The rise of socialism in the West

March 06, 2019 16:03
Congresswoman Alexandria Ocasio-Cortez has grown in stature and influence in the Democratic Party. She considers herself a democratic socialist. Photo: Reuters

There is an old saying: ”Any man who is not a socialist at age 20 has no heart. Any man who is still a socialist at age 40 has no head.”

The ideology fight between capitalism and socialism has dominated the world after the Second World War. There are only five communist nations left after the breakdown of the Soviet Union in 1991. China is the most successful example, followed by North Korea, Cuba, Vietnam and Laos.

But in recent years, socialism is starting to gain traction in the West. A recent survey in the US shows that 45 percent of the young generation in the 18-29 age group favor capitalism, down 23 percentage points from that in 2010. Meanwhile, 51 percent of the respondents said they prefer socialism. The older age groups are in general more supportive of capitalism.

The growing popularity and influence of Congresswoman Alexandria Ocasio-Cortez, known by her initials AOC, is a good example of such a trend. The rising star of the Democratic Party calls herself a democratic socialist. She supports Medicare for all and free college education. She also advocates much higher tax rates for high-income groups and environmental protection.

Why is socialism becoming increasingly desirable in the West? I believe there are two possible reasons.

The first has to do with US economy shifting away from industrial and manufacturing activities to focus more on the finance sector from the 70s.

Wall Street began to attract lots of graduates from top universities as investment banking became the most desirable job for them. These bankers could get a huge bonus if they make the right bets, but when they failed, the financial system got hurt and the government had to bail them out.

After the 2008 financial crisis, Washington was preoccupied with stimulating growth. The US Federal Reserve introduced a money-printing program called quantitative easing (QE). After several years of monetary stimulus, the US economy started to recover and the unemployment rate began to fall. However, asset prices got pushed to record highs.

Surprisingly, the long-expected inflation is not picking up, and wage growth remains stagnant. The biggest side effect of QE is the wideningwealth gap. That has indirectly led to the rise of populism in the West.

China’s rising economic power also played a part. The nation’s economic miracle is widely recognized, and over 800 million Chinese have been lifted out of poverty. There are very few homeless living on the streets, even in small, poorer cities, at least far less than in rich American cities like San Francisco, Chicago or New York.

Also, most Chinese cities seem to have much lower crime rates than big cities in the United States and Europe.

As a result, more and more people in the West have started to question capitalism.

But the success China has achieved over the last four decades stems from paramount leader Deng Xiaoping’s reform and opening-up policy, which has borrowed a lot of capitalism and market economy elements.

People also tend to notice what’s wrong in their own countries and overlook other’s problems.

China’s Gini coefficient, a measure of inequality in society, stands at a high of 46.5, compared with 45 in the US.

Capitalism promotes efficiency while socialism favors equality in theory. They each have their own strengths and weaknesses. The key is finding a balance and building a system that can handle long-term issues such as climate change, and a system that ensures the latest technologies are used in a way that serves and benefits the people.

The full article appeared in the Hong Kong Economic Journal on March 5

Translation by Julie Zhu

[Chinese version 中文版]

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Eddie Tam is the founder and CEO of Central Asset Investments.