Tuesday, September 20, 2005

Poverty Has A Cure

This paper by Nick Schultz at TCS discusses the connection between poverty and governance:

The Clinton Global Initiative wrapped up in New York over the weekend. The three-day confab, created by the 42nd president, brought together political and corporate leaders, Hollywood stars and philanthropists for a kind of American Davos. The attendees were directed to address four important global issues -- climate, governance, poverty and religion.
But a fundamental problem existed at the heart of the conference: treating "poverty" and "governance" as divisible, distinct issues. A growing body of academic research is showing us that the two are both sides of one coin.

Indeed, the empirical link between poor governance and poverty received a boost the same week of the conference when economist William Easterly released an important new working paper for the Center for Global Development.

Easterly has spent his career inside foreign aid circles. Within those circles, it has been widely believed that impoverished nations suffer from a self-perpetuating "poverty trap." This poverty trap is almost impossible to escape without a big push from wealthy countries -- hence the logic of foreign aid.

This view, while not entirely new, has been most recently championed by the economist Jeffrey Sachs of the Earth Institute at Columbia University -- whom the New York Times just editorialized is an "A-list economics geek." The only problem with this storyline, according to Easterly, is that "evidence to support the narrative is scarce."

Easterly found that, "Over 1970-94, there is good data on public investment for 22 African countries. These countries' governments spent $342 billion on public investment. The donors gave these same countries' governments $187 billion in aid over this period. Unfortunately, the corresponding …increase in productivity… was zero."

If half a trillion dollars of investment and aid can't raise economic output, then what can? "The paper instead finds support for democratic institutions and economic freedom as determinants of growth that explain the occasions under which poor countries grow more slowly than rich countries." In other words, poverty -- and its alleviation -- are directly linked to governance.

Along these lines, the Cato Institute has recently published its own report on the links between economic freedom; prosperity, and peace.

Economic freedom is almost 50 times more effective than democracy in restraining nations from going to war. In new research published in this year’s report, Erik Gartzke, a political scientist from Columbia University, compares the impact of economic freedom on peace to that of democracy. When measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict. The impact of economic freedom on whether states fight or have a military dispute is highly significant while democracy is not a statistically significant predictor of conflict.

This year’s report notes that economic freedom remains on the rise. The average economic freedom score rose from 5.2 (out of 10) in 1985 to 6.4 in the most recent year for which data are available. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.7 of 10, closely followed by Singapore at 8.5. New Zealand, Switzerland, and the United States tied for third with ratings of 8.2. The United Kingdom, Canada, and Ireland ranked 6th, 7th, and 8th, respectively. Australia, Estonia, Luxembourg, and the United Arab Emirates tied for 9th.

Policymakers whose goal is fighting poverty need to pay attention to the link between economic freedom and prosperity. The freest economies have a per-capita income of $29,219, more than twice that of the "mostly free" at $12,839, and more than four times that of the "mostly unfree." Put simply, misery has a cure and its name is economic freedom.

It is ECONOMIC FREEDOM that is the true cure for poverty. Not taxes. Not regulation. Not government control of the economy and redistribution of wealth; but CAPITALISM. And, it is important to note that Economic Freedom is unachievable without Political Freedom. That is the link between poverty and governance.

For those on the Left who pay lip service to fighting poverty and achieving social justice; but who reflexly denounce capitalism, free trade, and globalization--I strongly recommend that you shut up, and let those evil, greedy capitalistic bastards pursuing their own selfish, profit-making agendas, effortlessly bring about both.

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