Democratic Socialism and It's Challenges

DEMOCRATIC SOCIALISM?

As indicated in my previous posting that in his US Presidential bid, Bernie Sanders has single-handedly brought the term “democratic socialism” into the contemporary American political lexicon and shaken its landscape by citing several Scandinavian countries, such as  Norway, Denmark, Finland as the “successful” model of a Democratic Socialism.

Socialism in general has the following noble characteristics:

Guaranteed Housing

Universal Health Care

Free Education

Access to free Transportation.

Guaranteed Employment, and

Fighting Climate Change, as aspired by Mr.Sanders.

To achieve all of the above is not that easy and simple.  How could that be done?  The easiest way would be through a Central Planning like in North Korea, which is the Communist/Marxist model, which create power that in essence force the idea of “from each according to their ability, to each according, not to their contribution, but to their need”. However, we all know how that has turned out. Then, how could we achieve those noble ideas without having to resort to the peril of Communism? Is Democratic Socialism the answer?

According to the Wikipedia, “Democratic Socialism is a political ideology that advocates political democracy alongside social ownership of the means of production, often with an emphasis on democratic management of enterprises within a socialist economic system.”

Let us examine about those Scandinavian countries.

For the purpose of discussion, let us take Denmark as a reference since this country was mentioned several times in the recent American Presidential Political debates. Moreover, Denmark represents the Nordic model for the other Scandinavian countries.

Denmark has a Universal Health Care coverage. Denmark has high degree of Social Security which provides entitlement to benefits when you lose your job, get sick or are disabled. Denmark also subsidize early childhood education and offers a free higher education; students receive educational grants for studying at higher education and university. Another name for their system is called the Nordic model. From this perspective, Denmark and the other Scandinavian countries are considered Welfare State.  

How do they fund their welfare programs?

They have abundance Natural Resources, for example Petroleum, Natural Gas, Gravel, Sand, Limestone in Denmark and Timber, Mining and Fishing in Norway.   

Denmark’s top marginal income tax rate is 60%, sales tax 25%, corporate tax rate 23.5% and a whopping 180% for cars. According to the Organization for Economic Co-operation and Development (OECD), about half or 50% of their total National Revenue come from taxation, compared that to 25.4% in the US. 

Based on the democratic element of socialism, the means of production in Denmark are primarily owned by individuals, not the community or the government. Resources are allocated to their respective uses by the market. Measured by the number of government regulations/restrictions Denmark has a high economic freedom rated at 76.3 which is almost the same as in the  US at 76.2. This is reflected in the invention and creation of big businesses, such as Skype, Spotify, Ikea, Nokia, H&M, Angry Birds, etc. Danish Prime Minister Lars L.Rasmussen, who last year spoke at the Harvard’s Kennedy School of Government, said, “…….Denmark is far from a socialist planned economy. Denmark is a market economy”. Companies in Denmark can easily hire and fire allowing the allocation and re-allocation of resources causing it more effective and efficient in its operation . Denmark is also known as the least corrupt country in the world. There seems to be a balance between a Welfare State and a Free Market Economy. If we look at it, it would be a misnomer to call Denmark a Socialist country from the perspective of a centralized and planned system. I think, that is why the system was called Democratic Socialism.

Denmark was the World's Happiest Country as reported by the World Global Happiness Index in 2015. It had a GDP per ca-pita of $58,207.90 which is one of the highest in the world. Another Scandinavian country, Norway had $ 66,937.00

However, let's go back to Bernie Sanders' aspiration to transform the United States from Capitalism to Democratic Socialism. Is this Democratic Socialism really better than US "Capitalism"? Let's examine together.

Challenges for Denmark and the Nordic model:

Apparently Denmark and the other Nordic members are having great challenges caused by some factors namely, high taxation, and recently globalization and immigration. This is shown in the increase of Income or Wealth Disparities which ironically is the one, upon which a Socialist like Bernie Sanders would strongly object and despise. 

High taxation has caused labor and capital flight to other places that offers lower rates. We could see now the slowing down of its growth.  Denmark GDP growth of 6.4% in the 4th quarter of 1994 came down afterwards to an average of 1.47% up to 2016. GDP Annual Growth Rate in Denmark is reported by the Statistics of Denmark. Norway averaged 2.6% from 1979 to 2016, down from its all-time high of 10.2% in the first quarter of 1980. There is a correlation between high taxation or the size of Government and the wealth of a nation as shown by the following OECD graph below:

What the above graph shows is: the higher tax a country impose, the bigger the size of the government will become, thus the less growth it would produce.

Globalization, Immigration and Refugees.

With the low salaries and high skills in India, China, and other part of the globe, labor and capitalization are moving out. This has been a big challenge for Denmark and other Industrial Nations to compete.

There has been an influx of foreigners coming into the Nordic countries, as well as recently refugees from the Middle East. Denmark has seen a steady increase in immigration over the past 20 years, most coming from non-Western countries. As of 2014, more than 8% of its population consists of immigrants. The population of immigrants has reached 476,059 excluding the recent influx of refugees from Syria, Afghanistan and Iraq. This shift in demographics has posed several problems such as, cultural differences, employment gaps, the need of education of immigrants and their descendants, spatial segregation, crimes rate and language abilities. Immigrants’ labor market participation rate was only around 50% versus 80% of the native Danes. This has caused a substantial burden on their social programs. Prime Minister Rasmussen believed that the government high social benefits and welfare program had acted not only as an attraction for people to come, but also as a disincentive for labor participation among the low skilled immigrants. Therefore, he was for reforms on public policies such as capping Social Benefits for those immigrants and lowering taxes on the lower labor income.

Income/ Wealth Inequality.

According to Credit Suisse's weighty Global Wealth Report of 2014, contrary to the common believe, apparently the Scandinavian countries were found to have a rather high wealth disparity. The Denmark ECLM (Economic Council of the Labor Movement) has also reported a decrease of 10% income for the poorest while the top richest 10% had their income increased by 30%. In 2014, the top 10% of wealth holders in the Nordic countries hold 69% of the total region wealth, which is almost the same with the US where the top 20% owned 85% of the nation wealth. It has been argued that while the top groups continue to accumulate for business and investment purpose, the middle and lower classes have no pressing needs or incentive for personal savings due to the strong public security programs, generous public pensions, free education, unemployment and free health care.

Mr. Rasmussen has proposed the following steps to be taken by his administration:

Increasing efficiency via technology. Removing red tapes and lowering taxes for business to create more jobs in the private sector. Reforms on Public policies such as capping Social benefits; improving education to improve labor quality and productivity; lowering taxes on the lower income labor. Promoting integration of immigrants was also one of his efforts, since he feels that contribution and participation besides the reforms, are crucial elements to sustain a welfare system.

Conclusion

The Nordic countries have abundant resources; however, Socialism with high Taxes funding, unfettered spending of benefits without measurable, controllable and clear objectives, and reduced distributions, would not work. In the beginning it appears to be successful because of a somewhat homogeneous population, but it has changed due to the impact of globalization and the influx of refugees and immigration. When the pie is large enough for everybody, it would be easier to collectively bear the burden thus easier to maintain satisfaction.

The above example shows decreasing growth, decreasing income and decreasing productivity, but increasing wealth disparity.  Those things would certainly not be a testimony of a great success as thought by Bernie Sanders.

As evidence by the situation in Denmark and the other Scandinavian countries, socialism alone is not a system that would generate a successful outcome. It is not a system that could satisfactorily replace Capitalism like Bernie Sanders think and aspire. It appears that a relative Capitalism such as in US, despite its imperfectness, has more successes than a pure Socialistic country. Moreover, Denmark is not a true Socialist Country as neither is the US a true Capitalist Country. We all know that US has also its own socialistic elements as reflected by its huge funding for their Social Security, Medicare and lately Obamacare. The difference is that US taxes and Government Size is not as big as Denmark, yet.

The socialistic system needs a constant review and reforms in line with the changing nature of the world. Also, a question ought to be asked to every socialist, including Mr.Sanders: How do you obtain and manage the funds for your Social Programs?

Since socialism has in fact several noble virtues, it would be great to see it work. Let us take a look about socialism at another country; and that country is Indonesia. Please visit my next posting by clicking the link below:

Indonesian Socialism

Is Socialism the road to Communism and Totalitarianism?

"We are afraid to sing, say, wear or think what we want. .....There is no love story, there is no Romeo and Juliet. Every story was propaganda to brain wash us about the Kim's dictators.....When I was 4 yeas old, I was ordered by my mother to not even whisper because the birds and mice could hear me. I thought the dictator could read my mind......" - Yeonmi Park.

This is a story of Yeonmi Park, a girl who had escaped from the brutal regime of Communist North Korea. It was a story of misery and human rights abuse at best. It is a heart wrenching story which depicts the brutality of Communism; But, how did it happen?

Some people believe that it started with Socialism which is a precursor to Communism.

What is Socialism? Socialism is when a population COLLECTIVELY owned and CONTROLS the means of production and DISTRIBUTES the end result "equally". Socialism means, or often used, to describe the ideals of Social Justice, Greater Equality, and Security. These are powerful slogans effectively used by those who are championing the rejection of private profits, labor alienation, inequalities of wealth, and discrimination based on race and sex.

"The idea of Socialism is at once grandiose and simple... We may say, in fact, that it is one of the most ambitious creations of human spirit,... so magnificent, so daring, that it has rightly aroused the greatest admiration", said Ludwig von Mises.

The fighting and striving for these noble values could understandably cause one, not only to feel good, but also to feel humanly and intellectually superior than others; Hence, a powerful and addictive concept, especially to those, the more idealist younger generation or millennial.

If it's so noble, why would socialism have the possibility to develop into totalitarianism such as in North Korea?

We all know that Society consist of individuals with a myriad of different needs, different wants and different aspirations. In order to achieve those noble ideals of Socialism, not only one needs a Plan, but also a Mechanism or System with Power that, amid those differences, controls the desired outcome. Aristotle believed that "order among men could extend only so far as the voice of a herald could reach, and that a state numbering a hundred thousand people was thus impossible." Therefore, a centralized economic plan and governance with iron hand would be necessary to realize the given socialistic distributive deals. "Central Economic Planning and Control lies in the heart of Socialism", said F.A Hayek in his book, The Fatal Conceit.

In order for it be effective, Power is required; And, when it becomes centralized and too big, it would ultimately lead, or at least create a slippery slope, to Totalitarianism, which we find in either Fascism or Communism. The propensity of Socialist ideas moving toward Totalitarianism has been interestingly analyzed and discussed by an Austrian Economist and Philosopher, Frederick A,Hayek, a Nobel Prize Laureate in Economics in 1974. His books worth to read are: "The Road To Serfdom" and "The Fatal Conceit - The Errors Of Socialism".

Based on his analysis, Centralized Socialism could lead to Totalitarianism and Communism which would cause all kind of human misery as we see happening now in North Korea. We saw this misery in the form of physical and mental abuse as well as economic failures. It happened in North Korea, old North Vietnam, Cambodia under Khmer Rouge, former Soviet Union, former Red China, Cuba, Venezuela and Eastern European countries. This appears to validate the argument that Communism didn't work, has failed, and will always fail. Therefore, the question would be: why should we go for Socialism if it leads to a totalitarian system, such as Communism? This is something worth to ponder and to be viewed with care.

Apparently, there are several type and level of Socialism; one of which is known and called "Democratic Socialism", which was recently brought to the forefront of the political debate by a Democratic US Presidential candidate, Bernie Sanders. Mr. Sanders cited the Scandinavian countries, such as Denmark, Finland, Sweden, as the successful models of Democratic Socialism. This is the type of Socialism that does not have the totalitarianism effect as discussed above and therefore, is a much better system than Capitalism, according to Mr.Sanders.

Is Mr. Sanders correct in this matter? For further information about the other types of Socialism, please click the following link and read my next article which is titled "Democratic Socialism and It's Challenges"