Chelsea Follett: Joining the podcast today is Rainer Zitelmann, a historian, sociologist, world renowned author, successful businessman and real estate investor. He holds PhDs, that’s two different doctorates, in both sociology and history. He has been chief editor at one of the leading publishing houses in Germany, and an editor at the major German daily newspaper Die Welt, and he founded the leading PR consultancy for the German real estate industry, a business that he then sold in 2016. And he has written a total of 26 books that are successful all around the world, especially in China, India, and South Korea. Many of his past books have focused on wealth, but his newest book is about poverty. It’s called How Nations Escape Poverty, Vietnam, Poland, and the Origins of Prosperity with a foreword by George Gilder. Rainer’s book has already been praised by Steve Forbes, John Mackey, the co-founder of Whole Foods, Grover Norquist, and others, including Human Progress’ own Marian Tupy. So right there, you can tell it’s a great book and I’m excited to discuss it. Rainer, how are you?
Rainer Zitelmann: Thank you. I’m great. And I’m happy. I think it’s the first interview about this book.
Chelsea Follett: Oh, that’s exciting. All right, so we’re recording this before the book comes out, obviously. We’ll, when this interview is released, the book will already be up, but tell me a bit about this book and what inspired you to write it. You’ve written so much mostly about wealth, the psychology of the wealthy, and so on. Why poverty? Why this book?
Rainer Zitelmann: Yes. Because during my research, I found out that there’s a connection between the attitude towards rich people on the one hand, and poverty on the other hand. Countries that are very successful economically and fast growing have, in most cases, a much more positive attitude toward wealth and rich people than other countries. I give you one example: China. China calls themselves socialist or communist country. But in 1981, they started with economic reforms, free market reforms, and introduced private property. And it was a huge success because the number of people living in extreme poverty in China decreased from 88% in 1981 to less than 1% today. And it started with Deng Xiaoping’s slogan, “let some people become rich first.” So I think there’s a connection between both. Then another thing I study, always, the index of Economic Freedom from the Heritage Foundation.
Rainer Zitelmann: I think a lot of our listeners know this index, but for those who don’t know it’s, I call it the capitalism ranking. It’s ranking how economically free are countries all over the world. At the top, you find countries like Singapore and Switzerland at the bottom, North Korea, Venezuela, and Cuba. And for me, it’s not so important the absolute, the position of a country in the ranking, but how it changed over time. And if you analyze the time since 1995 when they started with this index to today, you see that there was no country with comparable size that gained so much in economic freedom than Poland and Vietnam. There are some very small countries with only 3 million inhabitants. They had maybe more progress with more points. But from the big countries, Poland and Vietnam are the both that are standing out. And maybe the last reason why to write the book, I have also personal connection to this country because the women I was with for the longest time in my life, the one was from Vietnam and the other from Poland. So I have also a personal connection to this topic. So I know these countries.
Chelsea Follett: Fascinating. All right. So you’ve been to them, you’ve spent time there. Let’s walk through the book. So the first chapter tell me why was Adam Smith right? What’s that about?
Rainer Zitelmann: Yes. You already know this. Last year it was Adam Smith’s 300th anniversary. And there were a lot of discussions about why he was important. There are also some libertarians like Rothbard who criticize Adam Smith. And in some ways they’re right. And the criticism is correct. But I think where Adam Smith was right, is that the best recipe against poverty is not redistribution, is not government regulation, but it is economic growth. And then the most important thing, he understood that the most important precondition for economic growth is more economic freedom. And I think if he would look down now from the sky maybe to us. And he could see what happened since he wrote this book, the Wealth of Nations 250 years ago. I think, he would be surprised, what happened and in what a degree, he was right.
Rainer Zitelmann: And I took this as the first chapter because Poland and Vietnam are two examples for this. These countries belonged to the poorest countries in the world. Vietnam was even the poorest country in the world, 1990, poorer than all African countries. And Poland was one of the poorest countries in Europe. And now it’s amazing. If you go there and you see Poland, we will speak about it, it’s Europe’s economic growth champion since three decades now. And, Vietnam is also very prosperous. And, what happens there? So I think Adam Smith was right. You can’t fight poverty with redistribution, but only with economic growth. And for economic growth, it’s very important to have economic freedom.
Chelsea Follett: Now, I agree with you that Smith would be amazed at all of economic growth that has happened since his lifetime and how much prosperity we have achieved. Many people, of course, do not agree with Adam Smith’s view of how all of this prosperity came about. What are some of the criticisms of Smith’s view and how do you respond to people who disagree with you that it is economic freedom that has allowed us to achieve all of this prosperity?
Rainer Zitelmann: You can see it, 200 years ago before capitalism in 1820, 90% of the worldwide population lived in extreme poverty. 90%. Today it’s less than 9%. And, you don’t have to look so much in the past 200 years. This is what happens time and again. And this is, the reason why I wrote this book, because you see, this is what always happens if you add more economic freedom in the country, standard of living increase, I will compare it, with a test tube with two ingredients, market and state, or capitalism and socialism. And then you look what happens if you add more market. We will discuss it with the examples of Poland and Vietnam. But you can also see what happens if you add more state. I give you two examples. If you add more state, one of the examples is Argentina.
Rainer Zitelmann: Argentina, 100 years ago was one of the richest countries in the world, as rich as America, very rich country. And then they started with this crazy, so-called Peronist politics, more state, more state redistribution, and so on. As you know, what’s the result? Today 40% of people in Argentina live in poverty. The inflation rate is 200%. It’s not only now, since 1945, they had every single year a double digit inflation rate with exception of the ’90s. So it’s a terrible story. Or the other story is Venezuela. Venezuela was in the ’70s, one of the 20 richest countries in the world. And then they started with more regulation, labor market regulation, and so on. The situation became bad. But the people in Venezuela, they drew the wrong conclusion. They voted for a socialist, Hugo Chavez, in 1998, and he promised socialism in 21st century.
Rainer Zitelmann: And in the first one or two years, it was not so bad because he had good luck that the oil prices increased. But then they started with all the crazy things that socialists do, nationalization, all these things. And the result was, they had one million percent inflation rate, one million per year. Today, 25% of the population of Venezuela fled. This is 7.5 million people. The rest who stayed there lives in poverty. And by the way, they abolish also democracy, freedom of speech, freedom of press.
Rainer Zitelmann: So these are two examples of what happens if you add more state. And now, but my book is, about, more positive topic what happens if you add more market. And I think this proves that Adam Smith was right. Economic freedom is the most important thing for the fight against poverty. And maybe to add this, some people think, Adam Smith is like, or someone like Gordon Gekko that we know from the movie Wall Street, like greed is good and someone who’s in favor of rich people. But this is not true. It’s very hard to find positive sentences about rich people in Adam Smith’s both books. It’s even easier to find it in the writings of Karl Marx and Friedrich Engels than with Adam Smith. But you find a lot of remarks that his main concern was poverty. His topic was how can we fight against poverty? This is the topic of my book also. And so I thought it’s not a bad idea to start with the first chapter about Adam Smith.
Chelsea Follett: So that’s a great lead into your next chapter. What helps fight poverty and what doesn’t? You’ve spoken now about how a country that is wealthy can lose all of its wealth, but a country that is poor, what can it do to fight poverty and what doesn’t work?
Rainer Zitelmann: There’s a lot of people in Europe and the United States, they think redistribution is the way. So it means that the rich countries, America, United States, Europe, should give a lot of money, development aid to poor countries, Africa, for example. But you know, they tried it since 50, 60 years, and it didn’t work. I quote a lot of scientific studies in my book, that the effect was in the best way zero. But in a lot of cases, it made things worse. It only helped corrupt elites, the money didn’t, went in their pockets and not to the poor people who really need it. And so development aid did not work. I think we have to admit it. And there are so many scientific studies that prove it. And you can see, if you compare Africa on the one hand, and Asia on the other hand, Africa is still very, very poor today. But in Asia, we saw a lot of progress, but Asia received by far not so much development aid as Africa. The reason for the improvement of the situation in a lot of Asian countries was not development aid, but capitalism.
Rainer Zitelmann: I’ll give you some examples. South Korea was a very, very poor country in the ’60s, as poor as the poorest African countries today. And then what happened, North Korea decided for this way planned economy and socialism and people are still very poor there in North Korea. But in South Korea, they made the decision for capitalism. And I’ve been there several times in South Korea. And it’s amazing what you see there. I’ve never seen shopping centers in Europe as I’ve seen them in South Korea. And it’s one of the leading export countries in the world. I think almost everyone has some devices made in South Korea, maybe a cell phone or maybe a TV or even a car.
Rainer Zitelmann: Another examples are Taiwan, of course, and Hong Kong, Singapore. I spoke about China mainland, where they call themselves socialists, but the reason why the fight against poverty was successful was not because of the state, but in spite of the state. This is what my friend, I have a friend at Beijing University, Weiying Zhang, and he always repeats, our success in China was not because of the state, but in spite of the state. It was because of Deng Xiaoping’s economic reforms. And we will speak about Vietnam for another example. Even in India, on the other hand, countries with a lot of state intervention and regulation, they are still poor.
Rainer Zitelmann: Four weeks ago, I was in Nepal. You know the country where is also the Mount Everest. I haven’t been to Mount Everest, but I spoke with people in Nepal, and this is one of the 10 poorest countries in the world. And why is that? Because of too much state regulation. For example, it’s not allowed to sell any product more than 20% up to the cost that you have to produce it. It’s a crazy regulation. And they have high taxes. If you import cars to Nepal, for example, for BMW, it’s 320% taxes. So you can buy it in Germany for 80,000, and in Nepal, you have to pay 400,000 to buy the same car because of this. And it’s all state regulation. The country is governed by Maoists, and they have 120 parties, and 80 of them are Marxists, Leninists, Maoists, communists, and I don’t understand it. So they should see that it doesn’t work. They live in poverty. Their neighbors. India had some economic reforms. They are better off now.
Rainer Zitelmann: I spoke about China and the other Asian countries. So Asia, a lot of Asian countries were successful, not because of development aid, but because of capitalism. And another thing is important. We have today this woke ideology of people who claim the West, and how do they call themselves, post-colonialist studies and whatever. And they always look at the past. They see the reason why they are poor, it’s colonialism, it’s the fault of the West, or slavery, and what else. But people in Vietnam, I admire them. They are much more pragmatic and realistic. They could blame America, or they could blame the West, because they were at war, not only with the United States, but what a lot of people don’t know, Vietnam was at war with Japan, with France, with China, and with the United States. So they had a lot of wars, and they could blame the United States for their situation. But they didn’t.
Rainer Zitelmann: They didn’t do it, they didn’t blame it on the contrary, I was several times in Vietnam, they love the United States, they love America, you see it also in the polls, they don’t look at the past. They don’t blame other countries, other people, they look for the reason of their problem, in themselves. I would compare the same with a person, if you are an individual, and you always have this victim mentality, and you always blame other people for your problems, maybe your parents, or you blame capitalism, racism, sexism, and whatever, you will never, never be successful, but if you take the responsibility. Not only for your success, but also for your problems, for your defeat, for your failure, then you will be successful. And the same with countries. So Vietnam is a very good example for this attitude. And a lot of African countries, they always call for more development aid. Now with a new, pretext with climate change, we should pay them a lot of money to fight against climate change. But I’m sure it’ll never be used for fighting climate change, it will be used to fill the pockets of corrupt elites and governments in this country. So the conclusion of my chapter two is, development aid doesn’t work, and what works is economic freedom.
Chelsea Follett: Right. No country has ever become rich thanks to aid. One documentary I would recommend, if anyone listening to this has not yet seen it would be Poverty Inc. That documentary talks a lot about Haiti, also an example of a country with so much aid, more aid organizations per capita, I think, than any other giving charity, and yet it has not become wealthy. So this does not seem to be the way forward. But your book talks about these two examples in great depth of countries that were able to become wealthier, so let’s get to them. So Vietnam, the Rise of the Dragon, tell me about Vietnam.
Rainer Zitelmann: Yes. First of all, a lot of people don’t know much about Vietnam, maybe in the United States more than here in Europe because you were involved with this country, but maybe younger people don’t know. Sometimes I ask people, what do you think? How many people live in Vietnam? Maybe everyone could think now whether he has the right answer or not. And sometimes people tell me, oh, I think like 20 million, 30 million, no, it’s not true. It’s almost 100 million people living there. So it’s bigger than any European countries, more people than in Germany, in France, in Spain, and in any European countries. So it’s one of the biggest countries in the world, this is one thing that a lot of people don’t know. What, of course a lot of people know is about the war, that there was a terrible war, but not everyone knows how terrible it really was for people in Vietnam.
Rainer Zitelmann: They had 10 times more bombs and explosives, from the United States to Vietnam than in the Second World War in Germany, 10 times more. So almost everything was destroyed, and when the war ended, before the war, the North was socialist with a planned economy, the south not. But then they made the mistake to introduce the planned economy in all over the country, also in the South. And the result was the same as every time when socialists, tried to experiment with this planned economy, the situation became worse. What was not destroyed by the war was destroyed by the planned economy. And, I give you only one number in the end of the ’80s 80% of the people in Vietnam lived in poverty, 80%, today it’s 5%, it’s amazing. And, the reason why they had this positive development, the people in Vietnam are smart.
Rainer Zitelmann: They tried for a couple of years this experiment with the planned economy, but then they saw they had a lot of problems, they had 600% inflation rate, there was poverty all around the country, people had not enough to eat. And for example, if you had, an apartment with, two or three rooms, in one room, a lot of people had a pig because this was the only possibility to make some extra money. Because what they earned, in most cases, it was only enough for one week, but not for four weeks. And so they raised a pig. We have some extra, but of course it made this, noise and didn’t smell well and all this stuff, so this was how they lived there. But they understood then that first they tried to make some reforms inside the social system.
Rainer Zitelmann: This is what happened in a lot of socialist countries that they started with reforms inside the system. A little bit more competition, but the most important thing, the state owned, companies, they didn’t change this so, the most companies were, still, state owned. And so they tried in different ways to make, reforms within the system, but then they understood that it was not possible, that it failed. And in 1986, there was the sixth annual meeting of the Communist Party in Vietnam, and then they made a good decision, for more economic freedom, it doesn’t mean they abolished the planned economy from one day to, the other, but step by step, they introduced private property, opened the economy to the world, and got ripped out of a lot of crazy regulations. And then step by step standard of living increased. I have in my books a lot of numbers and statistics, I think it’s too boring to have so many numbers here in the interview and I want people to, of course, to read the book, but I have also interviews with people in Vietnam, people who lived in the socialist times and who tell us their story, how it was and how poor they were, even some of them had the opportunity to go to Russia or to Belorussia.
Rainer Zitelmann: Or through East Germany, for example, the parents of my girlfriend, they lived in East Germany, they came from Hanoi, from the capital from Vietnam. And for them, even Russia, socialist Russia was like a paradise because they were so extremely poor that even these countries, we in West Germany, if you compare with East Germany and West Germany, by the way, I produced a movie, I can recommend it, Life Behind the Berlin Wall. You can see it for free on the internet, Life Behind the Berlin Wall, it’s about East and West Germany. And then in West Germany, it was much better, but even in East Germany, it was so much better as it was in Vietnam. So people, even the Communist Party understood that the planned economy doesn’t work, and so they opened the economy, and what happened then is really a miracle, of course, not from one day to the next, but over the years and now over the decades, everything changed in Vietnam.
Chelsea Follett: Tell me more about that transformation, because it was very dramatic. You said it at the beginning, it was one of the two greatest examples of an increase from the economic freedom index that you found, tell me more about this incredible transformation.
Rainer Zitelmann: The most important thing was before, in socialist time, it was only allowed to have maximum private ten workers, this was only a little reform, but then they allowed it with no low limit to hire people and they allowed private property, this was the most important thing. They also started with privatization of state-owned enterprise, but to be honest, this is something they have a lot more to do, even today, too many very ineffective state-owned enterprises in Vietnam. But the most important thing, they attracted foreign direct investments, they understood that they need capital from other countries. First, these were other Asian countries, like South Korea or Japan, then later the United States and Europe. And this is also, if you compare it with Nepal, I spoke about Nepal, where I was now four weeks ago, they have a long list, and why is it forbidden for foreign investors to invest there? What is crazy? They would need the money, but they have a long list of why it’s dangerous and why it’s forbidden to invest there. And in Vietnam, they did exactly the opposite, they thought about how we can make our country more attractive to foreign investors, this was one very successful precondition.
Rainer Zitelmann: But another thing was, and I think this is very important, and even before the economic reforms from the parties, there was a spontaneous process, especially in rural areas, where peasants introduced private property or started with the process of de-collectivization, it was illegal, it was forbidden. But anyway, they had no alternative, if they wanted to survive, they couldn’t accept the system, so a lot of things happened, not because the government told them, but on the contrary the government later legalized what happened before. And this is a perfect example that this is the difference between capitalism and socialism. Socialism is introduced from the bottom up. The government tells everyone what he has to do and nationalizes everything. Capitalism, you can’t build a capitalist society from the bottom up only, but it was a grassroots movement, especially from peasants. What even happened before, especially this de-collectivization, they had these crazy collectives of the peasants.
Rainer Zitelmann: And this didn’t work before in the Soviet Union, it didn’t work in China, it didn’t work, but they had it also there. This was very important, and another thing that was important, they changed the way to think. I think this is sometimes underestimated, how important is how people think, for example, about equality, inequality, about rich people. In Western countries now in the United States and Europe, we have a lot of leftist people who always claim how bad inequality is and how bad is the gap between the rich and the poor. And I have here some quotes from a book that was published in Vietnam from famous philosophers and sociologists. And if you allow me, I like to read a little bit because you will be surprised what…
Rainer Zitelmann: sociologists and philosophers in Vietnam. And don’t forget, Vietnam calls herself a socialist country with leading communist party, but I can guarantee you, by the way, it’s harder to find a Marxist in Vietnam than at Harvard University, so it’s much easier in the United States and Europe. I was at different… I was invited to four universities in Vietnam, for example, the prestigious Foreign Trade University, and I will tell maybe later about this, they had a workshop, how can we improve the image of wealthy people? I was never invited to a similar workshop in the United States or Europe. But let’s hear now, I wanna read a little bit what Vietnamese philosophers, sociologists, have to say about the topic of inequality. And then always think, is it very likely that you will hear similar things from a western social science professor at university?
Rainer Zitelmann: Here’s what they have to say. “In previous times, under the bureaucratic subsidy system, justice and equality was constrained to have the same meaning. Equality was understood as meaning that people in society are on a par with each other in all respects, politically, economically, and culturally. As a result, the concept of justice was, in a sense, considered as identical to egalitarian makes flat. Anything not in accord with egalitarianism would be seen as a violation of the justice principle. This wrongful view decreased, even abolished, momentum for socioeconomic development.” And then what they have to say about now what happens there, about the gap between the rich and the poor. They say then “in comparison with the subsidy system,” they mean the planned economy time “where distribution was egalitarian. The current polarization between the rich and the poor shows the reestablishment of social equity. It is not a sign of the violation of social equity, and especially is not a serious violation as some people claim. Polarization has itself become an important motivating force behind the recent considerable economic growth. Therefore, now is the time for us to promote the results already obtained and to encourage people to enrich themselves legally. It is not appropriate to stop this evolution because of the existence of the polarization between the rich and the poor.” We’ll find much more quotes in my book, but for me, it was amazing how, this was a statement, if I would have told you before I read it in a Cato paper from your institute, you would believe it because this is like classic liberal or libertarian philosophy about equality, inequality. But this is from in a so-called socialist country with a Communist party, what they think about the topic.
Rainer Zitelmann: So of course if we speak about politics, I have to add this, it’s not everything great in Vietnam, because in economy there were a lot of good changes, but in politics, more or less it remained the same, it’s a one party system, it’s not a democratic system, it’s no freedom of press, all newspapers are state owned. But it’s not as unfree as China, for example, you see it if you travel. I was, several times in China, I was several times in Vietnam, if you travel to China, you can’t use Facebook only with VPN, you can’t use Google and all these things, if you go to Vietnam, everyone use Facebook and Google and so it’s more free. And also I had interview there in Vietnam with a YouTuber, and he worked before for state owned newspaper.
Rainer Zitelmann: He told me now “I didn’t like it, it was not so free.” But now he can get his messages as YouTube. Of course, it’s not as free as in Western countries, you see it. Some of my books are published in Vietnam, for example, the book The Rich in Public Opinion that was published at Cato Institute is also published in Vietnam. And my book about the psychology of the super-rich, The Wealth Elite, is also published there, or another book Dare to Be Different and Grow Rich is published in Vietnam. But my books about capitalism, they wanted to publish it. In China it was unthinkable. I didn’t have to ask them because there are pages against Mao Zedong and against North Korea, and it’s not allowed to publish anything like this in China. But there was a publisher in Vietnam and they were interested to publish this, and they even, they translated it, but in the end, they got the no from sensors.
Rainer Zitelmann: And so unfortunately I couldn’t publish it, I hope with this book I found now publisher, I hope they will publish it, they agree, but I only believe when it is finished. But you see with political freedom, it, you can’t compare it with Europe or with the United States, it’s not as repressed as it is in China, but it’s of course not as free. But this is in politics, and of course they have still, the problem of corruption, they try to fight against corruption, but it’s not easy as long as you have not a democracy and you don’t have a free press, it’s not so easy to fight against corruption. But we will see what will happen in the future. It’s amazing what happened there and the spirit there in the country, if you be there, young people they think very entrepreneurial.
Rainer Zitelmann: And for this book, also, I commissioned a poll with, one poll was with Inner China Institute. So, a famous, polling institute in Vietnam. The other was Ipsos MORI. I commissioned two polls in Vietnam, one about the image of capitalism and the other one about the image of rich people. And the result was that there is no other country, we did this research about image of wealthy people now in 13 countries, and there was no other countries, where people have such a positive attitude towards wealth and rich people as in Vietnam and in, Poland, and with capitalism, it was interesting, in most countries, even the word capitalism has a negative connotation, it’s like a dirty word, but in Vietnam, for a lot of people, capitalism has a positive connotation.
Rainer Zitelmann: And if we ask people in Vietnam, what is the economic system that you admire? At the list of the systems that they mentioned, at the bottom of the list was China and North Korea. At the top of the list were countries like Japan and South Korea. And for young people, even the United States were number two in the, what’s their role model? What economic system they prefer. So you see, I would recommend to everyone to go to Vietnam. There are a lot of reasons to go there. I have a friend lawyer who lives there since 25 years.
Rainer Zitelmann: It’s also a little bit funny. He told me the reason was because he was in Germany at a party and he saw that there were so many beautiful girls from Vietnam. And his friend told him, you will see much more if you go to Vietnam. And this was the reason why he went to Vietnam. And, but then he saw that there are a lot of other reasons to stay there in Vietnam. And he is a lawyer, and he learned even the language, I don’t speak the language. It’s real, very complicated language. But I recommend for everyone to go there. Maybe you can combine as I did, that you go for vacation. I can guarantee you the service in hotels in Vietnam is much better than in almost any hotel in the United States or in in Europe. They have much, much better service. You can’t imagine this. It’s really great there. And then, of course, if you go to this hotel, you don’t see anything about the country.
Rainer Zitelmann: And then maybe you can combine it with going to the big cities there or Saigon, that is called Ho Chi Minh City today. And Hanoi, what is the capital so that you see that how, and how industrious these people are there. I think you always know, you also know this in the United States that people with an Asian background are very often very industrious. And, you see it, even I think in the United States, you have this crazy thing at some universities, that they discriminate against Asian people. I think that is crazy. The only thing that should be important is your performance.
Rainer Zitelmann: And we know from Germany, we had to research how about the performance of German people and from other countries, and for example, people from Arab countries, they did not so well at school, but people from Vietnam are much better at school than people with German origin. So they are very industrious and motivated to improve their life. It’s a good experience to go there.
Chelsea Follett: I love how wide-ranging the book is, because the two countries you focus on, Vietnam, in Asia is so different, even though the lesson is so similar to Poland. So let’s move a little closer to where you are in Germany and Europe and Poland. Tell me about Poland.
Rainer Zitelmann: Yes. Poland is our neighbor in Germany. I live here in Berlin and the capital from Germany. And if I go there, to fly there, it’s the same distance as between New York City and Boston. So if… I think it’s like an hour or something like this, if I go there to Warsaw and yes, Poland was so poor in socialist times. Only very few people had a telephone or had a car. And I don’t speak about the ’50s or the ’60s. I speak about the end of the ’80s. I speak about the end of the ’80s when they were so poor, when most of the people didn’t have a telephone, didn’t have a car or washing machine, and Poland was even poorer than the Ukraine at this time. The GDP per capita was only half of the Czech Republic, so very, very poor country. And they had also very high inflation rate and a lot of debts to foreign capitalist countries. And the difference between Vietnam and Poland is that they had also a political revolution.
Rainer Zitelmann: This was what started in Eastern Europe with the so-called Solidarnosc trades unions. And that socialism was abolished, and this happened in the end of the ’80s and 1990. And then they had good luck because there was one reformer. Economic reformer, he’s a professor for economy. His name is Balcerowicz, I call him. He’s the Ronald Reagan or the Maggie Thatcher for Poland, who did this economic reforms. Very smart person. I met him several times and spoke with him. He’s still alive. And by the way, there’s a similarity between Argentina, where now Javier Milei was elected, he was professor for Austrian economics. And this Balcerowicz, which also believes in Austrian economics. I would like to bring both together. I had the opportunity to meet Milei, but I was in Argentina with some of the leading people in the party, and I told them he should meet, Milei should meet Balcerowicz because they have so much in common, but there’s one difference.
Rainer Zitelmann: He did it, Balcerowicz, and Milei has to do it in the future. And so by the way, but Balcerowicz started with his economic reforms. They called it the Shock Therapy from one day to the other, not only to allow private property, but a lot of tax reforms, deregulation, and to make it short, to abolish socialism and to start with a capitalist system. And what happened?
Rainer Zitelmann: This is the problem. Always, if you do these economic reforms in the first two or three years, things become worse. For example, hidden unemployment becomes official unemployment. Because in socialist countries there was officially zero unemployment. But people did crazy things without any sense, only, it was hidden unemployment. And then hidden unemployment becomes official unemployment. And of course, if you start with economic reforms, like with the Shock Therapy, first some things become worse. The GDP…
Rainer Zitelmann: There was a reduction in the GDP for two years and a lot of problems. And you can imagine that the people who didn’t agree with his reforms from the other parties and from the press that they said, “Oh, look how terribly he promised to make things better but look what happens now.” Things become even worse. And this was very, very difficult time for him, but there were some things that improved fast. I think this was what people saw, for example, from one day to the other, when they stopped the price regulation before they were empty shelves and you could buy almost nothing. And then there were a lot of products because, of course, some of them very expensive, but you saw that there are more more things to buy.
Rainer Zitelmann: And then for some products after time, even prices became low. There was a headline in newspapers, eggs become cheaper. This was very important for people. Eggs become cheaper. And he could reduce the inflation rate. That was, I mentioned this, about 600%. He reduced inflation rate. But this is a problem. In the first two years, if you start with economic reform, things become worse. In Vietnam, for the party, it was a little bit easier, because there were no other parties who could criticize this. There were no freedom of press, newspapers who could criticize it. So this way it was easier for them in Vietnam. But in Poland, they had the democracy and freedom of press, freedom of speech, and Balcerowicz had to handle this, but he did it. And then in the next decades, things became so much better.
Rainer Zitelmann: I quote a book very often in my book, the title is Europe’s Growth Champion. And this is true. Poland is Europe’s Growth Champion since three decades. But the problem is this was true until 2015. But then sometimes people forget why their country became successful, because of capitalism. And this is what happened in the United States and in Europe also. People forget what is the reason for our prosperity? It’s capitalism. They forget it. And they call for more government. And this unfortunately happened also in Poland, because people voted for the so-called Peace Party.
Rainer Zitelmann: This means Law and Justice Party. And they governed from 2015 to December 2023, so almost several months ago, those Peace Party and they stopped privatization, even they started to nationalize some things. They started with redistribution programs so in western countries, they call the Peace Party a Right-Wing Party and a Conservative Party in a way, it’s not wrong because if it comes to topics as migration or nationalism or family values, it’s very traditional or conservative or if you want a Right-Wing party.
Rainer Zitelmann: But in social and economic terms, it’s a very socialist party, this Peace Party. But the good news is that now in the last elections, they voted now for the opposition. You will see what happens now. It’s open for discussion. I hope they go back to the path that made Poland so successful. I hope they make some corrections for the mistakes that this Peace Party made in the last years. But this is a Polish story. And if you go to Warsaw, if you go to any other city in Poland, you see it’s amazing there. If I compare it to Berlin where I live, you can’t say it’s better here in Berlin than it is in Warsaw. Even some aspects are better in Warsaw today than it is in Berlin. And the situation improved so much in Poland, and all because of these economic reforms.
Chelsea Follett: That’s so amazing. Transformation once again. Do you have anything else you’d like to say about Poland that our listeners should know before we move on to your concluding thoughts?
Rainer Zitelmann: Yes, I wanna add something. I commissioned the biggest poll ever done in the world about the image of the market economy and the image of capitalism. I published a book last year, In Defense of Capitalism, by the way, I’m very proud it’s published in 30 countries now all over the world. And I’ve been in almost all of these countries. I traveled this year or in the last two years to 30 countries. And for this book, I commissioned this poll about the image of the market economy and the image of capitalism. And we used the same questionnaire.
Rainer Zitelmann: I did it with one of the leading polling institutes in the world, Ipsos MORI. And the result was there’s no other country in the world where people have such a positive opinion about the market economy and capitalism than Poland. The good news is the United States were number two, but with a huge difference between old Americans who were very, very positive towards capitalism and market economy and young people but I think you know it better than me, where we have a lot of things to do to convince them. So, but Poland is number one.
Rainer Zitelmann: And then I commissioned another poll about the image of rich people and Poland and Vietnam were the countries where people have a very positive attitude towards wealth and towards rich people. We calculated something that we call the social envy coefficient to compare how envious people are in different countries. The most envious people are in France, number one, unfortunately followed by my own country, Germany, and people in Poland are on the other, Poland and Vietnam. They are not envious against the rich. For them, rich people are role models and not scapegoats. And I think this is also a very important result from my book, that there’s a connection between the attitude towards wealth and rich people on the one hand and economic progress on the other hand.
Rainer Zitelmann: If you always have hate speech against rich people, eat the rich and against the rich and so on, no society will succeed. I think we need some heroes. People maybe like Steve Jobs, or I don’t know whom you like, or Larry Ellison, or Larry Page, or Sergey Brin, or Jeff Bezos. I think these are… We need people, heroes and they became rich because they built companies that were with products or service that were liked from a lot of people and so they became successful and we should admire these people and see them as role models and not as scapegoats.
Rainer Zitelmann: This is the attitude that you find in Vietnam. If someone is rich in Vietnam, people think about, what can I learn from them? How can I start to become rich? In Poland, if they see rich people in the United States, I read it some years ago, I think three or four years ago, even they positioned a guillotine, protesters in the front of the mansion of Jeff Bezos, a guillotine. You know the instrument they used in the French Revolution to kill people, to show what they would like to do with Amazon boss, Jeff Bezos. But I think sometimes it’s not a topic, but maybe I can add this.
Rainer Zitelmann: I think sometimes if there are two different people, the one people he joins a group to build this guillotine and position it in front of the house of Jeff Bezos and another one who orders book about, maybe a biography about Jeff Bezos or Elon Musk on Amazon and read it to learn something about how he became successful. And what do you guess who will be more successful in five years? The people who built the guillotine or the people who read, start to read the biography to learn something, how to be a successful entrepreneur. But this is what I wanted to add. This is also that what Poland and Vietnam have in common, this positive attitude towards rich people.
Chelsea Follett: The way that they think, their values, their mindset, that’s a really fascinating aspect to all this. On the one hand, you’ve got the policy level, the economic freedom, the policies that allow people to create wealth, but they also have to believe that that is a good thing that they should try to do.
Rainer Zitelmann: Sorry, but I have to agree. It’s so important what you say. You use the word mindset. And sometimes you use it for individual success. You know this from motivational books. If you want to change your life, start to change your mindset. And I think it’s correct. If you want to change your life, first you have to change the way you think. You have to change your mindset. But it’s not only true for an individual. It’s also true for a country. If you don’t change your mindset, maybe the mindset of a country, it’s not very likely that there are real changes. Because in the end, it’s all about how people think.
Chelsea Follett: I may be biased as someone who works for a think tank, but I do agree that thoughts and ideas can help change the world.
Rainer Zitelmann: Yes. Why this, what think tanks do is so very, very important. And, you know, the change, for example, in Reagan, I admire very much Ron Reagan. Before it started with people like Milton Friedman and with think tanks like Cato and the change in the UK with Maggie Thatcher, it started with Adam Smith Institute and Institute for Economic Affairs and all this. This is the most important thing, and I mentioned this, I traveled in the last two years to 30 countries and in each country I spoke with people from libertarian think tanks. And even one year before they elected Milei in Argentina, I had this feeling because it was due to what think tanks in Argentina did for years and years and years in Argentina, and it paid off there. And I was now again in Argentina a few weeks ago and spoke with the people and they admitted without this what think tanks did. So you can’t overestimate how important it is. Maybe I’m also biased because I’m writing books and I hope I can change something with these books. But this is the way how the anti-capitalist and leftist, how they became successful. It started in the ’60s with this Frankfurt School and with all their Marxist theories. And then in the end, then I think they are more successful than we are, so we should learn something from them. Especially they know how important is marketing and public relations, because they are able to sell their crazy ideas of socialism as something human, in spite of the fact that more than 100 million people died as a result of socialist experiments and the situation was not improved in any country all around the world because of socialism, but because of capitalism. And why are we not able to explain to people that capitalism is not only important for rich people, but especially important for poor people and poor countries? This is the message of my book.
Chelsea Follett: And it is a very important message. I hope that this book is wildly successful and that many people learn from it. Do you have any parting words before we conclude this podcast?
Rainer Zitelmann: No, I think I should leave some place for people to read the book. I will not talk so much about it, but I can guarantee you, you will find more facts. The book was first published in Germany, but I made a mistake. The title in Germany was The Rise of the Dragon and the White Eagle. This was the title. The subtitle was How Nations Escape Poverty. But then I found out that almost no one understood what is the dragon. They thought about China. They didn’t understand that it was about Vietnam. It was the dragon. And the more they didn’t know what the white eagle was. Some thought it was an eagle from the United States or something like this. But people didn’t understand it. It was my mistake in Germany.
Rainer Zitelmann: But this is the good thing. I can learn from these mistakes for the wrong time in Germany and now hope to make the book successful in the United States with a better title, How Nations Escape Poverty. So yes, I hope a lot of people will read it. And also, please give it to your friends, not the anti-capitalists. I’m sure they don’t read books like this. They prefer to read book number 35, Why Capitalism is Evil, for example, the latest book from Bernie Sanders. No, give it to people who are pro-economic freedom, to give them more facts, more examples.
Rainer Zitelmann: I think you will have now for any discussion that you will have with people who disagree, socialists or left-wingers, anti-capitalists, you will have more facts now. You tell them, but here, what’s happened in Vietnam? What happened in Poland? I would guess you didn’t know it before. And now if you read the book and the good thing, the book without footnotes, it’s only something like 180 pages. So usually my books are very… The book I’m publishing with Cato, I think it’s 500 pages. And my last book was 450 pages and some people, “Oh, why I have no time to read this four, 500 pages,” but no excuse for this book. It’s only 180 pages without the footnotes. And so I hope you will read it and you will give it to other people. Thank you for giving me the opportunity to speak about it.
Chelsea Follett: Just more reason to read this book. Thank you again for speaking with me. Everyone check out Rainer’s book and his previous work. If you have more time, it’s all fantastic. Thank you once again for speaking with me.
Rainer Zitelmann: Thank you.