Wednesday, October 28, 2009

Development Economics-Alleviating Poverty in the Developing World

Question: what institutions can enable the world’s poor to realize their power and achieve prosperity?

When I posed this challenging question to my significant other, she had the same initial reaction that I had. “Jobs?” she replied, questioning whether I had already come up with her most obvious and logical answer. Of course I had, what with the rugged individualist spirit and conservative economics background. Jobs, industry, and economic progress are absolutely the best candidates to raise the world’s poor above subsistence levels in the most rapid timeframe possible. Just look at the transformations that have taken hold in Eastern Europe and Southeast Asia over the last two decades!

If the developing world needs jobs, and wages are rising in places that have already experienced tremendous growth recently (e.g. China), a secondary yet important question is: why haven’t those jobs migrated to other lands and taken advantage of the relatively lower labor costs? I would suggest that the significant factor inhibiting the spread of capitalism (reads: economic growth) is inadequate government policy. Corruption, populism, inadequate property rights, and the inability to facilitate the rule of law all prevent companies from relocating to new places with lower relative wages, e.g. sub-Saharan Africa.

The one institution that I believe can enable the world’s poor to realize their power and a giant leap towards realizing sustained economic progress is democracy. I don’t think democracy is a necessary condition for fostering growth, as we readily observe the Chinese model, but it does enable poverty-stricken people to realize their power, thus answering half of the question. Expounding further, democracy is a sufficient condition for cultivating a culture that champions freedom which has been demonstrated (thanks to the Heritage Foundation) to inextricably tie to economic opportunity and prosperity.

When I invoke the institution of democracy, I’m not specifically referring to elections. I think that while elections are helpful in gauging public opinion to build policies on as well as giving society the feeling that they are in control (although many in America would refute such a statement), they are not the end-all-and-be-all of government. I speak of democracy in the spirit of Milton Friedman where governments respect their citizens individual freedoms. If the [sometimes] oppressive and [mostly] ineffective governments of the world's most impoverished countries worked, as Ayn Rand describes in her book We the Living, “as a servant and a convenience for a large number of people, just like the light bulb and the plumbing system” rather than a mechanism for natural leaders to further their own fortunes and personal power, the poorer nations of this world would be much better off.