Thursday, June 16, 2011

Liberty & Dignity: Extreme Poverty's Bottom-Up Solution

The following is a recent scholarship essay I wrote addressing the question, "Do you think it is possible to end extreme poverty in the next 30 years? If so, how?" The accompanying videos were obviously not part of the original:

Global poverty is a passionate subject for many and serves as the driving motive behind numerous international policies. Extreme poverty, defined by the World Bank as less than $1.25 a day, in particular draws the attention of the public. Is it possible to eradicate extreme poverty worldwide in the next 30 years? If we speak solely of what is possible, then my answer is a resounding ‘yes’. When it comes to what is plausible, I’m a bit more reserved. In a sense, I find my outlook summarized nicely by science writer Matt Ridley, who considers himself a “rational optimist”:

The rich have got richer, but the poor have done even better. The poor in the developing world grew their consumption twice as fast as the world as a whole between 1980 and 2000…Despite a doubling of the world population, even the raw number of people living in absolute poverty...has fallen since the 1950s. The percentage living in such absolute poverty has dropped by more than half to less than 18 percent. That number is, of course, still all too horribly high, but the trend is hardly a cause for despair: at the current rate of decline, it would hit zero around 2035, though it probably won’t. The United Nations estimates that poverty was reduced more in the last fifty years than in the previous 500.[1]

The reason extreme poverty “probably won’t” be stamped out in the next 30 years is because of the popular view that we in developed nations need to “do something.” This “something” ends up being anything that, as Cameroonian journalist Jean-Claude Shanda Tonme notes, does nothing more than "amuse[s] the crowds” and “clear[s] their own consciences."[2] To make matters worse, the strains of Progressive Era economics tend to infect most well-intentioned Western plans to raise the poor out of poverty. These progressive values include the fallacious idea that efficiency and sustainable growth are achieved through centralized planning and bureaucratic hierarchy.[3] This mindset ignores the one thing that I believe can bring about permanent economic growth in underdeveloped countries: homegrown, liberalized economic systems.

In the final days of World War II, economist and social scientist Friedrich von Hayek published an article in The American Economic Review criticizing heavy central planning in government policy. The future Nobel laureate described what he calls the “rational economic order” as being "determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."[4] No central authority possesses all available knowledge necessary to utilize all available resources in a society. This knowledge is instead widely dispersed among millions of individuals. Taking into consideration the evolving needs and wants of society, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them…We need decentralization because only thus can we ensure that the knowledge of the particular circumstances of time and place will be promptly used."[5] In short, centralized planning fails not only in practice, but also in principle.

In his now famous critique of foreign aid (specifically $2.3 trillion over five decades), economist William Easterly embraces these same Hayekian concepts as the foundational elements of true foreign development. Distinguishing between Planners (i.e. top-down administrators) and Searchers (i.e. bottom-up adapters), Easterly advocates for more decision-making being placed in the hands of local Searchers. Familiar with and immersed in local conditions and resources, these Searchers become capable of two things Planners typically are not: feedback from and accountability to those in need. By remaining close to the customers, Searchers can discover new and innovative ways of providing the needs and desires of the people.[6] However, Searchers play an even more critical role in developing nations: the adaptation and/or uncovering of capitalistic and democratic values (concepts that are usually associated with the West) within their own traditions.

For permanent growth to even be possible among these various cultures, two things must be readily available: (1) economic liberty and (2) dignity for the bourgeoisie (i.e. the professional and educated class). Economist and historian Deirdre McCloskey explains that

dignity is a sociological factor, liberty an economic one. Dignity concerns the opinion that others have of the shopkeeper. Liberty concerns the laws that constrain him…Liberty without dignity…makes for activity without faithful self-esteem…A leading example in European history is that of the Jews, liberated legally during the eighteenth and nineteenth centuries but not accorded dignity—with the dismal result of Russian pogroms and Viennese anti-Semitic politics and the Final Solution. Likewise, dignity without liberty makes for status without hope, merely another version of the hierarchy of olden times, as in the overregulated guild towns of Venice or Lubeck in their maturity.[7]

McCloskey argues impeccably that it was the rhetoric surrounding markets and innovators that sustained the tenfold increase in average global per capita income since the Industrial Revolution. No longer were businessmen scorned by their peers. It is this same change in attitude, says McCloskey, which has led to the recent economic growth of China and India. If this dignity is to be achieved in underdeveloped countries, it will be done through the lenses of their own cultures and traditions.

My view is simple: give innovators the respect they deserve and the freedom they need by which to operate. While this view leaves little for outside Planners to do, it is one that history has validated in the case of the modern West and other recent successes. We should trade in ideas that make us feel good about ourselves for ideas that work. And though Live 8’s Bob Geldof may think critics like me “are just being stupid,” I can’t help thinking his declaration that “something must be done, even if it doesn't work” is not the smartest approach to such a detrimental problem.[8]


1. Matt Ridley, The Rational Optimist: How Prosperity Evolves (New York: HarperCollins, 2010), 15 (emphasis mine).

2. Jean-Claude Shanda Tonme, “All Rock, No Action,” The New York Times (July 15, 2005).

3. For a review of Progressive Era economic reform, see Thomas C. Leonard, “American Economic Reform in the Progressive Era: Its Foundational Beliefs and Their Relation to Eugenics,” History of Political Economy 41:1 (2009).

4. F.A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35:4 (1945): 519.

5. Ibid.: 524.

6. See William Easterly, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (New York: Penguin Press, 2006).

7. Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Chicago: University of Chicago Press, 2010), 11.

8. Gethin Chamberlin, “Nice Concert. But Can It Really Save Millions From Dying? News (July 4, 2005).

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