Wednesday, April 12, 2006

The Poverty Question Revisited

A response to Letter to "Why are many people in developing countries poor?"

On one point I agree with the writer of the letter to the editors. The fault for the poverty of the millions of people in the developing world has little to do with ", the people’s own laziness" or "their lacking industriousness". But the answer isn't "colonialism", "the classical imperialism and the world wars" and certainly not "the essence of capitalism itself" There is a misconception underlying all of the author's attempts to find solutions to the poverty question, whether the complicated historical ones, or the "simple", and extremely misguided, central one: Private Property. The article simply asks the wrong question. The right question is: "Why are the rich so rich?"1

For it is not the poor that are the exception, the rich are. For 99 percents of all of human history, the luxuries we in the west (and in islands of wealth in the developing countries) take for granted – health and low child birth mortality, let alone cars and phones and vacations – simply did not exist. Ever since the Agricultural Revolution (or actually revolutions, as agriculture was apparently discovered independently in several places) after the last ice age, mankind has lived near subsistent level, and its economy was strictly Malthusian – living under the constant shadow of disease and death, with a constant fear of hunger.
As recently as 100 years ago, life expectancy at birth in the US was 47. In Mexico it was 33. Infant mortality in the UK fell from 154 per 1000 births in 1900, to 6.3 in 1998 ( In the developing world, things are much as they were before, with somewhat better medical attention and considerably more dangerous weapons – it is the West's ascendance that needs to be explained.
The truth is no one knows exactly what happened that made the West rise. Whether you call it "the Enlightment", "the Industrial Revolution", "the Scientific-Industrial-Technological Revolution" or "the Spirit of Capitalism", some changes in the intellectual, economic, social and political climate in Europe made its people break away from Nature's tyranny, and allow them to live in a world of abundance.
This difference was already manifesting itself in the 15th century, when Western explorers reached every corner of the world, while the Chinese abandoned their own (widely successful, at least from a technical point of view) explorations (See Levathes Louis "When China Ruled the Seas: The Treasure Fleet of the Dragon Throne, 1405-1433). By the 19th century, it became utterly clear, when the west could do whatever it wanted wherever it wanted, and the natives (with the exception of Japan, which realized the need to modernize) could do nothing at all.
Those who claim that the reason for the West's rise is colonialism are, of course, putting the cart before the horse. To put it bluntly, in order to exploit the natives of Africa, Asia and the Americas, Westerners already needed a qualitative advantage on them. Whatever wealth the west accumulated with the slaves it brought to America and the West Indies (and recall that comparable wealth did not arise from Muslim Black Slavery) – the slaves were transferred across the Atlantic in ships which were, in and of themselves, highly sophisticated technological creations.
It is beyond the scope of this short article to address the question of the Rise of the West. What we want to know is what should be done in order to help the people who were not as fortunate as Westerners to make the move – to gain riches. And the answer is not to abolish private property.
The author's position would've been somewhat more understandable had he written his article in say, 1945. Or, better yet, 1931. The shortcomings of Capitalism appeared, at the time, especially severe. But since then Communism has been tried in many countries, from China and all the way down the Alphabet to the USSR. It failed.
Now, there can be excuses for many of the failures. The Soviet Union was shaped by one of the most terrible dictators of the 20th century and maybe it was never able to escape that shadow. Eastern Europe received no help from the Soviet Union (indeed was forced to pay reparations) while the US lavished funds on the West. China had Mau Tse Tung. The Kibbutz movement in Israel was corrupted by the bourgeois Zionist Capitalists around it. Cuba suffered from US Embargo, and all of the African countries suffered from the long lasting effects of imperialism.
Whatever the merits of these explanations (and many others), and some of them have their merits, there remains one undisputed fact: No single communist country has become rich. Capitalism had had its hits and misses; but to drive the point home: it had hits.
Personally, I feel that we have a fairly good idea about why Communism always failed: because it ignores the major insight of economics – that people respond to incentives. In order to generate wealth, people have to be motivated. Adam Smith had said it best, almost 230 years ago:

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

But even if you disagree with this analysis, the overwhelming argument remains: No one ever figured how to make a Communist regime work. If you have your own country, you are welcome to try to beat the odds and be the first, but please don't take me, and the world's poor, along with you.

Note on the Editors' Commentary
The author of the 'letter to the editors', despite all his faults, at least identified the real problem at hand: people in the so-called developing world are living in wretched, miserable conditions, while the people of the West live in luxury. As flawed and erroneous as his diagnosis is, at least he realizes the problem. Unfortunately, the Editors don't.
Bizarrely, the Editors can frame the question. They write:
Those in the Third World starve while those in the First World watch them on color television — and are glad to be doing fine.
But the catch is in the next phrase:
Comparatively at least

You see, unlike the letter's author, what troubles the Editors is not that the people of Angola have a 42% literacy rate, that their life expectancy at birth is less then 50 years, that infant mortality rates there is 135.7 per 1000 birth or that the Gross Domestic Product per Capita is 700 U$. Nor does it matter that they have about 50 % unemployment.
(Source: Oh no, the real concern is that the poor in these countries, just like the poor in the west "live for capital".
You shouldn't ask why people in Africa are starving and dying, because that legitimizes Capitalism: " If deficient capitalism would be the reason for the especially wretched squalor in developing countries, then capitalism as such gets off the hook". For the Editors, the problem isn't poverty – it is Capitalism.

1 What follows is my attempt to articulate mainstream economic ideas, and I deserve no credit for originality in anything but formulation. For further reading, I highly recommend David Landes's "The Wealth and Poverty of Nations: Why Some are So Rich and Some So Poor" (Which for all its flaws is a superb historical analysis of the rise of capitalism), and William Easterly "The Elusive Quest for Growth: Economist's Adventures and Misadventures in the Tropics" (For an analysis of the failure of industrialization in the Third World and what can be done about it)


Blogger James Gibson said...

Wonderful post. I got here after reading a review your wrote on I'm going to cite your review for my senior thesis (I don't know how often people cite reviews, or if it's even allowed, but that's not stopping me!). Keep up the good work!

2:31 PM  

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