David Frum

05.23.12

Is North Korea the Only Alternative?

For a long time, the case for free markets was generally easy to make because capitalism was a powerful counter-example to communism. No one ever tried to climb the Berlin Wall to escape into East Berlin. That argument has been definitively settled but it makes a return in The Road to Freedom.

Arthur Brooks uses a lot of communism vs. captalism comparisons to make the case for capitalism's morality. There is even a section that compares North Korea to South Korea:

The most compelling evidence for free enterprise comes from comparing similar countries that took different paths. Consider the case of North Korea and South Korea. One country embraced capitalism, while the other rejected it. Both Koreas were poor, and had the same GDP per capita just sixty years ago. Many socialists in the West believed that the North’s Stalinist system of central planning would prove more effective than the South’s market-based approach.

We all know how things turned out on the Korean peninsula. Today, North Korea is horribly poor and its people are starving. It also has the distinction of being the least free country in the world. Meanwhile, South Korea is both the thirty-seventh freest country in the world and the thirteenth richest. South Korea’s GDP per capita is sixteen times that of North Korea.

And a similar point is made about how America is much better relative to the rest of the world:

Here’s the bottom line: Capitalism and free enterprise have lifted everyone up. It is truly galling to see the 2011 Occupy Wall Street protesters demonstrate with signs that read, “We are the 99%,” as if they were somehow treated unfairly by any objective world standard. These protesters, as privileged Americans, are part of the world’s 1 percent.

But this is a book about U.S. domestic policy, not the benefits of adopting capitalism as opposed to communism. Arguments like this feel strangely anachronistic, especially since Brooks writes as if genuine communism was an option some were agitating for this in country:

Rather than looking at the massive gains that free enterprise has created for the poor, critics complain that capitalism allows some people to get much richer than others, leading to the kind of economic inequality here in the United States. They’re right; economic inequality is higher in America than it is in a country like Cuba. But surely this argument can’t stand against the free enterprise system. Would you rather live in a place where everyone is very poor (except, maybe, a handful of kleptocrats who run the government)? Or in a place where everyone has a fairly high, basic standard of living, a handful of people have a lot more than others, and if you work hard and get lucky, you can join them?

These sorts of global comparisons mean that Brooks can avoid confronting the inequality that actually exists in America. Why would you want to avoid discussing that topic? If you avoid discussing inequality if you don't have to answer some very uncomfortable questions.

For example, there is the political economy question: Is America turning into a plutocracy? Political scientist Larry Bartels thinks it might be and has some charts to make his case:

bartels-chart

To translate what the graph means: Democratic administrations preside over periods when economic growth occurs among all income groups, while Republican administrations are of greatest benefit to the wealthy. (This data was compiled before the financial crisis and the Obama presidency.)

Strong concentrations of wealth can lead to strong concentrations of power. Once you accept that wealth is getting concentrated, then you need a really good answer to explain how political institutions can blunt it, or why this is a moral outcome. Arthur Brooks book doesn't engage with the political economy question.

There are also questions of whether this is the appropriate distribution of America's increased wealth.

productivity-chart

Again, to reiterate the question I asked Brooks at AEI, when the American economy grows but wages are stagnant and productivity gains go only to a few, is that fair or not fair? If it is fair, what is the basis for its justification?

There is a related question to the median wages question: have America's wealthiest genuinely earned their fortunes? It is one thing if we are talking about the genius of Steve Jobs and Bill Gates, it is another thing when we are talking about securitization on Wall Street. Equally problematic is that there is a growing perception among some Americans that the fortunes of the wealthiest have not been properly earned and so lacks legitimacy.

Finally, do increases in income inequality reduce income mobility? Brooks does not directly answer this question, but he does write about mobility. So how he confronts that topic is going to be critical.