Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Poor Nations Are Poor Because of the Lack of Capitalism, Not Because of Capitalism
Why are the wealthiest nations so much richer than the poorest nations? Harvard’s Ricardo Hausmann explains what’s behind global inequality and poverty:
So there are these enormous differences in productivity that make the productive places rich and the unproductive places poor. The poor people are not being exploited. They’re being excluded from the higher productivity activities. It’s not that the capitalists are taking a very large share of what they produce. It’s just that they produce very little in the first place. …
Poor places are characterized by the absence of capitalist firms and by self-employment, employment: these are small peasants and farmers or owners of small shop. In these settings, there are no wages, there’s no employment relationship. There are no pensions. There is no unemployment insurance. The trappings of a capitalist labor market do not exist.
While Marx thought that capitalism, as a form of organizing production, would take over the world, poor countries and regions are characterized by the absence of capitalism, of capitalist forms of production. So the question we should ask ourselves is why did capitalism not succeed in these regions, leaving huge differences in productivity between the places where it succeeded and the places where it did not? The answer we have found is that modern capitalist production requires the simultaneous access to many different inputs.
“Inputs” can mean many different kinds of networks: water, electricity, urban transport, roads, the educational system, banking, Internet. I would also include economic freedom as a pretty important input, the ability to take risks and innovate without government preemptively quashing you or taking all your profits. Not exactly sure the degree to which the other stuff matters with that political economic input.
As Deirdre McCloskey elegantly states it, “The modern world was made by a slow-motion revolution in ethical convictions about virtues and vices, in particular by a much higher level than in earlier times of toleration for trade-tested progress — letting people make mutually advantageous deals, and even admiring them for doing so, and especially admiring them when, Steve-Jobs-like, they imagine betterments.”
But anyway, Hausmann adds, “you don’t connect people because they’re poor and because they’re not connected, they’re unproductive and hence poor.”
So how to deal with that fixed costs issue and break that poverty cycle? First, “some technological innovations might reduce those fixed costs, and if the fixed cost is reduced, more people can be included.” Second, “have a policy that shares the fixed cost.” I guess this would mean something like government intervention to, say, make sure everyone has Internet access. Sometimes, however, that intervention might mean getting government out of the way. For instance:
Published in Culture, EconomicsFacebook and Google compete intensely for your time online and for the ad dollars of corporations. But now the two companies are collaborating on efforts to use balloons and drone aircraft to expand Internet access to the four billion people that don’t have it. Documents filed with the U.S. Federal Communications Commission show that both companies are pushing for international law to be modified to make it easier to use aircraft around 20 kilometers above the earth, in the stratosphere, to provide Internet access.
Foreign aid also often corrupts developing nations. It distorts development.
Something to consider.
Sure they need capitalism and markets but the main problem is the lack of the rule of law.
Off point, but I’m a great admirer of Deirdre McCloskey’s work. When I first started reading it, though, I was unsettled. I kept thinking, “This is a male prose style.”
And it is.
Did anyone else guess that from Deirdre’s prose alone?
Poor places are characterized by self-employment?
Hmm…
My apologies if I’m blowing the lid off your comment here, but my college economics professor assigned Dr. McCloskey’s Second Thoughts back in the days when she was known as Don McCloskey.
Good heavens. Hernando de Soto answered this question a long time ago.
He got to experiment on Peru in the late ’80s and early ’90s.
And yet we have this :
https://www.voat.co/v/whatever/comments/739774
19 hours ago … John Kerry said that he wants to seize Exxon Mobil’s assets for disagreeing with climate change. Democrats are tyrannical authoritarians.
A key problem in many third world nations is the remittances that come from the first world nations.
Case in point: El Salvador. Billions of dollars every year are sent from the United States to El Salvador via Western Union, MoneyGram, or Post Office money orders (by the bye, the most respected form of “currency” in Latin America – reliable and easy to send).
Most of this money is being sent by people who are in the country illegally, thus creating a system of warped interdependence: if your three neighbors have sent sons to the US to work and they are sending money home, you will ultimately have to send one of your sons because you will need the income to offset the rising prices that others can pay but you cannot.
I can only guess at the remittances to Mexico, but again, there is a nation with two beautiful coasts, oil, minerals, large tracks of land to farm, and wide-spread poverty.
Thus the second thing would be corruption of the political realm.
Luckily we don’t have that here. <sarc>
Poor countries are poor because of the lack of the rule of law and secure property rights. Markets, what we call capitalism and wealth emerge from freedom under the rule of clear laws rather than men. This is why foreign aid generally did and does more harm than good and why once rich civilizations stagnate then die or are invaded and crushed. The administrative regulatory state is turning the west into rule by men and destroying the rule of law. The result is quite predictable.
We do some areas, or sub-cultures, within a flourishing capitalist country not flourish?