Failure of Politics
SEPTEMBER 01, 1968 by GEORGE HAGEDORN
Mr. Hagedorn is Economist and Vice-President of the National Association of Manufacturers. This article is from his column in NAM Reports, June 24, 1968.
Prosperity is another name for abundance. A nation can have an abundance of goods and services only if it produces an abundance of goods and services. It can produce an abundance of goods and services only if it is organized in such a way as to release the energies, initiative, and skills of such of its citizens as possess those qualities.
Unfortunately energy, initiative, and skill are not distributed evenly among all the groups in any society. They are not evenly distributed among the nations of the world. It is likely that the differences are not so much genetic as they are cultural. But in any case the disparities exist and they are wide.
This gives rise to a feeling — it is a world-wide phenomenon —that where abundance is lacking it is because the group affected is (or has been) exploited by someone else. The road to prosperity for all is to suppress the exploiters by political action, rather than to provide goods and services by productive action.
This is the prevailing sentiment in most of the undeveloped nations of the world. It is the chief barrier to their development into prosperous members of the family of nations. It is a rising sentiment in many of the industrial nations and is the chief threat to their continued prosperity.
Case histories are abundant. In Bolivia a revolutionary government nationalizes the tin mines. What had been the chief national asset under private ownership becomes, under government control, an inefficient and wasteful operation. An enormous influx of foreign aid from the U.S. is thrown down the drain in subsidizing socialistic government enterprises or corrupt government officials.
The story is much the same in other parts of Latin America, in Indonesia, and in many of the new nations of Africa. For reasons which should, but don’t, embarrass the governmental leaders, the departure of the "exploiters" produced more widespread poverty rather than the promised universal prosperity.
There is a small number of nations which illustrate the opposite side of the coin. Hong Kong and Malaysia have encouraged private enterprise. Their prosperity and productivity shine out from an otherwise dismal picture in the less developed world.
At the same time we see some of the advanced nations going the other way. In France a large segment of the working population, animated by revolutionary fervor, has decided to give itself pay raises of 10 per cent to 15 per cent, together with longer vacations. It is truly astonishing to see the illusion, in an intelligent and sophisticated nation, that everybody’s welfare will be improved by higher pay for less work.
In the U. S. the belief that poverty is the result of robbery by an exploiting class has not yet become the dominant mode of thinking. But it is making progress. In certain circles the middle class is more likely to be despised for its ‘affluence" rather than admired for the productivity which Made that affluence possible. Henceforth, it is urged, we must work to eliminate poverty through redistributive political action rather than through productive action in the mill and market place. At least this is what many -of the programs advocated to eliminate poverty — a higher level of government social action supported by higher taxation, or a negative income tax — seen to come down to.
The spirit of enterprise among Americans— that willingness to invest one’s own sweat and resources in opportunities one finds for oneself — is a tough bird and will be hard to kill. But it can be seriously crippled both by verbal abuse and by higher levels of taxation. Worse, it can be misdirected, by government intervention, into unproductive or counterproductive channels. And those who don’t share the spirit of enterprise will suffer along with those who do.
Individuals who are resourceful by nature will usually make out in any kind of society. In a free enterprise society, persons who combine native resourcefulness with high ability will often rise to the top, by activities which benefit everyone else. In a society where economic decisions are made by a political power struggle, the natively resourceful (whether genuinely able or not) will take prominent parts in that struggle. But their efforts are unlikely to contribute anything positive to the welfare of their fellow citizens.
A society which rewards its participants in proportion to their contribution to the production of goods and services other people want is, on the record, the most effective in reducing the prevalence of poverty. All this is elementary in principle and abundantly illustrated in practice. We can only express astonishment that it has become the fashion in intellectual circles to ignore it. It is as though we were to agree that, since the fact that grass is green is an old and trite truth rather than a fresh new one, we will henceforth believe that grass is red.
Raising taxes on the productive groups in society in order to expand antipoverty programs isn’t essentially different from expropriating the owners of tin mines in order to make the Bolivian populace richer. And it isn’t likely to be any more successful.