November 13, 2019

A Cautionary Tale

Once upon a time, in the early 1800s, there was a very poor country, so poor, in fact, that many of its citizens left for other countries. 

However, this nation did have one thing in which it excelled—literacy. Nearly 75% of the population could read, which, at the time, was the one of the highest rates in the world. Because so many could read, they were able to learn about the causes of poverty and the government corruption under their king. 

Ideas about true freedom began to spread throughout the land. Around 1840, a non-violent revolution took place. The country turned toward a free-market economy with minimal government influence.

In the next 100 years, this small country became one of the richest nations in the world. Between 1850 and 1950, there was a seven-fold increase in individual capital growth. The mortality rate was reduced by 25%. Average life expectancy increased by 26 years. When it came to the economy, there was significant deregulation and the tax rate was one of the lowest in the Western World.

The people were very happy, but then something went wrong. Politicians, with the support of unions, began to turn the nation into a welfare state. They implemented cradle-to-grave health care, education, pensions, and other such programs that were funded by exorbitant taxes.

A 10% income tax was not a sufficient source of income to support all the new entitlements, so the government instituted an employers’ tax. Based upon the wages of the employees, employers were forced to pay this tax, regardless of the company’s economic situation. In 1970, the tax rate was 12%. By 1979, it had ballooned to 37%. 

The country’s most famous author of children’s books had a tax rate of 102%. She wrote a fictional account of a person paying such an outrageous amount, and it became a best-seller. When the nation’s top movie producer had a tax rate of 139%, he moved to another country. The high tax rates were stifling entrepreneurs, businesses, and workers.

Still, the unions convinced politicians to force businesses to contribute to an investment fund for workers. After a few years, the unions held a majority interest in many businesses. In essence, the unions bought the companies with the companies’ own money. 

From 1976-1995, this once wealthy nation’s economic growth had shriveled to 50% of other developed nations. By the 1990s, the economy was in a free-fall. Inflation reached 10%, and for a brief period of time hit 500%. Some of the most profitable companies moved to other nation.

Realizing that the nation was in peril, politicians quickly changed course. The employees’ fund was abolished. Pensions, health care, and education were reformed. Utilities were deregulated.

But many of the socialist programs were still a heavy drain on economic growth. For example, there was still eighteen-month paid parental leave, government-paid child care for working families, government-paid schooling through college, government-paid health care and elder care in nursing homes.

To remedy these problems, many hospitals, schools, and healthcare programs have been privatized. Health care is no longer run by the national government but at the local level. Private health insurance is available for people who want more options and less wait time for care. Many private schools have been opened. All parents receive an education voucher for each child, which can be spent at any school of their choice. Today, 50% of high schools are private. Wealthy parents always had school choice, but now everyone does, regardless of income. 

Vouchers are also available for use in hospitals. Unions and businesses work together for the benefit of both groups. There is no minimum wage, and unions have embraced technical change in the work place. In 1988, workers claimed one sick day for every eight days worked. But now sick claims are being reduced dramatically. 

Pension payouts are based upon how much a worker saves and the state of the economy. If the economy improves, the pension payout increases; if the economy slows, the pension payout decreases. This is based upon an economic formula. Politicians are not involved and cannot gain votes by promising bigger pay-outs.

Finally, low-income workers actually pay more than the rich through a high value-added tax rate (sales tax) of 25%. 

What has been the effect of all these challenges? Today the rate of economic growth in this nation is 50% above other developed countries. Family disposable income has increased four-fold. There has been an explosion of innovation; entrepreneurs have found an extremely friendly atmosphere for wealth-producing investments. The tax system had been reformed, and the free market has been unleashed. 

Today in America, there is a disturbing political movement toward socialism. When those who push such a debilitating system are confronted about the abject failure and misery of socialist countries, they often site Sweden as proof that socialism can work. Well, the history I have recounted above is the history of Sweden. Sweden tried socialism, and it nearly destroyed the nation. The Swedes saved themselves by lower taxes, privatization, and a free-market economy.     

When Alexandria Ocasio Cortez and her naïve cohorts push their deadly socialistic fantasies, let’s hope that Americans can remember this simple fact of life: True capitalism leads to wealth; socialism leads to poverty. 

(The information about Sweden in this essay was taken from the video “Sweden: Lesson for America?” narrated by Swedish citizen Johan Norbert and produced by Free to Choose Media. The reader can find it on YouTube.)

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Written by
Thomas Addis

THOMAS ADDIS is a retired high school teacher and published author, most recently authoring a children's book, A Gift of Light, which is available at Amazon. An M.A. graduate of Oakland University, he is Associate Editor of Catholic Journal. In his spare time, he enjoys reading and cycling.

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Written by Thomas Addis
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