Capitalism, socialism and “? “

With the World Bank ditching ease of doing business reporting, the spotlight is on the indicators used to rank the world’s countries. They are imperfect, but they serve a purpose, as Swaminathan Anklesaria Aiyar argues in his article in The Economic Times.. Besides the Ease of Doing Business Index, there are also other interesting indicators, which have been used to rank countries.

  1. Human Development Index – Available on the World Bank website, this is a summary measure of average achievement in key dimensions of human development: living long and healthy, being well informed, and achieving a standard of living. decent. If the goal of socio-economic systems in the civilized world is human development, this index can be seen as a surrogate for the success of these systems.
  2. GDP per capita – This is a measure of income per capita. It is available on the World Bank website for different countries.
  3. Rule of Law Index – This is published by the World Justice Project (WJP), an international civil society organization whose stated mission is to “work to advance the rule of law around the world”. The index is composed of factors such as civil and criminal justice, law enforcement, order and security, fundamental rights, open government, constraints on the powers of government and absence of corruption. .
  4. Gini Coefficient – This is a measure of statistical dispersion intended to represent income inequality or wealth inequality within a nation or social group. Data on Gini coefficients for different countries are available on the World Bank website, although the coefficients reported for different countries are not for the same year.

How do they relate to socio-economic and political systems?

Capitalism and socialism are the two dominant “isms” in the world. Love or hate either of these words, much of politics is shaped by ideas drawn from these two “isms.” A quick internet search reveals the following definitions of these “isms”:

  • Capitalism is “an economic and political system in which a country’s commerce and industry are controlled by private for-profit owners, rather than by the state.”
  • Socialism is “a political and economic theory of social organization which advocates that the means of production, distribution and exchange should be owned or regulated by the community as a whole”.

It can be argued that a well-functioning capitalist system will attempt to maximize per capita income. It can also be argued that a well-functioning socialist system will have low inequality and a low Gini coefficient. Likewise, the rule of law index can be a substitute for “uniform application of law and access to justice” in society. Unfortunately, I do not know of any “ism” that can evoke a system built around this concept. Note that the rule of law index is published by a civil society organization while the other indicators find their place on the website of multilateral – quasi-governmental entities.

Which of these indicators is most associated with the HDI? I tried to answer this question by calculating correlations using public data. I used HDI, GDP per capita, and rule of law index data for 2019. Gini coefficient data was taken from 2019 or 2018 where 2019 data is not were not available, and countries that did not have Gini data for these two years were excluded.

The correlation between the GDP per capita and the HDI is 0.79 (very high), which is intuitive because the HDI measures the dimension of the standard of living by the gross national income per capita. But the equally high correlation between the HDI and the rule of law index at 0.76 is interesting because the composition of the two indices is different and the strong correlation between them is not so simple. The correlation between the HDI and the Gini coefficient is – 0.44, more modest than the other indicators. The negative sign indicates that higher income inequality is associated with a lower HDI, which one would expect.

The correlations presented above suggest that the fixation with the “production, distribution, ownership and control” of wealth in economic, social and political analysis is slightly problematic. Equity in access to law and justice is the most fundamental issue. I haven’t come across a “system” that specifically focuses on this. Hence my questions – what “ism” would it be, if it were defined thus – “a political and economic theory of social organization which advocates that the application of the law, as well as access to justice , be uniform throughout the community as a whole. ”And wouldn’t this“ ism ”be better if the legislative, executive and judicial systems were focused on it as a priority?

In recent years, Thomas Pikkety’s work on wealth and income inequalities and its “solutions” have given rise to considerable debate. He argues, through research on rich economies, that unless capitalism is reformed, the very democratic order will be threatened. He is in favor of a wealth tax.

I would say that what really threatens the democratic order is unequal access to law and justice. Even in rich countries, access to justice and the enforceability of the law are not uniform. If you are close to power, through economic or other means, you can make lawyers and the law work for you. Since two conflicting parties will rarely have the same power, the law will always work better for one at the expense of the other. The playing field for the two is not even. The situation in “not rich” countries is worse.

My argument is that the inequality in the distribution of wealth is not the main problem. The way this leads to distortions in the functioning of administrative and legal systems is. The fact that a powerful person can manipulate the laws and rules in his favor leads to disenchantment. If, and this is wishful thinking, the advantages of access to power can be neutralized by a socio-political-economic system, we would have leveled the playing field.



The opinions expressed above are those of the author.


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