Understanding social economy
by Giuseppe Gori

People who are socially concerned at times accuse “social conservatives” of being insensitive to the plea of the poor, because we prioritize life, freedom and family issues over issues such as poverty, housing and job creation.

This understanding is based on a false concept of compassion and on a limited understanding of the consequences of institutionalized care.

What compassion is

A person who cares about children being “wanted” and not being spanked, but supports abortion, has indeed a warped sense of compassion. How can a child enjoy being cared for, if his/her life has been taken?

The same can be said for someone who cares about the plea of the handicapped, but supports euthanasia, or cares about the condition of the drug addicts, but supports free needles or free drugs for them, or cares about unwanted pregnancies, but supports a free sex mentality.  Examples of inconsistent application of compassion abound.  All derive from understanding compassion as a “warm feeling”, rather than real help for the individual to identify the cause and the remedy for his condition.

The steps towards helping an alcoholic are to help him admit, identify and remove the cause of the problem.  This is accomplished by telling him the truth and by expecting change.

Killing the addict would not be compassionate. Helping him to buy alcohol would not be compassionate. Playing down the seriousness of the problem would not be compassionate. Compassion is personal and requires the naked truth to be exposed.

Today’s concept of compassion often involves institutionalized care. From “homes for the aged” to daycare, to government welfare.

The more left people identify themselves on the political spectrum, the more they are likely to believe that government, not individuals, should take care of the poor and the needy.

After several attempts at socialist states collapsed in Eastern Europe and South America, we discovered that this socialist idea, that initially sounded so altruistic, creates dependency and often is undignified towards the person who needs help.  In addition, it relieves the giver from personal effort and involvement, thus by its nature, institutionalized care has become a way of evading responsibility for oneself and for others.  This is the antithesis of Christian teaching.

But there is more. The architects of communism have created the idea of a struggle between classes. Politically this translates in the fight between the left, who wants more taxes and spending, and the right, who wants less.

The reality is that all of us can agree on a legitimate role for government, but all of us should also be aware of the limits of government.

Both people on the right and on the left have the same social aim: helping the poor and the needy. However, the left wants to achieve it through government re-distribution. The right wants to achieve it through personal wealth creation. Why do we have two opposing views?

The reason is a limited understanding of social economy, fomented by a superficial and preconceived media. Journalists and super-rich actors with guilty consciences rarely get personally involved, but keep telling us that “government” should do more.  Higher taxation, in their opinion, seems to have no consequences. 

The STING curve (Re: [1]) shows however that if the consequences of no government are anarchy and low productivity, the consequences of too much government, when the majority of the people work for government or depend from it, can actually be far worse.

Some history

The social responsibility trend started in the middle of the nineteenth century Europe, when people had no welfare or benefits from governments and when governments were much less interventionist. The total amount of investment in government at the time was limited to national defense. The 1848 Communist Manifesto was developed in such society (Western Europe) in the middle of turmoil, wars, injustice and tyranny.  Nations such as Austria, Denmark, Germany, Belgium, Holland, Sweden, Norway, Spain, Italy and Greece, to name a few, still had a long way to go before they could find their national identity and could define themselves as democracies.

When some of these nations started investing in social infrastructure, the results were very positive.

However, the error was to think that “more” always meant “better.”

By the late twentieth century, when the ideas of the communist manifesto were essentially implemented in many western nations, the total amount of investment in government, for these nations, had already passed the optimum point. That meant that any additional dollar spent by government for “services”, actually aggravated the condition of the poor and the gross national product of the nation.  More in eastern Europe, but also in western Europe, a lot of production went underground. Corruption grew with the growth of government. Diffidence in government and cheating became common. The industrial miracle of the new republics of Germany, Japan and Italy (after the devastation of world war II), was replaced in the seventies by a strong underground economy and black markets (after the left-wing riots of the late sixties).

In most socialist countries, problems continued to compound in proportion to the degree of taxation, regulation and services provided by governments. Why the effects of socialism have been so bleak?

To understand this more deeply, you need to study the STING curve, first introduced in Reference [1] (see diagram below).  It shows that on its descending side, the more government grows, the less help and resources are available for government programs. The jobless and the poor, often not even able to use government “services”, are the first to suffer.  When the problem continues, society becomes worse off than with no government at all (breaking point). After that, you may end up with dictatorship, murder, war, economic collapse and revolution.

Figure 1: The STING curve - diagram

Should we not help the poor?

Absolutely. It is Christian teaching. However, Christ’s teaching appeals to each person, not to governments.  Even if a “compassionate leader” wanted to use some government resources to alleviate the problems of the poor, he should be aware of the unique behaviour of government expenditure in society: Too little is bad; too much is worse.

Taking into consideration government expenditure in infrastructure, for example, the STING curve tells us that:

When the government size and expenditure is too small, an increase in government will have positive effects.

When the government size and expenditure is too big, a decrease in government will have positive effects.

Currently, all indications are telling us that western nations have too big governments and they are on the descending side of the curve.

Ireland, for example, reduced their tax rate and attracted business from all over the world. It now enjoys one of Europe’s highest immigration rates, because of its high standard of living.

Serbia, which recently set a flat tax rate of 19% (not such a radical idea), is now called the Detroit of Europe, as more automobile manufacturing industries moved there.

If a decrease in government has positive effects, this is a proof that that government was on the descending side of the STING curve.  In this situation, to really help the economy (and create jobs) government needs to be reduced.  This is not a right or left approach.  It is the required approach for the common good.

Government matters

What is the difference between San Diego, California and Tijuana, Mexico? The two cities are a few miles apart, but separated by a fence.  The land, climate and resources are the same. In fact California used to be part of Mexico. 

Why then can a Mexican worker enjoy ten times the salary and a higher standard of living for his family across the fence (even considering the massive amount of money spent by the US on the current war effort)?

What was the difference between West Berlin and East Berlin before the wall came down in 1989? It was the same people and the same city. But one side was pulsating with life till the wee hours of the night.  The other, I can assure you by personal experience, was desolate, and scary.

Government makes a difference.  It can be overbearing and despotic, or it can recognize the dignity of individuals and the value of individual initiative and freedom, and the innate desire of people to strive for excellence, when given a chance.

Low or high taxation?

How high should we tax ourselves? Taxes, of course, are related to spending and both are related to government performance, which is not easy to quantify. However, at least in theory, we can say that a government should only raise taxes in the measure it needs to reach the optimum point in the STING curve, and no further.

Taxes for institutionalized care have become means by which governments “liberate” individuals from having to take care for themselves, their families and their neighbours. State policies replaced the individual conscience. The re-distribution of wealth idea sounds very altruistic, until one analyses it.  We are free to help the poor individually.  We are also free to collectively decide (by majority rule) that we (the majority) should tax ourselves more to give money to lower income people. This behaviour by the majority would be moral, although if applied over a certain measure it would have a negative economic repercussion for all. But what the majority cannot morally do is to decide that a minority (the wealthy) should be taxed more to assist another minority. This practice, apart from being institutionalized stealing, is not sustainable for the long term, as the wealthy (who create jobs by spending) and business (who create jobs by necessity) just move away, leaving the government with a reduced tax base and less means for its programs.

We have recently pointed out in our newsletter (The IMPACT – Spring 2006), how families are the best economic safety net and how most of the poverty in North America is due to the breakdown of the family. For this reason, taxation must be fair to single income families, in recognition of the work that parents (especially mothers) do at home with their children. It is also ridiculous to see government taxing the poor, with one hand, and giving back with the other. The poor should pay no taxes.

To summarize, while taxation had began as a means for government to perform its fundamental tasks, it continued as a means to help others, and has now become a means by which people can evade their responsibility to help others.  The best way for a person to help the poor is personal involvement and education. The best way for government to help the poor is to stop taxing them and allow a free market environment that rewards well any person who is willing to provide a service to others. 

The real problem is in the hearts and minds of men. Poverty, in North America, is not a problem of food but of ethics. 

Job creation

You have heard before that private enterprises, not government, create jobs.  The situation is even worse after the total investment in government has passed the optimum point in the STING curve.  At that point, in the best scenario, for each job that the government creates within its public system, another job is lost in the private sector. Indeed if the government size becomes even more unbalanced, the repercussions on the poorer strata of the population are serious, difficult to reverse and sometimes irreversible.  Public and private debts become endemic. Families become unable to help their children. Violence, youth unemployment, drug addiction, depression, suicide and many other problems become rampant.

In democratic countries, like ours, when a government continues to overspend, the result is often a change of leadership at election time.  In other countries, when governments insist in continuing their policies of over-taxation, the results are black markets, tax evasion, a trend towards a police state, a trend towards dictatorship, and finally economic collapse or revolution.

The idea that government can create an environment where private industry can create jobs is true.  This is often accomplished by removing regulation and “staying out of the way”.

The idea that government can create infrastructure to allow private industry to flourish is true, but only to a point (up to the optimum point in the STING curve).

The idea that “government jobs” are better than no job at all, is true, only if these jobs are within the scope indicated in the previous point.

The idea that government can give incentives (monetary or regulatory) for private industry to create jobs (i.e. to flourish) is false. Such incentives are counterproductive and often create monopolies and eventually may cause the collapse of a whole industry. Such incentives work against a healthy competition.

______

Reference [1]:  Do Politicians know better? - The STING curve", IMPACT Newsletter, January 1999 by Giuseppe Gori 

...Top