Monday, January 14, 2008

The Real Roots Of Poverty

First, Mike Moore said this.

Then John Minto replied.

Farrar commented here on both.

Then Owen McShane replied thus.

I have been waiting for the most opportune time to reproduce this. Cometh the hour.*

Billions is poured into poverty around the world. Everybody from churches to charities tries to assist. Money is virtually printed and given to nations in Africa which have unsound governance and are corrupt. There are faith-based programs designed to feed the children; education programs designed to create awareness of poverty and starvation; corporate programs designed to enhance global development, helping to create business or to bring existing corporations into nations to provide jobs; and there are government programs designed to build hospitals, schools and businesses to create jobs and improve healthcare and education. Charitable contributions and government money, either from the local level or through foreign aid are the main source of funds for the efforts.

Yet little progress is being achieved as, in fact, the problem continues to escalate. There is an ever-growing disparity between rich and poor. Why?

To date, nearly every effort to eradicate poverty has focused on temporary relief of the suffering rather than getting to the root of the poverty and creating real solutions to actually eradicate poverty permanently. The result of such efforts, while well intended, and perhaps necessary in the short run, to assure the poor are at least kept alive, will not solve the problem of poverty. In fact, such programs may actually make the situation worse.

Frankly there is not much new in this type of activity. For more than fifty years governments and charities have been focused on rushing aid to the poor and starving. Yet none of these efforts address the basic reason poverty exists in the first place. The solutions which call for more and more aid simply respond to the visual effects of poverty such as starvation, ignorance and poor health. None truly address the cause. As a result, rather than easing the situation, the number of poor continue to grow.

Most of the current anti-poverty efforts focus on redistributing funds from wealthier nations to poorer ones, either through mandatory taxation or charitable donations. This system ignores the fact that tomorrow the poor need to be fed again. Taxpayers or the voluntary donor must dig into his own funds yet again to help. The process is repeated daily, each time the poor recipient is only temporarily helped, as the taxpayer or the donor become poorer themselves. Meanwhile, as massive funds are moved in and out of governments, bureaucracies are institutionalized to run the system. More and more money goes to feed the machinery of poverty than gets into the hands of the intended poor. Such a system sustains poverty rather than eradicates it.

Meanwhile, some corrupt and totalitarian governments also learn how to divert funds into their own coffers, again, depriving the poor of their daily bread. A system of bribes and local corruption often exist making it nearly impossible for average citizens to receive government services. Such a system forces many of the poor to live outside of society in a virtual underground economy. This actually serves to sustain poverty against the efforts of those trying to eradicate it.

In addition, some international policies actually institutionalize poverty. Policies which prevent or severely restrict development and energy use result in the violation of the most basic human rights, denying economic opportunities and the chance for better lives, the right to rid their countries of diseases that were vanquished long ago in Europe and the United States.

For example, lack of electricity means no water purification or sewage treatment, no power for offices or hospitals, and no stoves to replace pollution-belching, lung-disease-causing open fires. There is also mounting pressure by outside organizations against the use of agricultural biotechnology. That means farmers cannot use insect and disease-resistant crops that would reduce the need for pesticides, not can they increase yields and profits. Again, the system sustains poverty rather than eradicates it.

It is becoming increasingly clear that poverty will never be eradicated unless those working on the problem will allow themselves to look for a drastically new way to attack it. Simply put, rather than constantly applying band-aids to the effects of poverty, they must look for the cause and fix it. One must first look at the world and see where wealth is created and why it is so. The greatest example of wealth creation is obviously the United States. It is the beacon of wealth and freedom for the entire world. Most in the world envy the US’s wealth and seek ways to share it, yet very few look at how the nation got there or care to try to copy its system for success. Why is the United States so wealthy? Is it the possession of vast natural resources? Africa has more. Is it the existence of greater industry? Japan has more. Is it the existence of a superior education system? The US now ranks below the top ten nations in education.

The reason the United States continues to lead the world in wealth, standard of living and abundance is that the average resident of the United States has the ability and the opportunity to invest and produce capital.

Why can ordinary citizens of the United States produce their own capital to create personal wealth, and yet most of the rest of the world fails at such an attempt? The answer is actually very simple. The United States has created a very easy, immediate, complete system for recording and securing ownership of private property.

Peruvian economist Hernando de Soto explains the root of American wealth in his book, The Mystery of Capital. In his book de Soto asks, "Why does Capitalism thrive only in the West, as if enclosed in a bell jar?"

Capital, he argues, "is the force that raises the productivity of labor and creates the wealth of nations, It is the lifeblood of the capitalist system, the foundation of progress, and the one thing that the poor countries of the world cannot seem to produce for themselves."

Why not in other countries? Because the laws and practices of most countries in the world make it nearly impossible for average citizens to own property or to prove ownership of property. There are vast obstacles to gaining legal ownership. For example, in Mexico it takes twenty years before a piece of property can be recorded. In Peru it took de Soto’s team of experts 289 days to legally register a new business, even after paying over $1,200 in registration fees. In the Philippines a prospective property owner would first have to organize an association with his neighbors in order to qualify for a state housing finance program. The entire process could take 168 steps, involving 53 public and private agencies and taking 13 - 25 years. And so it goes in country after country. The impact of a fee of $1,200 in a poor nation is enough to forever discourage even the attempt to register property. Such an amount, in many developing countries may equal an entire year’s income. It is important to note the impact free markets and private property have on the income of a nation’s citizens. The per capita income for Americans is $41,400 per year. For Europeans, where more government control is exercised, the per capita income is $27,400. In the former Communist nations of Eastern Europe it is now $3,295. Yet, just a few years ago it was $2,047. As more freedom and greater ability to own property grows, so does the per capita income.

If ownership of property cannot be properly recorded and able to be traced directly to the owner, then it cannot create equity and cannot be used as collateral for credit. It is not of value to the owner, only an expense. This situation has created, in deSoto’s estimate, over $9.3 trillion in "dead property." That is property that cannot be used by anyone to create equity and therefore wealth. Where it is common practice in the United States to buy property, hold it for a few years and sell it at a substantial profit or move up to a better home, thereby creating individual wealth, such a system is basically unheard of in most nations of the world. If one doesn’t have or can’t prove title, then no bank will make loans on the property. In nations where property cannot be easily and legally registered, the only recourse is to go to friends and relatives, get a smaller loan (thereby reducing ones ability to build a company) and still never have title to the business or the business property financed that way. Though people may live on and pay for property for years, it is hidden in an underground economy not beneficial to the individual or the national economy because ownership cannot be shown.

"In the West, by contrast," de Soto argues, "every parcel of land, every building, every piece of equipment, or store of inventory is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy." 70% of all small businesses in the United States are started by equity loans on personal homes. Small, independently owned businesses employee the majority of people in the U.S.

This then is the hidden secret of why the West is so wealthy and the rest of the world is mired in poverty. Obviously poverty can never be eradicated until everyone has the equal opportunity to own and benefit from the wealth associated with private property ownership.

There are many corporations and private and government programs that are working to establish industry and create jobs in poor nations. Certainly having a job is necessary to living a better existence. Such jobs, while certainly a step up from daily aid, are not the complete answer. Simply working a job and paying for ones daily needs does not build wealth and it does little to help make citizens independent to fulfill their dreams. Yet, "providing jobs" has become the most advocated method of eradicating poverty.

As stated in the beginning, there are literally thousands of programs designed to provide subsistence for life. It is, however, a life of perpetual bread lines and dependency on the charity of others - necessary to exist, but hardly an answer to fulfill dreams, wants and desires.

During the great depression of the 1930s when many were out of work and flat broke, they were, of course, grateful for the assistance of private charities and government agencies. Such relief efforts helped them feed their families and provide the bare essentials of life. But they weren’t happy. They weren’t satisfied. Instead they had a drive to stand on their own - to make their own way – to live independently. In the United States most finally did break free of the assistance and create an independent life. As a result, the U.S. economy soared, new industries rose and a vibrant economic engine grew out of the ashes of the Depression. For most Americans the drive to own their own private property was the goal to be achieved. The process became known simply as the American Dream.

Today’s poor in undeveloped nations certainly want the same opportunities to advance. Yet many now live in societies that are in some ways 3,000 years behind the modern world. Because of its system of private property ownership, the West has created a world of advanced technology, health and leisure where life expectancy is increased each decade. In the West, people truly can pursue a life of happiness.

Yet, in most of the world where poverty continues to increase, life is one of hopeless drudgery, where the constant drive for survival leaves little or no time for dreams or personal happiness or achievement. The West pours money into a broken system that simply does not address the problem. As we rush to provide each day’s aid, few charities or government programs seem to take the time to understand that hope and dreams aren’t constant breadlines. Daily aid doesn’t allow the poor the opportunity to live their lives on their own terms.

Eradication of poverty in the world won’t come from endless aid designed for mere existence, nor will it come from simply providing jobs. The answer to poverty in the world will come only from providing the tools needed to create new, independent wealth. That tool is private property ownership.

* From an article by Tom De Weese of the American Policy Centre called "The Real Roots of Poverty," July 31, 2007.


Anonymous said...

The real roots of poverty are just that -- your genealogical roots.

If you have poor parents, chances are, you're going to struggle for money all your life.

-- around one in eight US people live in poverty
--Bush's economic policies have been a dismal failure in this area because every year poverty has gone up under Bush, except for the one year it stayed the same, and extreme poverty has set a record high under Bush's regime
--tens of millions of Americans are increasingly at risk for falling into poverty, and
--the US poverty rate is not low, but is higher than virtually every other industrialized nation in the world.

Right-wing policies inevitably cause increased human misery, suffering, pain and death.

Misery and suffering = increased poverty and general economic deprivation produced by right-wing economic measures.

Pain and death = actual physical pain and dying that is caused both by poverty, and more directly, by right-wing policies that lead to war, and that fail to protect against environmental hazards and fatal diseases.

Seán said...

Great post Gooner. I don't think Harpoon bothered to read it, otherwise I think he would have held back on those embarrassingly pitiful counter-arguments.

This is the money quote for me: "70% of all small businesses in the United States are started by equity loans on personal homes. Small, independently owned businesses employee the majority of people in the U.S."
The land of opportunity. Indeed.

Adolf Fiinkensein said...

Harpoon, you've gone off half cocked. Your 'measurement' of poverty is the bullshit measurement use by those who rely for their incomes on the poverty industry - a measurement whereby no matter how much wealth there is, poverty is deemed simply to be the state of those who earn less than lose who earn most.

I don't think I have ever read such a 'fullashit' comment as " in eight US people live in poverty." Compared with Cubans or Venezuelans or New Zealanders, ALL Americans live above the poverty line.

ZenTiger said...

It's true what Harpoon said. I've lived there. One in 8 cannot afford to super size. It's sad that they do it anyway. They should ban supersize, and then people wouldn't feel deprived.

Have a nice day.

PS: My comment is indeed flippant and I don't mean to belittle poor folk. However, Harpoon's "general economic deprivation produced by right-wing economic measures" and "Right-wing policies inevitably cause increased human misery, suffering, pain and death" is just a tad simplistic and unfortunately, off the mark (oh, the annoyance of having to factor in so many other issues to build a more accurate picture).

flashgordonnz said...

"Right-wing policies inevitably cause increased human misery, suffering, pain and death."

Yep, all those Liarbour and green MPs that won't make it back after the next election will be suffering, as they look for a job in the real world. :^)

Anonymous said...

Excellant post. I think we have a new phrase for the lexicon. "thoroughly mintoed". Sort of like "fisking" but done to someone not very bright!

Anonymous said...

Sometimes it is better to be silent and let some-one think you are stupid, rather than speak and prove them right.
If you have ever been to Africa, China and various parts of South America, you would see what poverty really is. Not having shelter. Eaking out millet over seven days that was meant for one. Children with distended stomachs because of starvation. The common denominator could be said to be socialism and or communism (or left wing politics) because these places are invariably (and have been for decades been) under socialist or socialist supported rule. However that would be nearly as dumb as your comment ( even though some might say easier to prove)

There is no poverty in America or New Zealand. No real poverty where children die by the hour through lack of food. And before the usual bunch of lefties come out frothing at the mouth at this statement. Get off your fat arses and get over to places like the Sudan and Dafur or Venezuela (man you want to see poverty) and go and give a hand. Trust me it will do tree things. It will help some-one, 2 it will make you feel better and 3 it will open your eyes.

I have been most of the places I mentioned and comments like yours and Minto's are up there with "the earth is flat because no one falls of the edge."

And to take it a step further. Friends have just returned from New Orleans where they went to help for a year with the post Katrina problems. And according to them most people are back on speed and living a life again after two to three years . There is still some homeless but a huge percentage of that number are substance abusers which opens a whole other discussion. Compare that with 60 years of intervention and aid in Ethiopia or 50 years of communism in Cuba. Now there is poverty.


Keeping Stock said...

Bok - interesting that you mention Ethiopia - my wife and I have just returned from three weeks there, and it was an eye-opener. It has certainly made me appreciate just how blessed we are at this end of the world. From the people sleeping on median strips on the main roads (they sleep in the daytime because it's not safe at night!), the AIDS and Leprosy patients we met, our sponsored child and the project that supports not only her but 2500 other children and an entire community - we've seen poverty on a scale that I could never have imagined. And yet the overriding memory we will take away is the smiles of the people - that's a real paradox, and something I struggle to get my head around. One thing is certain though - when anyone here says to me "I'm starving", I won't have a whole lot of sympathy!

Anonymous said...

Fantastic post Gooner, thanks for passing it on from Tom de Weese's article.

Bok, I too have lived and travelled in the third world extensively and I could only agree with your statement (that) "If you have ever been to Africa, China and various parts of South America, you would see what poverty really is." People who bleat about poverty in New Zealand should go to Bombay and have a look at what real poverty means. Maybe the do-gooders would benefit from living on Delhi's rubbish dump for a week with the hundreds of families there competing for scraps with the crows.

I think Tom de Weese's arguments about property ownership make a lot of sense, however, lack of corruption (relatively speaking) and the rule of law must factor strongly in there somewhere. I guess it is connected to there being an efficient and reliable property ownership recording system... but I don't think the examples stated in the post make enough of this aspect.

In Nigeria, the expected bribe for a cop not to arrest you without reason is about triple the amount normally extorted from a citizen by a petty thug with a knife. Is this a shining example of the rule of law?

In Peru, I have seen traders in the markets selling grain directly by the cupful from sacks marked "A Gift From The People Of The USA". Is this what is meant by an 'open' free market?

In India, the driver of an 'express' long-distance coach (and any family or mates he carries in the screened off driving area with him) can make more than his wages in unofficial 'fares' by stopping and picking people up by the side of the road and carrying them to the next town for a backhander. No tickets needed. Nothing goes to the bus company and the 'express' bus arrives three hours late because of all the hold-ups. A shining example of private enterprise?

I was amazed in Kuala Lumpur to be told that by a flash 5-star hotel that there were no double rooms available, despite my having paid three months in advance for one and having confirmed the booking only the previous day. I only secured a double room by (literally) banging on the reception desk and creating such a scene that the management gave me my room just to shut me up. They were, apparently, saving our room for some weary traveller who could be relied upon to offer them a bribe. Have these people got a clear perception of the law of contract?

Whatever else we suffer from in NZ, we still seem to have a basic respect for the rule of law and honouring contracts and this, I think, is a huge part of the reason for our relative success as a society.


I agree, this is a fine post.
And Western aid can make matters worse.
The millions poured in provides a ready source of cash ready for plundering by corrupt government.
There was a piece on this in one of the UK papers recently.


Good Lord! look what I found on the BBC website, of all places.
why aid makes things worse!


I have also come across this from a Kenyan economist who sees trade not aid as they key to African prosperity.,1518,363663,00.html

Anonymous said...

Harpoon said...
Misery and suffering = increased poverty and general economic deprivation produced by right-wing economic measures.

Have you been smoking dope before you made your post? I can't believe all the rubbish you spewed out in your post.

Look, I grew up in Tonga and emigrated to Auckland. If you want to compare between the sort of poverty that Bush policies created as you claimed and the well-off in Tonga, here is the comparison.

The well-off people in Tonga (if you use the UN metrics), have no cars (I say majority), still use long drop toilets, no fridges, eat meat just twice a week (most eat just taro or cassava), one single pair of shoes for each member of a household, and blah, blah, blah,...

A poor US household, have 2 cars, electricity, clean water and flush toilets, eat meat everyday, each person in a household has more than one pair of shoes and so forth. This has been pointed out by Owen McShane in his Herald article.

Let me ask you this, would you want to be a well-off person living in Tonga or preferred to be a poor person living in the US, NZ or a Western country in general? I know your answer and that you want to be poor in the West, than be a well-off in a third-world country. So, stop being a hypocrite, since you don't want to live in a third world country, you do enjoy the wealth of the West, don't you?