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Is Economics the way to solve Poverty?

February 5, 2011

   Hey guys, I’ve been reading this book called Spin-free economics lately (and will post a review of it once I’m done. It’s an interesting piece.) and the view expressed in it is quite different from what an ordinary person thinks.

   Everyday, we see advertisements, calls, urges for donations, to save the poor to build houses to help educate and deliver medicine to the poor and those banners and calls for change strikes our sympathy, making us pulling off our wallets and donate some money.

   And then there’s the volunteer, when young teens from the developed countries (from US/Australia/UK and such) that goes to the Less Developed Countries (usually in China or Sub-Saharan African Countries to participate in service learning activities, to know more about the world and to serve.

    Now, before I move on, let me clarify this: I value aid; I value volunteerism. I am a part of the Global Issues network and I’m proud of it. But here’s the thing, I think it’s inefficient and sometimes even damaging.

   Here are the reasons why:

  1. Corruption: How much of the money you put in end up in the hands of the real poor people? With the extremely high level of corruption in mainly the African countries, you can never be sure. Examples can be seen from Haiti when after 1 year and most of the rubble aren’t cleared yet, preventing hundreds of thousands from going back to their houses.
  2. Distortion. How many times do you see the sort of such as: Food Aid and Clothes Drive? While it is true that the poor DO need those things, I’m doubtful the way we’re helping is going to help them in the long run. Think of it this way: Susie, living in Zimbabwe is producing tomatoes (suppose tomatoes can grow in Zimbabwe without any difficulties.) Susie sells her tomatoes to the locals with a meager return but enough to keep her going. Now suddenly, an NGO brings to the village hundreds of kilograms of tomatoes and rice in the program of “food-aid” now that everybody can have the food for free, Susie can’t sell her things anymore. She soon runs out of money and is turned into Poverty. What could have been better may have been to use that money to teach the inhabitants about farming and provide limited amount of seeds so that they can start making and selling their own food.
  3. The moral dilemma of volunteering: The detailed post can be found HERE. In short, volunteering (especially International volunteering) may not always be very helpful to the poor and the unfortunate.
  4. The reasons for poverty: Have you ever heard of the Common Agricultural Policy(CAP)? No? here’s the Wikipedia article Wikiwiki 😀. Here’s my description of CAP: A form of subsidy, paid by the EU to the farmers so that they can sell their crops cheaper. Sounds pretty noble right? Maybe not so, especially when we consider the fact that because of this, many African farmers can’t compete with the European farmers, forcing them out of business and into poverty. The same can go for the US Cotton subsidy. So the problem here is not that the poor can’t help themselves out of poverty. The problem here is that the poor are prevented from helping themselves out of poverty, by the very countries whose citizens donate money to pull them out of poverty, interesting isn’t it?

   I’m not saying that my opinions are absolutely right and I am more than happy to receive criticisms and comments for further improvements. But the point I’m getting into is that the LDCs may not need more aid. What they need is free trade and globalizations. Remove all those trade barriers, remover all those tariffs, remove all those subsidies.

   This may sound ridicules but in economics, we have something called Comparative Advantage: an idea that a country can produce something more efficient than the other. With globalization and free trade, countries can exploit this “advantage” and produce their goods in the most efficient ways resulting in us consumers getting the lowest price. In addition when there is free trade, there’ll be a greater degree of economic dependence between countries (because in order to exploit their comparative advantage, a country would need to import things they don’t produce and export things that they produce in large quantities) which is highly likely to lead to peace and stability (just like how EU has held Europe in peace for more than 6 decades now.)

   So my question is: Aid or Trade? Let me know (IF anyone even reads this) in the comment.

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2 Comments
  1. You raise some great points. The difficulty for most people is how to know the true impact of what they are doing. Few of us have the time to research so thoroughly. And yet, aid is needed, so our imperfect system continues…

  2. skiller47 permalink

    great ideas!

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