life expectancy is lower in Hong Kong, Singapore, Switzerland and Australia than the UK. New Zealand has only a slightly higher rate than the UK.

Economic Freedom Index*	HDI Rank**	Life expectancy at birth (2013)**	Inequality in life expectancy**
Hong Kong	1	15	83.4	2.8
Singapore	2	9	82.3	2.8
New Zealand	3	7	81.1	4.8
Australia	4	2	82.5	4.2
Switzerland	5	3	82.6	3.9
United Kingdom	13	14	80.5	4.5

Sources: *Index of Economic Freedom; *Human Development Index. In all cases the latest available data is given.

Clearly, the idea that capitalism goes hand in hand with social marginalization doesn’t really fit reality. To further illustrate this point, let’s look at the 10 countries with the highest Human Development ranking

10 countries with highest Human Development Score

Human Development Index**		Economic Freedom Score*
1	Norway	27
2	Australia	4
3	Switzerland	5
4	Netherlands	17
5	United States	12
6	Germany	16
7	New Zealand	3
8	Canada	6
9	Singapore	2
10	Denmark	11

Sources: *Index of Economic Freedom; *Human Development Index. In all cases the latest available data is given.

As shown above, all of these countries share a common feature – they are amongst the most market oriented places in the world.

And if we look at the 10 countries with the lowest Human Development ranking?

10 countries with lowest Human Development Score

Human Development Index**		Economic Freedom Score*
187	Niger	127
186	Congo	168
185	Central African Republic	166
184	Chad	165
183	Sierra Leone	147
182	Eritrea	174
181	Burkina Faso	102
180	Burundi	132
179	Guinea	144
178	Mozambique	125

Sources: *Index of Economic Freedom; *Human Development Index. In all cases the latest available data is given.

Again the pattern is clear: all of them share a common feature – they are amongst the least capitalist countries in the world. To sum up, the myth as capitalism as a system that rewards the rich, and the rich only, lives on – in a world where the least capitalist countries struggle with very low human welfare, and the most capitalist countries combine prosperity with good social outcomes.

This piece was first published on www.capx.co on June 21, 2015, and has been reproduced here with permission.

Dr.Nima Sanandaji

Get Swarajya in your inbox.