“Sachs Aid Model Has Financed Tyranny”: More on Why Aftrica is Poor


Famine in Niger is no surprise — desert wastes, locusts and decades of Marxist rule keep it second-to-last on the world poverty list. Famine in the fertile climes of southern and eastern Africa, however, seems more shocking. But there’s a common thread: centralized state rule — incompetent at best — marked by corruption and sustained by aid. These are the shackles that keep Africans poor: It would be nice if EU and U.S. trade barriers were removed at trade talks in Hong Kong this week, but exports are a distant notion to the 75% of Africans who live off the land.
Niger is little-blessed by nature, but it has also spent its postcolonial era trying various forms of failed government, with Marxism reigning longest. A quarter of the population — 2.5 million people — faces starvation. Yet more temperate southern and eastern African countries are on the edge of famine, too, with 10 million affected in southern Africa alone. Again, we find the same economic profile: Zimbabwe, Malawi, Zambia, Mozambique, Swaziland and Lesotho all lack economic freedom and property rights; all have economies mismanaged by the state; all depend on aid. All these countries have a history of utopian schemes that failed to produce everlasting manna. State farms, marketing boards, land redistribution, price controls and huge regional tariffs left few incentives or opportunities for subsistence farmers to expand. Despite torrents of aid, these cruel social experiments could not turn sands verdant or prevent the granaries of southern and eastern Africa from rotting.
Ethiopia’s Prime Minister Meles Zenawi believes that allowing Ethiopians to own their land would make them sell out to multinationals. He seems to have overlooked a basic market principle: It demands a willing seller and a willing buyer at an agreed price. If that price is worth selling for, the farmer might have some money to reinvest elsewhere; if that price is worth buying for, the purchaser must have plans to make the land profitable. If there is no sale, owners might have an incentive to invest in their own land and future, having, at last, the collateral of the land on which to get a loan. After decades of socialism, Ethiopia’s agricultural sector — the mainstay of the economy — is less productive per capita than 20 years ago when Band Aid tried to defeat famine. Although 60% of the country is arable, only 10% has been cultivated. Ethiopia is entirely dependent on donations; but instead of grasping reality, Mr. Zenawi, a member of Tony Blair’s “Commission for Africa,” is forcing resettlement on 2.2 million people.
In Zimbabwe, the murderous kleptocrats of Robert Mugabe’s regime deny that land seizure has pushed their rich and fertile country into famine: Some three million people face starvation today.
. . .
African leaders must be pushed to reduce economic intervention, free financial markets, remove bureaucratic obstacles to setting up businesses, establish property rights and enforce contract law. These are the forces that release entrepreneurial energy. But the ruling cliques will do none of these unless forced to do so as a condition of aid. The Sachs aid model has financed tyranny and corruption for 40 years, leaving Africans destitute. The world trade meeting in Hong Kong will hear cries for “Trade Justice” for Africa, representing more protectionism and more state-run, aid-fueled schemes. What we really need is economic freedom and the rule of law at home: We are perfectly capable of improving our own lot if only allowed to do so.

For the full commentary, see:
FRANKLIN CUDJOE. “The Terms of Trade: Africa Needs Freer Markets — and Fewer Tyrants.” The Wall Street Journal (Weds., December 14, 2005): A20.
(Note: ellipses added.)
(Note: The WSJ identifies Mr. Cudjoe as “director of Imani, a policy think tank in Ghana.”)

Good Rules Encourage Entrepreneurship, Resulting in Vibrant Economy

Some useful observations from the 2004 co-winner of the Nobel Prize in Economics, Edward Prescott:

Good tax rates, . . . , need be high enough to generate sufficient revenues, but not so high that they choke off growth and, perversely, decrease tax revenues.  This, of course, is the tricky part, and brings us to the task at hand:  Should Congress extend the 15% rate on capital gains and dividends?  Wrong question.  Should Congress make the 15% rate permanent?  Yes.  (This assumes that a lower rate is politically impossible.)
These taxes are particularly cumbersome because they hit a market economy right in its collective heart, which is its entrepreneurial and risk-taking spirit.  What makes this country’s economy so vibrant is its participants’ willingness to take chances, innovate, acquire financing, hire new people and break old molds.  Every increase in capital gains taxes and dividends is a direct tax on this vitality.
Americans aren’t risk-takers by nature any more than Germans are intrinsically less willing to work than Americans.  The reason the U.S. economy is so much more vibrant than Germany’s is that people in each country are playing by different rules.  But we shouldn’t take our vibrancy for granted.  Tax rates matter.  A shift back to higher rates will have negative consequences.
And this isn’t about giving tax breaks to the rich.  The Wall Street Journal recently published a piece by former Secretary of Commerce Don Evans, who noted that “nearly 60% of those paying capital gains taxes earn less than $50,000 a year, and 85% of capital gains taxpayers earn less than $100,000.”  In addition, he wrote that lower tax rates on savings and investment benefited 24 million families to the tune of about $950 on their 2004 taxes.
Do wealthier citizens realize greater savings?  Of course — this is true by definition.  But that doesn’t make it wrong.  Let’s look at two examples:    First, there are those entrepreneurs who have been working their tails off for years with little or no compensation and who, if they are lucky, finally realize a relatively big gain.  What kind of Scrooge would snatch away this entrepreneurial carrot?  As mentioned earlier, under a good system you have to provide for these rewards or you will discourage the risk taking that is the lifeblood of our economy.  Additionally, those entrepreneurs create huge social surpluses in the form of new jobs and spin-off businesses.   Entrepreneurs capture a small portion of the social surpluses that they create, but a small percentage of something big is, well, big.
Congratulations, I say.  Another group of wealthier individuals includes those who, for a variety of reasons, earn more money than the rest of us.  Again, I tip my hat.  Does it make sense to try to capture more of those folks’ money by raising rates on everyone?  To persecute the few, should we punish the many?  We need to remember that many so-called wealthy families are those with two wage-earners who are doing nothing more than trying to raise their children and pursue their careers.  Research has shown that much of America’s economic growth in recent decades is owing to this phenomenon — we should encourage this dynamic, not squelch it.

For the full commentary, see:
EDWARD C. PRESCOTT. “‘Stop Messing With Federal Tax Rates’.” The Wall Street Journal (Tues., December 20, 2005): A14.

Leading Clinton Economist Advocates a Schumpeterian “Dynamism”

Source of book image: http://www.amazon.com/gp/product/product-description/0743237536/104-0088216-5679944


Today’s review of the new Gene Sperling economic policy book in the New York Times Book Review, begins by emphasizing Sperling’s importance in the Clinton administration:

(p. 16) If you were inclined to identify Clintonism with a single person other than the big man himself, that person might well be Gene Sperling – a top campaign adviser in 1992; a tireless advocate of fiscal discipline during the first term; an inveterate policy wonk throughout all eight years of the administration.  So it’s little surprise that this book-length vision for a Democratic economic strategy can best be described as Clintonism 2.0.

NOAM SCHEIBER. “Clintonism 2.0.” The New York Times Book Review, Section 7 (Sun., January 22, 2006): 16.

Here is the opening paragraph of Sperling’s chapter one, which is entitled ” Growing Together in the Dynamism Economy.”

In the 1990s, a new economic era was created when a period of intense globalization collided with an information technology revolution.  Yet precisely defining a "new" economy is less important than understanding the nature of the change.  I believe a more descriptive label is the “dynamism” economy.  Of course, dynamic change in market economies is hardly new.  The mid-twentieth-century economist Joseph Schumpeter identified the process of “creative destruction,” positing that a healthy market economy is continually moving forward, replacing old capital, old industries — and existing jobs — with more productive alternatives.  Yet, what feels most “new” for average citizens is the breakneck speed at which the increased globalization, rapid technological advance, and the explosion of the Internet are putting fierce competitive pressures on the economy and accelerating change not only in products and services, but also in entire job categories and industries.

Part of the first chapter is viewable at Amazon.com. The book citation is: Sperling, Gene. The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity. Simon & Schuster, 2005.

“Dynamism” as a descriptor for the good society also appeals to libertarian economics columnist Virginia Postrel, author of The Future and Its Enemies and webmaster of dynamist.com.

Land Next to Proposed Ethanol Plant Suddenly Declared “Blighted”

(p. 1A) ORD, Neb. – Carl and Charlene Schauer were upset and more than a little offended when the City Council declared their 50-acre cornfield “blighted and substandard.”
Nothing is wrong with the cornfield, located almost five miles outside of town.
Nothing – except its proximity to the site of a proposed $75 million ethanol plant that local officials say will bring 34 jobs to the community of 2,300.
Invented to give cities the power to enlist private development in clearing slums, the “blighted and substandard” designation has become a critical tool for economic development projects across Nebraska.
It allows cities to use property taxes to help pay development costs on behalf of private enterprise, under a mechanism called tax increment financing. That allows increased property taxes generated by improvements of blighted property to be used to help fund the redevelopment.
Blighted land even can be condemned through eminent domain, then turned over to private developers. That practice was upheld by the U.S. Supreme Court last year.
Stunned by that ruling, several Nebraska lawmakers have introduced legislation to prevent local governments from using eminent domain to acquire private property that would be turned over to another private (p. 2A) owner for economic development.
Three bills (Legislative Bills 924, 910 and 799) specifically protect agricultural land, forbidding governments to declare it blighted. A fourth bill (LB 1252) would limit eminent domain to public projects like parks and roads.
And State Sen. Matt Connealy of Decatur proposes a constitutional amendment (LR 272 CA) to remove the requirement that land be designated as substandard and blighted before cities can use property taxes to help private developers pay project costs.
Connealy said it appears some smaller cities are pushing the boundaries of the blight definition.
The Ord ethanol project has been touted by Gov. Dave Heineman, the New York Times and others as an example of small-town hustle and progress.
Carl Schauer’s son, Curt, and his wife, Susan, however, have gone to court to try to stop it.
They live directly across Nebraska Highway 11 from Carl Schauer’s cornfield. Although not included in the proposed ethanol site, their home is less than 1,000 feet from where the plant would be built. They are worried about noise, smell, traffic and health hazards from the around-the-clock operation.
“I guess we’re the sacrificial lambs in the name of economic development,” said Susan Schauer, a licensed practical nurse.
A local official said the city does not want to take even the smallest part of Curt Schauer’s property if he doesn’t want to sell it.
“I don’t think anybody in this community would ever do that,” said Bethanne Kunz of the Valley County Economic Development Board.
After Schauer rejected an offer to buy a strip of his land for a railcar loading area, Kunz said, the ethanol site was reconfigured to leave out Schauer’s property. The field was annexed by the city as part of a redevelopment zone under a Nebraska law that allows small towns and villages to acquire outlying land through “remote annexation.”
The Schauer family still doesn’t know why the field was declared blighted – and it’s worried that the designation could spell trouble. Could their land be taken if another new factory wanted to locate in the area?
“I think it’s wrong that government can take private property and turn it over to private enterprise,” said State Sen. Tom Baker of Trenton.
Government already offers plenty of help – including grants and tax breaks – to business to encourage development, said State Sen. Deb Fischer of Valentine. “Does government have to give away the farm, too?”

Read the full story at:
REED, LESLIE. “‘Blight’ label raises concerns.” Omaha World-Herald (Sunrise Edition, Saturday, January 21, 2006): A1 & A2.

Researchers Want PhDs, “We want development”: More on Why Africa is Poor


Researcher asks Kenyans their reaction to a Western men’s health magazine.   Image source: online version of article cited below.
(p. 1) LEWOGOSO LUKUMAI, Kenya – The rugged souls living in this remote desert enclave have been poked, pinched and plucked, all in the name of science.   It is not always easy, they say, to be the subject of a human experiment.
. . .
(p. 6) Over the years, the Ariaal have had hairs pulled not just from their heads, but also chins and chests.   They have spat into vials to provide saliva samples.  They have been quizzed about how often they urinate.  Sometimes the questioning has become even more intimate.
Mr. Garawale recalls a visiting anthropologist measuring his arms, back and stomach with an odd contraption and then asking him how often he got erections and whether his sex life was satisfactory. ”   It was so embarrassing,” recalled the father of three, breaking out in giggles even years later.
Not all African tribes are as welcoming to researchers, even those with the necessary permits from government bureaucrats.   But the Ariaal have a reputation for cooperating — in exchange, that is, for pocket money.
. . .
The Ariaal have no major gripes about the studies, although the local chief in Songa, Stephen Lesseren, who wore a Boston University T-shirt the other day, said he wished their work would lead to more tangible benefits for his people.
”We don’t mind helping people get their Ph.D.’s,” he said.  ”But once they get their Ph.D.’s, many of them go away. They don’t send us their reports.  What have we achieved from the plucking of our hair?  We want feedback.  We want development.”
For the full story, see:
MARC LACEY. “Remote and Poked, Anthropology’s Dream Tribe.” The New York Times, Section 1 (Sun., December 18, 2005): 1 & 6.

Chinese Version of ‘Eminent Domain”: Villagers Die Protesting Theft of Their Land

“People here have tried everything you can think of to get the problem solved before this happened,” said a resident who gave his name as Chen. “They talked to the village committee, the township and municipal governments. One of them even went to Beijing. But nothing is done – the village officials just simply ignore them.”
Mr. Chen described the peak of the protests, on Saturday night, when the deaths occurred. “It was like a war, so real and so brutal,” he said. “I did not see who started it, but I saw policemen were beating the villagers and the villagers were fighting back with stones and firecrackers.”
Since then, villagers said, many residents are being forced to report each morning to the police, who detain them until late in the evening, when they are allowed to return home until the next morning.
As with so many recent rural protests, Panlong’s problems began with land. Many villagers told stories of having been deceived by corrupt local officials who they said had enriched themselves by selling off rights to the villagers’ farmland.
“Two years back, one day some villagers were asked to attend a routine meeting,” said a 42-year-old farmer who gave his name as Fang. “They went and they paid 10 yuan for participation fees, and they signed in as usual. Later, when we discovered our land was being sold, we asked the village committee to explain what’s going on, and they answered that we had signed the contract. Suddenly we remembered that meeting, and everyone understood that we had already been cheated.”

For the full story, see:
FRENCH, HOWARD W. “Panlong Journal: Visit to Chinese Anytown Shows a Dark Side of Progress.” The New York Times (Thurs., January 19, 2006): A4.

Thomas Sowell on Ben Rogge as Teacher

The classic small liberal arts college is more than a pleasant place where other people know you, though that is not a small consideration for a student living away from home for the first time—especially a shy student.  Academically, the learning process can be far more manageable where professors are teachers first and foremost.  One of the best taught introductory economics classes I ever saw was taught by the late Ben Rogge at Wabash College in Indiana.  Few students at Harvard would ever get such a good foundation in the subject.  Ben, rest his soul, had obviously thought through all the pitfalls of the subject and led the student safely around them.

Source: online version of Thomas Sowell. Choosing a College: A Guide for Students & Parents. 1989.
http://www.amatecon.com/etext/cac/cac-ch03.html