Socialist PigsBy Joel BowmanCapitalism produces. Socialism...

Socialist Pigs
By Joel Bowman

Capitalism produces. Socialism distributes. The two systems do not coexist comfortably with one another. In fact, they are inimical.

Some of the most celebrated champions of socialism have coined terms like "greedy capitalist" or "capitalist pig." By implication, a socialist is neither greedy nor a pig. But economic history suggests that socialists are just as porcine as their capitalist counterparts...maybe even more so.

One need only look to the recent goings on in Australia, your editor's country of birth, for a glimpse into the real world outcomes of this ideological struggle. Kevin Rudd was last week ousted from Prime Ministership after a botched attempt to impose a "super profits" tax on the most productive sector of the Australian economy - the mighty mining sector. We provided a few details in Thursday's issue:

"The story is a classic 'producer vs. parasite' tale...Rudd, like any other socialist bully would do, attempted to sell the tax to the Australian public under the familiar 'fair share' slogan.

"'The infrastructure needs of this state are vast and on the existing tax base cannot be funded,' Rudd told Australian reporters while on a recent visit to Western Australia, the nation's largest mining state. 'We say the sector of the economy most able to share a greater part of the burden for funding our infrastructure needs for the future is in fact our most profitable mining companies.'

"If this sounds like thinly veiled Marxist rhetoric," we remarked, "that's because it is. As the founder of that ill fated, though persistently insidious ideology himself famously noted: 'From each according to his ability, to each according to his need.'"

One might be forgiven for thinking that, after Rudd's spectacular political decapitation, replacement Prime Minister, Julia Gillard, would think twice before trying to kill the goose laying all of Australia's golden eggs. Alas, it was out with one parasite, in with another.

Ms. Gillard is certainly aware of the research released by the Western Australia Chamber of Commerce and Industry that suggests the "super profits" tax, as it stands, would have erased $4.4 billion and 17,000 jobs from the West Australian economy next year - before the tax was even scheduled to be implemented in 2012. The study further predicts the cost to the state's economy would have risen each year to total $60 billion and 100,000 jobs lost by 2020.

And yet...Gilliard revealed her parasitic DNA within hours of nabbing the Prime Minister's post.

"I want to make sure Australians get a fair share of our mineral wealth," she declared, "But we want to genuinely negotiate..."

Gillard is widely expected to push for a slightly diluted version of the "super profits" tax. "I am throwing open the door to the mining industry," she said just last week, "and I ask that in return, the mining industry throws open its mind."

As warm and fuzzy as those sentiments may be, the fact remains that such featherweight idealisms invariably end up weighing a stone...and that is a burden the strongest, most able members of society are usually expected to shoulder. But theft is still theft...even if it is watered down a tad. Don't expect the industrialists to take her play-nice politico-doublespeak lying down.

Although he welcomed the new leadership's change of tack, Atlas Iron chief executive, David Flanagan, was unequivocal in his assertion that tax must be axed.

"We've been screaming blue murder to anyone who will listen about what the problems are with this tax," he told The Australian this week.

Australians have been getting a pretty "fair share" of the local mineral wealth for some time now anyway. Those who risked their capital and bought even a single share of BHP Billiton, Rio Tinto, Fortescue Metals, Atlas Iron et al., were richly rewarded over the past decade as the geologic and geographic blessings of the "Lucky Country" and, more importantly, the efforts and initiative of its mining companies, paid off handsomely. (Of course, China and India's voracious appetite didn't hurt, either.)

In addition to capital appreciation and regular dividends for shareholders, ordinary, working Australians have also exacted what might be seen as a "fair share" of the local resource wealth. Through compulsory contributions to Australia's Superannuation Fund - a scheme not entirely dissimilar to America's Social Security, though decidedly healthier...at this point, anyway - working Australians have a large, indirect holding in the nation's mining giants. Working Australians, therefore, saw the value of their retirement savings appreciate, more or less, alongside the rise and rise of the very companies the "super profits" tax sought to penalize. [Those same workers, not coincidentally, were among the first to see the value of their retirement nest egg shrink as the share prices of the nation's mining companies collapsed after the proposed tax was first run up the national flagpole.]

Of course, all this is to say nothing of the tens of thousands of hard-working individuals who actually spend their days and nights thousands of feet below Australia's rusty red surface actually digging the stuff up...and the carpenters, plumbers and electricians who build and service lodgings to house them...and the local businesses that profit from an influx of workers to the region...ect., etc., etc... (Not to mention the exorbitant taxes each and every link in this value chain already pay!)

After all, a barrel of oil or a ton of coal is worth nothing until it is first brought to market. Invariably, that process takes an immense amount of capital, the expertise to extract said resources and the gumption to actually get one's hands dirty doing the job.

At the end of the day, those who deserved a "fair share" of the resource wealth got exactly what they deserved: a share commensurate to the effort they put in. By contrast, those who don't work, don't pay into Superannuation, don't build or service mining towns in some way, don't risk their capital by investing in those "conspicuously productive" companies; those who don't actually contribute anything to the process of bringing the product to market at all, get exactly what they deserve: nothing.

People seem to think that just because they have an emu and a big red kangaroo on their passport they are somehow entitled to a bounty of riches...riches someone else must earn for them, no less. They define a "fair share" as a Divine Right handed down to them the moment they were born - coincidentally - in a resource rich land.

People of such a mind should consider asking how their poor brothers and sisters are faring in Venezuela, or Mexico, or Iran, or Nigeria or, for that matter, just about anywhere else on the African continent. These lands all enjoy an abundance of natural riches...and an abundance of government involvement in "distributing" the profits. And yet, curiously enough, the people living under these supposedly benevolent regimes are among the most repressed and impoverished on earth. Hmmm...

Socialist maxims may score high marks for eloquence and pathos; but they score very low marks for economic wisdom. Capitalism produces. Socialism distributes. Without capitalism, socialism cannot function. In other words; socialism needs capitalism.

Intriguingly, the inverse is not also true. Capitalism has no need of socialism whatsoever. Capitalism distributes wealth by creating opportunity, forged in the crucible of open competition. Capitalism amasses the capital that invests in the enterprises that enable others to advance their financial conditions. Capitalism does not confiscate wealth and redistribute it. Capitalism multiplies wealth...and in the process redistributes opportunity.

Of course, productivity and wealth creation does not come from penalizing the most productive members of society. It comes from standing aside and allowing them to do what they do best, be that excavating minerals, building cars or growing bananas.

Left alone, the free market operates as a kind of evolutionary arms race. Companies compete to offer the same product at a better price, or a better product at the same price. Those that cannot keep pace eventually whither and die. Through this "survival of the fittest" process, prices are over time driven down and the quality of goods and services forced higher. In this fashion, those at the lower end of the socio-economic spectrum benefit most from the toils of companies competing to capture their business. And, the best part is that nobody has to steal a penny to pay for it. The "capitalist pigs" will finance the whole operation themselves...if only the safety-net socialists would get out of the way and let them.

Cheers,

Joel Bowman
for The Daily Reckoning Australia


Editor's Note: Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.