UK, Israel and India Tried Socialism, then Rejected it After Seeing the Effects

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With the rising calls from a new wave of politicians, pushing far-left "progressive" socialist policies, for some, it can be easy to forget the true, damaging impact that socialism can have on society.

Socialists will often claim that socialism has "never failed" because it's never been tried, but that is simply not true.

In every country it has ever been tested, socialism has failed.

Starting in the Soviet Union early last century, the devastation of socialism can be witnessed first-hand today in Venezuela.

And somewhere in between, three modern countries tried but ultimately rejected socialism - the United Kingdom, Israel, and India.

There are major political differences between the democratic politics of Israel, India, and the UK and the totalitarian rule of the Soviets, yet all three of the former countries adhered to socialist principles.

Each of the nations shifted to a system of nationalized major industries, leaving economic decision-making to the government.

The Soviet failure has been well documented by historians.

After 70 years of Marxism, Soviet farms were unable to feed the people, factories failed to meet their quotas, people lined up for blocks in Moscow and other cities to buy bread and other necessities, and a war in Afghanistan dragged on with no end in sight of the body bags of young Soviet soldiers.

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As the Daily Signal notes, socialism is still beguiled leading intellectuals and politicians of the West, despite the history.

Israel, India, and the United Kingdom all adopted socialism as an economic model following World War II.

At first, socialism seemed to work in these vastly dissimilar countries.

For the first two decades of its existence, Israel’s economy grew at an annual rate of more than 10%, leading many to term Israel an “economic miracle.”

The average gross domestic product growth rate of India from its founding in 1947 into the 1970s was 3.5%, placing India among the more prosperous developing nations.

GDP growth in Great Britain averaged 3% from 1950 to 1965, along with a 40% rise in average real wages, enabling Britain to become one of the world’s more affluent countries.

But the government planners were unable to keep pace with increasing population and overseas competition.

After decades of ever-declining economic growth and ever-rising unemployment, all three countries abandoned socialism and turned toward capitalism and the free market.

The resulting prosperity in Israel, India, and the U.K. vindicated free-marketers who had predicted that socialism would inevitably fail to deliver the goods.

As British Prime Minister Margaret Thatcher observed, “the problem with socialism is that you eventually run out of other people’s money.”

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1. Israel

Israel is unique, the only nation where socialism was successful—for a while.

The original settlers, according to Israeli professor Avi Kay, “sought to create an economy in which market forces were controlled for the benefit of the whole society.”

Most early settlers worked either on collective farms called kibbutzim or in state-guaranteed jobs.

The kibbutzim were small farming communities in which people did chores in exchange for food and money to live on and pay their bills.

There was no private property, people ate in common, and children under 18 lived together and not with their parents. Any money earned on the outside was given to the kibbutz.

A key player in the socialization of Israel was the Histadrut, the General Federation of Labor, subscribers to the socialist dogma that capital exploits labor and that the only way to prevent such “robbery” is to grant control of the means of production to the state.

As it proceeded to unionize almost all workers, the Histadrut gained control of nearly every economic and social sector, including the kibbutzim, housing, transportation, banks, social welfare, health care, and education.

The Israeli “economic miracle” evaporated in 1965 when the country suffered its first major recession.

Economic growth halted and unemployment rose threefold from 1965 to 1967.

Before the government could attempt corrective action, the Six-Day War erupted, altering Israel’s economic and political map.

In January 1983, the bubble burst, and thousands of private citizens and businesses, as well as government-run enterprises, faced bankruptcy.

Israel was close to collapse.

At this critical moment, a sympathetic U.S. president, Ronald Reagan, and his secretary of state, George Shultz, came to the rescue.

They offered a grant of $1.5 billion if the Israeli government agreed to abandon its socialist rulebook and adopt some form of U.S.-style capitalism, using American-trained professionals.

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2. India

Acceptance of socialism was strong in India long before independence, spurred by widespread resentment against British colonialism and the land-owning princely class (the zamindars) and by the efforts of the Communist Party of India, established in 1921.

Jawaharlal Nehru adopted socialism as the ruling ideology when he became India’s first prime minister after independence in 1947.

For nearly 30 years, the Indian government adhered to a socialist line, restricting imports, prohibiting foreign direct investment, protecting small companies from competition from large corporations, and maintaining price controls on a wide variety of industries including steel, cement, fertilizers, petroleum, and pharmaceuticals.

Any producer who exceeded their licensed capacity faced possible imprisonment.

Economic inequality was regulated through taxes—the top personal income tax rate hit a stifling 97.75%.

Some 14 public banks were nationalized in 1969; six more banks were taken over by the government in 1980. Driven by the principle of “self-reliance,” almost anything that could be produced domestically could not be imported regardless of the cost.

It was the “zenith” of Indian socialism, which still failed to satisfy the basic needs of an ever-expanding population.

In 1977-78, more than half of India was living below the poverty line.

Economic performance from 1965 to 1981 was worse than at any other time of the post-independence period.

Prime Minister Indira Gandhi had pushed her policy agenda as far to the left as possible.

In 1980, the Congress party won a two-thirds majority in the Parliament, and Gandhi adopted, at last, a more pragmatic, non-ideological course. 

An industrial-policy statement continued the piecemeal retreat from socialism that had begun in 1975, allowing companies to expand their capacity, encouraging investment in a wide variety of industries, and introducing private-sector participation in telecommunications.

Further liberalization received a major boost under Rajiv Gandhi, who succeeded his mother in 1984 following her assassination.

As a result, GDP growth reached an encouraging 5.5%.

Economics continued to trump ideology under Rajiv Gandhi, who was free of the socialist baggage carried by an earlier generation.

His successor, P. V. Narasimha Rao, put an end to licensing except in selected sectors and opened the door to much wider foreign investment.

Finance minister Manmohan Singh cut the tariff rates from an astronomical 355% to 65%.

In 2017, India overtook Germany to become the fourth-largest auto market in the world, and it is expected to displace Japan in 2020.

That same year, India overtook the U.S. in smartphone sales to become the second-largest smartphone market in the world.

Usually described as an agricultural country, India is today 31% urbanized. With an annual GDP of $8.7 trillion, India ranks fifth in the world, behind the United States, China, Japan, and Great Britain.

Never before in recorded history, Indian economist Gurcharan Das has noted, have so many people risen so quickly.

All this has been accomplished because the political leaders of India sought and adopted a better economic system—free enterprise—after some four decades of fitful progress and unequal prosperity under socialism.

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3. United Kingdom

Widely described as “the sick man of Europe” after three decades of socialism, the United Kingdom underwent an economic revolution in the 1970s and 1980s because of one remarkable person—Prime Minister Margaret Thatcher.

Some skeptics doubted that she could pull it off—the U.K. was then a mere shadow of its once prosperous free-market self.

The government owned the largest manufacturing firms in such industries as autos and steel.

The top individual tax rates were 83% on “earned income” and a crushing 98% on income from capital.

Much of the housing was government-owned.

For decades, the U.K. had grown more slowly than economies on the continent. Great Britain was no longer “great” and seemed headed for the economic dust bin.

The major hindrance to economic reform was the powerful trade unions, which since 1913 had been allowed to spend union funds on political objectives, such as controlling the Labour Party.

Unions inhibited productivity and discouraged investment.

From 1950 to 1975, the U.K.’s investment and productivity record was the worst of any major industrial country.

Trade union demands increased the size of the public sector and public expenditures to 59% of GDP.

Wage and benefits demands by organized labor led to continual strikes that paralyzed transportation and production.

In 1978, Labour Prime Minister James Callaghan decided that, rather than hold an election, he would “soldier on” to the following spring. It was a fatal mistake.

His government encountered the legendary “winter of discontent” in the first months of 1979.

Public-sector workers went on strike for weeks. Mountains of uncollected rubbish piled high in cities. Bodies remained unburied and rats ran in the streets.

Newly-elected Conservative Prime Minister Margaret Thatcher, the United Kingdom’s first female PM, took on what she considered her main opponent—the unions.

Flying pickets, the ground troops of industrial conflict who would travel to support workers on strike at another site, were banned and could no longer blockade factories or ports.

Strike ballots were made compulsory.

The closed shop, which forced workers to join a union to get a job, was outlawed. Union membership plummeted from a peak of 12 million in the late 1970s to half that by the late 1980s.

“It’s now or never for [our] economic policies,” Thatcher declared, “let’s stick to our guns.”

The top rate of personal income tax was cut in half, to 45%, and exchange controls were abolished.

Privatization was a core Thatcher reform. Not only was it fundamental to the improvement of the economy, but it was also “one of the central means of reversing the corrosive and corrupting effects of socialism,” she wrote in her memoirs.

Through privatization that leads to the widest possible ownership by members of the public, “the state’s power is reduced and the power of the people enhanced.” Privatization “is at the center of any program of reclaiming territory for freedom.”

She was as good as her word, selling off government-owned airlines, airports, utilities, and phone, steel, and oil companies.

In the 1980s, Britain’s economy grew faster than that of any other European economy except Spain.

UK business investment grew faster than in any other country except Japan.

Productivity grew faster than in any other industrial economy.

Some 3.3 million new jobs were created between March 1983 and March 1990.

Inflation fell from a high of 27% in 1975 to 2.5% in 1986.

From 1981 to 1989, under a Conservative government, real GDP growth averaged 3.2%.

By the time Thatcher left government, the state-owned sector of industry had been reduced by some 60%.

As she recounted in her memoirs, about 1 in 4 Britons owned shares in the market.

Over 600,000 jobs had passed from the public to the private sector.

The UK had “set a worldwide trend in privatization in countries as different as Czechoslovakia and New Zealand.”

Turning decisively away from Keynesian management, the once sick man of Europe now bloomed with robust economic health.

No succeeding British government, Labour or Conservative, has tried to renationalize what Margaret Thatcher denationalized.

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Israel’s socialist miracle turned out to be a mirage, India discarded socialist ideology and chose a more market-oriented path, and the United Kingdom set an example for the rest of the world with its emphasis on privatization and deregulation.

Whether we are talking about the actions of an agricultural country of 1.3 billion, or the nation that sparked the industrial revolution, or a small Middle Eastern country populated by some of the smartest people in the world, capitalism tops socialism every time.

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