According to Sachs, F. A. Hayek, “the Austrian-born free-market economist, . . . suggested that high taxation would be a ‘road to serfdom,’ a threat to freedom itself.” There is now, however, “a rich empirical record to judge [this] scientifically.” “The evidence” (he says) comes from comparing the Nordic social democracies (Denmark, Norway, Sweden, Finland) with the Anglophone developed countries (Canada, the United States, Britain, Ireland, Australia, New Zealand).

The Nordics (he says) have met the challenge of “sustainable development”: they have reconciled “the . . . power of markets” with the reassurance and protection of (governmental) “social insurance.” They “combine . . . respect for market forces with . . . anti-poverty programs.” And “[t]he results . . . are astoundingly good” for households with the lowest incomes.

Thus Nordic income per head of working-age population is 4.5 percent higher than in the lower-taxed Anglophone countries. The Nordic unemployment rate is only slightly higher than the Anglophone rate (6.3 percent versus 5.2 percent). The Nordics have far higher budget surpluses as a proportion of GDP. In short, the Nordic territories “outperform” the Anglophones on average (in terms of these measures).

“Despite [their] high taxation,” the Nordic countries are highly dynamic: “they spend lavishly on higher education” and on R&D. While only 1.8 percent of Anglophone GDP goes to R&D, the Nordics spend 3.0 percent—two-thirds as much again. Sweden has the world’s highest ratio: “nearly 4 percent of GDP.” All, “especially Sweden and Finland,” have gained “global competitiveness” through the information-technology and communications revolution. In addition, the Nordics have “relatively low” taxes on capital.

In the Nordic areas 27 percent of GDP (on average) goes to “social purposes” via government; the Anglophone figure is only 17 percent. Nordic labor policies direct the “low-skilled” to “key quality-of-life areas such as child care, health, and support for the elderly and disabled.” The Nordic “poverty rate” is 5.6 percent—less than half that of the Anglophones, which is 12.6 percent.

Thus (according to Sachs) high taxes and high “social spending” have not “crippled prosperity” in the Nordic territories: “Von Hayek was wrong. In strong . . . democracies, a generous social-welfare state [is] a road to . . . fairness, . . . equality and international competitiveness,” not serfdom.

Now, Sachs, of course, speaks for U.S. government officials and their academic advisers. All have a vested interest in raising taxes and government spending and in increasing the numbers of government officials, evermore. Let us, however, “scientifically” take another look at the “rich empirical record.”

(What we’ll find: Scandinavia, especially Sweden, is an official’s dream come true. On average, over half of people’s income is confiscated. It is Scandinavia’s long-established integration into the growing international economy that has in fact continued to supply Scandinavians with their incomes, which officials then tax away.)

1. Between 1960 and 1990: Among OECD (Organization for Economic Cooperation and Development) countries, those with the largest government sectors (spending in excess of 60 percent of GDP) had the lowest growth rates. Those with the smallest proportion of government spending (less than 25 percent of GDP) had the highest growth rates—more than four times faster.

Between 1990 and 2005: the average overall tax burden came to 61 percent in Sweden, 58 percent in Denmark, and 55 percent in Finland.

2a. Between 1970 and 2003, in OECD rankings of economies: Denmark declined from third to seventh place; Sweden Finland rose from 17th place in 1970 to ninth in 1989, then fell back to 15th in 2003. fell from fifth to 14th.

2b. Over the same period (1970–2003) Ireland shot up from 22nd to fourth. In 1989 Irish taxes and government spending equaled 53 percent of its GDP. In 2006 this had fallen to 35 percent.

2c. In 2004: Irish productivity per working hour was nearly 26 percent higher than in Finland, just over 29 percent greater than in Sweden, and a whopping 43.2 percent above the Danes.

3. During 1995–2004: Compared with Sweden, the lowest incomes rose more than six times faster in Britain and more than eight times faster in Ireland. In 2004, 20 percent of Swedish households fell below the official “poverty line,” compared with around 18 percent in Britain and just under 15 percent in Ireland. In short, those with the very lowest incomes improved their position much, much more in lower-taxed Britain and Ireland than in higher-tax Sweden.

Over the same period, when the rise in the lowest incomes is compared with the average increase: Britain did 2.5 times better than Sweden, while Ireland was 2.35 times better. In other words, the lowest incomes came far, far closer to the average in low-tax Britain and Ireland than in high-tax Sweden.

4. Between 1981 and 2003: private-sector employment rose 56 percent in low-tax Ireland. There was a 12 percent rise in Denmark—in very low-productivity “employment” (see above, 2c.) But in high-tax Sweden and Finland, no new private-sector jobs were created. In other words, the government took the entire increase in the labor force over some 22 years. With the same number of people employed in the private sector and low growth rates overall, real incomes just about stagnated. From these stagnant real incomes, people had to pay ever-increasing taxes and support ever-increasing government officials and ever-increasing government spending.

5. According to a working paper prepared for the European Central Bank in 2003: Sweden, Finland, and Denmark have the most inefficient government sectors of all OECD countries in terms of the use of inputs. In Sweden the same level of output could be obtained for only 57 percent of the input. For Denmark this figure is 61 percent, for Finland, 62 percent. In other words, some 43 percent of the labor and other resources “used” in the Swedish government sector are—in effect—idle. The proportion effectively idle in the Danish government sector is 39 percent, and 38 percent in Finland.

In Sweden doctors saw an average of nine patients a day in 1975. In 2005 they saw four—or less than half as many. More than half of all patients have to wait 12 weeks to be examined and then at least as long again for treatment. In short, for most Swedish patients, from just making the appointment to seeing the doctor to actually getting treated, there’s a gap of some 24 weeks at least. (You’d better not fall sick in Sweden.)

6. Even in the later 1980s, Swedish doctors worked only some 57 percent of the hours that American doctors worked. And as early as the 1970s, doctors, dentists, lawyers, and so on worked only a few months each year—to avoid astronomical tax rates. By the 1970s retailers asked buyers: “With or without receipt?” while house painters, mechanics, plumbers, and more all operated largely in a cash economy. Books were already being published on avoiding tax for those on average incomes.

7a. The actual unemployment rate is disguised by classifying large numbers under other heads: (a) make-work in the government sector, (b) “early retirement,” (c) long-term “sick,” and (d) university “students” who are in fact avoiding open unemployment.

7b. The so-called “unemployment trap” is extremely high in Denmark and Sweden. When necessary expenses like transport, food, and so on are included, the lowest take-home pay is lower than the government payments received.

8a. All large Swedish companies, save one, were established in the late nineteenth century or in the late 1920s. Business taxes are very low, but they overwhelmingly favor larger established companies. Unincorporated-business income is taxed as heavily as personal income, but dividends and company incomes at much lower rates. Taxes on capital gains, however, are the highest in the world in Denmark and Finland.

8b. Labor mobility is low, which reduces productivity. People are stuck in unsuitable jobs. Labor input is also far less in practice: Some one-fifth of the workforce is absent, on average—double the proportion in the 1970s. In 1988 Swedes took an average of 26 days of sick-leave; this was still true in 2002. In addition, there are numerous other grounds for people to be absent with pay.

“One Size Fits All”

9a. The “welfare” state must operate on the principle of “one size fits all,” of course. Thus in Sweden the state supplies all childcare, schooling, medical services, and aged care, except for a minuscule proportion. But even here, “private” suppliers are paid from taxes. Swedish legislation virtually prohibits direct private purchase of alternatives.

9b. The tax system virtually forces women with children to work, so their children can go to state child care. This goes from preschool to after-school for older children. All this raises “employment” figures: Child-minders are “employed” while mothers at home are not.

“Private” childcare is state-funded and has to charge the same low fees as the state system. “Private” child-minders are also paid by the state. Officials can ban any adult from caring for children in his or her own home. Even family arrangements have to be reported under threat of prosecution; the proposed carer—even granny—is investigated (for a criminal record) and inspected annually.

9c. Up to 1992 there were virtually no private schools in Sweden. Then “vouchers” were introduced. “Private” schools are forbidden to charge fees. Thus taxes pay for all “private” schools, and they are prevented from competing on costs.

9d. The overwhelming bulk of people have to depend on state-supplied medical services. Government entities now buy an extremely small percentage of hospital services and aged-care services from “private” suppliers. The latter’s costs are lower, of course, and the entities’ employees are happier than when they were part of the government. Only a handful of the extremely wealthy have private health insurance.

9e. “Pensions” are paid from payroll taxes. There are both flat-rate and earnings-related pensions. In the 1990s Swedish officials required all employees, additionally, to pay a minute fraction of their incomes into “private” pension funds or into a government fund in default. All such payments are channeled through a new set of officials; payers and funds have no direct contacts at all. This minuscule “change” is seen by politicians, officials, their academic advisers, journalists, and so on as earth-shaking. It has just been announced that future state pensions will be well below those being paid currently. Only a handful of the wealthy have private pension plans with an insurance company.

9f. One aspect of the Swedish “welfare state” is particularly disturbing: the power that official “social workers” have over children. Children can be removed from parents and put into foster care for a wide variety of reasons. Disputes go before special administrative tribunals, not the ordinary courts. So the whole situation is stacked in favor of the official and against the parent. Foster parents receive tax-free payments from the state. In high-tax Sweden this is a huge advantage, which results in really good incomes.

A comparison with England underlines the power officials have in Sweden. In November 2001 some 21,500 employees of municipal social services in Sweden were assigned to “individual and family care.” This amounted to one children’s social worker per 414 people of all ages. In England in 2005 there were some 33,980 staff (full-time equivalent) who dealt with children and families. This came to one such official for every 1,484 people in England. Thus, pro rata, Sweden has nearly 3.6 times as many children’s “welfare” officials as in England. Are Swedes really some four times more prone to child abuse and neglect than the English?

Not surprisingly, when it comes to children forcibly removed from their parents and put into official care, Sweden runs well ahead, pro rata. In 2003 in Sweden there was one child in official hands for every 598 Swedes. In England in 2005 there was one child in “care” for every 836 residents. Thus—pro rata—there were 40 percent more children in Sweden who were officially taken away from their parents as compared with England. Are Swedish parents really 40 percent more incompetent and feckless than English parents?

State-Dominated Housing

10. Housing in Sweden: Government officials dominate here too. Only some 39 percent of all “dwellings” are owner-occupied. Some 21 percent are privately owned rental housing; 20 percent are rental housing provided by municipally owned companies; and 17 percent are cooperatives. The latter received state subsidies from the 1920s to the late 1990s. Municipal companies receive state subsidies from general taxation and some capital from municipal taxation. They pay only a “reasonable”—that is, subsidized—interest rate on this last. Their income is made up from rent and subsidies.

Thus around 37 percent of all “dwellings” in Sweden are built from taxation, largely or entirely. Only some 60 percent of housing is provided completely through private saving.

Anyone may rent a municipal flat—there are no income limits. Municipal companies are obliged by statute to provide housing for those with lower incomes. Swedish officials regard “income segregation” as undesirable so they accept higher-income tenants too.

In municipal housing, officials ask tenants to assign values to such things as the location; their living area; its standard, general amenities; convenience to state transport; and so on. Rents are set by negotiations between the municipal company and its tenants’ association, but rents also have to include an allowance for continued maintenance and cover the expenses of the highest-cost municipal company. Private rents are higher and are negotiated between landlords’ and tenants’ associations.

Private tenants may appeal their rents to an administrative tribunal. In 90 percent of cases the tribunal simply decides whether the rent is “reasonable.” In 10 percent of disputes the private flat is compared with a local municipal flat and 5 percent is then added to the private rent.

11. Exports: Norway is one of the world’s largest oil exporters from the oilfields deep under the North Sea. An American audience cannot know this, of course, so here Sachs is silent. In 2005, 68 percent of Norwegian exports consisted of oil and natural gas.

Sweden, Finland, and Denmark are overwhelmingly integrated into the global economic order. In 2005, foreign trade—exports and imports combined—equalled 90 percent of total output in Sweden; 80 percent in Finland; and 88.5 percent in Denmark. In short, all three territories are simply sectors of the world economy and have been since the late nineteenth century.

Thus their major export goods were developed mainly in the late nineteenth century and in some cases, very much earlier.

Let us take Swedish exports for the eight months from January to August 2006. Pharmaceutical goods, chemicals, metal manufactures, industrial machinery, optical goods—all together these equaled 28 percent of the total. Swedish firms have exported these items since the late nineteenth century. Timber and its products, iron ores, other minerals, and iron and steel together came to 22 percent. Sweden has exported these goods since the late fifteenth century at least. Telecommunications came to 14.3 percent. This includes telephones, made in Sweden since the late nineteenth century. “Transport equipment”—Volvos and Saabs—equaled 13.8 percent. Sweden has exported these since the late 1920s.

Advanced telecommunications also formed only a small percentage of Finnish exports in 2006; the bulk were already in place in the late nineteenth or early twentieth century. Electrical and optical products came to 24.5 percent; wood-pulp, paper, and wood products equaled 16.2 percent; basic metals, machinery, and equipment formed 26.2 percent.

The same picture is found in Denmark in 2005. Exports of foodstuffs (butter, cheese, bacon, fish, and so on), timber, and other primary products—important since at least the late nineteenth century—came to 15.8 percent. Medicines, pharmaceuticals, and chemicals came to 13.7 percent. Machinery and instruments—many items produced in Denmark since the late nineteenth century came to 26.4 percent. Textiles, clothing, furniture, and glassware—distinctively Danish—equaled 9.7 percent, energy, 10.3 percent. (For further reading, see Lorraine Mullally and Neil O’Brien, eds., Beyond the European Social Model, 2006, available online at htttp://tinyurl.com/ynqnp.)

12. Thus it is by participating in a growing international economy that Scandinavians produce increasing outputs. These are largely taxed away and allocated by bureaucracy. People’s continuing toil puts growing resources into government officials’ hands.

As a government adviser, Sachs must naturally see officials’ activities as the source of all goodness, including international competitiveness. The causation is rather the other way about. Successful integration into the international economic order produces output that officials then tax and remove from the people. Then officials (under the relevant authorizing legislation) use the revenues to support themselves (and their families), and to spend money or disburse it to authorized recipients under various authorized headings, namely, pensions, other incomes, schooling, medical and hospital services, aged care, child and after-school care, and so on. From the standpoint of government officials, and therefore their academic advisers, this is a delightful paradise. Naturally, therefore, Sachs describes this as “a generous social-welfare state . . . fairness. . . equality . . . international competitiveness.” This is exactly how it appears to the officials involved.

Finally, my editor asks me: “Why do the Nordics put up with it? What about the high disincentives?” One answer is: precisely the almost complete integration into the international economy. The output comes from large and small firms integrated into international production. These firms and their employees can hardly vanish into an underground economy. They must remain visible. Even if the firms, as legal entities, acquire another “nationality”—as many have done—their operations and employees remain in Scandinavia. This is because of the skills and expertise built up over the decades and centuries. Swedish steel must continue to be manufactured in Sweden. Volvos made in Portugal lack some intangible something compared with Volvos made in Sweden. Bang & Olufsen made in Bulgaria sounds dubious; made in Denmark, it does not.

Moreover, heavy taxes are levied on individuals, not businesses. The incomes are captured at the point where there can be least escape.

Within the past twenty years Hong Kong has grown from a minor trading port into a center of manufactur­ing, with exports to some seventy nations round the world. Hong Kong seems to have found a formula for development that is not widely understood.

The number of industrial estab­lishments in Hong Kong rose from 947 in 1947 to 9,301 in 1967, the number of employees during that same period rising from 51,627 to 431,973.^¹ Exports of manufactured goods in 1965 were 4¹/₂ times the 1953 level. By all such tests of growth, Hong Kong compares most favorably with the United Nations’ target rate of 3.5 to 5 per cent a year. It may be added that Hong Kong has never experi­enced the chronic shortage of ex­change earnings supposed to typ­ify underdeveloped countries.

Cotton manufactures have re­mained the staple among export items, accounting for as much as two-thirds of the total in earlier years, but down now to about 55 per cent. Initially, simple knitted goods, piece goods, and yarn formed the major part of these ex­ports, but the industry has rapidly diversified to the manufacture of a large variety of clothing and the more highly finished textiles. Re­cent exports include woolen knit­wear, brocades, carpets, and lace. Textile machinery, originally manufactured just for local use, is now being produced for export as well.

Such items as firecrackers, Chi­nese foodstuffs, and bamboo man­ufactures once formed a major part of the export list. But by 1955, a wide range of consumer goods were being manufactured, includ­ing torches, nylon gloves, electric clocks, and enamelware. Current exports have moved further into the industrial range: plastics, cameras, transistor radios, air conditioners, water-heaters, light machinery (such as pumps and generators), and precision engi­neering products (e.g., watch parts and aircraft components) are now made in Hong Kong.

Hong Kong’s ship breaking in­dustry is the largest in the world. At first, the scrap was utilized in the local construction industry; but this, too, is now being ex­ported. With the development of the shipbuilding industry, yachts, and trawlers were exported, mainly to the United States. Tugs, lighters, and barges were built for Borneo, Kuwait, and Ceylon.

Hong Kong’s industrial develop­ment thus proceeded along classic lines, from the simpler consumer goods to the more sophisticated varieties; from light industrial products to the intermediate types. Hong Kong has never suffered from inability to import heavy in­dustrial goods, which supposedly hampers the development of many areas.³ Nor is there a Five- or a Ten-Year Plan or other such cen­tralized resource allocation in Hong Kong. Indeed, no govern­ment "planner" might have ex­pected Hong Kong to set an ex­ample of rapid development. It has few, if any, of the textbook pre­conditions for successful develop­ment.} The domestic market for many of its exports is narrow or nonexistent. It has no natural re­sources (with the exception of an excellent harbor), and no coal, oil, or other domestic fuel supply. The tillable area—13 per cent of a total of less than 400 square miles—is of poor quality. Hong Kong thus has to import virtually all its food, fuel, and raw materials. Even drinking water is pumped in from China.

No Tools for Planning

The Colony has other handicaps from a planner’s point of view: it lacks some of the most elementary government statistics and other guides for control over the econ­omy. Figures on registered indus­trial employment and daily wage-rates began to be collected in 1947. Trade figures were added the following year. A Retail Price Index was constructed in 1953 and an Index of Wage Rates the following year. But there are still no official national income estimates, or even an Index of Industrial Production. There are no official balance-of-­payment figures, no restrictions on trade and payments, no export du­ties, no central bank; banking reg­ulation is negligible. Consequently, the government simply has no basis for applying the various fis­cal, monetary, and other measures recommended in most modern text­books on public finance and devel­opment.

For most of the past twenty years, the highest income-tax rate was 12¹/₂ per cent (currently 15¹/₂ per cent); taxes on earnings and real property, and import duties on a narrow range of commodities (chiefly tobacco, wines, and drugs) are the main sources of revenue. Up to 1955, primary education (which is not compulsory), sub­sidized housing, basic medical services, and other "welfare" items accounted for slightly more than one-third of total government expenditure, with an equal pro­portion being spent on roads, water supply and other "econom­ic" services. By 1968, "welfare" expenditures had risen to two-thirds of the total, the total hav­ing increased from an average of HK $271 million in the years1948-55 to HK $1,800 million in 1968. (U.S. $1.00 = H.K. $6.00.) The increased provision of such services was made possible by ris­ing productivity.

Hong Kong has no minimum wage legislation, a negligible amount of labor legislation, and only a few very weak unions. Yet, take-home pay doubled between 1958 and 1967. The retail price index rose only 9 per cent in the interim, so this represented a sub­stantial increase in real earnings. Living standards rose significant­ly, as exemplified at a basic level by changes in diet. Per capita rice consumption fell, while its quality improved, and more meat and veg­etables were consumed. Imports of frozen meat rose from 26,000 tons in 1955 to 121,000 tons in 1965. Hong Kong thus combined rapid economic growth with a rise in living standards.

Quotas and Restrictions

Hong Kong’s development has proceeded entirely without gov­ernment-to-government "aid." In­deed, other governments have sought to curb their imports of goods manufactured in the Colony. The first quotas were imposed in 1954, by the governments of the U.S.A., Pakistan, and Thailand. The next year a number of South-East Asian governments followed suit, but Hong Kong manufacturers switched to markets in Africa and Latin America. In 1958, the U.K. government imposed limits on imports of textiles and clothing manufactured in Hong Kong; the U.S. government began limiting such imports in 1963.

The story behind these last re­strictions is revealing. It begins with the so-called agricultural price support policy of the U.S. government, which among other things, maintains the domestic price of U.S. cotton above the world level. The Department of Agriculture, then finding itself laden with "excess" supplies of cotton, added an export subsidy to offset the price support. Mean­while, imported textiles were be­ginning to replace U.S.-made tex­tiles in U.S. markets, as foreign manufacturers bought cotton (in­cluding American cotton) at world—not U.S.—prices, while their labor costs were well below the American level. American manu­facturers turned to Washington for protection against losses; and, in 1961, a "countervailing" import duty was imposed—to offset the export subsidy to offset the price support. Hong Kong textiles, how­ever, sold so well despite this ad­ditional burden that import quotas were placed in 1963. Hong Kong manufacturers have responded by improving the quality of their exports.

Other countries restricting Hong Kong imports by means of heavy duties, quotas, and the like in­clude Australia, Canada, France, Ghana, New Zealand, Nigeria, Norway, Rhodesia, Singapore, Switzerland, Tanzania, Uganda, and the West Indies.

Laissez-Faire

How did Hong Kong achieve all this? It has been suggested that the availability of capital and the presence of a large refugee popu­lation—obviously possessed of a certain amount of get-up-and-go are perhaps the two chief factors contributing to Hong Kong’s suc­cess.⁵ But those individuals who came as refugees to Hong Kong possessed their enterprising qual­ities even before they arrived; nor does a waterless rock off the Chi­nese coast offer the best prospects for investment. The difference lay in the economic environment, in the free markets created by pol­icy: "Almost complete laissez-faireism unleashed human potenti­alities, paralysed in other countries by elaborate control systems." The government made no attempt to impose or preserve any par­ticular resource allocation, but provided instead the stable legal, fiscal, and monetary framework that the market requires for opti­mal functioning. This use of the pricing system meant the full utilization of the empirical knowl­edge of ever-changing circum­stances, which can never be cen­tralized, but is only available scattered among individuals.^? Re­source allocations were thus de­termined, via profit and loss, by international consumer preference.

Hong Kong’s economic growth was part of this general process. Investment in directions where returns were rapid and large meant that output and thus real incomes were raised rapidly; this, in turn, made higher saving and investment possible—but in con­tinuously more sophisticated types of machinery, which permitted not only further increases in produc­tion but also diversification of out­put. Resources were thus created where none existed before.

One fundamental point must be stressed: the course of Hong Kong’s development could scarcely have been predicted before it oc­curred, even on the basis of a detailed knowledge of the past growth of the now-developed na­tions. No one, in 1947, had any idea of what a developed Hong Kong might look like! It was only by the market process that this, in fact, became evident.

This logic is capable of wider application. In 1750, on the basis of the knowledge available then, it would hardly have been possible to "plan" in advance for the develop­ment of the North Atlantic region. Both North American and West­ern Europe were still relatively underdeveloped, and no one knew, in concrete terms, what shape any development might take! This il­lustrates the contradiction in what is termed "planned economic de­velopment": since we do not know what a developed Africa, Asia, and Latin America might look like, we are necessarily limited to planning for the reproduction of what has already been achieved, in the past, elsewhere! The market process, on the other hand, sets no such limitations; it is adapted to the realization of hitherto latent and unknown possibilities. Inasmuch as the underdeveloped nations represent, as it were, a vast realm of such unrealized po­tentialities, it is above all essen­tial in these areas to create the environment for a market econ­omy.⁸

—FOOTNOTES—

¹ These statistics, and much of the in­formation in the following paragraphs, have been taken from the Annual Re­ports of the Director of the Department of Commerce and Industry, Hong Kong, 1948-49 to 1964-65; and the Annual Re­ports of the Commissioner of Labour, Hong Kong, 1946-47 to 1966-67. I am also indebted to E. F. Szczepanik, The Eco­nomic Growth of Hong Kong (London: Oxford University Press, 1958).

² Cf. J. Bhagwati, The Economics of the Under-developed Countries (London: Weidenfeld and Nicolson, 1966), ch. 18.

³ Cf. J. Bhagwati, op. cit.

⁴ Cf. G. Meier and R. Baldwin, Eco­nomic Development: Theory, History, Policy (New York: Wiley, 1959), ch. 16.

⁵ Cf. The Economist (London), 19 Oc­tober, 1968.

⁶ E. F. Szczepanik, op. cit., p. 65.

⁷ See F. A. Hayek, "The Use of Knowl­edge in Society" and "The Meaning of Competition," in Individualism and Eco­nomic Order (London: Routledge and Kegan Paul, 1949).

⁸ See F. A. Hayek, Competition as a Discovery Procedure (forthcoming pub­lication by the Institute of Economic Affairs, London) and his remarks in What’s Past Is Prologue (Irvington, New York: Foundation for Economic Educa­tion, 1968). 

The major issue that divides lib­erals (advocates of liberty) from "liberals" (statists) is the ques­tion of the importance of eco­nomic freedom. As the statist sees it, economic freedom is the "free­dom" of the few to exploit the many. The right to vote, on the other hand, is common to all men. Hence, for statists, the dividing line between democracies and dic­tatorships is drawn in answer to the question: Are elections free or not? But it will be noticed that totalitarianism is the implicit cri­terion here: any situation which is not yet totalitarian would be described as "free" by the statist.

As the true liberal sees it, free­dom is indivisible. Hence, meas­ures ostensibly aimed at the weak political minority of businessmen will in fact only prevent the mar­ket process from functioning as well as it might have done, and will confer on some people — i.e., politicians and administrators —a power over their fellow men oth­erwise exercised by no one; a power deriving from this group’s ability to determine, de facto though not de jure, the uses to which resources may be put. This power, the liberal affirms, is of en­tirely another nature from the "power" alleged to be exercised by businessmen operating in a market context. Control over re­sources by businessmen is not only scattered among a much larg­er group of individuals; these businessmen themselves are in ef­fect simply the agents of their fellow men in determining the use of these resources, via the market process of profit and loss. But where economic power is concen­trated in the hands of a politically selected group, the chances for the emergence and establishment of a political opposition are precarious, to say the least. The statist over­looks the necessity for independent sources of material support for a political opposition; even though some opposition may seem to be present, the real criterion is the range of different views that would have emerged if economic power had not been so concen­trated. In other words, freedom is more than one value among others; it is rather the foundation for a whole social order. Intervention embodies a principle that is dia­metrically opposed and must lead to the destruction of this social order (where it exists) and the establishment of an order founded on the principle of political exploi­tation: the politically strong ex­ploiting the politically weak. In short, intervention leads to the suppression of potential political opposition and thus ends in totali­tarianism.

India as an Oligarchy

This abstract and theoretical argument is vividly illustrated by the experience of India. Most stat­ists regard India as an excellent example of economic planning combined with democracy. It would perhaps be more accurate to de­scribe India as an oligarchy — in the Aristotelian sense of govern­ment of, for, and by the rich. These rich, however, unlike those who earn high incomes in a free market by supplying their fellow men’s needs, have obtained their wealth via the very instruments of planning — permits, licenses, quotas, concessions, and contracts. In the first place, virtually all in­vestible resources — i.e., savings and foreign aid — are forcibly drawn (via capital controls and taxation) into the preferred "in­dustrial" sectors, both private and public. The industrial output thus artificially produced adds nothing to the flow of goods and services for the starving, ill-clothed, and unsheltered Indian masses — but those businessmen, civil servants, and others sharing in this forced expansion obtain high incomes (legal and illegal). Hence, we see that the output of coarse cotton bought by the masses has ex­panded the least, while the output of rayon — a luxury in India — has multiplied by twenty-one times over the last 15 years and three five-year plans.1

In the second place, even this private industrial sector is very closely controlled by a minutely detailed network of regulations: government sanction is required to start, expand, or close down an undertaking; permits are required for virtually all raw materials and certainly all imported machinery and components. Government reg­ulations extend to such points as the manner of conducting board meetings and the width of sari borders in the case of mill-made saris. In effect all these controls and regulations have created and protected private monopolies in virtually all fields of nonagricul­tural production.

Thirdly, there is import and ex­change control. No imports of any kind are permitted without a li­cense, and imports of a wide range of commodities are banned altogether. Prohibitive tariffs have been imposed on a large number of other goods. All this means that Indian producers of import substitutes have a highly-protected sellers’ market. To rein­force import control, all exchange earnings have to be surrendered to the Reserve Bank at the official price — which is well below the true market price. It is, of course, forbidden to send exchange or ru­pees out of the country in any form.

Fourthly, the government sector has continually expanded over the last 15 years — even though this sector provides the least employ­ment and adds nothing to the real national income. The driving force here is public contracts; the larger the public sector, the larger are its contracts, and the larger, therefore, the rake-offs for the contractors and civil servants in­volved. (Where 100 rupees are ac­counted to be spent on a project, they never are. Some say 60 ru­pees are spent and 40 distributed; others would reverse the propor­tions — but no Indian would agree that the full amount was spent.)

Fifthly, there are innumerable other controls over the internal economic life of the country, rang­ing from controls over the move­ment of food grains between states, to those over the establish­ment of bus routes. All of these serve to increase the powers of officials over their fellow men.²

A Limited Private Sector

From all this, it will be clear how small is the sector of the In­dian economy from which a politi­cal opposition can draw material support, and how minute a por­tion of even this sector is inde­pendent of the government.³ The industrial sector in India owes its establishment and continued ex­istence to the government. In the absence of the forced draft of re­sources into it, and of exchange and import controls and tariffs, this sector’s artificiality and unvi­ability would be quickly and un­mistakably revealed. It follows that though Indian businessmen tech­nically may be independent of gov­ernment and even complain of some types of intervention, in fact they must be included as part of the government sector.

It is, therefore, hardly surpris­ing that the opposition in India should be so small and that oppo­sition parties should complain of a dearth of funds while the ruling party has no complaint in this re­gard. Naturally, virtually all busi­nessmen are ardent supporters of the government. Again, a lead­ing South Indian newspaper charged that government had used Journalists’ Wages Boards and newsprint controls to penalize papers consistently opposing it; charges have also been heard that government departments have threatened to withhold valuable advertising from the opposition press.⁴ And more recently, opposi­tion M.P.’s have protested in Par­liament against Criminal Investi­gation Department harassment —their telephones, they say, are tapped, their letters (even letters from their wives) are censored, and they are shadowed by C.I.D. plain-clothesmen.⁵ When M.P.’s are treated thus, the ordinary citi­zen can hardly feel aggrieved when he finds that letters abroad — even registered letters — are opened in order to ferret out violations of the Exchange Control Regulations.

Finally, the Essential Commodi­ties (Amendment) Bill of 1966 is yet another straw showing the di­rection in which the political wind in India is blowing. As mentioned, food grains movement is con­trolled. Hitherto, the government could only impound food grains suspected of being moved illegally. But now the government can summarily confiscate both food grains and vehicles suspected of being involved in illegal move­ments; it is up to the poor mer­chant to prove his innocence.6

Perhaps the most ironic element in this whole situation is the role of foreign aid. Given in order to "feed starving orphans in Orissa" (as Milton Mayer would have it) or to "keep India from going com­munist" (as many Americans be­lieve), it is in fact one major cause why orphans in Orissa are starving and why India is now so firmly set down the road to serf­dom. This is because in India for­eign aid provides the major por­tion of the finance for the Plans: for every rupee of internal re­sources, almost 2 rupees worth of resources comes from foreign aid. If aid is calculated at the official exchange rate for the rupee, its economic value is understated — even allowing for the recent de­valuation. It is only if aid is cal­culated at the free market ex­change rate that its true signifi­cance emerges. Planning in India, as has already been pointed out, involves essentially a forced trans­fer of resources out of the uses where they would benefit the masses — i.e., the agricultural sec­tor — into an artificially created and propped up "industrial" sec­tor. It follows that agricultural output has lagged far behind all industrial outputs; consequently, the Indian people are hungrier after three Plans than they were before. Per capita availability of food grains has fluctuated down­ward over the last 15 years, and stands today at about 14 ounces per day. Meanwhile, since plan­ning implies the concentration of economic and political power in the hands of the ruling clique, it has effectively smothered a wide range of potential political opposi­tion. It would not be too much to describe India as a one-party state.

Democratic forms in themselves are meaningless. The right to vote can be effective only in the context of a whole network of other free­doms. Elections can be free only in the framework of a free market and the Rule of Law.                         

—FOOTNOTES—

1 The growth of the agricultural sector (from which 50 per cent of the national income is derived and which provides 70 per cent of total employment) is held down by yet another piece of interven­tionism: moneylenders’ legislation. This forbids the pledging of land, though this is virtually the only pledgeable asset of the farmer, sets ceilings on the interest rates legally chargeable, and otherwise circumscribes rural moneylending.

2 As if all this were not enough, after the Chinese incursion of October 1962, the government passed the Defence of India Regulations (DIR) empowering it to arrest and detain without trial per­sons suspected of being dangerous to the public safety. Significantly, the DIR have been used virtually against persons known to be associated with the opposi­tion: see Swarajya (Madras), passim., for 1963, 1964, 1965. Although four years have passed, the DIR continue to be in force.

³ The Fourth Five-Year Plan (1966­71) proposes, in effect, to reduce even further this minute independent sector: the government will extend its trading activities, especially in food grains; and taxes on income and wealth—already the highest in the world (see N. A. Palkhi­vala, The Highest Taxed Nation in the World (Bombay, 1965) — will be raised even further.

⁴ See the editorial in The Hindu (Ma­dras) 10 October 1959: "There are also certain considerations that the Prime Minister might have remembered while calling the Press to account, such as the power the State has deemed fit to take to restrict the supply of newsprint, to control imports of machinery, to fix wages and salaries and working condi­tions in newspaper offices. These are cal­culated to make it extremely difficult for newspapers to be as free from extraneous influence as the Prime Minister would presumably want them to be. If there is any single strong inducement for news­papers to adopt a particular line on any matter, it comes from the Government. If, in spite of this, a number of news­papers look with a critical eye on the formulation and implementation of va­rious policies by the Governments at the Centre and in the States, the reason must be found in the policies themselves and not in any extraneous considerations.." (italics added).

⁵ See the report in The Times of India (Bombay) 6 September 1966.

6 Public speech by Mr. Minoo Masani, M.P., at Ahmedabad on 21 August 1966.  

The idea of redistributing in­comes and wealth has become a virtual dogma which few dare to question. It is one of the oldest parts of the socialist ideology; even those social democrats who oppose communism because it stands for "violent revolution," nevertheless argue that a "fairer" distribution of income is one of the best safeguards against such revolution. And many who other­wise oppose interventionism argue that redistribution is necessary to "correct" or "ameliorate" the "unfair" distribution of wealth and income, which they believe is one of the major flaws in the work­ing of the free market. Thus, we hear protests that: "A mere 6 per cent of the people own 42 per cent of the nation’s wealth"; or, "The distribution of income in our so­ciety should not be allowed to be­come so unequal that the great wealth at one end of the scale endangers the low incomes at the other."

What is most remarkable, how­ever, is that this idea of redistri­bution should have "caught on" in just those areas—Western Europe, North America, and Australasia — that are distinguished from the rest of the world precisely by their astonishing mass prosperity. What especially strikes the visitor from the underdeveloped world (and I would include here the areas be­hind the Iron and Bamboo Cur­tains) is that the wide range of products and services, which at home are enjoyed only by the miscroscopic minority, are here bought by the masses. The dif­ference between the developed and the underdeveloped parts of the world lies not in the amenities en­joyed by the wealthy — who in cer­tain respects, such as personal services, are better off in the un­derdeveloped areas — but in the condition of the mass of the peo­ple in the respective areas. In the one, a wealth of goods and services (with a corresponding variety of jobs) is available to virtually everyone; in the other, the lives of the masses are marked by a poverty, the very memory of which has vanished in the West if we may judge from the comments in economic history textbooks.

The Process Misunderstood

Perhaps the basic reason for the plausibility of redistribution­ist ideas is a misapprehension of the nature of ownership and pro­duction and what earning an in­come means in the context of a free market. The redistributionist seems to think that goods are "so­cially produced" and then thrown onto a common heap, from which incomes are "individually appro­priated" — quite arbitrarily. But there is a pattern to the earning of incomes in a free market: the size of the income earned depends on the extent to which the individ­ual — in cooperation with other individuals — succeeds in satisfy­ing the wants of his fellow men. Even capitalists must use "their" capital to produce for their fellow men. Legal title to any collection of capital goods does not guaran­tee that income will flow in auto­matically.’ For example, legal title to a hula-hoop factory in the United States today does not mean automatic profits to the owners —more likely, it means heavy losses and strenuous efforts to salvage something from the wreckage. In other words, in a free market, even capitalists’ incomes are "earned": by producing what their fellow men wish to buy.² Since, in this context, the fulfillment of consum­er needs is the rationale of the production of capital goods, it is the mass of consumers who, in a free market, must be regarded as the real economic directors, if not the legal owners, of capital.³

In short, though legal title to all the thousands of factories and millions of machines may lie with a numerical minority, this vast accumulation of capital is not used to produce exclusively those items consumed by the few. The super­markets are not stocked with cavi­ar and champagne for "the 6 per cent who own 42 per cent of the nation’s wealth": the supermar­kets bulge with items for mass consumption. The vast amounts of capital equipment in the developed nations are used principally to pro­duce an enormous variety of goods and services — including leisure —for the vast majority of the peo­ple. The production of luxury is a mere trickle compared with this outpouring of goods for mass consumption.

Contrast this with conditions in such countries as China or Soviet Russia — where vast amounts of resources are drawn into the con­struction of industrial or hydro­electric complexes that are useful only in the light of their rulers’ military ambitions or for such technologically spectacular but otherwise useless feats performed by Sputniks and Cosmonauts. How much easier life could have been for Ivan Ivanovitch and his wife and family if these resources had been allocated according to the principle of consumer sovereignty!

Production and Trade

What does redistribution mean in practice? The goods and ser­vices we consume — and which con­stitute our real income — have all been produced for us by our fel­low men, in exchange for what we have produced for them. If any of us wishes to consume more — i.e., have a higher income — he must either produce more of the things his fellow men want — or some of his fellow men must voluntarily turn over to him what they have produced, without asking any­thing in return. In other words, if we wish to consume more with­out producing more, someone else must produce for us without himself consuming. The principle is not changed if some third per­son, on our behalf, pays those who produce for us.

There is, of course, a third method of having more; and that is by seizing what others have produced, and thus forcing them to do without. And this is what is really involved in the redistribu­tion of incomes via the state ap­paratus — progressive taxation to "soak the rich," and various "wel­fare" measures ostensibly aimed at raising the real income of the very poorest. Aside from the ques­tion of whether these aims are in fact achieved (which they are not⁴) it must be seen that compul­sory redistribution of this type is just another form of capital con­sumption.) How is this? We must ask what the "rich" would have done with the income if it had been left in their hands. The an­swer is, they would have saved it—i.e., demanded capital goods. But if this income were handed over to those whose incomes are very much lower, they would not save it; they would use it to purchase consumption goods. The effect then of such redistribution would be that consumption goods are pro­duced where capital goods would have been produced — i.e., there is capital consumption.5

Redistribution cannot, there­fore, continue indefinitely. Once the capital has been consumed, the "high" incomes derived from its use will no longer be available to be redistributed. Nor can we as­sume that those who do earn higher incomes will passively ac­quiesce in having ever greater pro­portions of their income taxed away. After a time, progressive taxation defeats its own ends. The individual simply ceases to earn the income in taxable form — or as in some countries, is forced to start keeping two sets of books. Observe, too, the inconsistency here: on the one hand, it is the people themselves who, in a free market, create these "high" in­comes by buying what the "cap­italists" help to produce — and then, the people propose to "cor­rect" the "unequal" distribution of the market via the political process!

Redistribution in Backward Countries

What about redistribution in other contexts — say, in an under­developed country, or under feu­dalism? Now, the characteristic mark of such precapitalistic or noncapitalistic situations is the extreme poverty of the masses, against which the comparative wealth of the few landlords and nobles appears even more harsh. In these situations, the problem is to produce sufficient goods; i.e., to build up the capital resources required to produce the consumption goods for the masses. The question of political redistribution hardly arises.

This is not, of course, to dis­parage the ideal of voluntary giv­ing. It would not be necessary to add this, were it not for the per­sistent misunderstanding of the implications of free market prin­ciples with respect to charity. Economics certainly does not as­sume that all men are selfish mon­sters — though a great many peo­ple, who should know better, go on talking in this fashion. Eco­nomics is concerned only with the principles governing the allocation of scarce resources among com­peting ends; it says nothing about the ends themselves. And, for most people, these ends will in­clude, as a matter of course, the assisting of those who are in need. The pity is that in so many coun­tries, especially underdeveloped ones, heavy taxation — including direct taxes, indirect taxes, and the hidden tax of inflation — is making it more and more difficult to continue all those traditional forms of giving that formerly were regarded as the privilege and the duty of the many who felt they could afford it.

—FOOTNOTES—

^¹ One of the basic fallacies of Marx was the notion that capital would "auto­matically beget profits." But the theory of a capitalist conspiracy to keep wages low and prices high does not explain why capitalists sometimes have losses.

2 Aristocrats and manufacturers, for instance, certainly were not the chief buyers of the coarse—and cheap—cottons produced by the first factories at the be­ginning of the Industrial Revolution.

³ Ludwig von Mises, Socialism (Lon­don: Cape; and New Haven: Yale Uni­versity Press, 1951) pp. 37-42.goods is a mere trickle compared with this outpouring of goods for mass consumption.

4 Progressive taxation actually serves to maintain the existing distribution of wealth and income: true, the already-wealthy are prevented from getting wealthier, but those seeking to rise are prevented from rising at all. See Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), pp. 803 ff., and David McCord Wright, Democracy and Progress (New York: Macmillan, 1948), pp. 94-103. For the British experi­ence with "equalitarian" welfare serv­ices, see the various Hobart Papers is­sued by the Institute of Economic Af­fairs, London.

⁵ See F. A. Hayek, The Pure Theory of Capital (London: Routledge and Kegan Paul, 1941), ch. xxv.

⁶ If resources are scarce, we cannot have more of both; if, with the Keynes­ians, we wish to argue that there are always unemployed resources, then we are implicitly assuming either (a) that these resources are perfectly versatile, or (b) exactly the right sort of resourc­es are available in exactly the right proportions.

⁷ I am not saying that the developed areas today are, or at any time were, paradigms of the free market. In fact, only some free market principles were ever applied in the past; and the last 100 years have seen an accelerating movement away from even this. What I am saying is that we should try to clari­fy the ideas in terms of which we at­tempt to interpret the real world. If we wish to have a system based on govern­mental direction rather than one based on the principle of consumer sovereign­ty, we should be clear about this.

The essence of the argument for "social" justice is that the same rules that apply to everyone else need not be applied to one minority—the "rich." The rich, because they are rich, ought to be called upon to pay differential rates of taxa­tion—both on income and on wealth. Where compensation for some state activity is involved, it is generally agreed that full market prices need not be paid, especially if the indi­viduals involved are wealthier than others. In the case of strikers, it is agreed that they should not be held liable for acts against property (and persons) that in other con­texts would result in stiff penalties. All this represents a very great change of attitude from, say, about fifty years ago—and it goes under the heading of the achievement of social justice.

I wonder, though, whether these advocates of "one law for the poor and another law for the rich," real­ize that they are adopting, in es­sence, the basic principle of all to­talitarian regimes everywhere? The essence of the South African argument for apartheid is an at­tempted justification for applying different rules to blacks and whites. In Hitler’s Germany, it was agreed that since the Jews were different, it was justifiable to treat them ac­cording to rules that did not apply to the non-Jews. In the communist countries, the people singled out for differential treatment are gen­erally termed "capitalist exploit­ers" or "landlords" (which is why so many Western intellectuals find it difficult, really, to condemn com­munism in its entirety). And in a host of new recruits to the totali­tarian camp, from Ghana to Indo­nesia, it is an accepted principle that authority may deal with the "enemies of the state" or the "ene­mies of the people" as they see fit and that the rules that normally apply to other people need not ap­ply to these individuals.

But observe the inconsistency here: if Jews are subjected to different rules from those apply­ing to the non-Jews, this is called anti-Semitism; if blacks are sub­jected to different rules from the whites, this is called racism; but if the groups against whom dif­ferential rules are to apply are designated as "the rich," "capital­ists," "landlords," and the like—then it is no longer discrimina­tion: it is social justice!

The essence of justice, however, as opposed to "social" pseudo jus­tice, is that the same rules should apply to all: the wrongness of the act should be defined in terms of the act and not in terms of who does it. The application of the rules must be defined independ­ently of the circumstances of those to whom the rules are intended to apply. Yet it is of the essence of the concept of "social justice" that we must know who a person is before we can determine what rules to apply to him. Before as­sessing tax liability or the pay­ment of compensation, the income and wealth of the individual must be known (is he "rich" or "poor"?). If those committing crimes against person and prop­erty are strikers, they cannot be treated as others doing the same acts would be treated. The prin­ciple is the same as that of Hit­ler’s Germany: bef ore we know what rules apply, we must know whether the subject is a Jew or not. Or of Verwoerd’s South Af­rica: is the man black or white? Or, indeed, of the communist coun­tries: is the culprit one of the "pro­letariat" or does he belong to the "exploiting classes"?

Again, the notion of "social jus­tice" embodies a principle which, if applied in our daily life, we would have no hesitation in term­ing immoral. What would a father have to say if his son came home with his friend’s book, and ex­cused his action thus, "Oh, it’s all right, Dad—he can afford it!"? Yet, how many of us lend sanc­tion to a progressive income tax or to confiscatory death duties on the grounds, "They can afford it"?

"Social justice," in short, seems to be simply a way of providing a respectable cloak for the basic principle of injustice.

Economic problems loom large in the minds of many people today. Scholar and man in the street alike feel themselves deeply in­volved in questions having to do with the production and distribu­tion of worldly goods. But despite the intense interest in the sub­ject, much of today’s economic dis­cussion is vitiated by a lack of regard for the fundamental cri­teria of the free market economy. Statism is the antithesis of the free market, but the blind spot afflicting many people is such that the effects of statism, historical and contemporary, are often deb­ited to capitalism. This would be like blaming the evil consequences of slavery on freedom!

Thus, when American and other "liberals" (statists) criti­cize something labeled "free enter­prise," they imagine they are criticizing the free market. But what these people consider to be the natural corollaries of the free market are riot integral parts of it at all. They are distortions pro­duced in its working by misguided interventionism—the attempts of the state to do the duty of other parts of society, while neglecting its own duties. This causes imbal­ances and distortions in the mar­ket, and these are usually taken by the statists to be its normal and essential features.

For optimum functioning, the market needs a suitable, politico-legal framework. It presupposes the performance of a number of essential functions by the state aimed at establishing and main­taining the Rule of Law. Unfor­tunately, it is impossible to take for granted that the state (i.e., the politicians and bureaucrats) will adequately perform its essential functions. More than likely, the state will neglect the duties which it alone can perform—or else give them step motherly treatment—while attempting to do things be­yond its scope.

The resulting distortions in the market will be pounced upon by the statists and held up to view as the normal phenomena of the mar­ket. The politicians will then pro­ceed further with the identical policies that caused the imbalance in the first place—or with worse policies—all to the accompaniment of humanitarian slogans, and with the encouragement of these so-called "liberals." This is a vicious circle, and the essential duties of the state will probably be for­gotten or neglected.

Most people regard the USA as the examplar of the free market. This is a mistake; the USA is a prime example of the "muddled" variety of the statist economy. The communist countries repre­sent one end of the spectrum—the totalitarian economy. Some West European countries—although still riddled with welfarism—ap­pear to be moving toward the other end—the free market econ­omy. Countries like the USA and India lie somewhere between the two—they are the muddled econ­omies, combining perhaps the worst features of both systems. The statism of East Europe is called communism, the statism of India is called "the socialistic pat­tern of society," and the statism of the USA is called "American free enterprise."

The Failure of Planning

Statism, wherever tried, defeats its announced ends—as we may see from the example of India. While the aims of India’s Five-Year Plans are laudable—to raise the standard of living of the peo­ple, develop the economy, reduce unemployment, and obtain social justice—the plans have, in fact, achieved the opposite.

Since "planning" was intensi­fied, per capita daily food grains consumption has stagnated around 15.4 ounces (the nutritional norm is 18 ounces). Annual cloth con­sumption has declined from 14.63 to 14.36 meters per person. Ninety per cent of the houses in the coun­try are one-roomed hovels, with no facilities whatsoever.

This is because under "plan­ning," the bulk of the country’s resources are forcibly drawn into the sector with the lowest returns, the public sector. This would be true of any country where "plan­ning" is tried. About 4 per cent of India‘s national income is pro­vided by employment in the pub­lic (government) sector. But gov­ernment absorbed 60 per cent of total resources in the Second Plan; and the Third Plan proposes to raise this figure to about 70 per cent. Practically the entire public sector expenditure is on uneco­nomic, low-return, heavy indus­tries and on giant river-valley proj­ects—imitation TVA’s. The high return agricultural and light in­dustries sector provides more than 80 per cent of the national income, but under "planning," it is starved of essential capital.

The natural and inevitable re­sult of this statist misallocation of resources is retarded economic de­velopment. An additional invest­ment of $100 in iron and steel in­creases output by an estimated $14; and in textiles, by $26. The same investment in agriculture, on the other hand, would increase output by $50 to $70! In other words, statism holds down India‘s economic growth, to the present meager (per capita) rate of 1.6 per cent annually—in place of a much higher potential growth.

Statist planning is also respon­sible for India‘s growing unem­ployment. Two million dollars of investment provides jobs for only 500 persons in heavy industries; whereas the same amount would provide 1,150 jobs in consumer in-dustries, and[ 4,000 jobs in agri­culture.

The gap between the poor and the rich has widened in the last decade. Incomes have been trans­ferred from the lower classes and fixed income groups, to business­men, industrialists, and corrupt functionaries of the state. This has ensued partly through inflationary plan finance, but mainly as a re­sult of statist "controls" (permits, licenses, quotas, concessions, and so on) which centralize economic power in the hands of officials, and create numerous monopolies or semi monopolies in the private sector. Public contracts also play a very significant role. This anti­social income-shift is estimated to be of the order of $1.6 billion a year. In short, the real benefi­ciaries of statism in India are un­scrupulous bureaucrats, and the state-established, state-protected monopolists in the private sector.

India is thus a classic case of statist muddle, but statism is guaranteed to produce the same re­sults wherever tried.

***

Scope for the Unusual

Any healthy society must provide scope for the unusual idea, for the uncommon individual, for the man who is in some way "different." It would be a dull world in which everyone conformed to a common pattern of behavior and no one ever got out of step with his neighbors.       

From Facts, October-November 1961, Institute of Public Affairs, Victoria, Australia