How to end poverty?

Poverty

I was always wondering about the most effective way to help move billions of people from the rut of poverty to prosperity. More philanthropy from the wealthy nations of the West? As J.W. Smith points it, with the record of corruption within impoverished countries, people will question giving them money as such ‘donations’ rarely ‘reach the target’. Building industries instead? While that approach seems to provide better results (see few examples described by Ray Avery in his book ‘Rabel with a cause‘), it still did not provide a silver bullet solution, as it does not address the roots of poverty and prosperity.

Poverty
From Christian Bowe

In their book ‘Why nations fail?‘, that examines the origin of poverty and prosperity, Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or the lack of it). Therefore only the development of inclusive political and economical institutions can provide a long-term sustainable solution to poverty. Based on fifteen years of original research, Acemoglu and Robinson marshal extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to demonstrate that nation’s prosperity and poverty are determined by the incentives created by economic and political institutions.

Rich
From BornRich

First-world countries became rich because their citizens overthrew the elites who controlled power and created a society with more inclusive political institutions, where political rights were much more broadly distributed, where the government was accountable and therefore more responsive to citizens, with certain constraints and checks placed on politicians. As the result, more inclusive economic institutions developed in those countries with secure property rights, unbiased system of law, public services, access to education, open to relatively free entry of new businesses, where the great mass of people could take advantage of economic opportunities. Inclusive economic institutions provided a level playing field in which people can exchange and contract, choose their careers. They created incentives for education and innovation, essential for the sustainable economic growth which is almost always accompanied by technological improvements that enable people, land and existing capital to become more productive.

Justice

Unfortunately, in most societies throughout history and today political institutions concentrate power in the hands of a few, without constraints, checks and balances or “rule of law”. Economic institutions in those societies are then often structured by this elite to extract resources from the rest of the society and are therefore called ‘extractive’. When existing elites are challenged under extractive political institutions and the newcomers break through, the newcomers are likewise subject to only a few constraints. They thus have incentives to maintain exclusive political institutions and create a similar set of extractive economic institutions.

Poor RichFrom actnowpng.org

As an example, while industrialisation was booming in the Western Europe, in the Russian Empire it was blocked by the absolutist monarchs with unlimited power due to their fear of losing power. Opposing the changes in society necessary for promoting economic prosperity, Nicholas I aimed at strengthening the traditional pillars of the regime (particularly the landed aristocracy) and keeping the society rural and agrarian. No loans were available for the industry. The State Loan Bank was lending money to large landowners only with serfs used as ‘security’. Serfdom was hardly efficient as treated like slaves, serfs had little incentive to improve the land and increase productivity. However, it was politically effective. Several industrial exhibitions, showcasing new technology and facilitating technology adoption, were banned. Sever limits have been placed on the number of factories that could be built in Moscow to stop any further concentration of potentially rebellious workers in the city. Opposition to railways accompanied opposition to industry. As the result, the economy of Russia stalled in the 19th century.

SerfsRussian Serfs at Work – the real face of slavery

The absolute monarchy in Russia was replaced by communism in the 20th century. Contrary to Marx’s vision of a communism as a system that would generate prosperity under more humane conditions and without inequality, the practice turned into a bloody affair with no humane aspect to it. Equality was not part of the equation either, since the first thing Lenin and his entourage did was to create a new elite, themselves at the head of the Bolshevik Party. In doing so, they purged and murdered not only non-communist elements, but also other communists who could have threatened their power. That was followed by Stalin’s collectivisation and his all-too-frequent purges that have killed tens of millions people. As in Cambodia in the 1970s under the Khmer Rouge, in China and in North Korea, communism in Russia brought vicious dictatorship and widespread human rights violations. The economic institutions, created under these regimes, were designed to extract resources from the people, and by entirely abhorring property rights, they often created poverty instead of prosperity.

StalinFrom YesterYear Once More

Nations fail economically because of extractive institutions. These institutions keep poor countries poor and prevent them from embarking on a path to economic growth. This is true today in Africa, in South America, in Asia, in the Middle East and in some ex-Soviet Union nations. While having very different histories, languages and cultures, poor countries in these regions have similar extractive institutions designed by their elites for enriching themselves and perpetuating their power at the expense of the vast majority of the people on those societies. No meaningful change can be expected in those places until the exclusive extractive institutions, causing the problems in the first place, will become more inclusive.

What about countries which enjoyed the inclusive institutions in the last century? Are they moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority?

(Based on ‘Why Nations Fail’ by 
Daron Acemoglu and James Robinson.
Lecture notes based on this book are
available on the MIT Economics site )

Nelson
From 12 Nelson Mandela Quotes to Remember Him By

THE END

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32 thoughts on “How to end poverty?

  1. Thank you a thought provoking post. It is easy to be in overwhelm when you are shown desperate images 24/7 in the media. Many people feel that whatever little they can do will not make a difference which is why putting some money into the system appeases the guilt. However, we can make a difference closer to home. Whilst we may not cure world hunger, we can volunteer and be ‘hands on’ for local charities for people who will benefit.

  2. And the ‘haves’ have manipulated a voting system (preferences etc), to maintain that power in the hands of a few. You either vote for this person who will be manipulated by this commercial interest or the other person who is manipulated by another commercial interest. This is called Democracy. Go figure. Your democratic right to vote!
    And you are right by your post above, anyone getting into a place of power is soon pressured by the money in the background. Thanks for sharing Otrazhenie, it was a very good read. It needs much thought.
    From my perspective I think with the technology that we have (computers & internet), that we should all have the right to vote on all major decisions created in parliament, thereby removing that manipulation in the background. (Of course it would be fought tooth and nail by politicians for fear of losing that power). In one fell swoop the democracy would be given back to the people as it should. At the speed they make decisions now it would only need us to vote on any decisions once every 6 months to still be way in front of anything they would drum up 🙂

    • Otrazhenie says:

      Very good point, Mark. We are still to see ‘pure’ democracy free of manipulation, lobbying and self-serving politicians. 😦 There is no perfect country or society in this world.

  3. kindadukish says:

    Worlds Most Corrupt Nations – notice that many of them are the first with the begging bowl in times of crisis whilst at other times they will cricicise the “colonial past” of western countries along with the “moral values” of such countries.
    I leave you to draw your own conlusion about where the problem lies…………………

    Country rank Country 2013
    CPI Score
    1. Somalia 8
    North Korea 8
    Afghanistan 8
    4. Sudan 11
    5. South Sudan 14
    6. Libya 15
    7. Iraq 16
    8. Uzbekistan 17
    Turkmenistan 17
    Syria 17
    11. Yemen 18
    12. Haiti 19
    Guinea Bissau 19
    Equatorial Guinea 19
    15. Chad 19
    16. Venezuela 19
    17. Eritrea 20
    Cambodia 20
    Source: Transparency International, 2013. Web: http://www.transparency.org .

    • Otrazhenie says:

      I like Transparency index. Very good data. However I would not confuse ‘corruption’ with ‘moral values’. In all countries there are lots of people with very good moral values (e.g. family values, caring about nature, caring about their communities, caring about other people etc.) no matter how much corruption there might be in their lands.

      • kindadukish says:

        I dont see how you can separate the two? The moral values endemic in a country influence the behaviour of people and if it is a ‘cultural norm” (because of the values) to pay or accept bribes, hijack aid etc there is little that we can do, or indeed should do. I will no longer be blackmailed by those with their hands out asking for aid in any form, because of past history.
        It is worth noting that we are supplying millions in aid to South Africa whilst President Zuma spends in excess of $20million on his house, cars and personal aeroplane.

      • Otrazhenie says:

        I have lived and have family links with people living in both corrupted and less corrupted countries, so I have an ‘inside’ knowledge and experience. There is a number of issues with linking corruption to ‘moral’ values, including:

        • False generalisations: a large number of people in ‘corrupted’ countries are honest and would never accept bribes. At the same time, a number of people in so called ‘non-corrupted’ countries are very corrupted and dishonest (you can find a few examples in the comments to my post). However in less corrupted countries there are better mechanism for controlling such dishonest, corrupted individuals via institutions, laws and regulations, which are lacking in more corrupted countries.

        • ‘Moral’ values is a very vague term, that can include all sorts of thing. A large number of people in the Western less-corrupted countries object certain ‘moral’ aspects existing in their societies, e.g. check the works of Theodore Dalrymple – an example is available at https://otrazhenie.wordpress.com/2012/07/29/a-little-animal-pleasure/ . Not surprisingly, some people in so called ‘corrupted’ countries also ‘object’ such ‘moral values’. However it has nothing to do with the corruption.

        With regard to the aid, it is well proven that monetary aid does not provide much benefit to the people in need. Supplying millions in aid won’t help the South African people until their ‘elites’ stop wasting millions and more inclusive political and economic institutions get established in South Africa. As Albert Camus once said “Good intentions may do as much harm as malevolence if they lack understanding.” – see a few examples of such ‘good intentions’ at https://otrazhenie.wordpress.com/2012/09/01/good-intentions/ Unless we improve our understanding of real problems and their causes and get over common prejudices, stereotypes and generalisations, we won’t be able to solve such issues as poverty.

  4. danieltrump says:

    Brilliant post. I agree that liberal pluralism and reducing corruption are essentially the means to ending poverty. However, we must fully acknowledge that the current patterns of wealth & poverty are partly due to colonialism and forced wealth transfer.

  5. Steve Morris says:

    Very good. Bill Gates’ newsletter is also a good source of information.
    http://annualletter.gatesfoundation.org/
    One thing that alarms me is how many people in the West misunderstand the causes of poverty. Anti-capitalist and anti-globalisation activists are very committed and selfless people, but the effects of their actions are the reverse of what they believe.

  6. Rahul says:

    Good post! Not only did it give me references to some books [marked them for reading] but also laid some good points.

    A large chunk of world’s population remains poor because of “socialism”. Believe it or not, the only solution to end poverty is to overthrow this wretched set of ideas who do no good. You cannot force people to do charity. Mandela said that removing poverty is an act of justice and not charity, yet his instincts force him to become “socialist” and therefore indulge in state-funded charity. Governments are meant to keep people poor. Economic liberty, the liberty to sell and buy products/processes/your skills etc. would lead to removal of poverty. The countries in the developing world have to create systems that ensure that their citizens are able to indulge in economic transactions by selling their skills or products or processes.

    But the idea of removing poverty has always centred around government or state-led initiatives, which is not radical. Radical would be to leave these artificially made poor people to “fend for themselves”, perhaps an aid in setting up a business/market for them would be better than giving them subsidies etc. A counter to Amartya Sen’s or Keynesian methods of ending poverty is required. If these methods would have been good enough, developing world would see people recovering from poverty, however it has even pushed some well to do middle class or upper class into tough economic times, and if economic liberty is further snatched, this middle class will devolve into poor class.

  7. cathie2014 says:

    Reblogged this on Changing the world every day and commented:
    Thanks to Otrazhenie for this interesting post…

  8. argylesock says:

    Reblogged this on Science on the Land and commented:
    argylesock says… Welcome to my blog, Otrazhenie! I love your quote from Nelson Mandela. ‘Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings.’

  9. We says:

    Poverty – the extreme lack of something – can exist in many dimensions though the common “money” definition mediates a lot of these extremes.

    Poverty of choice might be one example. The poor don’t get the same choices in basic living – what quality food they can buy for example – and this is mediated by money.

    My personal area of interest is mental health and the social model. Herein lies my contribution to the solution: we make an equal society fit for all people to exist at their full potential and be unfettered by oppression, injustice, prejudice and all other social ills,

    I think there is a greater evil than poverty: inequality. Poverty, after all, doesn’t matter if everyone is poor. Looking at well-being/depression studies across the world it isn’t the wealthy countries which consistently come top. It’s less ‘developed’ nations.

    Schizophrenia studies are a poor proxy measure to quatify the impact of societal inequality. Again, it’s the so-called developed nations which score poorest on outcome measures at 2 year, 5 year and ..I think…10 year follow up. This diagnosis represents one of the most disadvantaged subgroups in society: the schizophrenics and other people labelled with psychotic disorders.

    Their poverty is beyond financial poverty. Through factors of institutional prejudice and the harm of modern psychiatry they have the worst lives.

    It’s worth noting that poorer nations are now having the same poor outcomes for schizophrencs as they make shift from developing to developed nation status. So-called advancement actually increases the impact of social impairment/difference. For the same psychosocial impairment there exists a higher disability in the wealthiest nations in the world and they have massively expensive mental health and social care systems to (fail at,,) resolving the problem.

    The greater good is served not by this modern debarkle of reason. As I defined earlier, we must make an equal society fit for all people to exist at their full potential and be unfettered by oppression, injustice, prejudice and all other social ills. That’s my opinion.

  10. bwdell says:

    This article does a good job of identifying institutional causes of poverty. There are also personal causes. Bryant Myers, in “When Helping Hurts,” talks about four broken relationships that cause poverty: broken relationship with self (not treating yourself well), broken relationship with the environment (could be you or the culture you live in causing ecological damage), broken relationship with others (institutions fit in here), and broken relationship with God. This is why throwing money doesn’t usually help a lot, and why even nations with good institutional practices still have poverty.

  11. Reblogged this on OromianEconomist and commented:
    “Nations fail economically because of extractive institutions. These institutions keep poor countries poor and prevent them from embarking on a path to economic growth. This is true today in Africa, in South America, in Asia, in the Middle East and in some ex-Soviet Union nations. While having very different histories, languages and cultures, poor countries in these regions have similar extractive institutions designed by their elites for enriching themselves and perpetuating their power at the expense of the vast majority of the people on those societies. No meaningful change can be expected in those places until the exclusive extractive institutions, causing the problems in the first place, will become more inclusive.” https://otrazhenie.wordpress.com/2014/02/16/how-to-end-poverty/#

  12. […] “Nations fail economically because of extractive institutions. These institutions keep poor countries poor and prevent them from embarking on a path to economic growth. This is true today in Africa, in South America, in Asia, in the Middle East and in some ex-Soviet Union nations. While having very different histories, languages and cultures, poor countries in these regions have similar extractive institutions designed by their elites for enriching themselves and perpetuating their power at the expense of the vast majority of the people on those societies. No meaningful change can be expected in those places until the exclusive extractive institutions, causing the problems in the first place, will become more inclusive.” https://otrazhenie.wordpress.com/2014/02/16/how-to-end-poverty/# […]

  13. Sun Ruh says:

    I love your content. You seem to have a wonderful spirit. Keep it up.

  14. swabby429 says:

    We must not forget that the vulture has come home to the U.S. to roost.

  15. […] united in an attempt to release their motherland from the chains of autocratic oppression, that was keeping Russia in poverty. There were hundreds of them, inspired by the constitutional governments of Western Europe. Members […]

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