Bono has the wrong answer for the poor of the world (Part 2)
Bono praises the election of President Obama!!!
This is a series of posts that shows that Bono (who I have been listening to since 1983) has the wrong solution to the problem of worldwide hunger.
Politico reports here that a group of celebrities, including former Baptist pastor Mike Huckabee, shouted a four-letter obscenity for cameras in a promotion to speak up against famine. Bleeps and labels to cover mouths obscure the actual word.
ONE, the Bono-founded organization, says:
In the PSA, our celebrity supporters shout out one four letter word that the majority of viewers will find offensive, in order to shine a light on something only a minority seems to be offended by. I know the tone is a bit rough for ONE — that’s no accident. If it feels like a punch in the face, then good — mission accomplished. It’s time for a wakeup call and here’s the alarm. Love it? Great. Hate it? OK. Just don’t ignore it.
I’m not sure I believe Huck did precisely as described.
One of the key parts of the solution is economic freedom. It is not the bailout, welfare approach of President Obama who Bono supported in 2008. Here is the second part of an excellent article from the Cato Institute:
Ending Mass Poverty
by Ian Vásquez
Ian Vásquez is director of the Cato Institute’s Project on Global Economic Liberty. This essay originally appeared on the U.S. Department of State’s electronic journal, Economic Perspectives (September 2001).
Economic growth is the “only path to end mass poverty,” says economist Ian Vásquez, who argues that redistribution or traditional poverty reduction programs have done little to relieve poverty. Vásquez writes that the higher the degree of economic freedom — which consists of personal choice, protection of private property, and freedom of exchange — the greater the reduction in poverty. Extending the system of property rights protection to include the property of poor people would be one of the most important poverty reduction strategies a nation could take, he says.
The historical record is clear: the single, most effective way to reduce world poverty is economic growth. Western countries began discovering this around 1820 when they broke with the historical norm of low growth and initiated an era of dramatic advances in material well-being. Living standards tripled in Europe and quadrupled in the United States in that century, improving at an even faster pace in the next 100 years. Economic growth thus eliminated mass poverty in what is today considered the developed world. Taking the long view, growth has also reduced poverty in other parts of the world: in 1820, about 75 percent of humanity lived on less than a dollar per day; today about 20 percent live under that amount.
Even a short-term view confirms that the recent acceleration of growth in many developing countries has reduced poverty, measured the same way. In the past 10 years, the percentage of poor people in the developing world fell from 29 to 24 percent. Despite that progress, however, the number of poor people has remained stubbornly high at around 1,200 million. And geographically, reductions in poverty have been uneven.
This mixed performance has prompted many observers to ask what factors other than growth reduce poverty and if growth is enough to accomplish that goal. Market reforms themselves have been questioned as a way of helping the poor. After all, many developing countries have liberalized their economies to varying degrees in the past decade.
But it would be a colossal mistake to lose focus on market-based growth and concentrate instead on redistribution or traditional poverty reduction programs that have done little by comparison to relieve poverty. Keeping the right focus is important for three reasons — there is, in fact, a strong relationship between growth and poverty reduction, economic freedom causes growth, and most developing countries can still do much more in the way of policies and institutional reforms to help the poor…
The Importance of Economic Freedom
The West’s escape from poverty did not occur by chance. Sustained growth over long periods of time took place in an environment that generally encouraged free enterprise and the protection of private property. Today, developing countries have an advantage. By adopting liberal economic policies, poor countries can achieve within one generation the kind of economic progress that it took rich countries 100 years to achieve. High growth is possible because poor countries will be catching up to rich countries, rather than forging a new path. Studies by both the World Bank and the International Monetary Fund confirm that countries such as China and others that have chosen to open their economies are indeed converging with the industrialized world.
The most comprehensive empirical study on the relationship between economic policies and prosperity is the Fraser Institute’s “Economic Freedom of the World” annual report. It looks at more than 20 components of economic freedom, ranging from size of government to monetary and trade policy, in 123 countries over a 25-year period. The study finds a strong relationship between economic freedom and prosperity. Divided by quintiles, the freest economies have an average per capita income of $19,800 compared with $2,210 in the least free quintile. Freer economies also grow faster than less free economies. Per capita growth in the 1990s was 2.27 percent in the most free quintile, while it was -1.45 percent in the least free countries.
The Fraser study also found that economic freedom is strongly related to poverty reduction and other indicators of progress. The United Nations’ Human Poverty Index is negatively correlated with the Fraser index of economic freedom. People living in the top 20 percent of countries in terms of economic freedom, moreover, tend to live about two decades longer than people in the bottom 20 percent. Lower infant mortality, higher literacy rates, lower corruption, and greater access to safe drinking water are also associated with increases in economic liberty. Indeed, the United Nations’ Human Development Index, which measures various aspects of standards of living, correlates positively with greater economic freedom.
The implications for the poor are impressive. Economists Steve Hanke and Stephen Walters examined the leading empirical studies on the relationship between economic freedom and prosperity and concluded that a 10 percent increase in economic freedom tends to increase per capita gross national product by 7.4 to 13.6 percent. Since developing countries can still increase their levels of economic freedom substantially, and some have by 100 percent or more in the past two decades, the payoff of enhanced liberty can be seen not only in terms of growth but also in terms of a range of human development indicators. Hanke and Walters found, for example, that an increase in per capita income from $500 to $1,000 produces a rise in life expectancy of about 6 percent. Indeed, high growth creates the wealth that makes it possible for countries to invest in health, education, and other human needs that are an essential part of continued growth. Nor are those benefits shared unequally. The Fraser study found that there is no correlation between economic freedom and inequality, while a World Bank study has found that the incomes of the poorest 20 percent of the population rise proportionately with the average rise in income.
Toward More Effective Poverty Reduction
Although the collapse of central planning forced many countries to abandon inward-looking economic policies in the 1990s, most of the developing world is still far from adopting a coherent set of policies consistent with economic freedom. Russia may have dumped communism, but in terms of economic freedom the Fraser Institute ranks the country 117 out of 123 nations. Even countries such as Argentina and Mexico that have done much to liberalize their economies have clung to policy remnants of the past, with devastating consequences for the poor. Mexico’s peso crisis of 1994-95, for example, resulted from monetary and fiscal policies during an election year that were thoroughly inconsistent with market economics.
Attention to market-oriented macroeconomic policies is well founded, particularly since they benefit the poor. That is especially so of two such policies — reducing inflation and the level of spending — which disproportionately favor the poor. Much less attention, however, has been paid to institutional reforms and the microeconomic environment. Three areas stand out: the rule of law, the level of bureaucratic regulation, and the private property rights of the poor.
A legal system capable of enforcing contracts and protecting persons and their property rights in an evenhanded manner is central to both economic freedom and progress. Indeed, the sustainability of a market economy — and of market reforms themselves — rests largely on the application of the rule of law. Yet the rule of law is conspicuously missing in much of the developing world. The 2001 “Economic Freedom of the World” report, which includes a more comprehensive index of economic freedom for 58 countries, takes this measure into account. It finds that Latin American countries rank especially low in this area. Also at the bottom of the list are transition countries such as Russia and Ukraine. Were reliable data available for African countries, they would no doubt receive low ratings as well.
The absence of the rule of law is especially unfortunate for the poor, not only because they have fewer private resources to protect their rights, but also because the rule of law in itself is related to economic growth. Robert Barro created an index that measured the rule of law on a scale of 0 to 6 and found that a country’s growth rate increases by half a percentage point with each increment in his index. Because the rule of law provides essential protections for the poor, sustains a market exchange system, and promotes growth, it may well be the most important ingredient of economic prosperity.
Another much neglected area in need of reform is regulation. Here again the Fraser Institute’s comprehensive index found that the freedom to operate a business and compete in the market is circumscribed in much of the developing world. The same countries that ranked low in the rule of law area ranked low in this area. To have an idea of the bureaucratic burden with which people in the developing world must contend, consider the cases of Canada, Bolivia, and Hungary. According to a study by the National Bureau of Economic Research, it takes two days, two bureaucratic procedures, and $280 to open a business in Canada. By contrast, an entrepreneur in Bolivia must pay $2,696 in fees, wait 82 business days, and go through 20 procedures to do the same. In Hungary the same operation takes 53 business days, 10 procedures, and $3,647. Such costly barriers favor big firms at the expense of small enterprises, where most jobs are created, and push a large proportion of the developing world’s population into the informal economy.
The informal economy in the developing world is large due to another major factor. The private property rights of the poor are not legally recognized. Peruvian economist Hernando de Soto has documented how poor people around the world have no security in their assets because they lack legal title to their property. In rural Peru, for example, 70 percent of poor people’s property is not recognized by the state. The lack of such legal protection severely limits the wealth-creating potential that the poor would otherwise have were they allowed to participate within the legal framework of the market. Without secure private property rights, the poor cannot use collateral to get a loan, cannot take out insurance, and find it difficult to plan in the long term.
Ending what amounts to legal discrimination would permit poor people to benefit fully from the market system and allow the poor to use their considerable assets to create wealth. Indeed, as de Soto has shown, the poor are already asset rich. According to him, the assets of the poor are worth 40 times the value of all foreign aid since 1945. The wealth of Haiti’s poor, for example, is more than 150 times greater than all foreign investment in that country since its independence in 1804. In the limited places that poor people’s property has been registered, the results have been impressive. Where registration was done in Peru, new businesses were created, production increased, asset values rose 200 percent, and credit became available.
Extending the system of property rights protection to include the property of poor people is the most important social reform that developing countries can undertake. It is a reform that has been almost completely ignored around the world, yet it would directly affect the poor and produce dramatic results for literally thousands of millions of people.
Keeping the Right Focus
Countries have ended mass poverty only by following policies that encourage economic growth. But that growth must be self-sustaining to translate into enduring increases in wealth. Policies of forced industrialization or state-led development may produce high growth for a time, but history has shown that such episodes are followed by economic contraction. Economic freedom, by contrast, shows a strong relationship with prosperity and growth over time. Fortunately, many developing countries are following that path, producing high and rapid growth and showing that it is good for the poor. Their experience may create a demonstration effect for the majority of nations that are in many ways still economically unfree.
All developing nations can do more to increase growth. Establishing the rule of law, reducing barriers that hamper entrepreneurship and competition, and recognizing the property rights of the poor are three reforms that go beyond the liberalization measures that many countries have already introduced. Those reforms not only contribute to economic growth; they increase the effectiveness of growth in reducing poverty. Policy-makers in rich and poor countries alike should not lose focus on the promise of growth. It remains the only path to end mass poverty.
Uploaded by bellantoniwashtimes on Jan 18, 2009
U2 performs Pride: In the name of Love, a song about Martin Luther King, at President-elect Barack Obama’s Inaugural concert on the Lincoln Memorial in Washington D.C. Bono told the estimated 600,000 there that on Tuesday “that dream comes to pass.” Jan. 18, 2009