An Explanation for Third World Poverty

by Walter Williams (June 30, 2004)

Did you learn that the United States is rich because we have bountiful natural resources? That
has to be nonsense. Africa and South America are probably the richest continents in natural
resources but are home to the world's most miserably poor people. On the other hand, Japan,
Hong Kong, Taiwan and England are poor in natural resources, but their people are among the
world's richest.

Maybe your college professor taught that the legacy of colonialism explains Third World
poverty. That's nonsense as well. Canada was a colony. So were Australia, New Zealand and
Hong Kong. In fact, the richest country in the world, the United States, was once a colony. By
contrast, Ethiopia, Liberia, Tibet, Sikkim, Nepal and Bhutan were never colonies, but they are
home to the world's poorest people.

There's no complete explanation for why some countries are affluent while others are poor,
but there are some leads. Rank countries along a continuum according to whether they are
closer to being free-market economies or whether they're closer to socialist or planned
economies. Then, rank countries by per-capita income. We will find a general, not perfect,
pattern whereby those countries having a larger free-market sector produce a higher standard
of living for their citizens than those at the socialist end of the continuum.

What is more important is that if we ranked countries according to how Freedom House or
Amnesty International rates their human-rights guarantees, we'd see that citizens of countries
with market economies are not only richer, but they tend to enjoy a greater measure of
human-rights protections. While there is no complete explanation for the correlation between
free markets, higher wealth and human-rights protections, you can bet the rent money that
the correlation is not simply coincidental.

With but few exceptions, African countries are not free, and most are basket cases. My
colleague, John Blundell, director of the London-based Institute of Economic Affairs, highlights
some of this in his article "Africa's Plight Will Not End With Aid" in The Scotsman (6/14/04).

Once a food-exporting country, Zimbabwe stands on the brink of starvation. Just recently,
President Robert Mugabe declared that he's going to nationalize all the farmland. You don't
have to be a rocket scientist to figure out that the consequence will be to exacerbate
Zimbabwe's food problems. Sierra Leone, rich in minerals, especially diamonds, with highly
fertile land and home to the best port site in West Africa, has declined into a condition of utter
despair. It's a similar story in nearly all of south-of-Sahara Africa. Its people are generally
worse off now than they were during colonialism both in terms of standard of living and
human-rights protections.

John Blundell says that the institutions Westerners take for granted are entirely absent in
most of Africa. Africans are not incompetent; they're just like us. Without the rule of law,
private property rights, an independent judiciary, limited government and an infrastructure for
basic transportation, water, electricity and communication, we'd also be a diseased, broken
and starving people.

What can the West do to help? The worst thing is more foreign aid. For the most part, foreign
aid is government to government, and as such, it provides the financial resources that allow
Africa's corrupt regimes to buy military equipment, pay off cronies and continue to oppress
their people. It also provides resources for the leaders to set up "retirement" accounts in
Swiss banks. Even so-called humanitarian aid in the form of food is often diverted. Blundell
reports that Mugabe's thugs rip labels off of wheat and corn shipments from the United States
and Europe and re-label them as benevolence from the dictator.

Most of what Africa needs the West cannot give, and that's the rule of law, private property
rights, an independent judiciary and limited government. The one important way we can help
is to lower our trade barriers.

Born in Philadelphia in 1936, Walter E. Williams holds a bachelor's degree in economics from
California State University (1965) and a master's degree (1967) and doctorate (1972) in
economics from the University of California at Los Angeles.

Please contact your local newspaper editor if you want to read the WALTER WILLIAMS column
in your hometown paper.

Summary - How to end poverty in the third world

Make Poverty History sums up the inability of people to understand the cause of third world poverty and famine, and
conversely, the cause of western prosperity. Yes, it is brilliant that millions of people are focused on how to end
poverty in Africa. But Make Poverty History promotes the delusion that the solution to poverty is:

1. Aid.
2. Debt relief.
3. Fair trade.

And that:

1. The main problem is to get the West (for example, the G8) to change.

In reality, the solution to poverty is:

1. Democracy.
2. Free speech and a free society.
3. Capitalism.
4. Free trade, not fair trade.

And:

1. The main problem is that Africa needs to change.

Aid, Debt relief and Fair trade are not the answer
To elaborate, aid and debt relief, when given to governments that care about their citizens, might do some good, at
times of emergency at least (long-term aid may distort markets and cause harm). But poor countries do not have good
governments, or they would not be poor. They have rotten governments, which stamp on political freedom and
economic freedom. Aid and debt relief, when given to dictatorships like these, fuels civil wars, genocide, arms
purchases and palace building; fills Swiss bank accounts; and distorts markets, often increasing poverty.

• $1 trillion in aid has been given to Africa since WW2, and there is nothing to show for it. Aid is obviously
not the solution to poverty in Africa.
• The Globalization Institute
 o More Aid, Less Growth, report, 2005. - Aid may cause poverty. For every 1% increase in
development aid received by a developing country, there is a 3.65% drop in real GDP growth per
capita.
• Dambisa Moyo of Zambia argues against aid for Africa in her book "Dead Aid: Why Aid is Not Working and
How There is a Better Way For Africa" (2009).
o Interview, 22 Feb 2009. She is asked: "What do you think has held back Africans?" She says: "I
believe it's largely aid. You get the corruption - historically, leaders have stolen the money without
penalty - and you get the dependency, which kills entrepreneurship. You also disenfranchise
African citizens, because the government is beholden to foreign donors and not accountable to its
people."
o On Asian growth without aid: "China has 1.3 billion people, only 300 million of whom live .. with
Western living standards. There are a billion Chinese who are living in substandard conditions. Do
you know anybody who feels sorry for China? Nobody. ... Forty years ago, China was poorer than
many African countries. Yes, they have money today, but where did that money come from? They
built that, they worked very hard to create a situation where they are not dependent on aid. ... I
wish we questioned the aid model as much as we are questioning the capitalism model."
o She recommends making micro-loans such as at kiva.org, where you eventually get your money
back. Though this is time-consuming - a better solution would be for us to donate to charity, and for
them to run micro-loans on our behalf, recycling the money constantly (and using some for admin
costs).
• Fair trade often means a form of Protectionism, and, like all state attempts to control prices, is likely to
increase poverty, not reduce it.
• Confusingly, "fair trade" also sometimes stands for attempts to eliminate protectionism, such as eliminating
the Agricultural subsidies of the CAP. In which case, the "fair trade" people are on the right side.
• The EU
o End the CAP

Africa must adopt western values

The solutions to poverty are well known. If it is ever to become prosperous, Africa must abandon dictatorship,
socialism, communism, Islamism, pan-Arabism, statism, protectionism, tribalism, superstition, racism and corruption,
and must adopt western values of: democracy, capitalism, science, free speech, freedom of religion, free press, a
free society, property rights, the rule of law, the ability to make binding contracts, free enterprise, minimal
bureaucracy, minimal taxation, minimal state enterprise, and free trade.

• Political freedom
• Economic freedom
• Capitalism and democracy cause prosperity.
• Capitalism and democracy end famine.
• Capitalism Is the Cure for Africa's Problems (also here) by Andrew Bernstein
• Any African country can simply choose to become rich, if it wants. All it has to do is adopt western ideas and
the systems that worked in the west, and prosperity will follow. Currently, nobody is doing it. Not a single
country in Africa scores "Free" on both political freedom and economic freedom.

Is there anything the West can do?

Is there anything the West can do to help end poverty? Yes there is:

1. Make Africa change. Declare a long term goal of ending all dictatorships in Africa. Declare that the goal is to
establish capitalist democracies in all of Africa. Simply saying this would be a huge step forward.
 2. Work towards that goal. Sanction dictators. Seize their assets. Support dissidents. Link aid, loans, trade and
arms to democratic reform. There are many methods of ending dictatorship other than by war (though war
should always be an option).
3. Scrap all agricultural subsidies in the EU and the US.
4. End trade barriers. Of course, many trade barriers are internal to Africa. But we can at least end the external
ones.

Why is the Third World poor?

• Why is the Third World poor?

o Noam Chomsky's crackpot world view - that the Third World are somehow "oppressed" or
"exploited" by the First World. Many people on the left claim (based on no evidence) that the Third
World is poor because we are rich.
o In reality, of course, the cause of third-world poverty is simple. Third-world people are poor
because of third-world governments.
• How the West grew rich by Dinesh D'Souza.
o If the west got rich by slavery, empire, and exploiting other peoples, then we have a philosophy of
despair - for the third world can't do the same. In other words they will never get rich.
o If, on the other hand, these things are expressions of the west's pre-existing wealth, technology and
power, rather than causes of it (*), then we have a philosophy of hope. If the west got rich because
of science, democracy, and capitalism - with empire, and even natural resources, largely
irrelevant - then we have a philosophy of fantastic hope: If the Third World adopts science,
democracy, and capitalism, then they will get rich just like us.
o (*) After all, why was it Western Europeans that travelled and conquered the world? There must
have been something pre-existing in Western European culture that made empire possible.
• David Landes denies that European colonialism and empire was a significant cause of European wealth.
• Quote from Ibn Warraq on the idea that the third world is poor because of the legacy of imperialism. "Ibn
Warraq pointed out that more than 50 years after the West left its colonies in the Third World, Leftists are
still blaming all the ills of Africa and the Middle East on the former colonial powers, while the same left-
wingers only 10 years after the fall of Communism blamed Russia's troubles on unrestrained capitalism."
• Theodore Dalrymple points out that much of the Arab world has no idea where Western wealth comes from:
"They may claim, for example, that the West has achieved its preeminence by illicit use of force and pillage,
by exploiting and appropriating the oil of the Muslim lands, say. .. the claim about the exploitation of oil is
not merely self-serving; it is patently absurd. If anything, the direction of the exploitation has been precisely
the opposite, for merely by virtue of their fortunate geographical location, and with scarcely any effort on
their part, the people of the Arabian peninsula and elsewhere have enjoyed a high standard of living thanks
entirely to the ingenuity of those whom they accuse of exploitation and without whom the oil resource would
not be an economic resource at all. ... I have talked to a lot of young Muslim critics of Western society,
living in the West, and few of them were aware of the philosophical basis of Western achievement, which they
believed to be merely materialist and founded on crude plunder, never having heard any other viewpoint."
• Hernando De Soto (and here) - Let's make the Third World rich too!
o What I love about De Soto is that he refuses to see the third world's future as modest, self-
sufficient and agrarian, living in harmony with nature in rural villages, their countries
existing on permanent welfare - which seems to be the model the left promotes. He sees no
reason why they can't become high-tech, modern, complex, urban, globalised and prosperous -
like us. For me, South Korea is the model for the future of the third world.
o The Institute for Liberty and Democracy
 The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere
Else - How to get capitalism working in the third word.
 Chapter 1
o De Soto's main point is that capitalism depends on lots of things we take for granted - property
rights, a clear registry of who owns what, enforceable contracts with strangers. Also making it as
easy and fast as possible to do things like set up a business, rent a building, hire someone, buy and
sell land, raise a loan, issue shares, etc. Then capitalism is a pre-Internet "network effect". You
don't have to trade just with people you trust (which is what most of the poor, economically unfree
world has to do). You can buy and sell with strangers. And the economy explodes.
 o Hegemony of the Heart, by Clark S. Judge, summarises De Soto's work.
o The Maoist/fascist "Shining Path" in De Soto's native Peru want to kill him.
• Liberty Institute, India (pro-democracy, pro-free market).