How Statism Keeps Poor Countries Poor

 

Acton University Talk by Stephen L.S. Smith of Hope College.

STATISM is an economic system (also called State Capitalism) which allows a private sector but in which many key industries are owned/controlled by the government.

It lies somewhere between communism and European-style social democracy on the economic spectrum.

Smith says we need a “field guide” since most statism is invisible to the casual observer.
So he took us to THAILAND via a slide show.
  • Banks: Easy to use, modern banking all over the place.
  • You need to buy a SIM card for your phone from “AIS.”
  • Transportation (air and rail) is top notch.
  • You have to leave Thailand (flying to the US) at 4am (because of the time change/dateline), and you stay in a Novotel by the airport for a few hours of sleep first.
But in fact….
  • The bank I used (TMB), upon some research is the Thai Military Bank. The army runs it. At a loss. The Siam Commercial bank is owned by the ministry of finance.
  • AIS (SIM card) is subcontracted from the Thai government to the Singapore (!) government, which sells the chip to you.
  • Both the state owned railways and airlines (each) lose over $1 million a day. Many new airliners are mothballed (over capacity). Unused capital (see the new ghost cities of China) is typical in a statist system.
  • The Novotel is owned by the government and just operated by Novotel.
So what?
  • Statism is the default system in the Global South. There are exceptions, but this seems to be the rule.
  • It is almost invisible at the street level, but has major consequences.
  • The government not only issues currency, but controls the flow of it–limiting investment which would compete with state businesses.
  • Very little revenue is left over (because government firms lose so much money) to lend to medium and small businesses. This leads to a growing black market with lots of informal street vendors. They don’t pay taxes which compounds the cycle; with a downward drag on the society.
  • Common in statist societies is weak rule of law and questionable property rights.
  • Insiders and elites benefit, which opens up patronage politics.
  • The highly educated urbanites benefit from statism because of the need for them running these bureaucratic businesses, which put a premium on education and connections.
  • Neglect of core state functions (governments are limited in capacity and spend their time running industries) such as rule of law, civil justice, non-corrupt police, property rights, basic education, and rural infrastructure.
  • State banking skews prices and and natural interest levels. Interest rates are set at a below-market level, discouraging saving. Most people want to save short term and pay off loans long term (People want fast access to their savings). Setting interest rates at an artificially low level creates tension in this natural supply/demand situation.
  • Lending is directed to favored insiders with big projects.
  • Capital is wasted (ghost cities of China where no one lives) because natural market forces are not the primary driving force of construction. State-owned firms serve political ends first.

  • Developing countries have more frequent bank failures, even with the “security” of state ownership.
  • Some countries have it way worse than Thailand. Pakistan and Egypt may be the worst. The Petrobas scandal in Brazil brought down the government.

 

Poverty, Inc. Michael Matheson Miller. #0970 #ActonU Session 4

These are my notes from a screening of Poverty, Inc.

Available for you to watch on many platforms.

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Development (Global). Who has all the power? And who should have it?

Wanting to help the poor comes from a good heart. The problem is, paternalism doesn’t work. Every ten or twenty years we try something new. And we have the same broken system.

Africans are portrayed as helpless. “Do they know it’s Christmas.” Of course they know when Christmas is….

Africa has always been a reservoir of riches for the whole world.

Feeding the world: good for farmers in Arkansas, not so much for farmers in Haiti. Our rice charity ruined much of Haiti’s industry.

First we block out foreign farms from our markets thru tariffs and protectionism, and then we produce a surplus and dump it on the foreign market….

“The Republic of NGO’s” 

(Non-Government-Organizations)

It makes us feel good to help. But then we don’t let go. More NGO’s per capita than anywhere else in the world. They keep looking for ways to give away free stuff–as if they didn’t want the Haitians to be self-supporting.

The NGO’s show pictures of squalor. But Haiti is not all like that. Also a global leader in solar powered street lights which they produce themselves.

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People assumed that Haiti did not produce these–so they sent FREE solar panels after the earthquake and almost put Enersa (the Haitian company) out of business.

Those who were raised in the aftermath of the earthquake have cultivated a dependency mentality.

The Big Picture

Bretton Woods, New Hampshire. GATT, which became the IMF, World Bank, etc. The purpose was to rebuild Europe after World War II. A parallel was the Marshall Plan.

Crisis aid followed by infrastructure development. Rebuilt Europe. It was a success.

These became the model for foreign aid for generations to come.

bretton-woods

This is a HUGE global system which benefits the donors. A form of neocolonialism. The heads of aid agencies have become like colonial governors who often have connections to authoritarian, corrupt leaders.

We give them loans and make them economic slaves.

Cheetahs vs. Hippos. Iconic TED Talk:

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There is a ladder to prosperity in rich countries.

But there are incentives for the local governments in the global south to sever this ladder. They benefit from the favor of the NGO’s.

Who benefits the most?

The influx of tons of second hand clothing has crippled the clothing industry in the global south.

Tom’s shoes. Blake Mycoskie. “One for One.” Has put countless local cobblers out of business. And then the truck doesn’t show up all the time. But there’s no one making local shoes anymore.

Giving people shoes “for the rest of their lives” (Mycoskie) implies that people will need shoes for the rest of their lives. No one wants to be a beggar for life.

No doubt he is compassionate. But we must consider the long term unintended consequences of our actions.

Orphanages

When we build orphanages in the global south, we can unravel families. Over 80% who live in orphanages have parents who visit them on a regular basis.

When orphanages open up, it’s an opportunity to relieve parents of the responsibility to feed and educate their children. It’s an institutional solution to a family problem and deprives children of the warmth of family life.

orphanage

Excluded

Poverty is not “making 1 or 2 dollars a day,” it is being excluded from the market where money is made.

The process for getting a SME (Small Medium Enterprise) loan takes forever. In rich countries, SME’s drive the economy.

Rule of Law (justice in the courts) is missing where SME’s are missing.

In 2/3 of the world there is not yet the Rule of Law. Property rights are essential. In many countries, you can’t really own land–you use it at the whim of a local official. So you can’t use it as collateral. There are 4-5 claims on many pieces of land in the global south.

Not that there aren’t enough laws. There are a lot of corrupt laws. Without corruption and bribes, it is hard to start a business. In Lima, Peru, the producers of the movie tried to start a small business with two sewing machines. It took 289 (!) days, full time, for the locals to get all the permits they needed. If you can’t afford bribes, it will take you forever to get something going.

The people are not stupid. They are just disconnected from the Global market on purpose.

Celebrity Culture.

Celebrities learn the old framework and sell it to the next generation. Caring is not enough. All the visuals they use create the impression that the Africans are helpless.

But there is good news, Bono has been involved for a long time. Coming around intellectually. He is now saying that entrepreneurial capitalism brings more people out of poverty than aid.

Only Africans can develop Africa.

We don’t need one more celebrity doing one more pop song to help poverty.

The poverty industry as we know it has to go.

It’s time to re-think poverty.

The full version of Poverty, Inc. is available to everyone with a Netflix subscription.