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How to Achieve the Miracle of Poverty
Reason Online ^ | September 18, 2002 | Ronald Bailey

Posted on 01/04/2003 8:18:13 AM PST by nwrep

"Poverty, not economic growth, is the real miracle today," explains Leon Louw, executive director of the Free Market Foundation of Southern Africa. I met Louw while covering the United Nations' World Summit on Sustainable Development in Johannesburg. Louw's insight is that in the modern world governments have to work hard to make and keep people poor.

In his wonderful book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, the Peruvian economist Hernando De Soto notes: "The cities of the Third World and the former communist countries are teeming with entrepreneurs. You cannot walk through a Middle Eastern market, hike up to a Latin American village, or climb into a taxicab in Moscow without someone trying to make a deal with you. The inhabitants of these countries possess talent, enthusiasm, and an astonishing ability to wring profit out of practically nothing." It's possible to keep such people down only if governments dedicate themselves to the pursuit of really bad policies for decades at a time.

Most notorious, of course, was the grinding poverty sustained for seven decades in the communist bloc. The phrase rich communist country has always been an oxymoron. We still have illustrations of communism's brilliance at sustaining poverty in Cuba and North Korea. Today, even though Cuba has opened a bunch of swank hard currency beach resorts, its GDP per capita is still only $1,700 at purchasing power parity. Per capita GDP in North Korea, which is asking again this year for food aid, is only $1,000.

But policies don't have to be as bad as totalitarian communism to make people poor. Consider the case of Argentina. In the 1920s Argentina's was one of the largest economies in the world, with an average income about the same as France's. Rich as an Argentine was a catch phrase often used in Paris caf?s to describe an especially wealthy person.

Since the 1940s Argentina has embarked on a series of policies—nationalization of industries, expansion of state services, and vast overseas borrowing—that has eroded its rank in the world. In recent years, Argentina's per capita income has collapsed, falling from $8,909—double Mexico's and three times Poland's—in 1999 to $2,500 today, roughly on par with Jamaica and Belarus.

Or take Sweden. Long gone are the arguments about the success of that kingdom's alleged "middle way" between capitalism and communism. In 1970 Sweden was ranked third in per capita income among industrialized nations; today it ranks 17th. The country's welfare state is strangling its economy. Taxes consume 55 percent of Sweden's GDP, while public spending equals 65 percent of GDP.

Just as bad policies can ensure poverty, good policies spark wealth creation. As De Soto points out, in the late 19th century tens of thousands of Japanese emigrated from their impoverished country to Peru in search of a better life. In the 1950s South Korean politicians said they hoped their country's citizens would some day be as rich as Jamaicans. Clearly Japan (per capita GDP: $24,900) and South Korea (per capita GDP: $16,100) have done something right, while Peru (per capita GDP: $4,550) and Jamaica (per capita GDP: $3,700) have not. Just for comparison, U.S. GDP per capita is $36,200.

Finally, there is the heartbreak of Africa, where average per capita incomes have been falling for three decades. African politicians have embraced at one time or another all of the policy prescriptions for poverty listed below. In between, they have fought numerous civil wars and engaged in various bloody tribal pogroms.


Some recipes guaranteed to get lean results

Here, then, is a short guide for kleptocrats and egalitarians who want to keep their countries poor. All of these policies have stood the test of time as techniques for creating and maintaining poverty. The list is by no means exhaustive, but it will give would-be political leaders a good idea of how to start their countries on the road to ruin.

First, make sure that your country's money is no good. Print money like there's no tomorrow. Hyperinflation is one of the easiest and most popular ways to dismantle an economy. Another popular monetary gambit is to make sure your currency is not convertible. This guarantees that no one will ever want to invest in your country.

To further discourage investment, be sure to nationalize all major Industries. Nationalization has additional poverty-enhancing benefits. For example, it will ensure that the nationalized industries never improve technologically or become more efficient, and it makes workers pathetically dependent on their political masters, namely you.

Of course, you may find it too tiresome to nationalize everything, in which case it is very important that you establish high tariffs that insulate your country's remaining private industries (usually owned by your cronies anyway) from competition.

In addition, your legal system should make it nearly impossible for anyone to license a new business, however small. This will offer opportunities for your bureaucrats to make a living through corruption and will protect your cronies from domestic competition. An added advantage is that most commerce will be made illegal and subject to arbitrary enforcement.

This leads to the point that property is critical. Once people start to own something, they invest in it and improve it, leading inexorably to the creation of wealth. Again, the legal system can help to make it impossible to issue clear titles so that your citizens can't buy, sell, or borrow against their "property." Also, force your farmers to sell their crops to government commodity boards at below-market rates. This will discourage them from investing in anything more advanced than subsistence agriculture, and you will be able to sell whatever crops you do seize at low prices to keep the urban populations quiet.


Some Last Advice

Another popular policy is confiscatory taxes. This strategy, which allows you to claim that you are soaking the rich in the name of equity, has long been fashionable among the genteelly stagnating economies of Europe.

Finally, you may have missed the golden age of international graft, when the World Bank and even commercial banks showered the governments of poor countries with loans. But if the opportunity arises, you should follow in the footsteps of two deceased leaders whose fortunes are now being divvied up in "Please Help" spams: Zairean dictator Mobutu Sese Seko and Nigerian General Sani Abacha. Take a page from their book by redirecting international loans directly to your Swiss bank accounts, sticking your citizens with the bill.

Unlike Mobutu, however, make sure to give up the pleasures of arbitrary power before you're old (or overthrown in a coup), and move to Provence to enjoy your ill-gotten gains. Of course, be sure to invest your purloined riches only in countries with stable money, strong property rights, and honest bureaucracies.

Keeping people poor is hard work, but following the above policies will achieve that goal. Modern poverty is a miracle that only you can make happen.

Ronald Bailey, Reason's science correspondent, is the editor of Global Warming and Other Eco Myths (Prima Publishing) and Earth Report 2000: Revisiting the True State of the Planet(McGraw-Hill).


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; Editorial; Extended News; Foreign Affairs; Free Republic; Front Page News; Government; Japan; Miscellaneous
KEYWORDS: capitalism; economy; government; libertarians

1 posted on 01/04/2003 8:18:14 AM PST by nwrep
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To: nwrep
bump
2 posted on 01/04/2003 8:51:14 AM PST by B.Bumbleberry
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To: nwrep
Too bad this will never see the light of day outside this forum.
3 posted on 01/04/2003 8:53:55 AM PST by Republic of Texas
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To: *libertarians
http://www.freerepublic.com/perl/bump-list
4 posted on 01/04/2003 9:27:57 AM PST by Free the USA
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To: nwrep
I am a libertarian because I recognized a long time ago that governments regularly sicken, impoverish and kill people they pretend to protect. Most governments are indistinguishable from gangs who seem benevolent only because they pose a bigger menace for the other gangs than they do for their members.
5 posted on 01/04/2003 9:34:57 AM PST by muir_redwoods
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To: muir_redwoods
...Most governments are indistinguishable from gangs who seem benevolent only because they pose a bigger menace for the other gangs than they do for their members...

For about the last ten years, when referring to the vast majority of government bureaucrats, politicians, functionaries, etc., I have been using the term 'Territorial Gangster' (acronym: 'TG' for short). Over time, governments always devolve into organized crime syndicates with (temporarily) fixed operational territories.

America's Founding Fathers understood this. We forgot it, and let the monster grow out of control to incomprehensible proportions. We are going to pay a very high price for this mistake. Some say we ARE paying this price now - which is true; but I feel that it is merely a token downpayment on the looming catastrophe I now see immediately before us.

Good day to you.

6 posted on 01/04/2003 9:56:38 AM PST by XLurk
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To: XLurk
...Most governments are indistinguishable from gangs who seem benevolent only because they pose a bigger menace for the other gangs than they do for their members...

When gangsters compete for territory, the winning gang is called the government.

The Autonomist's Notebook - Government

Hank

7 posted on 01/04/2003 11:29:51 AM PST by Hank Kerchief
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To: Hank Kerchief
Autonomist's Notebook

Hey, thanks for the link there, Hank.
-> Bookmarked for later reading.

But right now, I gotta make the traditional Saturday homemade pizza.
You know where I can get ground mouse-testicle pizza topping?
(please refer to the Taiwanese fertility thread)
Never mind - I've got top-quality pepperoni in the freezer. I'm sure it works just as well.

A joyous & prosperous day to you!

8 posted on 01/04/2003 4:47:00 PM PST by XLurk
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To: Republic of Texas
I experienced what this article is talking about when I was stationed in the Republic of Panama. There was no obvious reason why the nations of Central America should be so poor. The explanation was exactly what this author outlines.

This article needs to be out there far beyond this forum. I am emailing it to friends, in the hope that they will pass it on, too.
9 posted on 01/04/2003 11:02:35 PM PST by fightinJAG
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To: nwrep
Dead right. All it takes to dispel the stupid stereotype of lazy Third Worlders is to visit a Third World country. Go to, say, Kenya, a horribly misruled and impoverished country, and you'll see an absolute frenzy of entrepreneurial activity. Practically everybody you'll meet is trying to sell you something. Same thing in Ghana and South Africa. Put these people in a political environment that encouraged free enterprise, with sensible laws, honest judges and enforceable contracts, and there'd be an explosion of wealth in every one of them. But for a variety of social and cultural reasons, these and many other Third World countries have never developed such institutions. And that's the main reason these countries are disaster areas.
10 posted on 01/05/2003 7:35:11 AM PST by ArcLight
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To: nwrep
How to achieve the miracle of poverty?
Vote Democrat.
11 posted on 01/06/2003 7:36:34 AM PST by Darksheare
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To: Darksheare
Democrat, socialist, communist, libertarian = poverty and more govt control over the masses.

Heck isnt that the spirit of true government /sarcasm/

12 posted on 01/06/2003 9:18:48 AM PST by prophetic
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To: nwrep
Great piece and dead on, of course.

Of course, you may find it too tiresome to nationalize everything, in which case it is very important that you establish high tariffs that insulate your country's remaining private industries (usually owned by your cronies anyway) from competition.

Isn't this the policy advocated by Pat Buchanan and his merry band of paleocons?

13 posted on 01/06/2003 9:25:01 AM PST by Cincinatus
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To: prophetic
Don't be so quick to write what you said off as a sarcastic comment.
You might be onto something.
14 posted on 01/06/2003 10:01:12 AM PST by Darksheare
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To: nwrep
Can someone explain to me how come Argentina's economy collapsed? I have yet to get a good explanation on that.
15 posted on 01/06/2003 1:00:23 PM PST by KC_Conspirator
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To: KC_Conspirator
Can someone explain to me how come Argentina's economy collapsed? I have yet to get a good explanation on that.

Ditto here too, I worked as a consultant for a major worldwide bank as a consultant and there were a diversified group of folks including some Argentinians among them, but these guys took the cake for being arrogant & pompous. When I found out that among all the Central & S. American countries that they had the best US $ exchange rates I then concluded that 'yep these folks have money'.
But still I think its must have something to do with a socialist mindset.

I've friends in Jamaica who explained to me ho back in the 1970's the outgoing Labor party (pro American) left approx US$200 Million in foreign exchange surplus, but the incoming Socialist party under the now infamous Michael Manley who was a protoge of Fidel Castro bankrupted the country to the extent where the IMF had to bail them to the amount of $23 Billion.

My friends there tell me that even to this day over 50% of the GDP is allocated to paying off this debt. Back in the 1970's the Jamaica dollar was worth $1.20 US dollars, now it takes $50 jamaican dollars to buy $1 US.
I've personally lost a ton of money due to that Govt greed, corruption and outright incometence

Socialism & Communism sucks donkeys balls....

16 posted on 01/06/2003 2:50:07 PM PST by prophetic
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To: nwrep
"The inhabitants of these countries possess talent, enthusiasm, and an astonishing ability to wring profit out of practically nothing."


Yeah, but if this behavior is encouraged, Katie Couric is out of a job.

17 posted on 01/06/2003 2:59:34 PM PST by Fintan
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To: nwrep
bump
18 posted on 01/06/2003 3:12:37 PM PST by facedown
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To: Cincinatus
I don't know about paleo cons, but compare the list of do's (or don'ts) to the policies of FDR. That is why the 1930's Depression was so devastating and didn't lift for more than ten years among the hardest-working, most honest, most entrepreneurial people in the world. It still makes me angry to think of the thousands of Okies and Arkies FDR killed indirectly with his ideology.
19 posted on 01/06/2003 8:44:50 PM PST by TenthAmendmentChampion
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To: nwrep
as in pure democracies... When the weakest 51% discover they can enslave the strongest 49%...the goal is weakness to remain in power!....Of course the answer to this is Constitutional Republics where (and this is the important part!) the constitution gaurentees "individual rights" over "collective rights"...But how often does that happen...
20 posted on 01/07/2003 4:21:42 AM PST by M-cubed
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To: M-cubed
gaurentees = guarantees....Whoops!
21 posted on 01/07/2003 4:27:22 AM PST by M-cubed
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To: nwrep
Great article, comments bump.
22 posted on 01/07/2003 4:38:04 AM PST by PGalt
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To: TenthAmendmentChampion
I don't know about paleo cons, but compare the list of do's (or don'ts) to the policies of FDR

OK, let's compare the item I singled out to him. FDR didn't sign Hawley-Smoot and his Congress didn't pass it -- Hoover did. To refresh your memory, that was the gigantic tariff-raising protectionist bill of the 1930's that resulted in a trade war that deepened and lengthened the Great Depression. And trade protectionism is the fundamental building block of Pat Buchanan's ideology.

So it's not only leftists who have no faith in free markets, is it?

23 posted on 01/07/2003 4:52:25 AM PST by Cincinatus
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To: Argh
bump
24 posted on 01/07/2003 8:45:43 AM PST by Argh
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To: Cincinatus
Nope! And Hoover's congress passed the increase of marginal tax rates to 90%, too. It's just that FDR was too ideologically challenged to reverse the damage that had already been done.
25 posted on 01/08/2003 3:27:08 PM PST by TenthAmendmentChampion
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