The Shifting Wealth of Nations: Thoughts on Argentina and Socialism

The Shifting Wealth of Nations: Thoughts on Argentina and Socialism

Timothy Taylor 30/06/2019 6

Discussions of socialism often consist of throwing examples at each other. What about Sweden and Norway? Well, what about Venezuela and the Soviet Union? In an "Eye on the Market" brief written for JP Morgan, Michael Cembalist writes "Lost in Space: The Search for Democratic Socialism in the Real World, and how I ended up halfway around the globe from where I began"(June 24, 2019).

Cembalist makes the point that if the Nordic countries are taken to be the definition of "socialism," it is certainly true that they have higher social benefits and more government spending focused on redistribution. However, it's also true that the social largesse of the Nordic countries is  heavily funded by taxes paid by the middle-class, like value-added taxes (a form of national sales tax) and payroll taxes, rather than by taxes on those with higher incomes or wealth. In addition, Cembalist points out that the Nordic countries are extremely conscious of the need to have a strong private sector as the basis for supporting their more expansive welfare states. He provides an array of evidence that these countries have greater business freedom, more free trade, and lower levels of government effort to regulate firms or to push back against oligopolies.  I've made similar arguments here, as in "The Scandinavian Style of Capitalism" (November 5, 2018).

It would be an interesting political development if a prominent US politician did take a Nordic "socialist" position: extremely pro-business and pro-trade, favoring higher middle-income taxes, and with high spending on those with lower incomes. But I'm not aware of any prominent US politician actually staking out the Nordic combination of positions.

Cembalist argues that if one thinks of socialism as involving heavy government regulation affecting business, hiring, and workers, high taxes and government spending, and limits on international flows of goods and capital, then Argentina is a leading example. Whether you agree with his discussion of Argentina as the true prototypes of "socialism" or not, he provides a couple of striking figures showing the evolution of the wealth of nations around the world that are of broader interest beyond this particular context.

The first figure shows the ratio of current per capita GDP for a number of countries to the per capita GDP in 1913. Countries that were very poor in 1913 (small denominator) and have had strong growth in the last century (big numerator) will do well on this ratio. Thus,  Taiwan, South Korea, Singapore Hong Kong, Japan, and China are on the far left of the figure, where standard of living as measured by per capita GDP has risen by a multiple of 20 to 40. The US is in the middle, clustered with a lot of other countris that were relatively well-off in the world rankings back in 1913, with per capita GDP rising by a multiple of 7-8. On the far right are countries with relatively little growth in 1913, but haven't grown much since. Argentina is the last entry, accompanied by Syria, South Africa, Algeria, and Ghana.

The second figure shows how rankings of countries by per capita GDP have shifted over time. On the axes, countries are ranked by percentile, from the first percentile up to the 100th percentile, in 1913 on the horizontal axis and for 2018 on the vertical axis. Countries that are on the diagonal line (like the US) have remained at about the same global rank over time. Countries above the diagonal line have risen in the rankings, and those below the diagonal line have fallen in the rankings. Again, the sharp fall of Argentina in the rankings is apparent.

Of course, per capita GDP is a rough-and-ready measure of well-being. The choice of appropriate exchange rate will make a big difference, for example. But at least to me, the overall shape of the patterns in these figures gives a fair sense of the shifts in the wealth of nations over time.

A version of this article first appeared on Conversable Economist

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  • Cody Prescott

    Norway is doing great. But it's cold out there.

  • Jessica Dent

    All these countries will suffer in the long term.

  • Rob Blake

    We need to see social benefits as an investment instead of an expense. Money is not spent on free drinks and cake. It is invested in good education for everyone to get a better work force, healthcare to get people back to work, fight poverty so the poorest don’t need to steal to get a affordable life.

  • Paul O'Kelly

    Sweden has always been one of the leading innovative countries in the world.

  • Stephen Blair

    Cracks are starting to show in Argentina.

  • Michael Reynolds

    Scandinavian countries are some of the best places to live.

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Timothy Taylor

Global Economy Expert

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

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