Poverty, Capital and Economic Freedom

Acton Commentary: Poverty, Capital and Economic Freedom  Victor Claar

…  First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education—including the knowledge of the English language—of its people.

Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable.

That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of even greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.

If we want to be effective agents in aiding the poor, we should focus our efforts in directions leading to the enhanced value of an hour of labor. That is, we should help poor countries wisely grow their stocks of human and physical capital, all the while bearing in mind that markets and their prices send the best available signals regarding where our efforts can have the greatest impact. The newfound success of innovative micro lending efforts such as Kiva can help show us ways to effectively invest in the accumulation of physical capital by the global poor. Compassion International is a marvelous organization that works to further the education—the human capital—of poor children worldwide, with a financial accountability record above reproach.

Further, markets work best when economic systems maintain the dignity of human beings. First, human beings grow and flourish—and accumulate human and physical capital—in systems that afford them considerable economic freedom. Economic freedom means that people are able to make personal choices, that their property is protected, and that they may voluntarily buy and sell in markets. Yet, economic freedom requires the protection of private property. When property rights are clearly defined and protected, people will work harder to create and to save. When they are confident that the fruits of their labors cannot be taken away arbitrarily or by force, people everywhere have greater assurance that their labors will lead to better lives for themselves and their families. Today’s rich collection of NGOs that work toward basic human rights play a critical role in this regard.

Finally, we should be outraged at the protectionist agricultural policies of already-rich nations such as the United States. When we allow the agricultural lobby to garner sweetheart deals from the U.S. House and Senate, the poor in other nations simply cannot compete with American growers of many crops because the trade rules are so utterly slanted against those in other nations. …

… If we really care about the global poor, we should work to make trade freer for everyone in our global community: a level playing field for all. That means tearing down all of the barriers we use to keep the global poor from working in the very jobs in which they are perfectly positioned to make the greatest lasting gains.