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.

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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 Kong11583.42.8
Singapore2982.32.8
New Zealand3781.14.8
Australia4282.54.2
Switzerland5382.63.9
United Kingdom
131480.54.5


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

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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*
1Norway27
2Australia4
3Switzerland5
4Netherlands17
5United States12
6Germany16
7New Zealand3
8Canada6
9Singapore2
10Denmark11

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

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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

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Human Development Index**Economic Freedom Score*
187Niger127
186Congo168
185Central African Republic166
184Chad165
183Sierra Leone147
182Eritrea174
181Burkina Faso102
180Burundi132
179Guinea144
178Mozambique125

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.  

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