Feature Article: Poverty, not prosperity, is an economic phenomenon

Mud oozes between her toes. Mud mixed with rotting garbage, urine and excrement. Yet she seems accustomed to the appalling stench. She rhythmically milks an emaciated sacred cow, while her siblings fashion and lay out to dry the dung patties that will fuel fires for cooking and warmth and fill the shanties with asphyxiating smoke during long winter nights. From a passing dilapidated bus, the vomit of a gaunt young man soaks into the filth on the street. Nearby, a disabled geriatric, a goat and a dog rummage in a garbage heap for food.

"I’m amazed that people can live under such conditions. You see only the few who are still alive," explained my guide, an aid agency social worker.

These scenes of numbing destitution, which I described for the Indian Sunday Times, were what I’d seen 20 years ago in Uttar Pradesh, home of the Taj Mahal and other glorious reminders of India’s golden age. The ancestors of billions of Indians, like their Chinese neighbours, were once the most advanced people on earth, yet today they are among the poorest.

How do you go about making billions of famously energetic and resourceful people poor? It would seem impossible. This is the miracle — the miracle of poverty and the most astounding accomplishment of modern governments. Most countries are poor most of the time, which means most governments triumph perversely over citizens who never give up trying desperately to produce and exchange wealth and jobs.

Modern periods of spectacular progress are called "economic miracles" when, in fact, there is nothing miraculous about them.

Prosperity is the natural consequence of voluntary interaction between people free to produce and exchange goods and services. When their governments relaxed their grip, India’s and China’s economies took off. Their governments achieved more by doing less.

SA is no different. During our first post-apartheid decade, as we slowly ascended the economic freedom index, our prosperity increased. When the trend reversed, we reverted towards stagnation. What we did initially, and what is proposed in parts of the National Development Plan, is what we need: a smaller rather than bigger role for the government. No matter how you define welfare, more of it exists when governments refrain from causing poverty.

If the grubby girl survived and became a woman, she probably has a daughter. Not one who squats in putrid mud, but one who sits on a school bench. Her wellbeing and prospects improved to the extent that her government owns and controls less.

Much of the prosperity we see around us is thanks to our government’s failure to implement poverty-inducing pre-and post-1994 laws. "Informal sector" and "informal settlements" are euphemisms for what is technically illegal. No one knows how big this sector is, but everyone knows millions depend on it. Our economic model is the Italian one, where many people survive thanks to the government’s failure.

How should our government go about causing less poverty? The answer is as simple as it is sophisticated, and more accessible than the pretentious prescriptions of self-serving bureaucrats, planners and consultants. All it need do is revert to its initial policy of increasing our score on the 40 or so criteria in the Economic Freedom of the World Index. In plain language, liberalise and privatise instead of regulate and nationalise.

SPANISH philosopher Jose Ortega y Gasset said: "When there’s a shortage of bread, they burn down the bakeries." This is what our South African farm workers are doing: they demand higher pay despite high unemployment, destroy the means of production and employment and strike while fruit, which pays their wages, rots on trees and vines.

In Spain, workers better understand economics. In Spain, workers demand lower pay and chant: "Shed wages, not jobs."

This article was first published in Business Day on 30 January 2013.

Louw is executive director of the Free Market Foundation.


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