Reply to Michael C. Munger.

• Author: Murphy, Ryan H.

Michael Munger comments on my paper in this issue of The Independent Review, ultimately providing several points through which my argument could be improved with further clarifications. I attempt here to clarify where I was previously unclear. I also argue that although the empirical methodology is far from perfect, the State Economic Modernity Index meaningfully helps generate a list of three countries--Israel, Hungary, and China--whose characteristics have set them apart among socialist countries in a positive way, at least to some degree. To my knowledge, the parallels between the three countries have not previously been recognized.

First, the phrase "actually existing socialism" has historically been applied to "socialist" countries quite distant from the writings of Karl Marx. It is meant specifically to denote what "socialism" tended toward after the attempt to implement it (see, for example, Swain and Swain 1993). It is true that there has never been a country that has simultaneously employed the collective ownership of the means of production and extreme participatory democracy. But although China, Hungary, and Israel do not meet this stringent definition, they do meet the historical standard of "actually existing socialism."

I also wish to clarify the meaning of the State Economic Modernity (SEM) Index. Munger implies that it rates countries positively for having small governments. But the "twist" in the index that has led to some confusion is that by subtracting the size-of government component used in the Economic Freedom of the World (EFW) Index, the SEM Index credits countries for having larger governments. This is because the EFW Index is built such that 0 corresponds to a very large government and 10 corresponds to a very small government. Therefore, the SEM Index scores China well because of China's large government (3.91/10) and tolerably effective legal system (6.78/10) in 1985, at least according to the data sources employed for the EFW Index. China receives these scores despite the political events of the historical period 1966-76, which Munger cites as a period in which state capacity and rule of law were destroyed. Figure 1 charts the SEM Index against the EFW Index for 1985, with country labels, while only showing countries rated higher than 5.0 in economic freedom and higher than 0 in state economic modernity. Figure 2 displays the same relationship, but for only countries with economic freedom rated higher than 5.0...