Saturday, December 20, 2008

The profit motive is the way out of poverty

Comment from Australia

Kevin Rudd will be delighted if Australians spend their handouts from his Santa Claus economic stimulus package on Christmas presents, or just about anything else, rather than saving the money. But when it comes to handing out cash, the intention of the giver and the response of the recipients frequently diverge. Nowhere is this more apparent than in the field of foreign aid. Since Christmas is a time when appeals for aid donations often seek to exploit the spirit of the season, it also seems an appropriate time to update a long-running debate.

Quite a while ago, trade and development economist Peter Bauer (1915-2002) of the London School of Economics famously remarked that aid was a transfer of wealth from poor people in rich countries to rich people in poor countries. Has this changed? Here is a quote from a recent book by two men from the present generation of US development economists: "Private charities and countries' foreign aid agencies have spent billions annually for decades now, hoping to wipe out poverty. We've seen round after round of debt relief since the 1970s. But despite all this, the average Kenyan is still no richer today than in 1963. Will things really be any different this time around?"

This time around refers to the wave of aid-for-Africa concerts and political grandstanding on aid in forums such as the Group of Eight by prominent entertainers and politicians, including Angelina Jolie, Bono, former British prime minister Tony Blair and his successor Gordon Brown, all practitioners of what British author Patrick West calls "conspicuous compassion" in his book of that title.

The two economists are Raymond Fisman from Columbia Business School and Edward Miguel from the University of California, Berkeley. Their book, published in October by Princeton University Press, has an unusual title: Economic Gangsters.

According to Fisman and Miguel, the answer to their question hinges critically on one's view of the role that corruption and violence play in the impoverishment of nations. Hence the title. If corruption and violence are the symptoms of poverty, then the solution is to step up rich-country foreign aid until poverty is eliminated, and corruption and violence will disappear. But if corruption and violence are endemic, no amount of foreign aid will lift a country such as Zimbabwe or Kenya out of poverty. The money will simply enrich kleptocratic elites and entrench corruption and violence.

The leading protagonists in the aid debate are two high-profile US economists, Jeffrey Sachs (who was recently in Australia) and William Easterly. Sachs has long been an adviser on economic development (not always successfully) to governments across the world.

Sachs is a believer in poverty traps and he is not afraid of making a bold call on a policy to end poverty: more rich-country money, and lots of it. Given enough aid money, together with a grand development plan, its implementation overseen by the UN, poverty can be abolished by 2025. Easterly agrees with Sachs on the need to tackle poverty, but not with his "big push" solution. Nor is he impressed by the corporate philanthropy, or creative capitalism, approach of Microsoft's Bill Gates.

Of Sachs's approach, Easterly says it is strikingly similar to the ideas that inspired foreign aid in the 1950s and '60s, which influenced the bureaucratic approach to economic development that has been followed since. After five decades and trillions of aid dollars, the most aid-intensive regions, notably much of Africa, are still poverty stricken, suggesting the big push approach is unlikely to be a great success.

As for the poverty trap, an idea that dates from the same era, Easterly argues it has been refuted by the successful escape from poverty of many societies without much aid as a percentage of their total income, China and India, which had African-style poverty levels as recently as the '80s, being cases in point. "Fortunately for the world's poor and for all the rest of us, there are much more dynamic forces in the world than UN bureaucrats and their academic advocates," he said earlier this year.

The world poverty rate has declined by half over the past 30 years, and it has had little to do with foreign aid. Chief among these dynamic forces, in Easterly's view, is capitalism. Criticising Gates's attack on capitalism and his call in The Wall Street Journal in February for much more corporate philanthropy, Easterly commented that philanthropy had proved awfully weak compared with the profit motive. He said profit-motivated capitalism had done wonders for poor workers, with the globalisation of capitalism from 1950 to the present increasing annual average income in the world to $7000 from $2000. Contrary to popular belief, poor countries' incomes grew at about the same rate as those of the rich ones, leading to the greatest mass exit from poverty in world history.

With the world plunging into recession as a result of the excesses of financial market capitalism, this no doubt sounds a bit thin these days. But on a longer view, Easterly is right to argue that the parts of the world that are still poor are suffering from too little capitalism. Direct foreign investment in Africa today, although rising, still amounts to only 1 per cent of global flows because the environment for private business in Africa is still hostile, despite some African industry and country success stories.

Easterly is not opposed to foreign aid for poor countries; on the contrary, he thinks, like Sachs, that the remaining levels of world poverty are a disgrace. But his approach rejects the grand plan and the deployment of the legions and billions of the foreign aid establishment. Instead, he prefers a multitude of smaller programs that can be much more easily monitored and audited to see what works, and systems that give more economic and political freedoms to individuals to find their own solutions to poverty.

Easterly has history on his side. Even in China, which remains a communist state, rapid economic growth followed the freeing up of its economic life and greater political freedom relative to its earlier totalitarianism, not the nostrums of the foreign aid establishment. But no escape from poverty is possible while corruption and violence rule and, as the example of Zimbabwe under Robert Mugabe and other Africa nations powerfully demonstrates, the world is a long way from finding a solution.


St. Jude, Don't Make it Bad

St. Jude's, the local gay church in Wilmington, NC, is one of those churches that makes me glad I'm not a "liberal" Christian. Some years ago, they ran an advertisement that read "Whatever you believe, we embrace you." When I saw that "whatever you believe" ad, I was tempted to go to St. Jude's one Sunday and tell them I thought the Holocaust was a good idea and that I liked cooking cats in a microwave oven. I just wanted to see whether they actually bought into moral relativism - a philosophy so vacuous that only college professors deem it useful.

Today, St. Jude's seems to have softened its stance on wide-open "whatever you believe" moral relativism. Their website now actually lists several "core values," which I assume means something like "absolute truths." Here's what the website says specifically: "St. Jude's is committed to expanding our Core Values into the community. We are: Christ-Centered - Holy Spirit Led, (We are) God's Love in Action, (We) Celebrate LGBTQ & Straight individuals and families."

It's a good thing the St. Jude gay church talks about certain "truths" or "core values" because that is what St. Jude himself talked about in verse three of his one-chapter epistle in the New Testament: "Dearly loved friends, I had been planning to write you some thoughts about the salvation God has given us, but now I find I must write of something else instead, urging you to stoutly defend the truth which God gave, once for all, to his people to keep without change through the years." In other words, St. Jude was concerned that people were going to come along and start to change things that were clearly prohibited by the Bible. Maybe even celebrate them. And for those who think the New Testament preaches only forgiveness - in contrast to the Old Testament emphasis on punishment - take a look at the very next verse of St. Jude's epistle:

"I say this because some godless teachers have wormed their way in among you, saying that after we become Christians we can do just as we like without fear of God's punishment. The fate of such people was written long ago, for they have turned against our only Master and Lord, Jesus Christ."

I doubt all of the people at St. Jude's heavily gay, lesbian, bisexual and transgendered church have read verse seven of Jude's epistle, which is quoted here in the Living Bible translation: "And don't forget the cities of Sodom and Gomorrah and their neighboring towns, all full of lust of every kind including lust of men for other men. Those cities were destroyed by fire and continue to be a warning to us that there is a hell in which sinners are punished."

So this is interesting. By actually celebrating homosexuality - as opposed to say, ignoring it - the St. Jude congregation is actually driving congregants towards damnation. An argument could be made for classifying this church as a hate group. But, of course, the real St. Jude doesn't think we should reach out to gays with anything like hate speech. In verse twenty-three he urges that we approach them with both kindness and caution:

"Save some by snatching them as from the very flames of hell itself. And as for others, help them to find the Lord by being kind to them, but be careful that you yourselves aren't pulled along into their sins. Hate every trace of their sin while being merciful to them as sinners."

One of my readers recently told me - in an argument about post-marital sex - that it was OK for him to be in favor and for me to be opposed. His reasoning was that he is a "liberal Christian" and I am a conservative Christian. Of course, what my reader really meant was that being a liberal Christian means having one set of rules for himself and another set of rules for everyone else. Maybe it's time for liberal Christians to get their own set of epistles. Maybe they should get their own set of Saints as well.


What Democrat Scandal?

In October 2006, the national media projected Rep. Mark Foley's online sex chats with House pages into a disaster that would swallow the Grand Old Party whole. CBS, for example, proclaimed it the "congressional equivalent of Katrina." In 2008, when federal investigators found Illinois Gov. Rod Blagojevich trying to put Barack Obama's Senate seat on the auction block, these same "news" gatherers found a storm, to be sure, but a storm they suggested would in short order be "pushed out to sea."

With the governor caught on tape unloading obscenity after obscenity about how he expected to reap a financial bonanza for handing out his gubernatorial perks, this story was so undeniably big, even the Obamaphile press couldn't ignore it. So instead these reporters tried to downplay its impact on the President-elect and the Democrats.

First, as with other Democratic scandals (Spitzer, Jefferson, McGreevey, etc.), anchors and editors again purposely dropped the "D" out of the equation, laboring not to tell viewers or readers that the offenders were Democrats. In a Republican scandal, the offending politician is usually described as a Republican in the very first sentence, and deservedly so. In a Democrat scandal, the party identification of the perpetrator can arrive in paragraph eight. Or not at all.

Then, reporters declared that a Blagojevich resignation or impeachment could arrive any day, and suggested the story could soon be finished. (When Republicans are in the crosshairs, reporters announce "this story isn't going away any time soon.") Reporters insisted the Blagojevich story might end soon with the governor's removal, even before Team Obama fully explained its contacts with the governor's office on the Senate-seat matter. They wanted Blagojevich removed from the Democratic elite before he infected the party's anti-corruption claims like an Ebola virus.

Third, they labored mightily to separate Team Obama from the Blagojevich camp. Take CBS, and reporter Chip Reid, who cited local CBS reporter Mike Flannery as an expert, and never mind if local bloggers call him "Chicago's version of Chris Matthews." Flannery insisted one could only call Obama and Blagojevich the "most distant allies," and Reid insisted Flannery told him "Obama has often gone out of his way to avoid any close association with the ethically challenged governor. But that's not stopping the Republican National Committee from trying to tie the two men together." Reid read a line from RNC chairman Mike Duncan, then insisted, "Despite the occasional photo together, though, linking them could be a tough sell."

Reid's report cracking open this supposed chasm didn't include uncomfortable facts that Obama's supporters would rather not see circulated. Obama not only supported Blagojevich for governor in 2002, when he was still a state senator, he took credit for advising him to victory. He went on television saying electing his friend "Hot Rod" was a priority. He endorsed him for re-election in 2006 -- at the beginning of 2005.

Reid also dragged in a right-leaning Chicago Tribune columnist to make a case for Obama's distance: "John Kass says Mr. Obama has worked hard to position himself above the machine culture of Chicago politics." He quoted Kass saying: "I don't think he gets tainted by what happened today." But here's what Kass proclaimed in a column a few days later: "The national media outlets were desperate to portray him as someone about to transcend our politics. But in Chicago he was just a smooth guy on the way up, looking the other way." ?The Blagojevich Senate-for-sale scandal demonstrates how feverishly the media continue to portray Obama not as a Chicago machine manipulator, but as the black inheritor of the Abraham Lincoln legacy. Obama's been energetically linked to Lincoln far more than to any Chicago politician who's currently living and serving in office. Obama chose for himself a political career in the grubby precincts of the south side of Chicago, not some log cabin outside Springfield, but reporters seem more interested in building a grand and historic legend of a "new kind of politics," not a real-life politician's colossal ambitions to be president before he turned 50.

Anyone in politics knows it would be extremely normal, acceptable and even necessary for the governor and the [resident-elect (or their aides) to have a chat about who would fill this Senate seat. But the media have invested so much TV time and barrels of ink in putting the most idealistic sheen they can on Obama's New Politics that to find him anywhere within miles of corruption is too much for them to bear.


Madoff Exploited his fellow Jews

Networks of trust are vulnerable. No law can change that

Steven Spielberg. Elie Wiesel. Mort Zuckerman. Frank Lautenberg. Yeshiva University. As I read the list of people and enterprises reportedly bilked to the tune of $50 billion by Bernard Madoff, I recalled a childhood in which my father received bad news by asking first, "Was it a Jew?" My father coupled sensitivity to anti-Semitism with special sympathy for other Jews. In contrast, Mr. Madoff, it seems, targeted other Jews, drawing them in at least in some measure because of a shared faith.

The Madoff tale is striking in part because it is like stealing from family. Yet frauds that prey on people who share bonds of religion or ethnicity, who travel in the same circles, are quite common. Two years ago the Securities and Exchange Commission issued a warning about "affinity fraud." The SEC ticked off a series of examples of schemes that were directed at members of a community: Armenian-Americans, Baptist Church members, Jehovah's Witnesses, African-American church groups, Korean-Americans. In each case, the perpetrator relied on the fact that being from the same community provided a reason to trust the sales pitch, to believe it was plausible that someone from the same background would give you a deal that, if offered by someone without such ties, would sound too good to be true.

The sense of common heritage, of community, also makes it less seemly to ask hard questions. Pressing a fellow parishioner or club member for hard information is like demanding receipts from your aunt -- it just doesn't feel right. Hucksters know that, they play on it, and they count on our trust to make their confidence games work.

The level of affinity and of trust may be especially high among Jews. The Holocaust and generations of anti-Semitic laws and practices around the world made reliance on other Jews, and care for them, a survival instinct. As a result, Jews are often an easy target both for fund-raising appeals and fraud. But affinity plays a role in many groups, making members more trusting of appeals within the group.

On one level, the number of these affinity frauds is testament to the strength of communities in America. Alexis de Tocqueville -- the one Frenchman generally admired by Americans for his good sense and understanding of our nation -- observed that we are a nation of different organizations and clubs, of civic groups and church groups, a web of social and ethnic and religious communities. We define ourselves as American, but also as Jews and Catholics, Mormons and Baptists, as Cuban and Italian, Irish and Japanese, as Rotarians and Masons, Democrats and Republicans.

Predictably, the Madoff story has prompted speculation about potential new regulations that might be imposed to head off future problems. Politicians and pundits have called for the adoption of new rules for securities markets in general and hedge funds in particular, even though Mr. Madoff didn't run a hedge fund and there is no shortage of existing securities rules that were violated by his reported conduct. (Keeping two sets of books suggests his own recognition of that.)

The SEC's failure to pursue complaints about Mr. Madoff over the past decade wasn't the result of inadequate regulations but of disbelief that someone so well entrenched in the industry -- a former Nasdaq chairman and SEC adviser -- was capable of committing such a callous crime.

Although regulatory initiatives routinely are taken off the shelf and offered up as the solution to a newsworthy problem, the conduct Mr. Madoff is accused of was illegal long before Charles Ponzi made pyramid schemes synonymous with his name. With so many aspects of our financial system under scrutiny today, and so many people in the government who regulate and write the rules for that system set to change, it hardly makes sense to go looking for ways to prevent new Madoff-like schemes.

So far as news reports can be trusted, Mr. Madoff appears to be a special case, someone whose whole career made fraud on this scale possible. His contacts and connections, his religion and affiliations, his public and private positions, all worked to make his funds look legitimate and exclusive. And he knew how to play his prospects, when to turn potential clients down, when to give something extra.

In retrospect, the current Madoff story is about someone who was as perfectly suited to swindling as Horowitz was to playing piano. The violation of trust at the heart of that story -- of trust by those with the greatest reason to trust -- cries out for sympathy. It illustrates the limits of law, not the need for more of it.



Political correctness is most pervasive in universities and colleges but I rarely report the incidents concerned here as I have a separate blog for educational matters.

American "liberals" often deny being Leftists and say that they are very different from the Communist rulers of other countries. The only real difference, however, is how much power they have. In America, their power is limited by democracy. To see what they WOULD be like with more power, look at where they ARE already very powerful: in America's educational system -- particularly in the universities and colleges. They show there the same respect for free-speech and political diversity that Stalin did: None. So look to the colleges to see what the whole country would be like if "liberals" had their way. It would be a dictatorship.

For more postings from me, see TONGUE-TIED, GREENIE WATCH, EDUCATION WATCH INTERNATIONAL, FOOD & HEALTH SKEPTIC, GUN WATCH, SOCIALIZED MEDICINE, AUSTRALIAN POLITICS, DISSECTING LEFTISM, IMMIGRATION WATCH INTERNATIONAL and EYE ON BRITAIN. My Home Pages are here or here or here. Email me (John Ray) here. For readers in China or for times when is playing up, there is a mirror of this site here.


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