A Chicken in Every Pot
Collectivism will always eventually destroy the economy of any nation, no matter how great it may be.
That’s a pretty powerful statement. Is it historically supportable? Let’s visit a current example - Venezuela, to examine the overall process of collectivism, then look at a few other historical cases and see what we can learn.
Venezuela – 17 Years of Collectivism
In 1980, Venezuela was deemed to be the fourteenth most economically free country in the world. Today, it’s a veritable train wreck, having failed in every conceivable way. How did this happen? Was it just bad luck? No, quite the contrary.
Venezuela’s prosperity was fueled primarily by the export of oil. The downward spiral began in the 1980’s, as a result of a drop in the world oil price. Until that time, there had been strong public support for the free market, but diminished oil receipts resulted in a decline in living standards for most all Venezuelans, which left them open to claims by collectivist political candidates that the whole problem was the free market. In 1999, they elected Hugo Chávez, who promised to solve the problem through collectivism – the promise of a chicken in every pot.
Mister Chávez began to take from the “haves” and provide largesse for the “have-nots.” Not surprisingly, he was highly praised by the have-nots. So, he went further. He nationalized many of Venezuela’s industries. Industry became less and less profitable, so less and less money flowed through the system each year. Eventually, the revenue to government was insufficient to pay for the promised largesse. The leader then died and the new leader, Nicolás Maduro inherited a zombie economy. In desperation, he introduced capital controls and increased nationalization, and regulations, hoping to squeeze as much as possible from the economy before it went off the cliff. The result was a fully dysfunctional economy, replete with massive job losses, increasing shortages and, finally, starvation.
Again, having once been number fourteen on the list of economically free countries, Venezuela is now at the very bottom – at number 152, as a direct result of collectivism.
As Margaret Thatcher once said, “The trouble with socialism is that, eventually, you run out of other people’s money.” Quite so. It does take a while, however. A newly collectivist state at first appears to be solving problems. What it’s really doing is feeding off of past profits. It gobbles up the economy’s store of nuts, but when these nuts are gone, that’s it – there’s no more, and the economy collapses. People starve.
Venezuela now has increasing shortages of food, hyperinflation has set in, the government is totally corrupt, the government is running out of funds for entitlements and government healthcare is overburdened and failing. Like Cuba in the 1980’s, there are no longer any dogs or cats on the streets of Caracas, and for the same reason as Cuba – they’re being eaten by those with no other source of protein.
USSR – 74 Years
Vladimir Lenin introduced collectivism to Russia in 1917. He was able to do so because a revolution had just been completed by the people of Russia as a result of their dissatisfaction with a decline in the standard of living of most Russians. For decades, capitalism existed within the primarily communist system, but eventually, the parasite sucked the host dry. The USSR collapsed in 1991 for the same reason Venezuela is collapsing today.
China – 29 Years
Mao Tse-Tung took over China in 1949 with a collectivist regime. But the “10,000 year rule” he promised fell a bit short. It ended in 1978 in an economic dead-end. It followed the same path as the USSR, but the process was quicker.
Cuba – 57 Years +
Cuba lasted a bit longer. In the 1950’s, Cubans had become dissatisfied, due to the decline in the standard of living for the majority of Cubans and were ripe targets for collectivist promises. They welcomed Fidel Castro in 1959. Cuba limped along for decades, but in recent years, the coffers of the state have dried up and the only hope to keep paying the salaries to government leaders lies in the grass-roots cuentapropista movement - a rebirth of the free market. Collectivism in Cuba is nearing its end.
In each of the above countries, the pattern has been roughly the same.
The pattern is a predictable one, because it’s based on human nature. An economic downturn occurs. The voters become suckers for false promises. The new collectivist government appears successful at first, because it’s feeding off the remains of the free market. But, eventually it destroys the free market and collectivism crashes and burns.
So, what does the above review tell us? Has the world learned its lesson? Not at all. What we can surmise from the above is that, whenever the standard of living for the majority of citizens drops significantly in a jurisdiction, the voters will be ripe for empty promises. In every such case, collectivism will appear to be the best solution.
Collectivism is by its very nature is a parasitical system that creates nothing. It therefore will always eventually destroy the economy of any nation where it is implemented, no matter how great that nation may be. The only uncertainty is the number of years required for destruction.
Today, we’re witnessing the collapse of the primary jurisdictions of the former “free” world. They’re operating on a quasi-capitalist system that has been eroded by repeated injections of collectivism (primarily socialism and fascism). Increasingly, voters in each of these jurisdictions are becoming convinced that the promises made by collectivist candidates “just make sense.” As the system continues to spiral downward, as it inevitably will, the scales are likely to tip, not in the direction of a return to the free market, but in the direction of full-on collectivism.
Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man, Strategic Wealth Preservation in the Cayman Islands and 321Gold.