Global EconomyThought

The West is in danger

I am here to tell you that the West is in danger, it is in danger because those, who are supposed to defend the values of the West, find themselves co-opted by a vision of the world that – inexorably – leads to socialism, consequently to poverty.

Unfortunately, in recent decades, motivated by some right-thinking desires to help others and others by the desire to belong to a privileged caste, the main leaders of the Western world have abandoned the model of freedom, for different versions, of what we call collectivism.

We are here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world, but – on the contrary – they are their cause. Believe me, there is no one better than us Argentinians to testify to these two issues.

When we adopted the model of freedom – back in 1860 – in 35 years we became the first world power, while when we embraced collectivism, over the last 100 years, we saw how our citizens began to systematically become poorer, until falling to number 140 in the world.

But before we can give this discussion, it will be important that – first – we see the data that supports why free enterprise capitalism is not only a possible system to end poverty in the world, but it is the only system – morally desirable – to achieve it.

If we consider the history of economic progress, we can see how from year zero to approximately the year 1800, the world’s GDP per capita practically remained constant throughout the reference period. If one looks at a graph of the evolution of economic growth throughout human history, one would be seeing a graph in the shape of a hockey stick, an exponential function, which remained constant for 90 percent. of time, and it shoots up exponentially starting in the 19th century.

The only exception to this history of stagnation occurred at the end of the 15th century, with the discovery of America. But apart from this exception, throughout the entire period, between the year zero and the year 1800, GDP per capita, at a global level, remained stagnant.

Now, not only did capitalism generate an explosion of wealth from the moment it was adopted as an economic system, but if one analyses the data what is observed is that growth has been accelerating throughout the entire period.

Throughout the entire period – from year zero to 1800 – the growth rate of GDP per capita remained stable at around 0.02 percent annually. That is, practically no growth. Starting in the 19th century with the Industrial Revolution, the growth rate increased to 0.66 percent. At that rate, to double GDP per capita, it would need to grow for 107 years.

Now, if we look at the period between 1900 and 1950, the growth rate accelerates to 1.66 percent, annually. We no longer need 107 years to double GDP per capita, but 66. And if we take the period – between 1950 and 2000 – we see that the growth rate was 2.1 percent annually, which would result in just 33 years a doubling of the world’s GDP per capita.

This trend, far from stopping, remains alive, even today. If we take the period between 2000 and 2023, the growth rate accelerated again to 3 percent annually, which implies that we could double our GDP per capita in the world in just 23 years.

Now, when the GDP per capita is studied, from the year 1800 to today, what is observed is that, after the Industrial Revolution, the world’s GDP per capita multiplied by more than 15 times, generating an explosion of wealth that lifted 90 percent of the world’s population out of poverty.

We must never forget that – by the year 1800 – about 95 percent of the world’s population lived in the most extreme poverty; while that number fell to 5 percent by 2020, prior to the pandemic.

The conclusion is obvious: far from being the cause of our problems, free enterprise capitalism, as an economic system, is the only tool we have to end hunger, poverty and homelessness, far and wide. The empirical evidence is unquestionable.

Therefore, as there is no doubt that free market capitalism is superior – in productive terms – the leftist doxa has attacked capitalism for its questions of morality, for being, according to its detractors, unjust.

They say that capitalism is bad because it is individualistic and that collectivism is good because it is altruistic. Consequently, they fight for social justice, but this concept that – since the First World – has become fashionable, in recent times, in my country is a constant of political discourse, for more than 80 years.

The problem is that social justice is not fair, but it also does not contribute to the general wellbeing; On the contrary, it is an intrinsically unjust idea because it is violent. It is unfair because the state is financed through taxes and taxes are collected coercively. Can any of us say that we pay taxes voluntarily? Which means that the state is financed through coercion and the greater the tax burden, the greater the coercion, the less the freedom.

Those who promote social justice start from the idea that the entire economy is a cake that can be distributed in a different way, but that cake is not given, it is wealth that is generated, in what – for example – Israel Kirzner calls it a market discovery process.

If the good or service that a company offers is not desired, that company goes bankrupt unless it meets what the market is demanding. If you produce a good quality product at a good, attractive price, you will do well and you will produce more.

So the market is a process of discovery, in which the capitalist finds the right direction along the way, but if the state punishes the capitalist for being successful and blocks him in this discovery process, it destroys his incentives, and the consequences of that is that it will produce less and the cake will be smaller, causing harm to society as a whole.

Collectivism – by inhibiting these discovery processes and making it difficult to appropriate what is discovered – ties the entrepreneur’s hands and makes it impossible for him to produce better goods and offer better services at a better price.

How can it be, then, that academia, international organizations, politics and economic theory demonize an economic system that has not only lifted 90 percent of the world’s population out of the most extreme poverty and does so, faster and faster, but it is also fair and morally superior?

Thanks to free enterprise capitalism, today the world is at its best. There has never been, in the entire history of humanity, a time of greater prosperity than the one we live in today. The world today is freer, richer, more peaceful and more prosperous than any other time in our history.

This is true for everyone, but particularly for those countries that are free, where they respect the economic freedom and property rights of individuals. Because those countries that are free are 12 times richer than the repressed ones.

The lowest decile of the distribution of free countries lives better than 90 percent of the population of repressed countries, has 25 times fewer poor people, in the standard format and 50 times fewer in the extreme format. And if that were not enough, citizens of free countries live 25 percent longer than citizens of repressed countries.

Now, to understand what we come to defend, it is important to define what we are talking about when we talk about libertarianism. To define it, I return to the words of the greatest hero of the ideas of freedom, from Argentina, Professor Alberto Benegas Lynch, who says: “libertarianism is the unrestricted respect for the life project of others, based on the principle of non-aggression… in defence of the right to life, liberty and property, whose fundamental institutions are private property, markets free of state intervention, free competition, the division of labour and social cooperation.”

In other words, the capitalist is a social benefactor who, far from appropriating other people’s wealth, contributes to the general wellbeing. Ultimately, a successful businessman is a hero.

This is the model that we are proposing for the Argentina of the future. A model based on the fundamental principles of libertarianism: the defence of life, liberty and property.

Now, if free enterprise capitalism and economic freedom have been extraordinary tools to end poverty in the world, and we find ourselves today in the best moment in the history of humanity, why do I say then that the West is in danger?

I say that the West is in danger precisely because in those countries that should defend the values of the free market, private property, and the other institutions of libertarianism, sectors of the political and economic establishment, some due to errors in their theoretical framework and others due to the ambition of power, are undermining the foundations of libertarianism, opening the doors to socialism and potentially condemning us to poverty, misery and stagnation.

Because it must never be forgotten that socialism is always and everywhere an impoverishing phenomenon that failed in every country it was attempted. It was an economic failure. It was a failure socially. It was a cultural failure. And he also murdered more than 100 million human beings.

The essential problem of the West today is that we must not only confront those who, even after the fall of the wall and the overwhelming empirical evidence, continue to fight for impoverishing socialism; but also to our own leaders, thinkers and academics who, protected by a wrong theoretical framework, undermine the foundations of the system that has given us the greatest expansion of wealth and prosperity in our history.

The theoretical framework I am referring to is that of neoclassical economic theory, which designs an instrument that, unintentionally, ends up being functional to the interference of the state, socialism, and the degradation of society.

The problem with neoclassicals is that since the model they fell in love with does not map against reality, they attribute the error to supposed market failures instead of reviewing the premises of their model.

Under the pretext of an alleged market failure, regulations are introduced that only generate distortions in the price system, which impede economic calculation, and consequently savings, investment and growth.

This problem essentially lies in the fact that not even supposedly libertarian economists understand what the market is, since if they did understand it, it would quickly be seen that it is impossible for such a thing as market failure to exist.

The market is not a supply and demand curve on a graph. The market is a mechanism of social cooperation where people exchange voluntarily. Therefore, given that definition, market failure is an oxymoron. There is no market failure.

How can it be, then, that academia, international organisations, politics and economic theory demonize an economic system that has not only lifted 90 percent of the world’s population out of the most extreme poverty and does so, faster and faster, but it is also fair and morally superior?

If transactions are voluntary, the only context in which there can be market failure is if there is coercion. And the only one with the capacity to coerce in a generalized way is the state that has a monopoly on violence.

Consequently, if someone considers that there is a market failure, I would recommend that they check if there is state intervention in the middle. And if you find that there is no state intervention in the middle, I suggest you do the analysis again because it is definitely wrong. Market failures do not exist.

An example of the supposed market failures that neoclassicals describe are the concentrated structures of the economy. However, without functions that present increasing returns to scale, whose counterpart are the concentrated structures of the economy, we would not be able to explain economic growth from the year 1800 to today.

From the year 1800 onwards with the population multiplying more than 8 or 9 times, the per capita product grew more than 15 times. There are increasing returns, that took extreme poverty from 95% to 5%. However, this presence of increasing returns implies concentrated structures, what would be called a monopoly.

How can it be that something that has generated so much wellbeing for the neoclassical theorist is a market failure? Neoclassical economists get out of the box. When the model fails, you don’t have to get angry with reality, you have to get angry with the model and change it.

The dilemma faced by the neo-classical model is that they say they want to perfect the functioning of the market by attacking what they consider to be failures, but by doing so they not only open the doors to socialism, but also threaten economic growth.

For example, regulating monopolies, destroying profits, and destroying increasing returns would automatically destroy economic growth. In other words, every time you want to correct a supposed market failure, inexorably, because you do not know what the market is or because you have fallen in love with a failed model, you are opening the doors to socialism and are condemning the people to poverty.

However, faced with the theoretical demonstration that state intervention is harmful, and the empirical evidence that it failed – because it could not be otherwise – the solution that collectivists will propose is not greater freedom but rather greater regulation, generating a downward spiral of regulations until we are all poorer, and the lives of all of us depend on a bureaucrat sitting in a luxury office.

Given the resounding failure of collectivist models and the undeniable advances of the free world, socialists were forced to change their agenda. They left behind the class struggle based on the economic system to replace it with other supposed social conflicts equally harmful to community life and economic growth.

The first of these new battles was the ridiculous and unnatural fight between man and woman. Libertarianism already establishes equality between the sexes. The foundation stone of our creed says that all men are created equal, that we all have the same inalienable rights granted by the creator, including life, liberty and property.

The only thing that this radical feminist agenda has resulted in is greater intervention by the state to hinder the economic process, giving work to bureaucrats who do not contribute anything to society, whether in the form of women’s ministries or international organizations dedicated to promoting this agenda.

Another of the conflicts that socialists raise is that of man against nature. They maintain that human beings damage the planet and that it must be protected at all costs, even going so far as to advocate for population control mechanisms or the bloody agenda of abortion.

Unfortunately, these harmful ideas have strongly permeated our society. Neo-Marxists have been able to co-opt the common sense of the West. They achieved this thanks to the appropriation of the media, culture, universities, and yes, also international organizations.

Luckily, more and more of us dare to raise our voices. Because we see that, if we do not fight these ideas head-on, the only possible destiny is that we will increasingly have more state, more regulation, more socialism, more poverty, less freedom, and, consequently, a worse standard of living.

The West, unfortunately, has already begun to go down this path. I know that to many it may sound ridiculous to propose that the West has turned to socialism. But it is only ridiculous to the extent that one restricts oneself to the traditional economic definition of socialism, which states that it is an economic system where the state is the owner of the means of production.

This definition should be, for us, updated to present circumstances. Today states do not need to directly control the means of production to control every aspect of individuals’ lives.

With tools such as monetary emission, debt, subsidies, interest rate control, price controls and regulations to correct supposed ‘market failures’, they can control the destinies of millions of human beings.

This is how we got to the point where, with different names or forms, a good part of the political offers generally accepted in most Western countries are collectivist variants. Whether they openly declare themselves communists, or socialists, social democrats, Christian democrats, neo-Keynesians, progressives, populists, nationalists or globalists.

Basically there are no substantive differences: they all maintain that the state must direct all aspects of individuals’ lives. They all defend a model contrary to the one that led humanity to the most spectacular progress in its history.

I invite other Western countries to return to the path of prosperity. Economic freedom, limited government, and unrestricted respect for private property are essential elements for economic growth.

This phenomenon of impoverishment that collectivism produces is not a fantasy. Nor fatalism. It is a reality that we Argentines know very well. Because we have already lived it. We’ve already been through this. Because as I said before, since we decided to abandon the model of freedom that had made us rich, we were trapped in a downward spiral where we are poorer every day.

We already lived it. And we are here to warn you about what can happen if the Western countries that became rich with the model of freedom continue down this path of servitude. The Argentine case is the empirical demonstration that it does not matter how rich you are, how many natural resources you have, it does not matter how trained the population is, nor how educated it is, nor how many gold bars there are in the coffers of the central bank.

If measures are adopted that hinder the free functioning of markets, free competition, free pricing systems, if trade is hindered, if private property is attacked, the only possible destiny is poverty.

Finally, I want to leave a message to all the businesses. Do not let yourselves be intimidated by the political caste or by the parasites who live off the state. Do not surrender to a political class that only wants to remain in power and maintain its privileges.

You are social benefactors. You are heroes. You are the creators of the most extraordinary period of prosperity we have ever experienced. Let no one tell you that your ambition is immoral. If you make money, it is because you offer a better product at a better price, thus contributing to general wellbeing.

Do not give in to the advance of the state. The state is not the solution. The state is the problem itself. You are the true protagonists of this story, and know that starting today, you have an unwavering ally in the Argentine Republic. Thank you very much and long live freedom, dammit!

This article is based on a speech delivered at Davos, January 18, 2024.