The United States, like many countries around the world, seems to have entered a period of broad and deep discontent. Much of this discontent is related to economic issues — some of them specific, like wage stagnation and the spike in healthcare and college costs. And others are more systemic, like inequality and crony capitalism. This discontent has grown into an indictment of our entire political and economic system, with multiple constituencies harboring multiple grievances — some overlapping, others in deep conflict. I’m telling you nothing here you don’t already know.
You also know that different actors have harnessed this discontent in an attempt to steer the country in different directions. Perhaps the most successful to date is Donald Trump, who in 2016 defied just about every prediction on earth to win the U.S. presidency. Now that he’s facing re-election, his Democratic opponents are trying to direct the discontent in their direction, with some of them calling to fundamentally remake the American economy. Trump’s supporters find this absurd:
Sean HANNITY: All the Democrats running for president want to radically transform this country that has accumulated more wealth, that has advanced the human condition more than any other country in the history of mankind.
One of Trump’s most formidable Democratic opponent at this point is in fact a long-time registered Independent, Vermont Senator Bernie Sanders.
Bernie SANDERS: We now have an economy that is fundamentally broken and grotesquely unfair.
Sanders’s momentum is particularly strong among young and progressive voters who think capitalism should be overhauled or, perhaps, replaced entirely.
Michael KNOWLES: The majority of American millennials now identify as socialists.
HOST: Why are so many millennials gravitating towards socialism over capitalism?
SANDERS: The United States must choose the path that I call democratic socialism.
As much as Sanders embraces the socialist label, he does understand—
SANDERS: I do understand that I and other progressives will face massive attacks from those who attempt to use the word “socialism” as a slur.
From President Trump, for instance.
Donald TRUMP: America will never be a socialist country.
Jeffrey SACHS: If Bernie Sanders says, “We need Medicare for All,” Trump’s answer is, “That’s socialism like Venezuela.”
TRUMP: The socialists have done in Venezuela all of the same things that socialists have done everywhere.
SANDERS: I’m not looking at Venezuela.
TRUMP: The results have been catastrophic.
SANDERS: I’m looking at countries like Denmark and Sweden.
How can one little word possibly contain such a range? Today on Freakonomics Radio: what we talk about when we talk about socialism. And if it makes you feel any better, everybody else is confused too.
SACHS: I personally would not use the word socialist.
James ROBINSON: I find the word “socialism” in the U.S. context kind of odd.
Kjell SALVANES: You know, “How is it to live in a socialist society?” And then I say, “What are you talking about?”
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If you want to talk to someone about politics and economics; about Venezuela and Scandinavia; about what socialism is and isn’t, there are few better people to talk to than the economist Jeffrey Sachs.
SACHS: Stephen, hi. How are you?
His official title?
SACHS: University Professor at Columbia University and director of the Center for Sustainable Development at Columbia University.
SACHS: I’m an adviser to the U.N. in several capacities.
Sachs has also advised governments around over the world, especially as they tried to climb out of poverty or, after the Cold War, to shift from communism to a market economy.
SACHS: I’ve had the chance to see economies functioning and malfunctioning in more than 130 countries around the world, and my view is that the countries that come closest to what we’re after for decent lives on this planet are the Scandinavian countries — the social democracies of Northern Europe.
SACHS: The model of universal, quality public services is at the core of social democracy. That means health; education starting from early childhood development up through university level; childcare for all that enables a very high level of labor-force participation of women, of mothers of young children.
So does that make Sachs a fan of “socialism” per se?
SACHS: The first thing I would say is that terms like “socialism” are too big, too loaded, too poorly defined to be a very useful starting point.
Okay, what’s a better starting point?
SACHS: There are two concepts that I think should be distinguished at the start of any sensible discussion. One is the concept of a mixed economy, which means that an economy has a market system, including private ownership and trade, market functions, and supply and demand. But it also has government — government that may run the schools or may provide for healthcare or the police and the fire department and so on. That’s a mixed economy.
A socialist economy, in the traditional usage of economics and in political history — though it’s a term that has been used for all sorts of things — generally means an economy organized around social ownership, which might mean state ownership, or it could mean a cooperative ownership, or in some views it has meant worker ownership, or in other interpretations, citizens’ ownership. But the idea is that it’s some kind of social ownership of the means of production.
DUBNER: When you talk about, let’s say, a Nordic economy — Norway, let’s just pick as a socialist democracy, what component of that economy is socialist?
SACHS: Well, the Nordic economies are not socialist democracies. They call themselves social democracies. That’s a very big difference. They do not call themselves socialist, in general, because most of the production, most of the businesses in the economy, are private, corporate ownership. But what they do, which is quite different from the United States, is that they collect far more in total tax revenues, and then use those additional revenues to provide far more public services than the United States provides.
So Sachs’s nomenclature for the Nordic, or Scandinavian countries, is “social democracies with mixed economies.”
SACHS: Now, my claim would be that all successful economies are mixed economies, and that there is an important set of questions about where boundaries should be drawn between government and market.
How does he see those boundaries in the U.S.?
SACHS: In my view, the United States draws that line in an inappropriate place: too much market, not enough government.
And where in the U.S. would Sachs like to see more government?
SACHS: So top of the list would be Medicare for All or a single-payer health system. And I would say to somebody who said that “that’s socialistic,” that that is exactly what was said about Medicare, and why Medicare was so strenuously opposed.
It may not surprise you at this point to learn that Jeffrey Sachs supports Bernie Sanders. He was an advisor to Sanders’s 2016 campaign and he’s endorsed him this time around. But if you’d like a prime example of the confusion around the word “socialism,” here’s one for you: Sachs says that even Bernie Sanders is using it wrong. When, for instance, Sanders talks about the path America needs to choose:
SANDERS: And that is the path that I call democratic socialism.
SACHS: It is part of our confusion, which has fascinating roots in our internecine left schisms in America. He calls himself a democratic socialist. That has explanations back to the verbiage in the United States in the 1960s, ’70s, and ’80s actually. But to my mind, what Bernie Sanders is talking about is social democracy that is what we see in operation, not only in the Nordic countries incidentally but in Germany, in the Netherlands, in most of Western Europe. My sense is: that works, that’s nice, we should do that too.
This may sound like nomenclatural hair-splitting to you — the difference between a “social democracy” and “democratic socialism” — but Sachs argues otherwise. Especially because “socialism” — as opposed to “social” — has plainly become a political term.
SACHS: Now, the term “socialist” is used often as a pejorative for a mixed economy with more government than the U.S. has. In other words, if Bernie Sanders says, “We need Medicare for All,” Trump’s answer is, “That’s socialism like Venezuela.”
DUBNER: So, since we’re on the nomenclature, what do you call Venezuela?
SACHS: Oh, a typical Latin American populist mess, which I’ve seen for many decades and have been involved many times in trying to help clean up.
Just how big a mess is Venezuela at the moment?
Ricardo HAUSMANN: It’s really unprecedented.
That’s Ricardo Hausmann, a Venezuelan economist who teaches at Harvard’s Kennedy School.
HAUSMANN: In the U.S. Great Depression, G.D.P. fell by 28 percent. In Venezuela, at the end of this year, G.D.P. will have fallen by 62 percent.
We spoke with Hausmann in the fall of 2019, so he was talking about the end of that year.
HAUSMANN: So it’s something of a completely different order of magnitude. Last year, we had 2 million percent inflation.
Along with this inflation, Venezuela has seen severe shortages of food and medicine; it is a full-blown humanitarian catastrophe. President Trump and others have blamed this catastrophe on socialism. And Venezuela surely seems to fit Jeff Sachs’s description, wherein the means of production are owned by the state. This intensified not so many years ago:
HAUSMANN: They were expropriating things left and right — they expropriated over 10 million acres of land, they expropriated the whole steel sector, the whole cement sector, supermarkets, yogurt factories, detergent factories, banks, telecoms, electricity companies, etc.
A government nationalizing the means of production — that sounds pretty much like the textbook definition of socialism. It also calls to mind the heyday of the former Soviet Union, the mother of all socialist models. But Ricardo Hausmann doesn’t think the label fits Venezuela.
HAUSMANN: “Socialism” is a term that is used too broadly. I would refer more to kind of like totalitarian economic systems where property rights are very weak.
In Venezuela, for instance:
HAUSMANN: You never know when your own property can be taken away by the government. There is extensive price controls, exchange controls, import controls.
We should say here that Hausmann is a strong and vocal opponent of the Venezuelan government that’s currently in power.
HAUSMANN: You’re constantly having to request permission for many, many things and these permissions are an opportunity to extort money from you or to blackmail you. So I wouldn’t want to call that by the same name of whatever is happening in Scandinavia.
But Hugo Chavez, the architect of Venezuela’s current political and economic system, did call his vision “21st century socialism.” So how did Venezuela get to this point? It’s a fascinating story, if a depressing one. Remember, Jeff Sachs calls Venezuela today a “typical Latin American populist mess.” But for decades, Venezuela was an outlier. Between 1920 and 1980, it was one of the fastest-growing countries in the world. Most of this growth was fueled by the country’s great good fortune — or at least what seemed like good fortune: massive oil deposits. Venezuela began producing oil way back in the 1910s, and it soon became the No. 1 exporter in the world. Did it become too reliant on this single industry? In retrospect, the answer is yes, but at the time it must have been less evident. Venezuela was a country on the rise. And in 1958, it became a democracy, at a time when many Latin American countries were moving in the opposite direction.
HAUSMANN: But after, say, August ’81, oil revenue started to decline, OPEC tried to protect prices by cutting production, so we were cutting production. By 1986, the price collapsed. In some sense we had overborrowed, and overspent and we mismanaged that, we didn’t prepare ourselves for a period of low oil prices.
SACHS: Venezuela has lived on one resource for decades now and that is like standing on one leg, or even the stool with one leg. It is profoundly unstable. Every country that has oil loves to live off of this resource rent, but it doesn’t work.
Economic and political instability created an opportunity for the man who would become Venezuela’s next leader.
HAUSMANN: In February 1992, Chávez organized a military coup attempt.
Ricardo Hausmann at the time was Venezuela’s Minister of Planning.
HAUSMANN: I must say — it caught me completely by surprise. It’s completely outside the thinkable.
Hausmann was trying to help reform Venezuela’s economy to make it less dependent on oil. Hugo Chavez was briefly imprisoned for his attempted coup. But the government was sufficiently destabilized, and it soon lost power. Hausmann’s market reforms were abandoned.
HAUSMANN: And we are paying a very, very hefty price for that.
Chavez, a high-ranking military officer, was charismatic and popular. In 1999, he was elected president.
SACHS: I went to see Hugo Chávez early in his presidency and he gave me a big bear hug and we talked about baseball, which was his real passion. And then we talked about the Venezuelan economy. And I felt quite good about the meeting — because I had listened to myself talk, I suppose — and I went home and then watched over the next decade-plus that he and his revolution did everything the opposite completely of what I had recommended.
Which was what?
SACHS: So what one needs, of course, is to undo the mistakes of trying to live off of one natural resource. And you need a normal set of financial operations, a restructuring of the debt.
But rather than diversifying the Venezuelan economy, Chavez nationalized it. Remember, as Hausmann told us:
HAUSMANN: They expropriated the whole steel sector, the whole cement sector.
Why did the government need to seize all those assets?
HAUSMANN: So you end up with an economy that has oil and very little else that can be exported. Now when oil falls, you need more dollars, but you don’t have a part of the economy that is able to generate those dollars. When Chávez got into power, Venezuela was producing 3.4 million barrels of oil a day. When he died, it was producing something like 2.5 million barrels of oil a day. Last month, it probably — it produced 600,000 barrels of oil a day. So you need somehow to shift towards more non-oil exports. And it’s very, very difficult because in order to become good at things you were not good at before, you face a chicken-and-egg problem. You cannot export because you don’t know how to do it. And you don’t know how to do it because you’re not in it.
Hugo Chavez died, in office, in 2013. His successor, Nicolás Maduro, has essentially held Chavez’s course. For the average Venezuelan, the economy has gone from very bad to terrible. Ricardo Hausmann says the minimum wage is about $2 a month.
HAUSMANN: In 2012, it was something closer to $400 a month. And then people say, “Well, but maybe a dollar buys a lot in Venezuela.” So instead of measuring it in dollars, we measure it in calories. And the cheapest available calorie, which right now happens to be yuca, and we find that the minimum wage buys 400 calories of yuca a day. If you stay in bed, you will consume 2,000 calories. So this doesn’t even feed the person going to work, let alone his family.
In 2018, Maduro won a second term as president of Venezuela. Now, how does the president of a country failing so badly win a re-election? Many observers claimed the election results were, shall we say, irregular. The U.S. and many other western countries rejected the outcome. Among the countries that accepted it: China, Cuba, Iran, and Russia. So: more than a few echoes of the Cold War and the battle between capitalism and socialism. Venezuela’s own General Assembly declared that Maduro was out and they installed as president the young reformer Juan Guaido. But that was only a declaration. Maduro chose to stay in office. And the military, for now, is on his side. The U.S. and other countries have recognized Guaido’s legitimacy, and have been trying to oust Maduro. This has left Guaido in a rather precarious limbo. For what it’s worth, the Harvard economist Ricardo Hausmann is an advisor to the Guaido government, such as it is. President Maduro has called Hausmann an “economic hitman.” Which means Hausmann cannot practically return to Venezuela.
HAUSMANN: As they say, it’s no problem returning, it’s getting back out. My brother-in-law spent three years in jail for being a journalist.
So, let’s think about Venezuela: was it socialism, as practiced by Hugo Chavez and Nicolas Maduro, that drove the country into the ground, as Donald Trump likes to say? Or was their embrace of Chavez’s version of socialism just a late-stage attempt to recover from the underlying problem — which was chronic mismanagement of a one-resource economy? There is a famous concept in economics, called the “resource curse.” That’s when a country seemingly blessed with valuable natural resources ultimately suffers because it fails to diversify their economy. And that is a pretty appealing explanation for what went wrong in Venezuela. But not all economists embrace this sort of explanation.
James ROBINSON: I don’t think there is a resource curse.
ROBINSON: The consequences of natural resources for a society’s development are completely conditional on their institutions.
Meaning: natural resources don’t have to be a curse. The argument Robinson makes, along with his co-author Daron Acemoglu, is that a given country’s long-term success is dictated primarily by the strength of its institutions: its judicial and legislative systems; its educational and healthcare and social-safety apparatus; a fair and transparent economy; even its culture. If you’ve got a lot of that going for you, then striking oil can be a blessing. Just ask Norway.
ROBINSON: Norway was a pretty poor country relative to many parts of Western Europe when it discovered oil. But it had very strong institutions. It wasn’t corrupt. They were able to take the resources and use them in the interests of the average Norwegian. The problem in Venezuela is not the oil, it’s the political system. The fundamental problem is the institutions.
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SACHS: Norway is the exemplar of a hydrocarbon economy that does not want to live off of its hydrocarbons.
That again is the economist Jeffrey Sachs.
SACHS: What they do, in fact, is save most of the hydrocarbon earnings rather than turn them into a consumption binge. And that’s why they’ve accumulated a trillion dollars in their sovereign wealth fund for the four million Norwegians, and they’re going to live very well into the future, thank you.
Kjell SALVANES: So my name is Kjell Salvanes.
Salvanes is one of those four million. He’s a professor at the Norwegian School of Economics, and also—
SALVANES: And also the deputy director of a research center there for 10 years.
Most of this research is related to income inequality. Of which Norway has not very much. Norway, like the other Scandinavian countries, ranks among the world’s best in equality and — probably not coincidentally — in happiness. The Norwegian government provides a big basket of universal benefits, including healthcare, free college at public universities, parental leave, childcare, unemployment insurance, and more. Which, to some people, sounds like “socialism.”
SALVANES: So, I have been met with this argument also. “Kjell, how is it to live in a socialist society?” And then I say, “What are you talking about?” We don’t think about it like that.
A more appropriate description, remember, would be: a social democracy with a mixed economy.
SALVANES: I mean, we have a free-market economy as you have in the U.S. The important part is the combination of, you know, like, let’s say a liberal society, free market, and a welfare state, you need three things, and that’s not what people think about socialism.
So, nobody in Norway talks about socialism?
SALVANES: No, nobody.
How, then, does a Norwegian economist think about the Nordic economies, if not in terms of socialism?
SALVANES: It’s not so clear, and nobody can give a precise definition, but it means that sort of everybody gets something. As I said, we do have a free-market economy, meaning that the cake should be as big as it could be. And then you try to share it.
And how is this sharing accomplished?
SALVANES: Taxes is an important part.
This is of course a huge point, and a huge differentiator from country to country. The Nordic countries rely on most people paying relatively high taxes, which is how they can afford such generous benefits. Norway, in addition, has that trillion-dollar sovereign wealth fund, built up by selling oil; Sweden, just so you know, has no oil, and relies on a more diversified economy and relatively high flat taxes. By comparison, the U.S. has most people paying relatively low taxes, which leaves less money available for the more generous programs that many Democrats would like to see. Which is why Bernie Sanders and Elizabeth Warren and others have been calling for raising much more tax money, but primarily from the very wealthy. In Norway, the tax burden is more equally shared. And then those taxes are aggressively reallocated.
SALVANES: Since you’re reallocating taxes, you also need to trust that it’s being used for something useful. So I think that to create institutions that are trustworthy is probably the most important thing. So in a Nordic country, trust is extremely high.
One example of this high trust, or at least of less friction between employers and employees in Norway, is the prevalence of labor unions.
SALVANES: The public sector has 90 percent unionization. And in the manufacturing sector, it’s like 50, 60 percent. And in the service sector, it’s about 30 percent.
In the U.S., meanwhile, the private-sector industry with the highest share of unionized workers is the utility industry — with just under 11 percent.
SALVANES: So, unions are still strong in the Nordic countries. There is sort of negotiated minimum wages that differs across industries and differs across the age of the workers. That is extremely good for people at the bottom.
Economists tend to have mixed feelings about unions, pointing out their inefficiencies and inflexibilities. James Robinson, who has spent decades researching why certain states and societies prosper, has come to a more nuanced understanding.
ROBINSON: You can’t think of unions just from an economic point of view. Unions have all sorts of political consequences in society that may be even more important. U.S. companies use their market power to repress wages, you know? Unions can play a powerful role in pushing back against that. An economist might say, “Well, we should be using fiscal instruments — taxes, transfers — to redistribute.” But that means that the state has to be very involved in that process.
So what happens if you’re in a society where the social contract doesn’t really allow that? Well, then you have to use other instruments. And I think the Scandinavians were clever — by equalizing the pre-tax distribution of income, you know, the state actually had to do a lot less. That could be very politically important, especially in a place like the U.S., where people are antagonistic towards the government doing more.
In other words, unions reduce the need for government redistribution through a sort of pre-distribution that’s negotiated directly by employers and workers. This also tends to equalize financial outcomes, creating less of a gap between the higher and lower earners.
SALVANES: So in many countries, including the U.S. and the U.K. especially, you have seen an increase in inequality. If you go back to the 1930s, you will see that the income inequality in Norway was as high as in the U.S. today. Norway today is half of that. Income inequality decreased, but also social mobility increased. If you look at the cohort born in the early 30s, you see that income mobility was as low as in the U.S. today. Your parents meant a lot for your own income or your position and over 10, 15 birth cohorts, this completely changed. So it was a very fast development.
In his research, Salvanes has found that in Norway, parents’ income has almost no effect on their children’s income — a remarkable fact, and uncommon in most places around the world. But that doesn’t mean the Norwegian economic model is flawless. One disturbing trend, tied to the oil industry, is a diminished demand for education.
SALVANES: And this is what you see in all resource-based economies. It’s easy to get a job, a good job in the oil sector, without any education. It’s very tempting. The people I grew up with — I’m from the core of the oil-industry sector— that was very common. And you see it very clearly in the data that investment is much lower in education in those areas. And of course, that is fine as everything goes well and there is enough oil and gas. The problem is that then when the wells dries out, you need to restructure to do something else. And then you don’t have a human capital base for that. And so that is the big worry, I think.
Another worry is that while Norway has high levels of income mobility, educational mobility is almost nonexistent.
SALVANES: Completing a college and also have a master’s degree, and especially going to an elite school, let’s say, to become a lawyer. You see that it’s extremely unequal. Then the parental background means a lot.
In this regard, Norway is closer to the U.S.
SALVANES: Very similar. So that recruitment to the elite is very unequal.
And that’s important because the Nordic model requires a high level of trust in your institutions — and the people who run them.
SALVANES: So for a trustworthy elite to rule, they need to have recruitment from different parts of society, you know? They need renewal and different perspectives and so on.
Another problem Norway faces — and this what a lot of Americans are afraid of when you start talking about “socialism” or even “social democracies” — is that strong universal benefits, including generous unemployment payments, can diminish the incentive to work hard.
SALVANES: The government in the new budget said that we are going to cut back on some of the support, especially for young people. Because it turned out that young people in their 20s on support, they were sort of paid better than people at the same age working. So that is a big concern.
It’s a concern not just for individuals but for the whole society, the whole economy. This is something James Robinson has spent a lot of time thinking about. While it may be tempting for the U.S. to import some elements of the Nordic model, how much would that affect the foundation that has made the U.S. such an incredible engine for innovation?
ROBINSON: After the financial crisis in the United States, there was a lot of discussion of, “Oh, the U.S. has the wrong model. The U.S. should just be like Sweden. Look at Sweden. There should be more redistribution.” We pointed out that’s a sort of fallacy in economic theory.
A fallacy because — well, countries differ from each other on many dimensions, not just three or four. Yes, the strength of their institutions and their tax system and natural resources, but also their culture, their spirit. The U.S., for instance:
ROBINSON: It’s a much more cutthroat society. Why? Why is it like that? Well, because that creates enormous incentives to innovate and people are just very ambitious and entrepreneurial and there’s much less social insurance and the stakes are very high. And that doesn’t just benefit the U.S. It also benefits Sweden, because all of that technology and innovation spills over to everybody in the world. You create ideas. Those ideas spread everywhere. So in some sense, the Swedes can have this very harmonious redistributive society because they’re free-riding off the cutthroat society. So the U.S. is kind of stuck there, because if you actually went to a model with more redistribution, then the whole world rate of economic growth would slow down.
There are, of course, counter-arguments to what Robinson is saying here. Here’s one: after decades of high-octane capitalism in the U.S. and elsewhere that has left behind many, many people — what if economic growth is not as important as economists have been telling us? Also: Robinson’s argument is a theoretical argument; would it necessarily be true that growth would slow if there were more redistribution in the U.S.?
Here’s something to think about. The economist Casey Mulligan, also of the University of Chicago, recently did a very rough analysis of the economic impact of Bernie Sanders’s agenda if it were implemented exactly as Sanders has claimed during his campaign — an assumption that Mulligan says makes this more of an “academic exercise” and “not a very good forecast.” Still, Mulligan’s analysis considered Sanders’s proposals for universal healthcare, “free public college, free childcare … a full transformation of the energy sector” and more. Mulligan’s verdict? “Senator Sanders’ agenda … would reduce real G.D.P. and consumption by 24 percent. Real wages would fall more than 50 percent after taxes. Employment and hours would fall 16 percent combined. There would be less total healthcare, less childcare, less energy available to households, and less value added in the university sector. The stock market would likely fall more than 50 percent.” Now, keep in mind that predictions of any sort are nearly impossible, and even more so with something as complicated and massive as the U.S. economy. Also keep in mind that Mulligan is a former member of the Council of Economic Advisers in the Trump Administration — so make of that what you will.
But if the question today is, as Jeffrey Sachs put it earlier, where in an economy should the boundaries be drawn between government and market, if that’s the question, the wisest counsel seems to come from James Robinson. He reminds us repeatedly that a nation’s destiny is determined by a great many factors, some hard and some softer, with no two countries even close to identical. Now, why does that matter? Well, let’s say you want to substantially increase the role of government in the U.S., to make it look more like those trusting Nordic societies. But, as Robinson points out, the U.S. has a very different history, based in part on a collective distrust of the state.
ROBINSON: In the sort of social contract, if you go back to the late 18th century, I think, that created this federal system with this very decentralized state rights and autonomies and limited role for the federal state, the way many things operate. It relies on private initiative.
But how relevant is that history? How much does it affect our modern society and economy?
ROBINSON: It’s not some disconnected thing. It’s part of how the U.S. has kept this balance between state and society historically. When we started doing research on these topics, we were too focused on political institutions. We didn’t understand well enough the role of society and, you know, social institutions.
Robinson’s latest book, also co-authored with Daron Acemoglu, is called The Narrow Corridor: States, Societies, and the Fate of Liberty.
ROBINSON: We emphasize this balance between state and society. And having a balance between states and society is not just a sort of static thing that you achieve and then you feel good about yourself and go home, you know. It’s not just some kind of moment like the Constitution in Philadelphia — “Oh, we achieved a balance.” No, no. It’s a constant competition and struggle between state and society.
And on balance, the U.S. has done incredibly well.
ROBINSON: We tend to see all the imperfections in the United States. But I suppose working in Latin America, I tend to look at the comparison all the time over the last 200 years, and what you see is that for all its imperfections, of course, the U.S. managed to solve these problems much more effectively than any Latin American country. And it remains this enormous engine of innovation.
But, Robinson says, that’s not a call for complacency.
ROBINSON: Yes, the United States managed to solve pretty well a lot of problems that Latin American countries couldn’t solve. But there’s been a cost to that. The fact that you have Ferguson, Missouri, or you have the south side in Chicago, the inability to deal with those problems is part of the architecture of the state. So in some sense, you could say, well, the U.S. state is weaker than the Norwegian state or the Swedish state, because you don’t really have problems like that in Norway.
If you want to compare state institutions, I think the state institutions in Sweden are able to deal with problems that the state institutions in the U.S. aren’t able to deal with. But that’s because the Swedish state didn’t have to deal with so many problems historically, and it didn’t have to figure out how to colonize this enormous territory and how to avoid kind of centralized tyranny, how to avoid decentralized anarchy, and how to find a balance between all these different competing forces and interests. And that just left gaps.
The gaps in the American state and society are particularly wide at the moment. They’re evident in the general discontent you feel in this country right now; they’re very evident in our political discourse. And they’re evident in the fact that Donald Trump was elected as the biggest outlier in the Republican field while Bernie Sanders, the self-declared “democratic socialist,” is the biggest outlier in the 2020 Democratic field. And what does this say for our future? There’s one more mark of successful states and societies that James Robinson has observed:
ROBINSON: You have to make compromises and you have to build coalitions and you have to recognize and respect — “Okay, we differ on that, but let’s agree that this is in the benefit of the nation.” I think this issue of taxing the rich— In the U.S. context, whether I think that’s a good thing or not, it seems very unlikely that you can get a coalition around taxing the rich. But there’s other things you could do, which is consistent with this whole notion of the American dream, you know, as corny though that may sound. I mean, my own view is that that still just resonates with a lot of people in this country. And you can’t really deny it.
But I think there’s lots of ways of thinking about redistribution, which are consistent with this notion that there should be equality of opportunity. For example, look at the enormous inequality of the education system. Why is it that people in the U.S. can’t all agree that this is a problem? This is undermining, you know, a fundamental principle about U.S. society, and if you go back 200 years, this is one thing that made the U.S. what it is. Enormous investment in education going right the way back into the early 19th century. So I think there’s some issues that you could focus on where you could really get a political coalition, you know, that’s consistent with some fundamental things that we think this society should be based on.
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Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Matt Hickey. Our staff also includes Alison Craiglow, Greg Rippin, Harry Huggins, Zack Lapinski, Daphne Chen, and Corinne Wallace; we had help this week from James Foster. Our intern is Isabel O’Brien. The music you hear throughout the episode was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.
- Jeffrey Sachs, economics professor and director of the Center for Sustainable Development at Columbia University.
- Ricardo Hausmann, economics professor at the Harvard Kennedy School and director of the Growth Lab at Harvard’s Center for International Development.
- James Robinson, economics and political science professor and director of the Pearson Institute for the Study and Resolution of Global Conflicts at the University of Chicago.
- Kjell Salvanes, professor at the Norwegian School of Economics.
- The Narrow Corridor: States, Societies, and the Fate of Liberty, by James A. Robinson and Daron Acemoglu.
- Why Nations Fail: The Origins of Power, Prosperity, and Poverty, by James A. Robinson and Daron Acemoglu.