Chapter 3 Economic Systems that do not lead to prosperity

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here
Chapter 2 was here

Now for chapter 3.
It's also helpful to look at which systems don't work and why they don't.  Although the right system in and of itself does not bring a nation out of poverty, the wrong system will doom a nation.  A poor system will not lead to lasting solutions to poverty.

The authors describe nine systems and critique each to show how they do or do not lead to the creation of more wealth.

1. Hunting and gathering systems do not leave enough time and energy to devote to economic development and specialization.  Plus, there simply aren't enough of these resources left to support a nation in this fashion.
2. Subsistence farming does not leave enough energy and time to devote to specialization and development.  All one's time and energy are spent on producing enough food to feed one's self and a few others.  Again, there aren't enough resources in the world to support a large population in this fashion.
3. Slavery.  Living off the lives of others is not going to lift a nation out of poverty.  Enslaved people never do their best.  Plus such a system is dehumanizing.
4. Tribal ownership.  If everyone owns it, then no one does.  Commonly owned property is usually treated more poorly than property that individuals own.
5. Feudalism  In this system too much of the return to the labor goes to the land owner and not enough to those at the bottom of society.  
6. Mercantilism  Although it seems that this method would increase a nation's wealth, it would not do so over the long haul.  Large companies and monopolies are favored against consumers.  The producer os favored rather than the consumer.  The government picks the winners and losers.  
7. Socialism and communism misunderstand how goods are valued.  They are valued by how much someone else wants them, not by the resources and the time put into creating them. Communism reduces the incentive to work.  The problems of tribal ownership also haunt communism and socialism to some degree.  The history of communism also indicates that it is an evil system, with close to 100 million human beings killed by their own governments during the twentieth century.
8. Welfare state and equality  This system can't be sustained on a large scale and for very long.  Sooner or later someone has to pay the bills.  The incentive for hard work is also removed.  
9. Free market system  This system is the one that the authors describe as the one that is most likely to lead to the reduction of poverty.  It is important to understand what they mean by a free market system.  It is where the individuals can freely choose what to buy and not buy, what to purchase and not purchase, where to invest and not to invest.

The next chapter describes the free market system

Curing Poverty - chapter 2

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Introduction was here
Chapter 1 was here

Now for chapter 2
In this chapter the authors discuss approaches that will not lead to prosperity.
They list the following:

1. Foreign Aid
1. Foreign aid does not work because it does not build the structures that bring and keep people out of poverty.  Instead this aid tends to become a good that those in power use to enrich themselves or to stay in power.  It encourages corruption.  It eliminates the incentives for hard work, education, and working for one's own success.  Furthermore, the history of foreign aid is that it does not work.  Why does it continue?  Because bureaucracies are more interested in perpetuating themselves than in finding solutions that work.  The authors also point to many of the civil wars in Africa that came about because of conflicts over the control of foreign aid money. 
2. Emergency aid given to non-government agencies is often useful, but must be done with care.
3. The Bible teaches help for the poor, but not handouts.  In the Old Testament the poor were given opportunities to glean for themselves, but not to simply receive handouts.
2. Wealth redistribution
1. Some countries have large differences between the wealth of a few and the wealth of the vast majority of citizens.  Latin America in places, North Korea, parts of Africa and Russia are cited as examples.  In these cases, simply redistributing the wealth will not raise people out of poverty in the long term because there are problems in society that need to be addressed.
2. Some countries have wealthy people because those people have worked hard or created services and goods that others will pay money for.  To redistribute these people's wealth is stealing.
3. Depletion/over use of natural resources
1. Depending on a few natural resources for a nation's wealth is a mistake.  The authors point to Spain in its dependence on the gold of the New World and OPEC nations today.  It is too easy to depend on the wealth that the resource brings and not use the resources to continue to build wealth.  Norway is a positive example of using oil, but many other nations have not been so successful.
4. Blaming poverty on external factors
1. The authors discuss colonialism and contend that although both harmful and beneficial, colonialism is only partially responsible for the poverty of most of today's poor nations. Colonialism has created the conditions that have lead to poverty in some nations, and has led to creating structures in other countries that have led to wealth.
2. Blaming the past does not create solutions for the further.  While it may be wise to look at the mistakes of the past, staying mired in the past will not lead to solutions in the future.
3. World Bank and similar agencies.  Should these loans be forgiven?  If so, then we are back to simply giving foreign aid - see above.  How will the conditions that gave rise to the lack of ability to repay be changed?  If they are not, then forgiving debt will not actually change the situation in any country.
4. The section on commodities in the world market was very interesting.  I would suggest that you read it for yourself  (pages 92-99).  The authors do not favor the "fair-trade" movement.  Nor are they in favor of market manipulation through subsidies and tariffs by large companies or more powerful nations.
5. Multinational corporations: Again, this is a more complicated section and needs to be read in its entirety.  The authors speak out against monopolies of labor because that artificially lowers or raises the cost of labor.  When companies compete with each other for the cost of labor, then everyone benefits.  Employees should be treated fairly and honestly.
5. What does cause poverty?  This is complicated and people on both sides of this issue are often too superficial in their understandings.
1. War, crime, disease, accidents, disasters can all cause or contribute to poverty.  This is often beyond the victim's control.  
2. Laziness by the poor person
3. Other factors?

The next chapter deals with systems that do NOT lead to wealth.

Curing Poverty Chapter 1: The goal

I'm currently reading The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.  In the last post I introduced the book.

Chapter 1
Per capita income must increase for a nation to become wealthier.  More goods and services need to be created.  That is, goods that have a monetary value must increase in number.  If people bake bread at home and eat it, per capita income does not increase.

This measure does not give any indication of how well the wealth is distributed in a country, however.  We do not know whether the wealth is in the hands of a few, or in many hands.  For a nation to become more wealthy, the wealth needs to benefit many people.

Wealthier nations are able to afford cleaner water, air and better medical care.  So while more wealth is not the only answer to better lives, it is a necessary starting point.

The rest of the book is a description of how the GDP (gross domestic product) can be increased.   But in summary, a country needs to continually produce more goods and services each year.  The country will have to figure out for itself what those goods and services need to be.

The authors interact with other goals that have been suggested about how to eliminate poverty.  These include more aid, more equal distribution of wealth, discovering new natural resources, debt forgiveness, better trade terms, more fair trade goods, and restraining multinational corporations.  the authors show briefly why these are not adequate for lifting a nation out of poverty.  More substantial objections will be explored later in the book.

Of particular interest in terms of current American cultural and political thought is the morality of profit.  The Occupy Wallstreet movement is in the recent past, and many in America have recently begun to think that profits are evil.  The authors point out (p. 53) that ". . . profit is not immoral, but is a measure of morally positive value that has been added to the nation."  When two or more parties agree mutually to buy and sell and one makes a profit, then the other has agreed that the value is fair and that they are willing to pay it.  Profits then reflect an increase in value over raw materials because of human talent, training, and hard work.

How then can a nation increase the amount of goods and services that it produces?  How can more garments be produced?  More food, refrigerators, or whatever?  This will be dealt with in the rest of the book.

Grudem and Asmus point out several historical examples of nations that have become more wealthy.  Britain, Japan, Hong Kong, and South Korea, all come to mind.  They mention the Industrial Revolution and how it eventually benefited England, but they don't mention the social destruction that went along with it as well.  I hope that they address these factors as the book unfolds.

Biblically, the authors point to the wife of Proverbs 31 who seems to be an entrepreneurial capitalist.  They also point to the Creation mandate of Genesis 1 where Adam and Eve are commanded to subdue the earth and implies that they were to use the resources of nature for their own benefits.  The New Testament also points to the importance of working.

Chapter two: Wrong Goals:  What won't work

Curing Poverty Introduction

Every year especially at the Thanksgiving and Christmas holiday season I give thought to those who are less fortunate than I am materially.  There is so much food, so many things in my life, and yet there are many around the world who have little or not enough of food, water, and other things that make life more enjoyable.

I give thought to what I can do to help those people.  I have been interested in micro finance and have contributed money that way in the past.  And yet I have read articles that lead to me believe that those avenues may not be as helpful to lifting people out of poverty as we would hope.

So it was with great interest that I became aware of a book The Poverty of Nations by Wayne Grudem and Barry Asmus that was published about a year ago.  It was on my reading list, and my daughter bought it for me for Christmas.  I've begun to read it and will give a summary as I go.

Within my lifetime (55 years) the Western world has given at least 500 billion dollars to Africa, yet that continent remains mired in poverty.  What has happened?  Surely that much money should have raised the average African to at least being out of poverty.  But that's not what has happened.  In this book, the authors show how nations (not individuals) can leave poverty behind them.  They examine these factors (seventy nine total) and show both economically (Barry Asmus) and Biblically (Wayne Grudem) why these principles work.

Introduction
The authors want to provide a sustainable solution to poverty for nations.  It is important that the solution last  - so it must be sustainable.  The authors realize that within nations there will be inequality of wealth, and that some nations will be wealthier than others.  That is the way life is, but it is important (and Biblical) that people not be left in poverty.  The focus of the book is on "national laws, national economic policies, and national cultural values habits because we are convinced that the primary causes of poverty are factors that affect an entire nation." (p. 26)

It is important that these changes come from within the poor nation itself.  Outsiders cannot impose solutions, nor should they act in ways that will lead to dependence by the poor nation (paternalism).

The authors recognize that wealth is not all that there is to life.  Many poor people may be better adjusted and happier than many wealthy people in their own countries or in other countries.  It could also be argued that although we in the USA may be very wealthy materially, that we are in fact very impoverished spiritually and in our relationships.  Nevertheless, it is not good that there are so many poor people in the world who are unable to feed themselves and their families, or who are stuck with the barest essentials while others have so much more.

Why don't economists agree on the solutions(s) to poverty?  The authors list six reasons and interact with them.

1. Some do agree with our authors, and they list several works that could be read.
2. Some economists are "professional donors."  That is, they give away others' money and have a stake in the system continuing as it is.
3. Pure economists only address economic concerns and do not address cultural, moral, or spiritual values.  The authors of this book believe that all these factors are important for lifting people out of poverty.
4. Some people do not believe that certain cultural values are better or worse than others.  All cultural values are equal.  
5. Some people believe that wealth comes becomes of accidents of geography.  The book Guns, Germs, and Steel is one such approach.
6. Planners (I am so glad they included this part) believe that government experts can adequately plan economies and thereby create wealth.  If it hasn't worked well before (or at all) it is because the wrong experts have been in place.  Sounds like the current administration in Washington!! 

So what can I, as an American do?  First, it is my hope that by reading this book and summarizing it for you, I can raise your awareness of the issues.  Perhaps an influential person in a poor country will read these posts, and then read the book and take action in their own country.  Second, you and I can influence our leaders in the West and businesses that deal with poor countries to put in place policies that will actually benefit these poorer nations.  We can also encourage the elimination of policies that do not help and may actually keep poor countries in poverty.  Third, as we work through the book, hopefully there will be other ways that we can help that become more obvious.  Lastly, we in the West are not guaranteed to remain prosperous.  We may be leaving some of the principles that have helped us create our wealth.  So it would be wise of us to examine our own culture to see what we can do to not squander the wealthy inheritance that we have been given.

Dennis Prager interview with Wayne Grudem on the topic and the book.

Chapter 1 is next