Prosperity

How America Hates Socialism without Knowing Why

Why are socialist programs so unpopular today?

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By Lixing Sun

Socialism in America is perceived as a stigma that has dogged not only Sanders’s campaign but also Obama’s entire presidency. As a matter of fact, among all programs introduced by the Obama administration, nothing is more contentious than Obamacare, despite the fact that it cost less than 14% of Social Security’s $870 billion or about 20% of Medicare’s $597 billion in 2015.

Is socialism bad? From the sweeping success of many existing social programs (dealing with a wide range of concerns including retirement, healthcare, food, housing, energy, education, childcare, farming, and others), the answer, apparently, is no for most Americans. But why are new social programs unpopular today?

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A major, yet hidden, answer lies in social trust in America. New social programs such as Obamacare compete for tax revenue. Taxes are common-pool resources, and their use must be fair. If trust is low in a society, people will be inclined to suspect others’ motives and avoid being cheated by freeloaders. So, any social program paid with tax dollars won’t be popular. That’s how, for instance, a fictional story told by Ronald Reagan about a Chicago welfare queen could turn many Americans against the welfare system in the 1980s.

Existing data show that across the OECD nations, the higher the level of social trust, the greater the tax revenue. Statistically, trust accounts for a substantial portion (44%) of the increment in a nation’s tax revenue (see the chart below).

trust1

Apparently, to adopt a social democratic system like that in the Nordic counties, you need a trust level above 80%. With a trust level under 50% now, America simply doesn’t have the necessary social foundation for socialism. This explains much of why it posed such a challenge for Congress to get Obamacare passed and why Sanders has lost his presidential bid.

Although social trust is a non-material commons, it’s the psychological backbone of our society and the very foundation of desirable political, economic, and social exchanges. A breach of trust can trigger a barrage of societal problems. And its crippling aftermath can linger for years. Italy provides a great example, as shown by sociologist Robert Putman. Until recently, southern Italy, a low-trust area rife with clans, mafias, and gangsters, lagged behind northern Italy, a high-trust area free from these social ills, in social and economic development.

For economists, social trust works like a lubricant that can lower transaction costs and facilitate trading activities. Its aggregate benefit can be huge for a large economy, favoring the emergence and growth of large firms and boosting GDP with lower levels of inflation for a nation and higher levels of trade between nations. In America, according to Steve Knack, a World Bank senior economist, trust (broadly defined) was worth 12.4 trillion dollars a year, or 99.5% of the income in the mid-2000s. It “would explain basically all the difference between the per capita income of the United States and Somalia,” he remarked.

In a low-trust market, everybody has to pay more for transaction. Constantly guessing others’ intentions and looking out for cheaters, people are unwilling to invest in business and participate in financial markets, especially for the long term. (The Shanghai Composite Index, for example, could shoot up by 153% and then dive 43% in just 14 months from July 2014 to August 2015.) As a result, firms, as political economist Francis Fukuyama has observed, tend to be small, and mostly remain family businesses. This, in turn, can lead to lower rates of employment and higher rates of poverty.

Now, why is social trust so low in our society? Much of the drop in trust (by more than 10 points) since the late 1970s can be attributed to the polarization in wealth and decline in social mobility. Economic inequality, as so many studies have shown, can dissolve solidarity, tear social fabric, destabilize society, and foster revolts and revolutions. No wonder trust among people disappears as society becomes divided between haves and have-nots. When people don’t trust their governments and their fellow citizens, who would be excited to contribute to the financial commons—taxes? That’s why lower levels of trust lead to higher rates of tax evasion. This was how Greece, reputed for low trust in Europe, lost a third of its tax revenue in 2010 while the nation was trying to survive a sovereignty debt crisis.

Though America fares better in public finance, recent developments are disturbing as social trust slides. As neither the rich nor the poor are willing to pay more taxes, raising taxes has become such a hot-button issue that it takes a lot of guts for politicians to speak for it. As a result, many existing social programs are threatened and new ones are thwarted. The decline in social trust has begun to hurt us.

So, how can we boost social trust? Three main ways avail us.

First, ethnic and cultural uniformity. Similarity breeds trust. This may work for the Nordic countries dominated by Caucasian Christians but not for America, given our ethnic, religious, and cultural diversity.

Second, crises. The Great Depression spurred the birth of Social Security in the 1930s. World War II nurtured an unprecedented national solidarity, leading to the conception of the idea of Medicare during the Eisenhower administration. This was also a time marked by what economists Claudia Goldin and Robert Margo called “the Great Compression,” when the top tax bracket was 91% yet the economy still grew briskly. The Cuban Missile Crisis, the assassination of JFK, and the zeitgeist of building a “Great Society” ultimately helped LBJ to push through Medicare, together with many other social programs. Most recently, the 9/11 attacks by terrorists triggered a new surge in social trust among Americans, although the solidarity was short-lived due to an unpopular war and the persistence of economic inequality.

Finally, fighting government corruption and reducing economic inequality. Data from the OECD nations show that government integrity lifts (by as much as 51%) social trust (see the chart below). Therefore, a feasible way to promote social trust is to increase government responsibility, transparency, and accountability.

trust2

(Integrity score data from Transparency International*)

Why, you may ask, does the US score decently in government integrity but quite low in social trust? This is because America is relatively effective in fighting illegal hard corruption such as taking bribes or kickbacks (and thus has an acceptable score in government integrity). Our legal system, however, has little power in combatting soft corruption—corruption that is lawful but unethical—including patronage, investment, lobbying, and campaign financing. A common type of soft corruption is the practice of the “revolving door,” by which politicians get paid later for their favor done to special interests. It is the prevalence of soft corruption that has made many Americans resent political establishments, leading to the rise of such unlikely presidential candidates as Ben Carson and Donald Trump.

Fighting corruption can promote social trust and reduce the influence of lobbying from special interests. A rising level of trust will help progressive taxation, which can harness economic inequality, which in turn can promote trust. So fighting corruption, controlling economic inequality, and raising social trust can feed one another, leading to a much healthier democracy, stronger economy, and happier society, as the Nordic countries have shown us.

As our democracy becomes more and more tangled in money, fighting soft corruption is hugely popular. For instance, 85% of Americans desire an overhaul of the current campaign finance system. Obviously, our nation is overdue for a new Teddy Roosevelt who can reaffirm his vow that “we hold it to be prime duty of the people to free our government from the control of money.” Sanders would have gathered much more support had he run his campaign on fighting political corruption rather than on the stigmatized and misunderstood socialist platform.

2016 June 16

*: To avoid misunderstanding, I have changed “corruption score” used by Transparency International to “integrity score.”


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  • Camillo Anania

    Thanks for the great article. Any reason why Italy is missing from Integrity and Social Trust graphs?

    • Lixing Sun

      Thanks for your kind words. I was unable to find complete data about social trust, tax revenue, and corruption index for Italy and Canada in 2012, the year where my statistical analysis is based on.

  • One thing I’d like to point out is that not all social programs require tax revenues to fund it. Nations that are monetarily sovereign, i.e. issue their own non-convertible currencies are not tax dependent for their revenues. The purpose of taxation for such national governments is different from state and local taxes.
    I refer you to this excellent interview – http://hir.harvard.edu/debt-deficits-and-modern-monetary-theory/

    So once the citizens understand how their monetary system works, acceptance and implementation of social programs will become more easier. The mentality of “my tax dollars is paying for your benefit” should mostly go away.

    • Lixing Sun

      Thanks for the additional information! Completely agree with you that citizens should be better informed that a well-implemented social program can be a win-win for all.

    • This is a great point, and one that’s not usually made. Thanks!

    • Andrew

      The general point about looking beyond mere tax-and-redistribute patterns is a good one, but straying too far down the market monetarist path can be similarly misguided (if taken to its extremes).

      I would advise instead to question -what- we tax. Instead of taxing work through the income and payroll taxes, we might consider taxing value derived from propertied land. Then instead of a myriad array of bureaucratically social assistance programs, we might redistribute the tax revenues generated from land value to the general populace in the form of a universal basic income. In other words, transform social security into rent paid by land owners in exchange for the rights of private land property law.

    • Larry
  • Fábio Almeida

    This text misuses the concept of socialism. In every instance of the term, it refers to democracy instead.

    • anotherneighborhoodactivist

      Interesting observation. I think the more politically democratic a society is—the more political power is equitably shared—the more inclined toward economic socialism it will be.

    • Andrew

      I think you may have meant to say ‘social democracy’? In which case you’d be correct. (“Democracy” alone is probably too broad a concept to be applicable to the topic at hand).

      America tends to have a lot of confusion over political terminology that is otherwise commonly understood throughout the rest of the world (see: ‘Liberal’). This is particularly true regarding the difference between socialism and social democracy. No doubt this confusion partly stems from the two concepts having the word ‘social’ in common.

      Social programs and corrective market regulations are hallmarks of social democracy, not socialism. Social democracy seeks to use state institutions to compensate for perceived social injustices in market economies. Socialism on the other hand seeks to completely supplant the concept of private property (ie, capitalism) with state ownership. Social democracy should not be confused with democratic socialism, a concept which attempts to place the state owned economy under democratic governance, but state ownership none the less. Bernie Sanders is deeply confused over the terminology he wields.

      Socialism has been a spectacular failure in its every manifestation. Social democracy, on the other hand, has played a large part in the success of the Nordic Model, and even America’s own medicare and social security programs. Yes, social democracy is not alien to America, it’s been ingrained in our country for as long as any other modern ideology. Americans simply have a mislabeling problem. Free markets and social safety nets can coexist just fine, and in fact complement each other nicely. Limited government helps combat corruption in the state, and social programs help combat corruption in the economy.

  • Stockdoc9999

    There is not one example of a successful socialist country.

    Russia, Venezuela, Argentina and Cuba etc. are shining examples of those that have failed miserably.

    • Sweden is doing wonderfully with their socialism. As well as Germany, Norway, and Denmark. Oh, but they have democratic socialism which differs from communism like night and day. And before you ask, I’ll tell you. A democratic socialist is not a Marxist socialist or a communist. A democratic socialist is still a capitalist. Just one that seeks to restrain the self-destructive excesses of capitalism and channel the government’s use of our tax payer’s money into creating opportunities for everyone.

  • Reed Schrichte

    Is the hard corruption easier to factor into the cost of doing business and therefore more predictable, whereas the soft corruption is less predictable and leads to greater uncertainty? It seems that our legal system in particular has become utterly and shamelessly mercenary.

  • BetterFailling

    First of all this is not socialism but taking care of your own.
    In this respect I agree with the author about the link between social trust and behaving in a generous manner.
    My experience tells me that socialism means being told by the government what you have to do – something in line with common core, gun control, zoning laws, etc, etc.
    Maybe one of the things that have to be done is loosing the very notion of ‘redistribution’.
    Taking care of your own, when your fellow citizen is in trouble or so old/sick that he can no longer fend for himself, is one thing, ‘redistribution’ – taking from Paul to give to John – has other connotations.

    • Fraser

      that’s not socialism, in fact, that’s fascism. Socialism is a system in which the “the means of production, distribution, and exchange should be owned or regulated by the community as a whole”. Your definition mirrors the ignorance (not pejorative here) of the average American. Also, this fear of “taking from Paul to give to John” is indicative of the lack of social trust – your salary is not generatedi n a vaccum, it is generated in the context of a socioty, and there are costs involved in taking care of that society. One of the risks of thinking as a taxpayer as opposed to thinking as a member of a society is that we lose track of that fact as assume that “my taxes” are going to support someone who just plain doesn’t want to work.

      • BetterFailling

        Sorry, fascism has a lot in common with socialism.
        Both are authoritarian systems where the leaders use governmental power to defend their own, personal, interests and to control the population.
        In a way both are a sort of feudalism 2.0

    • Toni LeAnn Williams

      Our biggest redistribution is to the rich. Yet, the Republicans never scream about that. Subsidizing corporations with billions and trillions a year is considered “free market” by the Republicans. Ha! Giving over 300 tax credits to corporations is not even considered to be a handout by the Pubs. Just a couple weeks we Democrats were called liars because we dared suggest that corporations and the rich get free money. The Pubs told us that tax credits, loopholes, subsidies, and tax rebates are redistributing the wealth and not socialism to the rich. That “saving them money” is totally different than “giving them money” and is not a handout. How do we fight such ignorance? We can’t. The ignorance in too ingrained now. And it will never change. We might as well face it—nothing will get better because the voters don’t want it better. If they did, they’d vote for better politicians and they never will.

  • Lixing Sun

    Enjoyed reading the spirited discussion, and thanks all for your insights! Democratic socialism in this little piece should not be mistaken with Marxist socialism, Bolshevism, or communism where there is no element of democracy.

  • Patrick cardiff

    I mean, I see a chart that apparently compares something called “social trust” and tax revenues, but nowhere are we informed about how “social trust” was parameterized. I’m sorry maybe I’m missing it. What is the definition? Tax revenue is objective, but if you are going to “go empirical” (i.e., correlate) with these huge macro aggregates, you had better specify HOW.

  • John Kirshon

    There is much confusion about socialism, as the comments indicate below. This article only adds to the confusion. Simply put, socialism is the democratization of the economy — which will enhance social trust, which is why it’s called socialism! The cause or our and all social distrust is capitalism, which can be defined as a search for profit that has anti-social consequences.

    • Andrew

      Socialism is not the democratization of the economy, it is merely wrapping the oligarchy in the formalities of the state through its exclusive ownership of economic property. It gifts the elite with the power they already possess, while thanking them as liberators. Even subjecting the state to the nominal authority of democracy does not dispel the concentration of power that is the very essence of the state and the life blood of the oligarchy. They are one and the same.

  • Why isn’t Canada included?

    • Lixing Sun

      Please see my reply to Camillo Anania.

  • Toni LeAnn Williams

    None of this writer’s ideas will work in the USA. Our politicians are too corrupt and too used to being bought by big money that they love catering to. The Republicans have lied their heads off so long that none of they voters would ever believe them if they suddenly told the truth and said social programs help everyone and the economy to flourish. Never going to happen. Save your money. This is just a money-grabbing ploy. You might as well burn up you money.

  • Toni LeAnn Williams

    We Democrats had a chance to try to bring about change and try to end some of the corruption but we blew by staying with the establishment and voting for Hillary. Voters don’t want change, and they don’t want to get rid of the banks and corporations being in control. Voters want to keep us meek little puppets with no power and totally downtrodden. So we will be stuck with Citizens United, probably forever, because greed and power is king, and once our politician got a big taste of scads of free money, there is no going back to the farm or small town ideals. We can’t get any voters to vote against the corporations and banks. In Iowa all the corporate hacks won the primaries. Voters said, “We hate these politicians but we think they can win.” And now we are told we HAVE to vote for Trump and Hillary or the world will come to an end—even though they are both terrible candidates.

  • Socialism is nothing more than putting out all the fires in a forest. What happens after a long time?

    The current state of economics is based on an equilibrium model: An outside force is needed to change things. This is a whole lot like modern liberalism: Everything is equal. But there is another way to look at things: Stability is destabilizing.

    Did Hyman Minsky find the secret behind financial crashes? – BBC News – http://bbc.in/1khvTlz

    Why?

    Because moving into the future involves a feedback loop process: The past heavily influences the future. This kind of process will always crash if negative feedback is suppressed: Socialism.

  • Alex Ioana

    The R square value doesn’t measure degrees of causation. This misinterpretation of the data (which stands as basis to at at least two arguments!) makes me feel like I should suspect more of how your research is done. Sorry guys, this is the first article I’ve read from you that I’m not planning on sharing.

    • L. Sun

      Thanks for being skeptical and careful in reading my little piece! Although the statistics are mine, the causal relationship comes from social scientists such as sociologists and political scientists. I could have been more explicit. From my experience in teaching statistics and statistical consulting, I share your experience in how often people mistake correlation with causation.

      • Alex Ioana

        Hah, thanks for the reply! I’d like to take this chance and maybe get your thoughts on something.

        My own statistical analysis shows that patterns emerge when looking at government systems around the world – and out of all forms taken by states today, constitutional monarchies best everything when it comes to how close they come to the measurable ideal of statehood (i.e. civil liberties and political rights given to the population).

        The (relative, sort of) outliers of this – and the reason why constitutional monarchies come up as being so good, are the Scandinavian countries. No surprises, right? We all know they’re apart.

        And yet here you tally them up as being something akin to socialist states. Of course I’m exaggerating for the sake of argument but in essence this is your claim – and a sound argument on why Americans don’t understand the ideology you mention. Or is it?

        Put in historical context (which so often gets cited in such kinds of work) shouldn’t it stand as a paradox that monarchies get labeled as socialist? I’d tread lightly when going into this. I’m a European myself, and I must admit that rarely – if ever – do I hear Europeans argue the benefits of socialism over, say, conservatism, by appeal to the Scandinavian model. That’s because, simply put, they’re not socialist.

        Of course they maintain the welfare state and employ taxation to make this possible, but from this to socialism (which is a term used all too easily) there’s quite the gap that can’t be bridged.

        What you’re talking about might be social democracy. But not socialism.

        In the profoundly polarized model of American politics (which has trickled down to other states around the world more than anything economic over the past decades) the simple act of thought with respect to polity-models becomes a battleground for ideological sides.

        Liberals and conservatives are the two big facets of this, and the general discourse encourages people to consider either of the two as a prescription of how they must think about politics.

        This is neither beneficial, nor to be encouraged. It’s just manageable, and it makes life easy for those already in politics. The reality is far more complex.

        The countries you consider prone to socialism (in the form of social trust) aren’t really socialist. More to the point, the case can be made that it’s not due to politics that people are encouraged to develop social trust, rather it’s precisely because of the cultural specificity (which includes social trust) of certain states that make for good politics.

        In those countries, taxation is high but leveled out by high income levels – something I doubt the American public will ever be willing to gamble on. But this is all in the context of markets which have been from their very beginning free – and to this day Scandinavian states are notoriously free when it comes to their markets.

        Social democracy is what Americans might not understand, since social trust is much lower there. Yes, you can say that. But not even the states you consider socialist really do understand socialism.

        • L. Sun

          Thanks for these additional thoughts! As you allude, many Americans have confusions between democratic socialism and communism, the latter of which was broadly claimed as “socialism” by the former communist nations such as Eastern European countries and the USSR.

          Social trust is not only related to cultural specificity (as you correctly point out) but also to cultural institutions (legal, economic, & political systems). From a biological standpoint, diversity does not favor social trust naturally. So a nation (such as the US) that stresses on ethnic and cultural (such as religious) diversity and minority rights while playing down integration and citizenship education tends to lack a common sense of purpose in building the nation.

          In the US, it has been shocking to see how strenuous the force is in fighting for lower taxes, while income taxes are already among the lowest in the democratic world. As if it were not hard enough to build trust among diverse ethnic and cultural groups, the current rising trend of soft corruption has eroded public trust further.

          In your Europe, the recent tides of immigrants from Africa and the Middle East has and will continue to pose new challenges for social trust as well. While I do agree that ethnic and cultural diversity should be respected and emphasized, I think it would be a huge mistake if nations fail to reach out to old and new minorities with a common set of citizenship values and a practical measures for integration. If this core issue is not resolved, I can predict that many of the European nations will see their public trust erode, people fight harder for lower taxes, and the welfare state dissolves.

          • Alex Ioana

            Having read your reply, I’d first like to thank you so much for taking the time to write.

            I agree, given current conditions social trust in certain parts of Europe is bound to take a hit. And in countless examples, it already has.

            Yet due to my digressing in the previous comment I feel that I must come back to what I wanted to say: Socialism isn’t an innocent term.

            What nowadays is (most of the time, at least) expressed by socialism is the conceptual sphere of leftist ideology, related or not to the works or Marx. But this is primarily a delimitation with respect to the world of ideas. Socialism is a family of thoughts. I speak this having an education which included at certain points political philosophy and political doctrines, so please forgive my bias.

            Also, please keep in mind that I never used the term you mention, specifically ‘democratic socialism’ – which is precisely what my own birth certificate states about the country where I was born, and that happened to cripple the life of my parents while it destroyed social trust, to say nothing of the economy (whatever that is, since GDP per capita, as we all know, doesn’t reflect quality of life).

            While I regret such confusions, the truth is that I too understand where they come from. And yet when engaged in a conversation which, ultimately, has its purpose in furthering the understanding we have around a certain topic, I find it necessary to clarify that ‘democratic socialism’ is either a direct reference to countless communist regimes, or a terminological slip.

            Put differently, in the beginning there was socialism – a concept which goes back to around the 17th century. Following the development of Marxism, socialism went through a crisis of values: given that (we socialists) understand the problems of society and wish to attain a better tomorrow that will repair the mistakes of yesterday, we must condition our struggle by rules.

            That’s where social democracy split from communism (mind you, I speak of Europe. Asian communism rests on a different conceptual basis).

            While the former embraced democratic struggle, the latter took to guns and gulags, all the while proclaiming ‘socialist democracy.

            Do you see my point? Of course you can say or write what you wish, but you run the risk of not being precise in your meaning.

            Forgive me my ranting