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The Political Roots of Poverty
The National Interest ^ | Bruce Bueno de Mesquita and Hilton L. Root

Posted on 07/26/2002 5:47:10 AM PDT by Valin

The events of September 11, 2001 have led, among many other things, to the revival of an old debate about the relationship between poverty and political extremism. To get at the root of apocalyptic terrorism, many new initiatives to reduce global poverty have been proposed. British International Development Secretary Clare Short advocates a massive international effort to stop poor countries from becoming breeding grounds for terrorism: "The conditions which bred their bitterness and hatred", she has said, "are linked to poverty and injustice." Britain’s Chancellor of the Exchequer, Gordon Brown, has called for a fifty-year Marshall Plan that would disperse aid in exchange for an end to bad government, in his words, for "the developing countries pursuing corruption-free policies for stability, opening up trade and encouraging private investment." Some advocates call for spending targets to be directly linked to the gdp of donor nations, overlooking selectivity or effectiveness. Even more ambitious proposals call for an international tax to limit the adverse consequences of globalization by financing global public goods.

The presumed connection between poverty and terrorism raises general fears of global class warfare--but are these fears justified? The argument that poverty directly causes terrorism is simple-minded. A more compelling argument can be made that rising levels of material well-being, and with them expectations of social and personal empowerment, actually fuel political extremism and violence. It cannot be refuted, however, that most of the countries incubating terrorism tend to be on the low end of the per capita income spectrum, nor that "poverty and injustice"--and these are not the same--fuel resentment of the powerful and wealthy to the extent that terrorism can attract admiration and even peripheral support. And it is certainly true that bad government is a problem so serious that no effort at poverty alleviation can succeed without facing it.

Whatever the motives or the depth of understanding underlying them, new efforts are afoot to tackle global poverty through greater funding of economic aid programs, and the Bush Administration is contributing to those efforts. Its proposals on development, if carried out, could represent a significant milestone in the way aid is allocated in the future. The President affirmed that "Poverty doesn’t cause terrorism. Being poor doesn’t make you a murderer. Most of the plotters of September 11th were raised in comfort." But he added that "persistent poverty and oppression can lead to hopelessness and despair, and when governments fail to meet the most basic needs of their people, these failed states can become havens for terror." Thus, the administration has agreed to raise the level of U.S. foreign economic assistance considerably, but, at the same time, insists on conditions that can produce some reasonable assurance that the money will not be wasted. In a sense, the administration has adopted a kind of market-based aid program kindred in spirit to that of Gordon Brown’s. It proposes, in essence, a contract with the governments of the world’s poorest countries: Cease the practices that keep the vast majority of your people poor, and we will help you; persist in those practices and we will refuse to subsidize them--and you.

In general, this approach makes good sense because economic aid cannot truly succeed unless it prompts sound institutional reform. It is the irony of foreign aid that it is used best by the countries that need it least. But it does not solve the problem that many countries are poor because their governments resist such reform, and that such resistance will ultimately generate both humanitarian crises and havens for terrorism. How do we deal with cases in which conditions attached to U.S. economic aid are rejected or ultimately distorted?

This essay has two purposes. The first is to lay out some empirical evidence about the relationship between economic aid and systems of governance. The second is to address the problem of how the U.S. government should deal with difficult partners. On the first task there is a wealth of data that suggests some surprising connections between the length of political tenure, the nature of governance, and the role of aid money. That data and those connections, in turn, can help us to think through the second task.

Political Tenure and Economic Development

Our standard approach to economic policy reform typically assumes that leaders are rewarded politically if they help their nation improve its economic performance. In reality, politicians succeed by helping their constituents and, in the vast majority of poor countries, politically significant constituencies are not representative of the whole population. It makes perfect political sense for autocrats in poor countries to enrich the clique of supporters around them, even if it means keeping the majority of the population poor. In short, in such situations, political rationality and economic rationality are not in alignment. Under such conditions, external aid money will not help to alleviate poverty; it is more likely to buttress further what is already an economically dysfunctional arrangement.

The economic rationality of autocracy underlies a good deal of what we have learned over the past half century in the experience of giving, monitoring and evaluating foreign aid programs. Two lessons stand out.

First, the amount of aid a poor country receives does not directly correlate with how well it does. Getting external resources into a country, whether by public or private investment, is not the main factor. Second, conditionality--the linking of aid money to macroeconomic reform--does not work as advertised. Aid to low-income African states has been significant, especially since the end of the Cold War, and nearly all of it has been conditional on macroeconomic policy reform. Excluding South Africa and Nigeria, the average African country received the equivalent of 12.3 percent of its gdp in Official Development Assistance, a sustained 5 percent increase in real terms between 1970 and 1995, before declining. This unprecedented international transfer far surpassed the Marshall Plan, which at its peak accounted for only 2.5 percent of gdp in France and Germany. If conditionality had worked, Africa would be the world’s stellar performer. Instead of helping the reform process, however, substantial aid increases have allowed governments to avoid reforms that might have led to growth and peaceful political change. Aid allocation decisions often reward countries that least follow donor dictates, and it is all too easy to find examples of donor programs that have undermined the very objectives that donors wished to promote.

Put differently, we have the economics of foreign aid right, but we have got the politics wrong. There is a strong consensus about what sound economic policies are at various stages of economic development, and professionals in this field recognize in turn that external aid works best in a good economic policy environment. There is no consensus, however, about the delivery of results in poor policy environments. For example, how do we ensure that programs targeted at reducing infant mortality and making certain that children learn to read achieve their objectives when the "right policies" are missing in many of the poorest countries?

Many economists argue that better dissemination of their own ideas is the solution. In this spirit, Joseph Stiglitz, former chief economist of the World Bank and Nobel laureate, started an international network "to ensure in one place a comprehensive catalogue of what is at issue, and what is the theory and evidence that underlies positions, so that those in the developing world are in a better position to make decisions for themselves." But with abundant technical assistance being provided by international agencies, the supply of good advice often exceeds the demand. Ignorance of sound economic policies is not really the issue.

Stiglitz does note, almost in passing however, that poor countries are poor because their leaders have only half-heartedly implemented sensible economic ideas. The real question, then, and one that economists alone are powerless to answer, is why that is so. Why have many governments rejected good economic advice that they have been paid to receive? The answer may be found in the economic logic of autocracy.

Just as we naturally consider successful those leaders who foster economic growth and prosperity for their citizens, we expect that leaders who produce famine, poverty and misery will earn a rapid retirement. But the data show that leaders who produce poverty and misery through the systematic corruption that is characteristic of autocracy keep their jobs much longer than do those who enrich their countries. Indeed, the eight countries consistently rated the most corrupt in the world—Congo, Iraq, Myanmar, Sudan, Indonesia, Syria, Pakistan and Burundi—are those in which political leadership has been most secure, measured by the longevity of its tenure. (Only countries that have experienced a complete breakdown in social order can rival an entrenched autocracy in generating extreme levels of corruption.)

With rare exception, only autocrats--leaders who are unresponsive to the popular will and who exercise power unchecked either by law or other institutions--hold on to power for a long time. Over the past century, the only leaders who have remained in office for forty years or more have been autocrats. By contrast, nearly half of all democratic leaders--leaders who hold power at the pleasure of the voters or an elected legislature--are out of office within about one year of coming to power. Such a short tenure is true of only about one-third of autocrats, a remarkable difference in survivability. Virtually no democrats--but one-quarter of autocrats--stay in office for more than eight years, even though few democratic leaders are subject to term limits.

To elaborate the point, one can divide the leadership structures of poorer countries into two groups: those who depend on a small group of backers, which may be called exclusive regimes, and those who rely on a relatively broad coalition of support, which may be called inclusive regimes. Exclusive regimes tend toward narrow autocracy and oligopoly; inclusive regimes tend toward what we normally think of as democracy. But there are many poorer countries short of reaching mature and genuine democracy that nonetheless exhibit inclusive characteristics--among these a decade or so ago were, for example, the East Asian tigers and Chile. In other words, there is a spectrum of governance structures, and the more inclusive side of it contains democratizing regimes as well as fully democratic ones. One may measure how broadly based a regime is by taking into consideration such factors as constraints on executive authority and the openness and degree of political competition. A comparison of political survival rates between these two groups, based on economic performance, tells a depressing but important story.

Leaders who depend on a broadly inclusive coalition do better at staying in office only if they manage to promote exceptionally high growth rates. They do worse if, instead of growth, they promote rent-seeking opportunities of the sort that typify countries with vibrant black markets, often controlled by the friends and allies of the leadership. Inclusive leaders who promote growth stay in office, on average, 15 percent longer than those who do not.

The reverse is true for those who rule at the pleasure of a small, exclusive group. Exclusive leaders who rely on black-market corruption have a better chance of staying in power than those who engender high rates of growth, staying in office, on average, 25 percent longer. Indeed, at all periods during their tenure in office, these leaders do much better at retaining their jobs if they promote black marketeering, corruption and cronyism--distorting the economy--than if they promote economic policies that lead to growth and prosperity. Why does this perverse outcome occur? As suggested above, leaders who would keep their jobs must produce what their supporters want; when those supporters are unrepresentative of the country, autocrats will not pursue policies that encourage the creation of healthy, educated, prosperous citizens.

Autocrats not only retain power by maintaining the loyalty of a relatively small group of supporters--which usually include those who control the military, the civil service, the communications and information infrastructure, as well as key economic levers--but they also have an interest in keeping that core group as small as possible. In a poor country, an autocrat faces personal political risks if he implements policies that dissipate resources away from the few upon whom he relies to those who have little say in ensuring his political survival. It is therefore politically irrational to implement transparent economic policies aimed at protecting and promoting property rights, rule of law, a broadly educated population, low taxes and free trade, if they enable challenges to the incumbent. It is not in an autocrat’s interest that people have ways to enrich themselves that he does not control.

This is why autocrats face their highest risk of being deposed in their first year in office; they have not yet identified their most loyal backers and have not yet fully secured their ability to transfer benefits to them. With time and experience, they get better at identifying those on whose support they really rely. They discover that excluding "the many" from sharing in the wealth of the country is the best way to reward a small clique of supporters.

Even worse, such systems tend to perpetuate themselves, which is why a reform-minded leader who manages to come to power in such a system faces excruciating dilemmas. If he is committed to promoting growth and prosperity, he may find that pursuit of such goals can ensure the loss of office. Elections give a mandate to a democratic leader, but in pursuing reform, even a democratic leader may be forced to implement policies that injure the interests of the constituents who brought him to power. Any politician unable to satisfy his core constituents faces a risk of their defection to another politician who shows more promise of improving their lot. After listening to a long list of measures designed to improve his country’s economy, President Rafael Caldera of Venezuela told Nobel laureate Douglass North, "If I were to do the things you are recommending, I would not survive in office long enough to enjoy the benefits."

Foreign Aid and Autocratic Longevity

How does the provision of foreign aid fit into the logic, and economic implications, of autocracy? In those many cases in which aid has not led to economic growth, what has it accomplished?

External aid often promotes longevity in office for autocratic leaders who are otherwise at risk of being deposed; it simply makes it easier for them to patronize their core group of supporters. In such cases, aid not only fails to promote economic growth, but it also diminishes the odds that the political system will evolve in a more inclusive, democratic and growth-oriented direction.

This may seem too large a claim to some observers. After all, external aid generally comprises only a small component of a nation’s total economy. Since 1975, for instance, international aid has averaged only about $7 or $8 per citizen. Such numbers imply that foreign assistance is not significant enough to reshape economic prospects and barely enough to provide relief to the world’s poorest people. This assumption, however, misses the fundamental benefit that aid provides to autocratic leaders, and again, the data illustrate it. Autocrats in countries with below-average growth rates who do not get aid have a 25 percent chance of staying in office for five years. If they receive economic assistance, that survival time rises to seven years, a 40 percent increase. A few dollars of aid per capita is small in terms of any impact on the national economy, but it is huge with respect to helping autocrats enrich their small coterie of supporters.

On average, every dollar of per capita foreign aid improves an incumbent autocrat’s chance ofsurviving in office another year by about 4 percent (even after taking into account the independent effects on political survival exerted by such factors as the country’s economic growth rate, black market exchange rate premium, national debt, and its geographic situation). Since the average autocracy gets about $8 per capita in aid, foreign assistance may boost the survival prospects of poorly performing leaders by 30 percent or more.

The data also suggest that giving assistance to leaders of exclusive, autocratic regimes is especially critical early in their tenure, when they do not yet have a solid hold on office. Aid frees up money for the incumbent leadership to buy support from a relatively larger number of backers without having to generate the wealth to do so through policy choices. Even small amounts of aid provide major opportunities for novice autocrats to outbid political rivals and hence deter defections to them. Mobutu Sese Seko, for instance, used foreign aid after his successful 1965 coup (as well as the nationalization of assets) to buy the loyalty of the Zairian military and the country’s economic elite, thereby securing his hold on power. (His eventual overthrow, in the late 1990s, was directly tied to his growing inability to meet the military’s payroll.)

Aid is most likely to be effective if it is given as a benefit to those who have demonstrated that they can use resources to improve economic performance. However, assistance given in response to expressed intentions, lacking a proven track record of effectiveness, is likely to lead to perverse incentives. This creates the central paradox of foreign aid: under many of the least politically inclusive systems, good policy is bad politics, and bad policy can be good politics. In those more inclusive systems, in which good policy is also good politics, leaders face greater obstacles to maintaining incumbency because it is not enough for them to distribute a finite number of private goods to a small oligarchy to win support. They can only remain in office if they generate and sustain policies that deliver public goods (schools, health care, a safe environment) to the general populace.

The policy implications of the dichotomy between exclusive and inclusive systems of governance go beyond the matter of leadership tenure. When the political system is dominated by a small coalition of cronies, relatives or military officers, citizens do markedly worse on public welfare or humanitarian indices than do their counterparts who live under more inclusive systems. Across the board, the data show that more inclusive systems generally do a better job at producing safe drinking water, expanding public education, offering access to medical care, encouraging free trade, avoiding corruption and black marketeering, attracting investors and so forth. Moreover, even quite poor inclusive societies usually offer more of these advantages than do autocratic countries lucky enough to possess some important and valuable resource. The reasons are not difficult to fathom: inclusive governance promotes greater government spending on social policy because, in such systems, the longevity of political leaders is directly tied to the welfare of the majority. El Salvador and Jamaica are two excellent examples of relatively poor but inclusive societies with above-average social welfare (as demonstrated by their low infant mortality rates and high-quality drinking water). By contrast, during their non-democratic years, Mexico and Brazil had above-average income levels, but performed poorly on these social indicators.

Consider, too, the impact on life expectancy at birth of the coalition size that a ruler uses to govern. Being born in a polity that scores highest on the inclusiveness index adds nearly fourteen years to life expectancy, whereas an order-of-magnitude increase in per capita income adds only five years. Both are significant, but the impact of coalition size can have dramatic results, both by increasing life expectancy (because of government spending priorities) and by creating a more open economic system, since a competitive political system is a significant contributor to economic growth. By way of illustration, per capita income in Brazil in 1972, eight years after the military coup, was $2,907. In the same year in Jamaica, a functioning if narrowly-based parliamentary democracy, per capita income was about the same, $3,099. According to the “coalition size” index of inclusiveness, however, Jamaica scored 1.0 while Brazil scored 0.25. It is therefore not unusual--though it may be surprising to some--to find that whereas life expectancy in Brazil in 1972 was 59.8 years, in Jamaica it was 68.6 years, nearly a decade longer. Similar evidence can be marshaled using other measures of social welfare: regarding the equality of educational opportunity for women and men, differences in infant mortality rates, and so on. What is more, the data also suggest that when a government switches, whether by choice or the compulsion of circumstances, from being exclusive to being inclusive in nature, economic growth shows a marked improvement over the next three to five years.

In designing assistance programs, it is crucial to recognize that the social welfare improvements sought by donors are best promoted by encouraging leaders to adopt more inclusive political institutions. Those who fail to do so signal their unwillingness to put their hold on office at risk, even when doing so stands to improve the well-being of their citizens. If assistance programs are not designed to address the political incentives of leaders, further aid to autocratic regimes will continue to present the sorry record of the past: assistance without proper political incentives and inducements will not bring political civility and prosperity. Instead, donor assistance will continue to substitute for governmental efforts to make citizens better off, and may even help pay to keep failed leaders in office.

Engaging Difficult Partners

Recognizing the political causes of poor economic performance is critical, but it does not relieve us of difficult choices. It is correct to say that aid will do more good in consolidating progress in countries already pointed in the right direction than it will in those countries still burdened by bad government. But that does not mean we can walk away from the people who live in those unfortunate lands where misery, resentment and the potential incubation of terrorism is likely to be most acute. So what to do? We suggest seven basic guidelines.

First, donors must take greater responsibility for outcomes. Whose fault is it when aid is ineffective because external efforts are not well targeted, well coordinated and rigorous in measuring results? If money is dispensed without adequate assessment of the potential for mismanagement? If there is inadequate information about what the aid is designed to accomplish? Donor countries need to institutionalize a more credible monitoring system with third-party safeguards that unambiguously separate disbursement from assessment and monitoring. The international financial institutions (IFIs) should introduce an "inspector-general function." A permanent quality control staff, composed of individuals unaffiliated with any ifi, that sits in on important decisions and is enhanced with the participation of the intended beneficiaries, is one way to go.

Second, end the debt trap. Loans to already heavily indebted countries reduce their opportunities for economic growth. Loans have been the preferred method of assisting developing countries because donors believed that loans would foster greater responsibility for, and ownership of, outcomes. However, the assumption that poor countries are less likely to squander funds that they must someday repay has proved wrong. Most non-democratic leaderships have been more than happy to consume the benefits of the loans--enriching themselves and their supporters--while passing the future burden of debt service and repayment onto the country at large. This is just the economic logic of autocracy at work across time rather than across the population at any given moment. The resultant "debt overhang", not surprisingly, diminishes the appetite of investors for developing market investments. Even if the society offers otherwise attractive investment opportunities, the debt burden reduces the means to capitalize on them. With inadequate cash even to pay current obligations, little is available to pursue new investment.

The crushing weight of debt is so debilitating that the idea of debt forgiveness has gained widespread popularity. Debt forgiveness, however, does not address the central problem of perverse incentives. Excessive debts exist because the political incentive structure protects leaders from the consequences of poor economic results. There is a strong correlation between the magnitude of debt overhang and the degree to which a small coterie of insiders control government. Inclusive regimes, by contrast, have a much smaller debt-to-revenue ratio. Statistics collected on 46 countries concerning the 1946–93 period demonstrate this fact, even after controlling for other variables such as the impact of previous inflation and growth rates on indebtedness. Thus, debt forgiveness must not be misused to wipe the slate clean, only to start a new cycle of mismanagement under a new clique of autocratic rulers.

Third, use grants to work around governments in order to stay engaged with difficult partners. It is callous to withhold all aid while awaiting the establishment of sound political and economic frameworks in impoverished autocracies. Many of the poorest countries have governments and institutions that either do not support development or cannot use development assistance effectively. In such circumstances, grants may be in order.

Grants are easier to monitor than direct budgetary support because they are given for a particular project with narrowly defined goals and, most importantly, they need not be made directly to governments but can be used as a tool to build civil society. Directly administered, grants represent just the kind of challenge needed to overcome the entry barriers set up by governments that survive as incompetent monopolists. A donor can put the project out to bid, select the contractor, and then pay for an independent performance assessment when the project is completed. If properly designed, grants also enable donors to empower people through building institutions outside of government. Whereas governments are unlikely to borrow to build capacity in society, a grant facility will allow ifis to contribute to such capacity. The programs supported by grants can also be used as an incubator of leaders who can help focus demands for change and give those neglected by their government a voice. By empowering groups outside the civil service--which is often racked by patronage and corruption--to administer grants, donors build moral space that allows citizens to challenge the credibility of abusive governments. Concrete examples of successful project completion can lead populations to demand more from their governments. Unlike loans, grants deprive the government of the opportunity to channel the money to cronies rather than to those most competent to satisfy the grantor’s objectives.

Fourth, stop trying to address economic questions in isolation from political considerations. Most causes of poverty in the world can be linked to leaks in the ship of state. That is why developing tools for broad stakeholder alliances (such as the World Bank’s new poverty reduction facilities) is so important; otherwise, donors risk unwittingly collaborating with leaders who have created the conditions for economic collapse in the first place. Linking the role of aid in humanitarian assistance to its role in policy reform is absolutely essential. This requires coordinating two objectives that require different mechanisms (loans and grants), different partners (the state and civil society), and different delivery systems (for example, the multilateral development banks rather than organizations such as the World Health Organization). Each grant and each project must serve as a building block toward the creation of a more inclusive regime.

Fifth, aid disbursement techniques must prevent backsliding toward exclusive governance. The tendency for an incumbent to shift policies toward autocracy will be enhanced if unrestricted aid is given before a country has a track record of good governance. Aid given before policy results are firmly established allows countries that only promise reforms to revert to bad policies in order to be eligible for fresh aid. Countries with bad policies can then perversely obtain more aid than countries with socially productive policies. Aid could be used more effectively if donors find ways to reward non-lending activities, such as designing a change strategy for a country that is not eligible for assistance because of failed governance, or helping to create a domestic constituency that favors reform.

Sixth, encourage trade liberalization as an essential component of global poverty reduction. Full trade liberalization has the potential to lift at least 300 million people out of poverty by 2015 and can create domestic coalitions for reform and openness. Mexico’s trade with the United States has more than tripled since the passage of nafta and, as a result, per capita income has begun to rise. In turn, economic growth has helped to consolidate both democratic and economic reforms. By creating jobs, it has thinned patronage networks and eliminated the traditional rents from controlled markets that once kept corrupt leaders in power. A new and independent middle class is emerging to demand genuine accountability from Mexican leaders.

The World Bank notes that the average poor person confronts trade barriers roughly twice as high as those confronting the typical worker in an oecd country. In general, tariffs in advanced countries on imports from developing countries are four times higher than those on imports from other advanced countries. Exceptional protection is imposed against imports from many developing countries of many farm products (particularly in the eu and Japan), of textiles and clothing (notably in the United States and Canada) and of footwear. According to the World Bank, a new trade round coupled with market reforms could boost global income by $2.8 trillion over the next 15 years. If sub-Saharan Africa, for example, had maintained the share of world trade it had in 1980, annual exports would be $191 billion, more than double what they are today and almost four times the amount of the most ambitious calls for increased foreign aid.

Finally, remain mindful of the inherent limitations of aid and focus on the maintenance and expansion of private sector flows. No matter how successful the United States and other donor counties are at increasing state aid, it can never substitute for a healthy and conducive environment for private sector investment and capital formation. The hallmark of a good aid policy is one that strives to build a transmission belt from public to private investment flows.

There are good reasons to want to alleviate poverty, especially in the wake of September 11. But poverty is not exclusively an economic problem; it is a problem of political economy. Until this fact is squarely faced, no amount of aid will come remotely close to solving the problems that breed the hopelessness and despair the President wants to alleviate. We really do have a passing fair idea of what policies can overcome poverty, but most efforts to educate leaders and bureaucrats about good economic practices flounder because we have too often ignored the reasons that leaders fail to do what is right for their country. To be frank, much U.S. economic aid during the Cold War was motivated by a desire to keep certain strategically situated autocrats on our side during that conflict. How well or how poorly they used our money was a secondary concern. This is no longer the case. Our aims remain political, as well they should, but now those political aims can be served only by getting positive results from the aid effort.

The Bush Administration has taken a major step forward in establishing new criteria for foreign aid, by explicitly linking assistance to good governance. The President has wisely avoided facile and misleading depictions of the sources of global poverty and terrorism. But many difficult questions remain. How can the needs of people living in poor countries be served without progress toward democratization, especially when they lack the institutions needed to generate growth or to interact with the global system? If we agree that, until the fundamentals are in place, development assistance will reach only a fraction of its potential effectiveness, does this imply that we should ignore poorly performing nations? How do we distinguish between "states that are poor because they perform poorly" and "states that perform poorly because they are poor"?

With few options for successful assistance, the challenges posed by poorly performing countries go well beyond the usual limits of what we have understood to constitute development policy. What makes the task ahead particularly daunting is that the ultimate solution to poverty comes down to nation-building. Yet, in vast parts of sub-Saharan Africa, Central Asia and elsewhere, states have atrophied, enabling them to be abused or captured by transnational terrorists, traffickers and smugglers. In a world where development is state-driven, what will happen to countries without minimally functioning states? What institutional alternatives should we be thinking about where an effectively functioning state is a distant reality? Overcoming the curse of bad government will require some particularly creative thinking, and much patience. Hard labors and long delays lay ahead, but a meaningful marker has been put down. At last we seem to have the definition of the problem down right.


TOPICS: Constitution/Conservatism; Extended News; Foreign Affairs
KEYWORDS: aid; autocracy; despotism; dictators; internationalaid; poverty; povertyreduction; wealth

1 posted on 07/26/2002 5:47:10 AM PDT by Valin
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To: Valin
Excellent post!

I have downloaded this one to go in my "virtual vault" as something I will be referring to on a repeated basis and sharing with friends.

It's refreshing to read such clear thinking this early in the day.

2 posted on 07/26/2002 5:55:04 AM PDT by capt. norm
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To: Valin
Yes, excellent post.

The creation of wealth requires the following conditions:
1. Individuals must be free to act in their own interest.
2. Laws must be clear and predictable in their application.
3. The courts that administer those laws must be honest and transparent.

Transversely, poverty becomes rooted and endemic where the reverse is true:
1. Where people are not free.
2. Where decision-making is centralized among an elite.
3. Where the administration of law has been corrupted.

Government to government aid is almost always counterproductive because, as the article makes clear, it only strengthens the existing elite.

Private investment, on the other hand, while strengthening the elite in the short run, is far more effective in developing true wealth. Private companies will not invest where their legal situation is not secure; as they negotiate the legal structures they need, those same legal structures make it possible for local entrepreneurs to operate. Their operations within a country open opportunities for myriad small contractors, above and beyond the direct employment given to often thousands of workers. This new network of contractors and entrepreneurs, as they gain experience and expertise, sets the stage for more development, and creates a class of people who are not dependent on the central authority for their livelihood.

Charities operating in this environment are most effective at the local level, focusing on education, on basic infrastructure such as water and roads, disseminating agricultural assistance, on medical help. Activities that develop local initiative in solving problems, and reduce dependence on the central authority have the greatest hope bearing fruit long term. Local entrepreneurs, local coops, solving problems is good. Longterm dependence on the charity defeats the purpose.

3 posted on 07/26/2002 7:30:47 AM PDT by marron
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To: Valin
There are good reasons to want to alleviate poverty, especially in the wake of September 11

What nonsense. 9-11 was plottted and funded by millionaires. Most of the men who lost their lives were well to do and educated.

Poverty wasn't the cause. Giving up their lives and abandoning temporary rewards in this life for an eternity of rewards with Allah was the motivation. Not gripes about poverty.

They were following their religious convictions. - Tom

4 posted on 07/26/2002 11:45:45 AM PDT by Capt. Tom
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