Capitalism Sustains Development; Socialism Sustains Poverty
We have witnessed a dramatic decrease in the percentage of the world population living in extreme poverty over the last few decades. The United Nations likes to attribute it to its Sustainable Development Goals and its amazing government-run programs for redistribution, economic manipulation, and central planning. There is another explanation, however, that is much more plausible: economic freedom in the world has increased at an unprecedented rate, and economic freedom, markets, and individual private property rights are the actual means to individual prosperity and accumulation of wealth. Further, individual accumulation of wealth and capital for investment by the people is the only way for development to be sustained or sustainable.
The sustainable development goals sound great. Who doesn’t like the idea of eradicating extreme poverty? The problem is that they entirely misunderstand the cause of poverty. Poverty is the lack of wealth and productive capacity of individuals. Nations and regions are poor because a high percentage of individuals are poor. Poverty, however, is not that difficult to understand. It is the default position. For most of history, the bulk of the population was what we now call poor. It is only in relatively recent centuries that the general populace of any nation lived a comfortable life. Those nations with generalized prosperity are those which embrace some form of what is called capitalism, the protection of private property rights, thriving markets based on voluntary commerce, and the limitation of rapacious political forces.
The west is rich because the countries have long ago embraced those ideals, at least to a significant extent. Once-prosperous nations can decline into poverty when they forsake them. Argentina, Cuba, and Venezuela were once relatively prosperous and advanced. In each case, the government thought they could do a better job of spending other people’s money and planning the economy than the people themselves could. There are plenty more examples of politicians squandering wealth accumulated from relatively free markets and respect of private property.
Development economics has followed the philosophy that, if only we can pump enough money or resources into poor countries, they will rise up and become prosperous. Even Bill and Melinda Gates, through the Gates Foundation, often try the same tactic. Gates said, “Investments in agriculture are the best weapons against hunger and poverty,” and they put their money where their mouths are. In 2016, they donated 100,000 chickens to African countries as but one example.
Yes, families that receive the five chickens are somewhat better off temporarily. Wide-scale development, however, comes not from donations with good intentions, but from markets, advancement beyond subsistence agriculture, modern manufacturing methods, from the advantages of division of labor, and from protection from predators, both inside and outside the government.
Somalia, as an example, is poor, not because they don’t have chickens or any other “stuff.” A Somalian acquaintance who graduated from business school now works for a U. N. development agency because, if you are a business person, you are likely to be robbed or killed. Somalia is poor because people cannot accumulate wealth without risk to their lives and property, reminiscent to the tale of Ali Babba. He buried the treasure he had gotten in the ground because neighbors would get jealous and the forty thieves would find him out and murder him. Treasure is of no use when it can’t be invested.
Much of Africa is now developing because they are demanding rights to freedom and property. They are experiencing free markets, where they can sell their services and benefit from competition that drives down the cost of living. If we really want to see poor nations prosper, we need to find a way to eliminate corrupt dictators, socialist parasites, and their pretend-capitalist cronies.
Originally published on Townhall Finance.
Daniel J. McLaughlin is the author of “Compassion and Truth-Why Good Intentions Don’t Equal Good Results.” Formerly a finance executive, he is now focused primarily on writing on economics, business, and politics. You can find him at daniel-mclaughlin.com.