German historian and sociologist Rainer Zitelmann is a staunch defender of capitalism as the only way for a country to develop. In his view, when there is economic freedom, people have room to do business and this benefits everyone, including the poorest, since it generates jobs and income in society.
“In socialist countries like North Korea and Venezuela, the only rich people are corrupt politicians,” says Zitelmann, a critic of the political philosophy of socialism.
In an interview with People’s GazetteZitelmann analyzes the Brazilian scenario and comments on neighboring Argentina and Venezuela. “Brazil certainly will not have a good future with Lula,” he says. “Brazil’s big problem is very little economic freedom. And the same people who hate economic freedom also hate freedom of expression.”
When asked about recent statements by the President of the Republic, for whom Brazil’s problem is the rich, the historian responds that “incompetent politicians are always looking for scapegoats for their own failures”. “Can you show me a single country in the world where the fight against the rich has led to prosperity for the poor?” he asks.
Author of 28 books, Zitelmann examines the changes in Vietnam and Poland over the past decades in his new title, How nations escape poverty (“How Nations Escape Poverty”). In the work, he tells how both countries, devastated by wars and socialism, emerged from the condition of poor countries in the 1990s to stand out economically in Asia and Europe.
The book is not yet expected to be released in Brazil, but on Kindle there is a Portuguese version from the Portuguese publisher Almedina, with the title Adam Smith Was Right: Only Economic Freedom Can Conquer Poverty. Check out the interview he gave via email to People’s Gazette:
People’s Gazette: Your new book is about how Poland and Vietnam emerged from poverty. What motivated you to write about them?
Rainer Zitelmann: Vietnam was the poorest country in the world in the 1990s, even poorer than all African countries, and Poland was one of the poorest in Europe. Both began capitalist reforms in the late 1980s.
In Vietnam, poverty has fallen from 80 percent to 5 percent, and Poland has been Europe’s growth champion for decades. If you look at the Heritage Foundation’s Index of Economic Freedom, you’ll see that hardly any other country of similar size has improved as much as these two have from 1995 to today. That’s why I looked at them.
What is the connection between the poverty of these countries, socialism and the wars they have been through?
Poland and Vietnam have a lot in common. We all know about the Vietnam War with the United States. But they were also at war with Japan, China and France before and after that. The Vietnamese expected a better life after winning the war with the United States, but that expectation was a disappointment. What the war did not destroy was destroyed by the socialist economy.
Poland was the country that, in percentage terms, lost the most people during the Second World War. Socialism was introduced later. In the late 1980s, the inflation rate exceeded 600% and Poland was one of the most indebted countries in the world.
War and socialism both destroy countries, but socialism destroys even more than the worst war. Germany, for example, was also destroyed by war, but because West Germany introduced capitalism, prosperity returned in the 1960s.
How did Poland and Vietnam escape poverty and become rich countries, especially considering that they have different political systems?
Each country developed in a different way. Vietnam remained a one-party system, and Poland became democratic. But both introduced private property and opened up to foreign investors. More economic freedom leads to more growth – and thus to a massive reduction in poverty. This was already the result of the book. The wealth of nationsby Adam Smith. And Poland and Vietnam proved: Adam was right.
Argentina and Venezuela were once rich, but the socialism of Juan Perón and Hugo Chávez, respectively, turned both into poor nations. How is this situation similar to that of Poland and Vietnam, and how could Latin nations return to wealth?
In the early 1970s, Venezuela was one of the 20 richest countries in the world and the richest in Latin America. Today, it is the poorest country in Latin America, with 80% of the population living in poverty. Almost 8 million people have fled the country: that’s 30% of the population!
Argentina, 100 years ago, was one of the three richest countries in the world. For decades, it was run over by the Peronists. With the exception of the 1990s, it has recorded double-digit inflation since 1945. Half the population lives in poverty in what used to be one of the richest countries in the world.
Argentina can learn a lot from Poland. The president [Javier] Milei is an economics professor and believes in the teachings of [Ludwig von] Mieses and [Friedrich] Hayek, as well as Professor Leszek Balcerowicz, who reformed Poland. Both followed a similar strategy: capitalist shock therapy.
I have just been to Argentina, where I gave lectures in several cities and many interviews. The spokesman for Milei’s government, Manuel Adorni, wrote the foreword to the Spanish edition of How nations escape poverty.
Argentina should learn two things from Poland: capitalist reforms work, and before things get better they get worse within a period of about two years. Milei’s success depends on Argentines understanding this and being patient. What has been messed up for decades cannot be fixed in a year.
In Venezuela, a revolution is needed to overthrow Maduro’s brutal dictatorship.
What do you think of the Brazilian economy? Do you have any studies on Brazil?
Just a few years ago, there were 698 state-owned companies in Brazil, of which 46 were under direct state control, 164 were subsidiaries, 257 were affiliates and 231 were minority interests.
This goes against the principles clearly stated in article 173 of the Brazilian Federal Constitution, which states: “Except for the cases provided for in this Constitution, the direct exploitation of an economic activity by the State shall only be permitted when necessary for national security or a relevant collective interest, as defined by law.”
From January 2019 to February 2020, a movement began to form and companies valued at around R$135 billion were privatized.
A report sent to the Organization for Economic Cooperation and Development (OECD) stated: “The federal government is divesting its direct and indirect holdings in public companies. Divestments between January 2019 and February 2020 reached R$134.9 billion, with R$29.5 billion in the first two months of this year alone. This includes surplus holdings in listed state-owned companies, such as Banco do Brasil. The five largest state-owned companies, called BNDES, Petrobras, Eletrobras, Banco do Brasil and Caixa, are reviewing their portfolio assets to focus on their core businesses.”
But then the Covid crisis hit and Brazilian President Jair Bolsonaro pursued catastrophic policies. The fight against the pandemic took over and privatization stalled. Brazil certainly won’t have a good future under Lula.
If Milei is successful in Argentina, it should inspire many Brazilians and could be the impetus for a capitalist movement in Brazil. I certainly wish that for the country.
The Index of Economic Freedom, where Brazil is
ranked only 124th out of 184, clearly shows what Brazil’s big problem is: too little economic freedom. And the same people who hate economic freedom also hate freedom of speech.
I was at a conference in São Paulo two years ago, where freedom of expression was already an important topic. Since then, as you well know, the situation has gotten worse.
The book describes government welfare aid as largely useless and often even counterproductive. In Brazil, there is plenty of aid. Furthermore, President Luiz Inácio Lula da Silva said that “the problem is the rich.” How can Brazil escape poverty?
Hatred of the rich has destroyed many countries. Incompetent politicians are always looking for scapegoats for their own failures. Can you show me a single country in the world where fighting the rich has led to prosperity for the poor? There is no such example.
Countries where people have the highest standard of living also have the highest proportion of billionaires, for example Sweden. In socialist countries like North Korea and Venezuela, the only rich people are corrupt politicians.
In capitalist countries, the richest people are successful entrepreneurs who have created benefits for millions of people with their products, such as Bill Gates with Microsoft, Sergej Brin and Larry Page with Google or Jeff Bezos with Amazon.
In your book, you argue that the only chance for the poor to improve their living conditions is through a free market and little government interference, and that private property and a market economy are the foundations of growth. Can you give more details?
Before capitalism emerged, most people in the world lived in extreme poverty. In 1820, about 90% of the global population lived in absolute poverty. Today, that’s less than 9%.
Most notably, in recent decades, since the end of communism in China and other countries, the decline in poverty has accelerated at a rate unmatched in any previous period in history. In 1981, the absolute poverty rate was 42.7%; by 2000, it had fallen to 27.8%, and by 2021, it was below 9%.
Other long-term trends are also encouraging. For example, the number of children in child labor worldwide has declined significantly, from 246 million in 2000 to 160 million in 2020.
This decline occurs despite the fact that the global population has grown from 6.1 billion to 7.8 billion in the same period. Socialism has not improved people’s lives in any country. Capitalism has.
You say that creating free business environments is a promising and potentially profitable way to unleash individual effort and creativity in countries. But how can the poorest be competitive in a free market, since they typically do not have as many tools and money?
When entrepreneurs are free to do business, it also benefits the poor. New companies and jobs are created. Not everyone can be among the very rich, but some become very wealthy and many are lifted out of poverty. This has been seen in China.
In China, at the end of the Mao era, 88% were living in extreme poverty. Then came the reformer Deng Xiao Ping with the slogan: “Let some get rich first.” And that’s what happened.
Today, China has more billionaires than anywhere in the world except the United States, but at the same time, the extreme poverty rate has fallen from 88 percent to 1 percent. The key to prosperity is freedom for private entrepreneurs.
You wrote that in Africa many projects were successful only as long as there was enough money to pay for high salaries and materials, and that when the money ran out there were no significant changes for the poorest. Why?
William Easterly, a professor of economics and African studies at New York University, describes aid as largely useless, often counterproductive. One example: Over two decades, $2 billion was spent to help build roads in Tanzania. But the road network didn’t improve at all. Because the roads weren’t maintained, they deteriorated faster than donors could build new ones, Easterly says.
Tanzania produced more than 2,400 reports a year for its donors, who sent them grants, but Tanzania’s real growth industry was its bureaucracy. Foreign aid, Easterly notes, did not provide what citizens needed (roads) but provided much of what they did not need (bureaucracy).
I have looked at many studies and they show: aid does not help. At best, it is ineffective. It is often even counterproductive and ultimately only funds corrupt regimes. It is of no use to the truly poor. What African countries need are two things: the rule of law and more capitalism.
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