It is my assertion that over the last few decades since the fall of communism a lack of understanding of how markets actually work has become commonplace around the world. When it was capitalism vs. communism (or socialism, or even fascism), you generally knew where you stood. To wit:
- Capitalism said that the free market would provide the best outcome for society, while communism / socialism felt that capitalism had to be tempered and / or that key assets should be owned by the state
- Capitalism said that government should be small, and stick to a few areas of logical focus such as security and foreign affairs, while socialism / communism celebrated government and government jobs as a way to employ the citizenry and achieve social goals
Subtly, the growing attraction of jobs that were primarily in the government sector (environmental jobs, education jobs, health care jobs, and outright government work) and the basic thought that you could build a nice, steady career there with assured benefits and pensions while “doing right for the world” became commonplace. These jobs were often seen as “nicer” and “better” than the ruthless corporate jobs that are continually vilified or parodied on television (such as “The Office” or virtually any thriller set in business).
On a parallel scale, the idea that “State Owned Enterprises” (SOE) could be a significant part of the world economy, and compete effectively with private sector companies, became widespread. Let’s leave aside the companies that fell into the US governments’ hands during 2008-9 like the banks and car companies; I am focusing on the world wide companies, often country “champions”, that are in our midst and whose performance has now been hit with the usual causes of failure of these sorts of entities, including:
- Politically motivated investment
- Forced government subsidies or protectionist behavior
In China, the role of the SOE has been declining and the role of private sector companies is on the rise; case in point is Alibaba which listed in the US and has been a smashingly successful IPO. Russia represents the other end of the spectrum; formerly robust private companies in the Internet sector have been weakened by state controls and the SOE’s like Rosneft and Gazprom have lost 60% of their value over the last 5 years.
One of the most important “back to basics” points that we can make about economics and use for talking points and education remains that
Capitalism is the most effective economic solution and raises the wealth and happiness of its citizens more than any other alternative.
As kids spend their years volunteering and working with non-profit groups and entities either part of the government or a virtual offshoot (education), they begin to ignore and take for granted the critical role of the private sector. As countries get used to the performance of SEO’s and all their usual failures, they forget that the actual cause of most of those failures is the role of the state as an investor in the first place.
We need to take back the narrative on the economy from those that look at just “consumer spending” and “job creation” capabilities of the government; this sort of debt fueled and tax strangling approaches will ultimately kill the power of the private sector. We should also praise all the innovations that come from the markets; everything from your iPhone to the cheap TV to new drugs to all new capabilities built into every car. The social networks you follow, the food you eat, and the fact that the prices for most of those things outside the significant influence of government that fall every year. You can contrast this with the rising costs of education, higher taxes, and general ineptitude that you see when dealing with government or socialistic enterprises.
Cross posted at LITGM