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Saturday, September 30, 2006

 

Global Solutions to Poverty?

After taking a look at Prof. Eubanks most recent post, I followed the link to the original post and read a few comments. Here is one of the more entertaining:
"Poverty is caused by the exploitation of the working class by the wealthy. The rich obtained their exalted status by stealing their money from everyone else. The solution is simple: the confiscation and redistribution of existing wealth, followed by high taxation and a strong social safety net to keep such inequalities from re-occurring. No one in Sweden is poor, and no one would be poor in America if we had the same laws and protections here."
After taking a look at the income inequalities through a few nations (http://faculty.tcu.edu/jlovett/econ_data/Income%20Dist.pdf#search='US%20income%20distribution'), we can see a somewhat interesting trend, and one which Olson's work would have predicted. The US is not the number one rank of income inequality, but a look at those who outrank us does not provide much hope. Of the 14 nations with a less equal income distribution than us, 12 are essentially banana republics of South America, whose democratic history was one born of violent conflict resulting from the cold war. I cannot doubt that poverty is the natural state, but when looking at this issue in terms of political-economy, I struggle to find the solution to this problem. Even if our efficiency based model is the best chance the world has for escaping the natural state, how can we actually think that our system of government is the best, or even worthy enough to transplant? I believe Olson would have said that we cannot expect to transfer our economic model without our political model following on its heals. The only problem is that when we go to deliver democracy to a developing nation, they are not getting the same revolutionary period of fundamental idealism, but rather the democracy that we have now, one characterized by rent seeking (Olson states that as time passes, rent seeking tends to increase). Taking this into account, could anyone doubt that the rent seeking will spill over into the field of foreign issues? No matter what one thinks of the Iraq war, the very fact that the Vice President's former company is entirely responsible for the re-building effort provides strong evidence for this outcome.
This is not to say that only capitalist nations are to blame. In one class, we discussed the government that was open to outside bribe versus the one that was not. China, though moving towards economic freedom, is by no means a totally open economy, yet they rank just two positions behind the US in inequality. This must surly be an indication that even in a government that is, at minimum, subject to fewer pressure groups can still be just as corrupt. This is not to imply that disproportionate income nessicarily means corruption, however, by simply following Olson's theory, we must recognize that by the simple fact that both the US and China have stood for a long enough time period that we would predict rent seeking. I think the heart of this issue comes directly from Olson's work Logic, which makes the point that even though we may have very idealistic hopes for our social programs, the bureaucracy of achieving the end will ultimately be corrupted and ineffective. Can we not expect the same outcome from nation building? Does the model we hope to implement have any chance of escaping the mass corruption and can any political-economic system established by a foreign power truly succeed if the people prospering are mainly from said foreign power?

Comments:
I'm curious about your emphasis on "inequality." My post was on "poverty," not "inequality." Should we be concerned about inequality and not about poverty? If you say our concern should be about both, then I would ask why should we be concerned about inequality?

I'm also not sure about why you raise "democracy." I think my post emphasized the enforcement of property rights and contracts, and I don't remember mentioning democracy. Singapore is an interesting system of political economy in that democracy seems only to exist on paper. Yet, there is strong enforcement of property rights and contracts, and consequently much economic prosperity. Or so it seems.

You write: " . . . can any political-economic system established by a foreign power truly succeed if the people prospering are mainly from said foreign power?" I'm not sure I can agree with the premises of your question. I do wonder about how a system of political economy can come to enforce property rights and contracts, and can come to minimize predation. Perhaps Olson's Power and Prosperity will offer some clues. But, I have difficulty proceeding on the premise that only Haliburton is prospering when we look to the case of Iraq. It strikes me, from what I hear and read, that many people of Iraq are prospering these days. There well seems to be corruption and predation, and still much economic activity which seems consistent with wealth building choices that will make greater prosperity in the future. Of course, to protect property, enforce contracts, and reduce predation, a government will have to be turned to such activities and to utilize force sufficient to achieve such activities. I suggest the jury is still out on whether politics in our country will allow sufficient time for success in such efforts.
 
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