Poverty Oversimplified

Frontier Centre, Poverty, Uncategorized, Worth A Look

YOU’VE PROBABLY seen a picture in the past few days of Kate Moss, languidly clicking her fingers above the caption “Make Poverty History”. It’s not supposed to mean that it just takes one snap from Ms Moss to abolish poverty. Each click — the adverts include celebrities such as Colin Firth, George Clooney, Brad Pitt and Claudia Schiffer — represents a life lost in the Third World through poverty.

The aim of the Make Poverty History campaign is, of course, laudable. There is, however, one problem. The sheer wrong-headedness of the campaign’s proposals to eliminate poverty leads one to think that Moss, Clooney et al are not mere adornments but have been responsible for the analysis underpinning them. The campaign could more accurately be renamed Make Poverty Permanent, such would be the effect of its proposals being The group’s manifesto has three aims: “trade justice”, “drop the debt” and “more and better aid”. They are, respectively, dangerously misguided, pointless and counterproductive.

According to Make Poverty History: “We need trade justice, not free trade . . . ensuring poor countries can feed their people by protecting their own farmers and staple crops.” With that, the campaign destroys any claim it might have to serving the interests of the poor.

It might seem sensible at first glance to argue that nascent industries in developing countries need to be protected so that they can withstand competition from rapacious multinationals. But the evidence shows the opposite.

The engine of growth, without which countries remain in poverty, is trade. Tariff protection keeps resources in unproductive, low-return activities such as the type of farming which Make Poverty History seeks to entrench. Free trade shifts resources to more productive uses. Take Malaysia, Singapore, Thailand, South Korea and India: while they maintained their tariffs, they remained stuck in poverty, the only thing which tariffs protect. As recently as the early 1980s they were poor countries. Their incomes per head ranged from $700 (£350) to $7,000. Today they range from $2,000 to more than $21,000. Even India, one of the world’s poorest nations in the 1960s and 1970s, is on the road to prosperity. In 1991 the Indian Government reacted to a financial near-collapse by cutting forty years of bureaucratic control in seven hours. Its economy now grows much faster than its population and India is becoming one of the leading exporters of computer software and services. There is a vast new middle class of 250 million.

Trade with the rest of the world has allowed these countries to attract the investment that brought them comparative advantages in the manufacture of an ever-widening range of products. Sectors in which they have no comparative advantage have shrunk as a proportion of national output and been replaced by cheaper, better imports.

It is not just swivel-eyed market zealots who realise the importance of trade. According to Oxfam, if Africa could increase its share of world trade by just 1 per cent, it would earn an extra £49 billion a year; enough to lift 128 million people out of extreme poverty. Trade is the key, and the protective tariffs that Brad Pitt wants to impose on the populations of the Third World destroy trade.

The abolition of debt and an increase in aid — in effect the same thing — are red herrings. Far from rewarding governments for the disastrous policies that have kept their populations in poverty by handing over more aid for them to siphon off, a campaign to make poverty history would champion open trade, reduced regulation and, critically, property rights.

Much Third World poverty is the result of governments taking the decision, in effect, to remain poor. The conditions under which they can prosper are known, and available, if those in power choose to avail themselves of them. As Hernando de Soto (who has done much to alleviate poverty, not least through his seminal book, The Mystery of Capital) points out, it is easy to make a country prosperous. It needs only security of life and property, and markets in which property rights can be valued and traded. The West’s prosperity is built on property rights and the rule of law; it is the denial of those rights which causes poverty and prevents growth.

The World Bank report, Doing Business in 2005, shows many of the regulatory and bureaucratic obstacles to prosperity. Registering property requires one step in Norway, but 16 in Algeria. To incorporate a business takes two days in Canada, but 153 in Mozambique. In Haiti, it takes 203 days to register a company, 201 days longer than in Australia. In Sierra Leone it costs 1,268 per cent of average income, compared with nothing in Denmark. To register in Ethiopia, a would-be entrepreneur must deposit the equivalent of 18 years’ average income in a bank account, which is then frozen. In Lagos, Nigeria’s commercial capital, recording a property sale involves 21 procedures and takes 274 days.

If those behind Make Poverty History were serious about ending poverty they would be campaigning for property rights and the rule of law — for better governance, in other words. And they would campaign not to abolish free trade but to extend it — attacking, for instance, the EU Common Agricultural Policy and its immoral tariff barriers against the developing world. The EU spends €2.7 billion a year subsidising farmers to grow sugar beet; at the same time it imposes high tariff barriers against sugar imports from the developing world. And the EU’s agricultural tariffs average 20 per cent, rising to a peak of 250 per cent on certain products. The European market remains barely open to the majority of low-cost textiles from the developing world.

But it’s much easier to publish pictures of Kate Moss, and to parrot the same old nonsense about the evils of free trade which we have heard for years from those who prefer to act by clicking their fingers rather than engaging their brains.

Stephen Pollard is a senior Fellow at the Centre for the New Europe.