One of the most common discussions among economic currents focuses on the economic model that a country should follow. If at one extreme we have the most capitalist countries, with a lesser presence of the State in the life of the individual, at the other extreme we have the most statist countries, with a marked leadership by the government.
The term statism was coined by Ayn Rand to refer to those environments that life and work belong to the state, to the society-nation, and that the state can dispose of in any way that the State pleases, without recognizing rights or individual liberties **.
Let’s define concepts: What do we understand by capitalist and statist countries?
Although for many the weight of the State on the economy is the only scale to determine the classification between the most capitalist and the most statist countries, the truth is that there are multiple variables to enrich this definition.
The different concepts also include the strength / weakness of a rule of law that protects private property. If there are continued violations of private property through expropriations or with a clear lack of public security that leads to its violation.
Too, what type of regulation is established for the development of business activity. This includes what the costs are to start the business, whether there are price controls in a specific sector, the labor laws and the degree of flexibility to carry out adjustments and other matters related to the company.
Lastly, determine the level of economic openness / protectionism that allows the traffic of goods and encourages foreign investment. Here both tariff and non-tariff measures (requirements for a product to be imported) and what taxation is attributed to foreign investment play an important role.
Taking into account the above, the Heritatge Foundation includes in its index of economic freedom a complete classification of countries or regions with high economic independence.
The countries with greater economic freedom, and that occupy the first positions of the ranking, would be considered the most capitalist compared to those who are in the queue that would be linked to the most statists with a greater presence of the State in economic areas.
The most capitalist
According to the Heritatge index, the countries with greater economic freedom, and therefore more capitalist, present a score higher than 80 and are included in the “free” category. In this classification we find six countries: Hong Kong (90.2 points), Singapore (88.8 points), New Zealand (84.2 points), Switzerland (81.7 points), Australia (80.9 points) and Ireland (80.4 points).
All these countries agree on their high degree of openness to the world and particularly strong property rights that promote free enterprise and free trade. Among all of them, we would find the paradigm of capitalism in Hong Kong that enjoys the economic system developed since the English colonial era and China has respected it with a high degree of autonomy.
For those who think that capitalism is the source of all evil for the worker and that its exploitation is pursued by paying low wages to enrich the “capitalist”, the truth is that the empirical evidence shows that it is the opposite, In the most capitalist countries, workers enjoy the highest wages, in purchasing power parity, of the entire planet.: Hong Kong ($ 31,824), Singapore ($ 58,333), New Zealand ($ 40,043), Switzerland ($ 62,283), Australia ($ 49,136), and Ireland ($ 47,653).
And personal wealth? According to the Credit Suise report “Global Wealth Databook 2017” the level of wealth of an adult in these countries is especially high. If in Spain the wealth per adult is 128,578 dollars (wealth of financial and real assets minus debts), in these countries they significantly exceed this figure: Hong Kong (193,248 dollars), Singapore (268,776 dollars), New Zealand (337,441 dollars), Switzerland ($ 537,599), Australia ($ 221,456) and Ireland ($ 248,466).
On average, the personal wealth of this select group would be $ 301,164. In comparison, it would be more than five times the personal wealth in the world ($ 56,541) and more than twice that of Europe ($ 135,163).
The case of Singapore should be highlighted, which has had a meteoric evolution in the last thirty years until it is classified as one of the freest economies in the world. In fact, at the end of the eighties, Singapore and Spain had the same per capita income and today, Singapore can boast of almost doubling the Spanish per capita income.
The most statist
In the “repressed” category, the Heritatge Index covers more than 20 economies that would fall under this definition and would be considered the most statist countries in the world. Most of these countries are on the continent of Africa where property rights are continuously violated, institutions ravaged by endemic corruption and coexisting with a lack of citizen / legal security due to military conflicts – civil war in Somalia, the Chad-Sudan conflict or Nigeria, which is estimated to have generated 1.2 million refugees – that prevents the development of private activity.
In the most statist countries of the world it tends to be difficult to find specific statistics tied to your economy, due to the secrecy of its institutions and the lack of democratic quality, which is why specialized agencies are used in most cases.
In this case, we will focus on the last positions in the ranking, with a score below 40 points, where we find the following countries: Republic of the Congo (38.9 points), Cuba (31.9 points), Venezuela (25, 2 points) and finally North Korea (5.8 points). These countries repress property rights, not for a war issue, but for pure political will.
The Democratic Republic of the Congo is characterized mainly by weak judiciary undermining the protection of property rights and fueling corruption. Its population lives trapped in subsistence poverty, that is, 65% of the population is rural and carries out family subsistence agriculture.
Economic measurements in the Republic of the Congo are very complicated due to the fact that for the most part “informal” economic activity is undertaken, which provides most of the limited growth of the private sector. The estimated wealth per adult is $ 2,814, 99.7% less than the wealth of “free” economies.
Cuba lives committed by the leadership of the Communist Party who decides who should produce and at what price in practically all areas of the economy. Salaries stand at 767 pesos, which is equivalent to $ 30. The highest paid workers are those in the sugar industry, who receive an average salary of 1,236 pesos or $ 49.4. Since the means of production belong to the state, the Cuban lacks personal wealth.
Cuban society survives on foreign aid for remittances that it receives mainly from the United States (90% of total remittances). Another type of aid is that provided by Venezuela with the supply of oil in exchange for a Health Agreement.
Venezuela is an especially curious case because given its characteristics of raw materialsIt should rank as one of the richest economies in the world. In the oil era, this country has the largest oil reserves (326,000 million barrels compared to 269,000 million in Saudi Arabia).
However, the situation is totally different from that described, the monetary controls and the financing of the deficit with the printing of bolivars has resulted in a hyperinflation of 1,299,724% that has destroyed the purchasing power of its citizens, hitting their purchasing power and has evoked Venezuelans to the shortage of basic products and exodus.
It is very difficult to find economic data for Venezuela if we refer to the purchasing power of wages because, given the aggressive loss of continued purchasing power, a specific data over time is of little use. To have a minimum reference, the monthly minimum wage that is the most widespread remuneration that reaches around 70% of Venezuelans is 4,500 bolivars and is equivalent to 6.38 dollars (Dicom exchange rate).
North Korea is recognized as the most hermetic country in the whole world and it constitutes the most statist economic model that we can find because it is based on a centralist model of a military regime that is closed to the world and with serious chronic economic problems that impede investment and growth in the country.
From the point of view the government, practically controls all areas of economic activity and levels of production are established centrally to satisfy the needs of the citizens, and state industries represent practically all GDP. On the other hand, Korea receives different subsidies in the form of food and energy from China that allow the subsistence of the regime.
Statism leads to poverty and there is no greater evidence of this than comparing North Korea and South Korea through the evolution of their GDP per capita over the last 50 years. As we can see in the following graph, from the division of Korea, South Korea promoted a free market system, improvement of its institutions and economic openness that led to a take off in its production and a strong boom in its GDP per capita, while that South Korea has continued to stagnate has even worsened its living standards.