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Walter E. Williams
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Self-Inflicted Poverty

Comment

Why is it that Egyptians do well in the U.S. but not Egypt? We could make that same observation and pose that same question about Nigerians, Cambodians, Jamaicans and others of the underdeveloped world who migrate to the U.S. Until recently, we could make the same observation about Indians in India, and the Chinese citizens of the People's Republic of China, but not Chinese citizens of Hong Kong and Taiwan.

Let's look at Egypt. According to various reports, about 40 percent of Egypt's 80 million people live on or below the $2 per-day poverty line set by the World Bank. Unemployment is estimated to be twice the official rate pegged at 10 percent.

Much of Egypt's economic problems are directly related to government interference and control that have resulted in weak institutions vital to prosperity. Hernando De Soto, president of Peru's Institute for Liberty and Democracy (www.ild.org.pe), laid out much of Egypt's problem in his Wall Street Journal article (Feb. 3, 2011), "Egypt's Economic Apartheid." More than 90 percent of Egyptians hold their property without legal title.

De Soto says, "Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called 'dead capital' — property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor."

Egypt's legal private sector employs 6.8 million people and the public sector 5.9 million. More than 9 million people work in the extralegal sector, making Egypt's underground economy the nation's biggest employer.

Why are so many Egyptians in the underground economy? De Soto, who's done extensive study of hampered entrepreneurship, gives a typical example: "To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections."

Poverty in Egypt, or anywhere else, is not very difficult to explain.

There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.

Some people use the excuse of colonialism to explain Third World poverty, but that's nonsense. Some the world's richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world's poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it's bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world's most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world's richest nations.

We do not fully know what makes some societies more affluent than others; however, we can make some guesses based on correlations. Rank countries according to their economic systems. Conceptually, we could arrange them from those more capitalistic (having a large market sector and private property rights) to the more socialistic (with extensive state intervention, planning and weak private property rights). Then consult Amnesty International's ranking of countries according to human rights abuses going from those with the greatest human rights protections to those with the least. Then get World Bank income statistics and rank countries from highest to lowest per capita income.

Having compiled those three lists, one would observe a very strong, though imperfect correlation: Those countries with greater economic liberty and private property rights tend also to have stronger protections of human rights. And as an important side benefit of that greater economic liberty and human rights protections, their people are wealthier. We need to persuade our fellow man around the globe that liberty is a necessary ingredient for prosperity.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM



Comments

2 Comments | Post Comment
Spot on Walt
Some choose to be poor and some fight for freedom.
Freedom creates wealth
that is all
Comment: #1
Posted by: Mr Bill
Wed Feb 16, 2011 6:38 AM
Dr. Williams,
Partly contained within the second cause of being poor (being prevented from producing value) is another sub-cause: wealth is created, but then taken. This returns to a concept that I know is a favorite of yours--private property. Private property is key to security, wealth, and freedom. If people live in a state where they do not "own" themselves or the fruits of their labor, they can never be free, and they will NEVER be wealthy. All motivation for excellence is removed.

On the other hand, when people can look forward to retaining the products of their labor, they are more motivated to strive to succeed, to produce, and to contribute to the overall improvement of the world around them. Many of the protests ringing the world today center on "public" employees having the right to the fruits of the labor of "private" employees. This is a dangerous trend and does not bode well for freedom, whether in other countries or here in the United States.
Comment: #2
Posted by: Ric Crouch
Fri Feb 18, 2011 8:04 PM
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