X-Message-Number: 23197
From: 
Subject: "How to do" lesson for statist
Date: Tue, 30 Dec 2003 21:55:05 +0000

Here is the piece promised in a previous post. All you statist out there read 
and learn! 

How to achieve the miracle of poverty 

By Ronald Bailey



"Poverty, not economic growth, is the real miracle today," explains Leon 
Louw, executive director of the Free Market Foundation of Southern Africa. I 
met Louw while covering the United Nations' World Summit on Sustainable 
Development in Johannesburg. Louw's insight is that in the modern world 
governments have to work hard to make and keep people poor. 

In his wonderful book The Mystery of Capital: Why Capitalism Triumphs in the 
West and Fails Everywhere Else, the Peruvian economist Hernando De Soto 
notes: "The cities of the Third World and the former communist countries are 
teeming with entrepreneurs. You cannot walk through a Middle Eastern market, 
hike up to a Latin American village, or climb into a taxicab in Moscow 
without someone trying to make a deal with you. The inhabitants of these 
countries possess talent, enthusiasm, and an astonishing ability to wring 
profit out of practically nothing." It's possible to keep such people down 
only if governments dedicate themselves to the pursuit of really bad policies 
for decades at a time. 

Most notorious, of course, was the grinding poverty sustained for seven 
decades in the communist bloc. The phrase rich communist country has always 
been an oxymoron. We still have illustrations of communism's brilliance at 
sustaining poverty in Cuba and North Korea. Today, even though Cuba has 
opened a bunch of swank hard currency beach resorts, its GDP per capita is 
still only $1,700 at purchasing power parity. Per capita GDP in North Korea, 
which is asking again this year for food aid, is only $1,000. 

But policies don't have to be as bad as totalitarian communism to make people 
poor. Consider the case of Argentina. In the 1920s Argentina's was one of the 
largest economies in the world, with an average income about the same as 
France's. Rich as an Argentine was a catch phrase often used in Paris caf s 
to describe an especially wealthy person. 

Since the 1940s Argentina has embarked on a series of policies 
nationalization of industries, expansion of state services, and vast overseas 
borrowing that has eroded its rank in the world. In recent years, Argentina's 
per capita income has collapsed, falling from $8,909 double Mexico's and 
three times Poland's in 1999 to $2,500 today, roughly on par with Jamaica and 
Belarus. 

Or take Sweden. Long gone are the arguments about the success of that 
kingdom's alleged "middle way" between capitalism and communism. In 1970 
Sweden was ranked third in per capita income among industrialized nations; 
today it ranks 17th. The country's welfare state is strangling its economy. 
Taxes consume 55 percent of Sweden's GDP, while public spending equals 65 
percent of GDP. 

Just as bad policies can ensure poverty, good policies spark wealth creation. 
As De Soto points out, in the late 19th century tens of thousands of Japanese 
emigrated from their impoverished country to Peru in search of a better life. 
In the 1950s South Korean politicians said they hoped their country's 
citizens would some day be as rich as Jamaicans. Clearly Japan (per capita 
GDP: $24,900) and South Korea (per capita GDP: $16,100) have done something 
right, while Peru (per capita GDP: $4,550) and Jamaica (per capita GDP: 
$3,700) have not. Just for comparison, U.S. GDP per capita is $36,200. 

Finally, there is the heartbreak of Africa, where average per capita incomes 
have been falling for three decades. African politicians have embraced at one 
time or another all of the policy prescriptions for poverty listed below. In 
between, they have fought numerous civil wars and engaged in various bloody 
tribal pogroms. 


Some recipes guaranteed to get lean results 

Here, then, is a short guide for kleptocrats and egalitarians who want to 
keep their countries poor. All of these policies have stood the test of time 
as techniques for creating and maintaining poverty. The list is by no means 
exhaustive, but it will give would-be political leaders a good idea of how to 
start their countries on the road to ruin. 

First, make sure that your country's money is no good. Print money like 
there's no tomorrow. Hyperinflation is one of the easiest and most popular 
ways to dismantle an economy. Another popular monetary gambit is to make sure 
your currency is not convertible. This guarantees that no one will ever want 
to invest in your country. 

To further discourage investment, be sure to nationalize all major 
Industries. Nationalization has additional poverty-enhancing benefits. For 
example, it will ensure that the nationalized industries never improve 
technologically or become more efficient, and it makes workers pathetically 
dependent on their political masters, namely you. 

Of course, you may find it too tiresome to nationalize everything, in which 
case it is very important that you establish high tariffs that insulate your 
country's remaining private industries (usually owned by your cronies anyway) 
from competition. 

In addition, your legal system should make it nearly impossible for anyone to 
license a new business, however small. This will offer opportunities for your 
bureaucrats to make a living through corruption and will protect your cronies 
from domestic competition. An added advantage is that most commerce will be 
made illegal and subject to arbitrary enforcement. 

This leads to the point that property is critical. Once people start to own 
something, they invest in it and improve it, leading inexorably to the 
creation of wealth. Again, the legal system can help to make it impossible to 
issue clear titles so that your citizens can't buy, sell, or borrow against 
their "property." Also, force your farmers to sell their crops to government 
commodity boards at below-market rates. This will discourage them from 
investing in anything more advanced than subsistence agriculture, and you 
will be able to sell whatever crops you do seize at low prices to keep the 
urban populations quiet. 


Some Last Advice 

Another popular policy is confiscatory taxes. This strategy, which allows you 
to claim that you are soaking the rich in the name of equity, has long been 
fashionable among the genteelly stagnating economies of Europe. 

Finally, you may have missed the golden age of international graft, when the 
World Bank and even commercial banks showered the governments of poor 
countries with loans. But if the opportunity arises, you should follow in the 
footsteps of two deceased leaders whose fortunes are now being divvied up 
in "Please Help" spams: Zairean dictator Mobutu Sese Seko and Nigerian 
General Sani Abacha. Take a page from their book by redirecting international 
loans directly to your Swiss bank accounts, sticking your citizens with the 
bill. 

Unlike Mobutu, however, make sure to give up the pleasures of arbitrary power 
before you're old (or overthrown in a coup), and move to Provence to enjoy 
your ill-gotten gains. Of course, be sure to invest your purloined riches 
only in countries with stable money, strong property rights, and honest 
bureaucracies. 

Keeping people poor is hard work, but following the above policies will 
achieve that goal. Modern poverty is a miracle that only you can make happen. 



Ronald Bailey, Reason's science correspondent, is the editor of Global 
Warming and Other Eco Myths (Prima Publishing) and Earth Report 2000: 
Revisiting the True State of the Planet(McGraw-Hill).

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