B. Other goals that have been suggested

As we have spoken to various audiences about the solution to poverty, we have heard many people propose other goals for eliminating poverty. Each of these will be discussed more fully in a later chapter, but we can mention them briefly here:

  • (1) More aid. Some people argue that wealthy countries need to give massive amounts of additional aid money to jump-start the economies of poor nations. Unfortunately, aid has not proven helpful in increasing GDP in the long run (see the discussion of aid in the next chapter). To focus on aid as the solution is to focus on the wrong goal. The goal must be to increase a nation’s GDP.
  • (2) More equal distribution of wealth. Others say that the solution to poverty is using the power of government to redistribute wealth from the rich to the poor. They argue that greater economic equality is a matter of simple justice that governments should enforce. We certainly agree with the goal of helping the poor share in more of the wealth of a nation, and in several sections of the following chapters we discuss ways this can happen through fair, open, market-based solutions.[1] The goal of this entire book is finding truly workable, sustainable ways to overcome poverty. However, some nations have tried to bring about more economic equality in economically harmful ways, not through opening up free markets but through brute use of government power. Making equality a more important goal than overall economic growth is a mistake for a government, because merely distributing the same amount of wealth in different ways does not change the total amount of wealth a nation produces each year, which is the only way that any nation has grown from poverty to prosperity.

Economic freedom and government-forced economic equality are opposing goals, and when government forces economic equality (for example, through heavy taxes on the rich), it can actually diminish economic incentives and harm the GDP. This can be seen in the history of every nation ruled by communism, whether the former Soviet Union, Cuba, North Korea, or China before it implemented many free- market reforms. Milton Friedman rightly said: “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”8 A nation must produce wealth before it can distribute or enjoy it. The goal must be to increase a nation’s GDP.

  • (3) Natural resources. Some believe that poor nations need to discover new natural resources, perhaps oil, precious metals, or rare earths. This solution has some merit, because when minerals are “produced” from the ground, their value directly increases GDP. But this is too narrow a focus, both because some nations have few resources (therefore this solution does not help them) and because some nations with almost no natural resources (Japan, Singapore) have become very wealthy. In addition, long-term prosperity in a nation cannot be preserved by resource wealth alone. As we will see later, many economists consider natural resources a disguised curse, creating immediate income but hurting the conditions for building the institutions that produce longterm growth. The goal must be to increase a nation’s GDP.
  • (4) Debt forgiveness. Others say that rich nations need to forgive the impossibly high debts that have been incurred by poor nations, because the costs of repaying these loans are a crippling burden. Unfortunately, this suggestion is similar to the proposal that more aid be given to poor countries, because it simply changes a loan into a gift, which is more aid. Debt forgiveness is at best a means to an end, not the end itself. It helps only if a nation produces more goods and services in the long run. The goal must be to increase a nation’s GDP.
  • (5) Better terms of trade. Still others advocate negotiating more favorable prices for international trade between rich and poor nations. This would increase the value of a country’s exports (total exports are [2] [3]

added to GDP, since a country produced these things) and decrease the cost of its imports (imports are subtracted from GDP, since a nation did not produce these things but bought them from abroad). Therefore, if some sellers or buyers in a nation can negotiate more favorable terms of trade in dealing with many thousands of buyers and sellers on a world market, we agree that this would bring some benefit.[4]

But no single poor nation is likely on its own to exert much of an effect on world prices of its goods (as we explain below, 92-99). [5] Focusing one’s hope and effort on something that one probably cannot change is not a wise strategy. The goal must be to focus on something that a nation can certainly change: producing more goods and services, and so increasing its GDP.

  • (6) Restrain multinational corporations. Others believe that the solution is to break up or somehow restrain the power of large multinational corporations that are unfairly taking advantage of poor nations. But those who focus on multinational corporations seldom evaluate their actual overall impact on a nation’s production of goods and services (see next chapter, 99-106). The goal should not be to hurt productive firms or make them less powerful. The goal must be to make every person and every company within the nation more productive, and thus increase a nation’s GDP.
  • (7) Fair trade coffee. Others seem to think that the solution is to persuade Starbucks customers to buy “fair-trade” coffee, and then to expand “fair-trade” agreements to other products and other companies. This is a form of the “better terms of trade” approach, and we analyze it below, but we can say here that most economists believe that the fair-trade movement mostly benefits a small number of producers while it harms others (see below, 92-95), and very little of the higher retail price actually reaches the farmers themselves. In any case, we doubt that this movement can succeed in persuading more than a small portion of the overall world market to pay more than the world price of a commodity, which is determined by the continual interplay of supply and demand. The effect is limited in scope, so this practice does not have a really significant impact on a nation’s overall production of goods and services.

As we will explain below, some of these proposals provide some help and others are harmful. But none of them provides an overall, sustainable solution to poverty. That comes only through increasing a nation’s GDP.

  • [1] See, for example, the sections below on making it easy for even poor people to obtain clearly documented property rights (141-54), on overcoming the oppression when a few wealthy families controlall the wealth and power (75-77, 297-307), on protecting genuine opportunities and ease of entry infree markets (263-77), on the importance of widespread education and literacy (253-56, 291-92), andmany other sections.
  • [2] 8 Milton Friedman, “Created Equal,” Part Five in the Free to Choose video lecture series, accessed January
  • [3] 2013, www.freetochoose.tv.
  • [4] 2 In addition, we object to most tariffs and quotas imposed on products that poor countries seek toexport to richer countries (see below, 98-99).
  • [5] We also oppose the practice of rich nations providing above-market subsidies for some agriculturalgoods and then “dumping” them on world markets (see below, 97-98).
 
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