Collectivism will always eventually destroy the economy of any nation, no matter how great it may be.
That’s a pretty powerful statement. Is it historically supportable? Let’s visit a current example – Venezuela – to examine the overall process of collectivism, then look at a few other historical cases and see what we can learn.
Venezuela – 17 Years of Collectivism
In 1980, Venezuela was deemed to be the fourteenth most economically free country in the world. Today, it’s a veritable train wreck, having failed in every conceivable way. How did this happen? Was it just bad luck? No, quite the contrary.
Venezuela’s prosperity was fueled primarily by the export of oil. The downward spiral began in the 1980s as a result of a drop in the world oil price. Until that time, there had been strong public support for the free market, but diminished oil receipts resulted in a decline in living standards for most all Venezuelans, which left them open to claims by collectivist political candidates that the whole problem was the free market. In 1999, they elected Hugo Chávez, who promised to solve the problem through collectivism – the promise of a chicken in every pot.
Mister Chávez began to take from the “haves” and provide largesse for the “have-nots.” Not surprisingly, he was highly praised by the have-nots. So, he went further. He nationalized many of Venezuela’s industries. Industry became less and less profitable, so less and less money flowed through the system each year. Eventually, the revenue to the government was insufficient to pay for the promised largesse. The leader then died and the new leader, Nicolás Maduro, inherited a zombie economy. In desperation, he introduced capital controls and increased nationalization and regulations, hoping to squeeze as much as possible from the economy before it went off the cliff. The result was a fully dysfunctional economy, replete with massive job losses, increasing shortages, and, finally, starvation.
Again, having once been number fourteen on the list of economically free countries, Venezuela is now at the very bottom – at number 152 – as a direct result of collectivism.
As Margaret Thatcher once said, “The trouble with socialism is that, eventually, you run out of other people’s money.” Quite so. It does take a while, however. A newly collectivist state at first appears to be solving problems. What it’s really doing is feeding off of past profits. It gobbles up the economy’s store of nuts, but when these nuts are gone, that’s it – there’s no more, and the economy collapses. People starve.
Venezuela now has increasing shortages of food, hyperinflation has set in, the government is totally corrupt, the government is running out of funds for entitlements, and government healthcare is overburdened and failing. Like Cuba in the 1980s, there are no longer any dogs or cats on the streets of Caracas, and for the same reason as in Cuba – they’re being eaten by those with no other source of protein.
USSR – 74 Years
Vladimir Lenin introduced collectivism to Russia in 1917. He was able to do so because a revolution had just been completed by the people of Russia as a result of their dissatisfaction with a decline in the standard of living of most Russians. For decades thereafter, capitalism existed within the primarily communist system, but eventually, the parasite sucked the host dry. The USSR collapsed in 1991 for the same reason Venezuela is collapsing today.
China – 29 Years
Mao Tse-tung took over China in 1949 with a collectivist regime. But the 10,000-year rule he promised fell a bit short. It ended in 1978 in an economic dead-end. It followed the same path as the USSR, but the process was quicker.
Cuba – 57+ Years
Cuba lasted a bit longer. In the 1950s Cubans had become dissatisfied, due to the decline in the standard of living for the majority of Cubans, and were ripe targets for collectivist promises. They welcomed Fidel Castro in 1959. Cuba limped along for decades, but in recent years, the coffers of the state have dried up and the only hope to keep paying the salaries to government leaders lies in the grassroots cuentapropista movement – a rebirth of the free market. Collectivism in Cuba is nearing its end.
In each of the above countries, the pattern has been roughly the same.
A formerly prosperous country experiences a period in which the standard of living for the majority of citizens drops significantly.
The voters react by electing a new leader who promises a chicken in every pot (in essence, collectivism, although it is not always called that at the time of the election).
The new leader begins to rob the producers of wealth to provide largesse for those with less. This has a direct positive benefit for those with less, resulting in an increase in voters supporting collectivist promises over a period of years.
Over time, the free market experiences a permanent loss of wealth, resulting in diminished largesse for those who are now dependent upon it.
The government imposes increasing capital controls and other regulations, which deteriorate the free market more severely, causing inflation, shortages of goods, loss of jobs, and eventually starvation and systemic collapse.
The voters choose a new leader who promises fiscal responsibility.
With a return to a freer market, prosperity slowly reappears.
The pattern is a predictable one because it’s based on human nature. An economic downturn occurs. The voters become suckers for false promises. The new collectivist government appears successful at first, because it’s feeding off the remains of the free market. But, eventually, it destroys the free market and collectivism crashes and burns.
So what does the above review tell us? Has the world learned its lesson? Not at all. What we can surmise from the above is that, whenever the standard of living for the majority of citizens drops significantly in a jurisdiction, the voters will be ripe for empty promises. In every such case, collectivism will appear to be the best solution.
Collectivism is by its very nature a parasitical system that creates nothing. It therefore will always eventually destroy the economy of any nation where it’s implemented, no matter how great that nation may be. The only uncertainty is the number of years required for destruction.
Today we’re witnessing the collapse of the primary jurisdictions of the former “free” world. They’re operating on a quasi-capitalist system that has been eroded by repeated injections of collectivism (primarily socialism and fascism). Increasingly, voters in each of these jurisdictions are becoming convinced that the promises made by collectivist candidates “just make sense.” As the system continues to spiral downward, as it inevitably will, the scales are likely to tip, not in the direction of a return to the free market, but in the direction of full-on collectivism.
Editor’s Note: Socialism often leads to economic and societal collapse, hyperinflation, shortages, and shrinking personal freedom.
This has happened most recently in Venezuela.
The truth is, it can happen anywhere. The U.S. is not immune. In fact, it’s extremely vulnerable.
Increasing socialism, bad financial decisions, and massive debt levels will cause another financial crisis sooner rather than later.
We believe the coming crash is going to be much worse, much longer, and very different than what we saw in 2008 and 2009.
Unfortunately, most people have no idea what really happens when an economy collapses, let alone how to prepare…
That’s exactly why New York Times best-selling author Doug Casey and his team just released an urgent video. Click here to watch it now.