Liberalised markets are the cure for destitution
BY LEON LOUW
THREE things that most scriptures and ethical theories agree on are that poverty is permanent; justly acquired wealth is virtuous; and the rich should be charitable. According to the Bible (Deuteronomy 15:11), the poor will always be with us; in the Quran (Sura 16:72; Sura 4:33), some are divinely favoured to excel above others; and Hinduism (second Purushartha) encourages the lawful pursuit of material wealth. Religious and ethical philosophies with visions of inequality — prosperity for some and poverty for others — do so because there will be people capable of providing charity and employment for the poor only if they enjoy elevated status. Such voluntary care coincides with an absence of socialistic prescriptions for the coercive “redistribution” of another’s wealth.
Last week, I dismissed as ignorant and arrogant those who bemoan “excessive” executive pay. This week, I look at poverty alleviation.
A prominent economist and director of companies challenged me with: “I’m surprised that you defend useless CEOs.” I didn’t defend CEOs. I defended the people who appoint and pay them. I also criticised antagonists who do neither yet want to enforce lower pay differentials that affect the poor more than the rich.
“How do you know CEOs are useless?” I asked. “I just know they are,” he said. What a bonanza for corporations; he will find them half-price CEOs. Even better, I am sure my gardener and his friends will gladly be CEOs for a lower wage than the Congress of South African Trade Unions (Cosatu) demands for skilled artisans.
Superficially bright and informed people are deluded when they presume to know better than people with highly specialised contextual information who, unlike critics and governments, suffer when they make mistakes.
In a recent debate with Financial Mail editor Tim Cohen, Cosatu’s Patrick Craven said that what promarket people “don’t understand” is that, if minimum wages are raised to R4,500 a month, workers will spend more, enabling employers to pay and employ more, and so on, en route to jobs and prosperity for all. He’s right, we don’t understand. Why are they so conservative? R10,000 would be better. R1m even more so. It would turn us into a nation of millionaires who could send aid to Europe and the US to end their financial crises.
The idea is nonsense. Such folly turned Zimbabwe into a nation of impoverished trillionaires.
What Craven “doesn’t understand” is that money is not wealth. Real goods and services are what constitute real wealth.
The formula for prosperity is no mystery. All countries that are or have been rich started in poverty. Market liberalisation enabled previously poor countries to prosper. What people who demand less wealth for the rich “don’t understand” is that countries with the world’s highest wages have the world’s wealthiest executives. Liberalisation in formerly socialist countries such as China, India, Brazil, Mauritius and Ghana lifts billions of people from destitution.
People more concerned about helping the poor than destroying the rich can help directly with their own time and money and they can encourage liberalisation instead of demanding plunder and “redistribution”.
Why do leading scriptures assume that some people will always be poor if prosperity is so easily achieved? There will always be “poverty” because poverty is relative. Compared to billionaires, millionaires are poor. In rich countries, being poor means you cannot afford an iPad; in poor countries, you cannot feed your family.
Platitudes such as “the rich get richer and the poor get poorer” bedevil us. The illusion of growing inequality arises because all do not rise simultaneously. Governments should not try to eliminate “poverty and inequality”. They should alleviate destitution by way of market liberalisation.
Decent people celebrate the fact that poor are richer where the rich are richer and they care more about lifting “the poor” than destroying “the rich”.
Leon Louw is executive director of the Free Market Foundation
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Well in some countries (such as the United States) there are lot of regulations that have the effect of partially protecting corporate managers from shareholders (the actual owners of the company) and in both Britain and the United States tax law tends to favour institutional investors over individual investors – i.e. as the effect of putting hired managers under other hired managers (at pension funds and so on). With no actual owners in the loop.
I am certainly not “anti Capitalist”, or anti “anti corporation” – but I think it is a legitimate question whether or not in a freer market (i.e. a less regulated and taxed market) company managers would be paid as much as they presently are. I suspect they would NOT – but I can not know for sure (and I do not claim to know for sure).
In Germany (where family owned business enterprise are more common – although Warren Buffett has been sniffing round Germany, hoping that new inheritance tax and capital gains tax rules will destroy the traditional family owned companies) company managers are not paid so highly as they are in Britain and he United States – and I see no evidence that German manufacturing companies are worse managed than British and American ones.
On the reduction of poverty – agreed.
The reduction of state ownership in China (only a few decades ago – all manufacturing in China was state owned) has greatly reduced poverty.
Also the (partial) deregulation in India has greatly reduced poverty.
In the West………..
We need to reverse the wild statist policies that have created so much dependency.
Detroit is an obvious example.
Once the most prosperous city in the United States – 50 years ago it went in for policies of wild government spending, high taxation, and “economic planning” (it became a poster city for “Progressives”).
The decline was dramatic – and started long BEFORE the “oil shock” or anything like that.
One does not help the wage earner by pulling down (or driving out) the wage payer.
And (contrary to some people round here) most people can not be self employed – although (yes) the rules that make self employment harder (such as Occupational Licensing) should be repealed.
Presently most Western countries have government spending at about half the entire economy.
Not because of the alleged wickedness of “big business capitalists” – but because of Social Justice ideology.
This Social Justice ideology must be rolled back.
As must the “”Who Protects the Consumer?” and “Who Protects the Worker?” regulations (see the chapters in Milton Friedman’s “Free To Choose” – 1980). Which were passed with such good intentions (they really were passed with good intentions – it was not some sort of “big business” conspiracy), but have done such harm.
For example the minimum wage law.
People should be directed to Walter Williams “minimum wage – maximum harm” in “The State Against Blacks” (1982).
Finally we must not forget the welfare that goes to rich people.
It has been pointed out for centuries (I believe first by Richard Cantillon back in the 1700s) that monetary expansion (credit bubble ism) tends to favour (in the end) rich people at the expense of poor people.
This “something for nothing” doctrine – i.e. that there can be more lending than there is REAL saving, must end;.