Discovery Institute’s Center on Wealth, Poverty, and Morality, provides original reporting and analysis at the intersection of ethics, faith, and economics.

Wealth and Poverty
Poverty
 

For Poverty Reduction and Development, Capitalism is Key

The infamous Bono is arguably just as well known for being a humanitarian as he is for being a rock star. A consistent voice for the downtrodden of our world, the lead singer of U2 co-founded the ONE campaign to fight extreme poverty and disease in Africa.

Speaking at a recent tech conference in Dublin, Bono discussed his "humbling" realization that capitalism, despite its bad rap, is a powerful engine of poverty reduction. As he put it, "Job creators and innovators are just the key, and aid is just a bridge." Very well said.

In the execution of foreign aid, we often see a wide gap between the intended results and the actual consequences. Aid can certainly be good for temporary assistance in times of crisis and dire need, but in the long-run proves to be harmful to very people that we seek to help. For instance, government-to-government aid from foreign countries and IGOs often merely lines the pockets of an illegitimate leader, subsidizing political corruption and exploitation. And we have seen that privately funded assistance drives out locals businesses by dumping goods on their economy and consequentially eliminating consumer demand. As a result, the well-intended "relief" eliminates any developing self-sufficiency and creates a system of dependency on foreign assistance. One-way altruism is no substitute for real economic growth that spreads sustainable prosperity.

The ONE campaign offers this argument for increasing global trade and investment:

Sub-Saharan African countries also face external trade barriers, such as high import tariffs, which make it difficult for their products to compete in important markets like the U.S. and Japan. Even programs designed to give preferential treatment to African exports are often too complicated or restrictive to use effectively. Complex rules of origin, cumbersome quality and safety requirements, limited preferences for products in which African countries have a comparative advantage, and preference erosion prohibit the full utilization of these advantages. To worsen the situation, wealthy nations pay subsidies - many of which are trade-distorting - to their farmers, giving them an unfair advantage in the global marketplace. In 2010, the OECD estimated that farmers in developed countries received $227 billion in subsidies, almost eight times the amount of aid that G7 countries spent in sub-Saharan Africa in 2010.

Bono's endorsement of capitalism is significant because it illustrates a growing bi-partisan understanding of the value of the free market from a philanthropic standpoint. As a result of this understanding, we see organizations like Kiva and Hope International doing a whole lot of good for local communities by empowering individuals to use their skills and talents.

A favorite graph of mine at gapminder.com illustrates the vast improvements in human welfare that capitalism has spread across the globe in the last 200 years. The potential of the free market should not be overlooked by those who are concerned by global poverty. And by taking into account the market forces at work, we as individuals can be equipped to give responsibly, with both our hearts and our minds.