Development is not “Poverty Alleviation”, it is About Creating Wealth

by Paolo von Schirach

June 28, 2007

WASHINGTON – How an issue is defined goes a long way in shaping the nature of the efforts aimed at dealing with it. For example, the Bush administration’s framing of America’s serious challenge from religious fanaticism as “The War on Terror” has caused people to focus on “terror”, that is the modality with which certain hostile policies (acts of terrorism) are perpetrated, as opposed to concentrating the bulk of our energies on the ideas and beliefs that motivate radicals up to the point of encouraging them to engage in terrorist attacks. Our real problem stems not from people who do certain things; but from people who think in a certain way. Their actions (terrorism) are the modalities with which they express their psychological and intellectual make-up. If we focus mainly on the acts of terrorism, (how to counter them, how to minimize there incidence, impact, etc.), the war on terror becomes the equivalent of a war on mosquitoes. By definition, it focuses on identifying and eliminating each and every mosquito (terrorist), one by one. Whereas the root causes are in distorted thinking that needs to be somehow corrected. This may not be at all easy, as we do not really understand the thought processes of the radicalized individuals; but that’s where the issue lies. To try and eliminate terrorists one by one is an almost hopeless proposition, as their ranks are replenished rather quickly.

In a totally different context, the broad objective of the international development community vis-avis the third world has been defined as “poverty reduction”, or “the fight against poverty”. The World Bank, the most important multilateral lending institution focusing on development, is “Working for a World Free of Poverty”. Its Mission statement is “to fight poverty with passion…” So, poverty as a condition, rather than what causes poverty, is the focus of our attention here.

To some extent, this emphasis on “fighting poverty, or poverty alleviation” is public relations, the attempt to deflect the critiques of the anti-global movement that, years ago, elaborating its conspiratorial theory that would capture the root causes of the planet’s ailments, bunched together the World Trade Organization, the International Monetary Fund, the World Bank, and multinational corporations as demonic instruments working together to further mankind’s misery in general, and the exploitation of the third world in particular. Hence the desire on the part of the “development industry” to improve its image by presenting to the critics objectives that would humanize their institutions. “Hey, Mr. No Global, we are with you. We are fighting poverty. We just want to help the poor”.

Undoubtedly there are other factors that can help explain this “fight against poverty” focus. At least to some extent, this Good Samaritan attitude stems from religiously derived ethics that have shaped the dominant Christian cultures. Hence, over the centuries, the proliferation of a vast universe of charitable initiatives within Christendom aimed at the poor. The moral obligation to give to the poor is the other side of a parallel moral bias against excessive wealth present in Christianity. The remedy to this inequality is for the rich to give away some of the excess. But giving to the poor in general was not aimed at having a truly transformative impact. It was meant as a good deed that would alleviate the painful conditions deriving from a state of poverty that was, however, considered to be a given for some segments of society.

It is difficult to evaluate the deep motives of modern day wealthy philanthropists who contribute to relief initiatives, whether defined as poverty reduction or not. But it would appear that the likes of Bill Gates fall pretty much in the same category of those who attempted to redress and alleviate. The primary focus on child immunization pursued, no doubt very competently, by the Gates Foundation, noble as it is, taken by itself, is not transformative. (To the extent that Gates and other wealthy donors are now shifting to initiatives aimed at fostering the creation of opportunity in poor countries, for instance through upgrades in education structures, they seem to have appreciated that a new mind set and new skills can and should be the foundations for wealth creation activities. We shall see how profound a shift this may be).

The issue of poverty is unsettling for western Christian culture, to the extent that it has been explained away as a product of bad luck that can and should be somehow remedied through charity. Indeed, in polite company in the western world the poor are often described as “the less fortunate among us”. Let’s think about it. We (the well off) “have” because we have been fortunate, the others, alas, less so. Again, words have meaning. According to this definition, our economic station in life is about having been more or less fortunate, that is random distribution of luck. The poor happen to be poor because, look at that, they have been less fortunate than we have. At some level this is true, especially in the case of children. Some are born in rich circumstances and some are born poor. Clearly those who were born in privilege have and enviable head start. But this is only a slice of reality. Most millionaires in the US are self-made people, as opposed to lucky beneficiaries of inherited wealth. This means that an open system that will not create artificial obstacles allows people to forge a better life for themselves. This has preciously little to do with “being fortunate”. The use of these misleading definitions distracts us from confronting the real issues. Poverty is mostly about the bad combination of lack of opportunity (broadly defined) and lack of entrepreneurial drive –the necessary precondition to create wealth creating activities. If we do not tackle these two issues by creating opportunity and by instilling the will and the ability to create enterprise, we shall continue to provide relief to the poor, without offering a realistic new path. To borrow from the old story about the qualitative difference between giving somebody a fish and teaching them how to fish, the fish hand outs continue, while the fishing schools are scarce.

Even the most superficial analysis shows that wealthy societies did not become wealthy because of random circumstances, because they won a major lottery. Leaving aside all the defects of capitalism, at a macro level the capitalistic economies have been successful because the institutions created by societies allowed or better yet fostered a reasonably good functioning of the engines of wealth creation mobilized by private initiatives. As a result of the activities created through these engines, poverty, at least extreme poverty, has been eliminated. Prosperity is the outcome of a mind set focused on wealth creation on the part of many inventors and risk taking capitalists. The outcome, consisting in a vastly improved standard of living, has nothing to do with “being fortunate”.

Be that as it may, the development practitioners have identified poverty elimination or reduction as the mission of development. In so doing, wittingly or unwittingly, they focus (and make us focus) on the effect of lack of economic development (poverty) and what we can do about it, rather than on a credible way out of it that can only be centered on an economic development agenda. This predominant focus on the manifestations of underdevelopment, rather than on planting the seeds that may foster growth, encourages the misallocation and outright waste of limited resources, all in the name of the “fight against poverty”. From this standpoint, for instance, it is considered good to create activities that generate some new income for the poor. However, analysis of the reasonable chances for such activities to be self-sustaining is quite often left out, as the focus is in “doing something” to diminish poverty. As a consequence of this approach that focuses on creating improvements based on wrong or incomplete analysis, very substantial resources have been squandered, although in a well meaning way, in the effort to reduce poverty.

Needless to say there can be a legitimate chicken and egg debate about “poverty as lack of economic development”, versus “the condition of poverty that, as such, prevents building the foundation for economic development”. It is obvious that the sick and the hungry cannot possibly engage in any economic development. Still, if we focus most of our resources in improving what is a very bad, even horrible, environment, without recognizing the absolute necessity to help create and turn the economic wheels as soon as possible, at best we have accomplished relief. And this can have a real impact that will reduce poverty. But we will have not caused any meaningful qualitative transformation; as this can be defined only in furthering societies on a safe path towards self-sustaining economic growth.

Unfortunately, by defining one’s work in the reduction of the extent of a bad condition, we are limiting our thinking and our actions. “Development”, after all, as the etymology indicates, should be about “unwrapping” something, and thus it would suggest an upward movement towards a better situation. Thus, both in terms of proclaimed objectives as well as policy, the focus should be on the tools, the frameworks and the engines of wealth creation, as opposed to reducing something negative. Since the only way up and away from poverty known in history is economic growth, why don’t we say openly that economic growth is the means through which we can achieve sustainable development?

Contemporary examples simply reinforce this truism. Structural change implemented by governments in some key poor countries improved the “enabling environment” for wealth creating activities, with the consequence of allowing hundreds of millions to be more productive and lift themselves out of poverty. The different stories of China and India in the past twenty to thirty years have been told many times. The important element is that the activities of donors and aid programs have had very little impact in these gigantic, systemic changes. The key factors that unleashed these positive energies have been economic liberalization policies that encouraged people to be productive, to invest in new enterprises and make money without penalties or fears of being dispossessed. Poverty reduction has been the byproduct of almost unprecedented rates of economic growth; not of policies that identified it as the scourge to be eliminated.

But, somehow, the notion of economic growth as the primary focus of development does not appear to be a noble enough purpose. At least for some, it conveys the images of rapacious businessmen, corrupt practices, wheeling and dealing, profiteering, domestic and foreign exploitation perpetrated by the unchecked powerful and –worst of all– growing economic disparities within societies. All this, unfortunately, is part of the picture, at least to some degree. Economic development, while crucially important, rarely occurs in a linear, harmonious fashion, with gradual, fairly distributed benefits for all. It is a messy affair, especially in developing countries that lack the framework of laws and institutions that should at least limit excesses and protect people from injustices. Efforts to build reliable and fair frameworks, difficult as they may be, have to be part of any economic growth strategy. However, the existence of significant flaws in how economic development occurs does not disqualify the basic proposition of wealth creation as a precondition for any lasting improvement in the human condition. There is no other. Whereas there are many who, contemplating the negative aspects of uneven economic growth, affirm that, unless this process can be properly regulated to ensure fairness, then it is better not to have it all. So there you have it: poor but equally poor.

The inability to put economic growth front and center in the framing of development agendas in part can be explained by the cultural make-up of the practitioners. The development environment is populated mostly by public “donors”: states and multilateral institutions; along with large, religious or lay private charities. Programs are quite often administered by an ever growing number of not-for-profit entities. Most of the actors in this system are civil servants and functionaries. Being part of large, public bureaucratic institutions depending on public funds, as a rule they do not like, know or understand business and what it takes to make it happen and flourish. For many of them, fighting poverty is a noble endeavor for the good of mankind. Pushing people to make a profit in a competitive environment — the indispensable lever for economic growth– is about promoting self-centered and egotistical drives, therefore not at all laudable if not morally questionable.

However, lacking a clear focus on growth as the paramount strategic objective, the goal of achieveing development through poverty reduction is likely to be an endless task. True, with all these efforts, the poor may become less poor, but they will not know much about getting richer through competitive enterprise.

Asia has reduced poverty largely through the eliminations of barriers to economic activities. On the other side of the divide, we have the sad story of Africa as the paradigm of what has gone consistently wrong, despite decades of well meaning efforts aimed at reducing poverty and improving overall conditions. Whatever has been tried, it failed to create (with few exceptions, of course), an environment in which enterprises could flourish, with the attendant outcomes of wealth creation and consequent diminution of poverty. This massive failure, by itself, should provide enough material for reflection on the validity of the current approach. Still, as yet, this reappraisal has not taken place.

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