A Disagreement Among Friends

In recent months, I have become friends with a man I met through one of my book clubs. He’s a bit older than I am, and a fellow of whom, after he joined the group, I very quickly got the sense that we have a great deal in common. A relatively recent retiree, still active on many fronts, his career path has led to both all corners of the planet and leadership positions in diverse industries. Not only are his manners and bearing beyond reproach, they seem grounded in a considered and considerate nature.

Notwithstanding our shared affinities, I am pretty sure that his politics and mine are diametrically opposed. I‘m guessing that he knows of our political differences, too, but we’ve both let the topic be. Our conversations have focused on books in the book club’s meetings and families and personal experiences on the other occasions when we’ve gotten together. Until our most recent book club meeting, that is.

Last week, he and I had a brief disagreement in a sidebar conversation as we headed to the food-laden table over which the group would continue its discussion of the book we had just read. I said something along the lines of “The only resources that really matter are between our ears, anyway”, to which he objected sharply, making the point that in his view struggles over natural resources are, and always have been, of paramount importance in geopolitics and the wealth of nations.

The occasion wasn’t right to flesh out our arguments, but because our simply expressed differences are arguably fundamental to competing political outlooks, I think it’s worth looking at the disagreement more closely. Premises matter.

If you think that the wealth game is mostly about securing natural resources, you will likely be inclined to concern yourself with questions about what’s fair in terms of how those resources are distributed. You probably think people have ‘rights’ to things that must be produced by the sweat of others’ brows, like healthcare (or oil, for that matter). As to how you’ll get control of those things to be able to give them to those who you deem deserving, you’ll figure that out. Your answer will always come down to command-and-control economics.

If you think that wealth comes from people’s efforts and creativity – as I do – you’ll want the system to encourage those efforts and that creativity. And the systems that do so are complex, multilevel things involving culture, laws and, above all, mutual trust that each person will benefit from his or her own efforts – that others will not take what they have made. So command-and-control, not so much.

My view is that governance and culture, broadly defined, either foster the conditions in which wealth will be created and accumulated or they do not. A ‘resource poor’ country like Japan, England, Denmark, Switzerland, Israel, Holland, South Korea or Taiwan (the list goes on and on) can become very rich if its culture and laws bring out the best of its citizens’ efforts. What do these nations have in common? First and foremost, clear property rights and the rule of law. Their people know that they may individually create, buy and sell largely at will, and that they will benefit from their own successful efforts and lose from their own mistakes. Many become business people, traders or innovators, sourcing natural resources as needed. They make do, and they do well.

Meanwhile the list of ‘resource rich’ countries that are terribly poor is sadly long. Think of Venezuela, the proud owner of the largest oil reserves on Earth and until recently one of Latin America’s richest countries, but now that it’s lost on the Socialist road, starvation poor. Or Russia, another country blessed with practically limitless oil and natural gas (and other natural resources beyond number) – so poor that its GDP is smaller than that of South Korea, which has a population just under one third as large as Russia’s. Lots of African countries have enormous natural resources – think Nigeria – but lack both good governance and the kind of culture that is its necessary underpinning. (Where corruption is rife, wealth and talent flee.) Or the Arab countries, which together have a population of over 350m, whose total non-petroleum exports were until recently said to be less than those of Finland (population 5.5m). Sure, some Arab countries are rich from natural resources – but until people from other countries invented uses for oil and figured out how to get it out of the ground and to willing buyers, they were all poor.

Which is a great illustration of the true source of wealth. Like virtually every product, oil had zero value to mankind until enterprising people figured out how to make use of it. And by figuring out how to make use of it they created wealth, rather than found it. At a fundamental level, wealth comes from people’s ideas and hard work. Do some people get very lucky because somebody else figures out what to do with a natural resource, then it’s found on their property? Sure, but that kind of luck is akin to winning the lottery – and most lottery winners are poor again when the payout runs out. Same with a lot of resource-rich countries.

Some countries, like ours, Canada, Australia and Norway have been blessed with both the kind of culture/governance that is conducive to wealth creation and abundant natural resources. There’s no denying that that’s a nice position. But again, lots of countries that have next to no natural resources do about as well as we do on a per capita basis. It’s not what you have, it’s what you do with it.

Those on the left generally argue that the poorer countries are in their sad states because they’ve been preyed upon by stronger ones, and that the rich are rich because they preyed on them. In my view, that’s an argument with limited historical validity. Have some peoples – and countries – been robbed by others? Of course. Have some benefitted from that? Yes. Is plundering others’ wealth a way to build a thriving society? No. A successful thief can pick up things, but by stealing he teaches a lesson that power – not creativity or effort – is what matters – not the basis for long term societal success. When the US had globally dominant power at the end of World War II, we didn’t set out to rule the rest of the world, or steal its resources, we set out to trade with it – which made both sides richer (though proportionally, trade benefitted other countries more than ours).

Look again at the list of resource-poor-but-rich countries: how did Japan, Taiwan, Israel and South Korea get on that list? They were all abjectly poor at the end of World War II. Did they get rich by exploiting others? Not. At. All.

This difference in viewpoints between my new friend and me as to the true source of wealth is of fundamental importance. Those on the left see a pie and want to divide it; those on the right are concerned with creating the conditions under which new pies will be made and sold at a profit to those want them. The sellers will profit. The buyers will all be willing buyers, each of whom is better off for the seller’s efforts, or they wouldn’t buy. Capitalism is a system of mutually voluntary – and therefore presumably mutually beneficial – transactions.

Socialism is all about taking, and then redistributing, wealth. It is, by its nature, coercive, trading away individual rights in favor of equality of outcomes (equality, that is, in theory, if not in fact – the leaders of Socialist countries tend to get very rich because they have all the power). Since Socialism is all about wealth redistribution, it destroys incentives for wealth creation – which is why countries that try to implement it tend to end up with millions of dead citizens (e.g., the Soviet Union, China, Cambodia) and terrible declines in standards of living, like the one now underway in Venezuela.

Humanity is one species, and we all have deeply similar interests, needs and inherent capabilities, with only slight differences from person to person – at least at the start, before we learn from the cultures around us. Thus the world can be seen as a huge experiment: which societies succeed, and why? Which do not, and why not? I don’t think the answers are far to seek. Societies where each individual is empowered by a culture that stresses individual rights in a context of honest, broadly consensus-based governance, thrive. Those that are run by tyrants (always in the name of the common good), depend on coercion to create and distribute resources or are fundamentally lawless do not.

I’m not suggesting that my new friend is, like so many of his (assumed) confreres among progressives these days, an out-and-out Socialist. I’m pretty sure he’s too worldly-wise for that. But I do hope that progressives generally – particularly young naifs like Ocasio-Cortez and old ones like Bernie – spend more time thinking about where wealth comes from, so they are less inclined to spend time trying to redistribute it and more making sure that the system encourages its creation.

 

M.H. Johnston

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