For years, socialists and collectivists held a monopoly on discussion of how to help the Third World poor. But lately the advocates of an open economy have made inroads. There are reasons for this: Socialism has been proven a failure, and an open economy works.
Is that too blunt, or pat? The facts argue, “Not really.”
Of interest is a new book from the Independent Institute, which is a think tank in Oakland, Calif. The book is edited by one of the organization’s stars, Alvaro Vargas Llosa. He is the son of the writer Mario, who once ran for president of Peru. Alvaro is a liberal economist and social critic — and by liberal, I mean classical-liberal. He wrote a book called “Liberty for Latin America: How to Undo Five Hundred Years of State Oppression.”
In Latin America, the socialists have the upper hand, politically. But that region has given us more than its fair share of excellent liberal thinkers. If for Hernando de Soto alone, the region would have given us more than its fair share of such thinkers.
The new volume bears an intriguing title: “Lessons from the Poor.” It is largely case studies from the world over — or rather from Latin America and Africa. Surrounding the case studies are essays, starting with a foreword by James D. Gwartney, who is an econ prof at Florida State. He says, “Entrepreneurship as a source of economic growth and as a weapon against poverty is underappreciated” — there is a great understatement. He further says, “Innovative thinking and alertness to opportunity is present in all societies. Indeed, it is often found in unusual places.” Yes, every society is stocked with Horatio Alger figures, or those who would be, if given half a chance. The world lacks for opportunities, not ability.
Reflecting on the case studies in this book, Gwartney says, “No central planner or development official would have chosen any of these people or business options as a tool to reduce poverty. Nonetheless, . . . all of these entrepreneurial activities have substantially upgraded the lives of millions of poor people.”
What were the roadblocks placed in the way of our model entrepreneurs? There were many, and Gwartney lists a few: “confiscation of property, pollution of the currency, bureaucratic corruption and inefficiency, excessive taxation, and unnecessary regulation.” And he makes a crucial distinction: between genuine entrepreneurship and “legal plunder,” which may be defined as gaming the system. Mercantilism is not to be confused with free economic activity.
In his introduction, Vargas Llosa is blunt, saying, “After half a century of failure, foreign aid can no longer be the preferred tool for lifting the masses of Africa and Latin America out of their economic prostration.” I would amend that statement: Foreign aid should no longer be the preferred tool. Vargas Llosa marvels that people can accomplish as much as they do: “The fact that, today, millions of people manage to eke out a living in very creative ways under stifling bureaucracies, elitist systems, and despotic governments indicates that entrepreneurship is part of the human spirit and not the exclusive preserve of those countries that have generated astronomical wealth.”
And he is adamant that entrepreneurship should not be seen as a merely selfish undertaking. He says, “Many people fail to understand that an entrepreneur who discovers opportunity and transforms resources into wealth provides the most ‘social’ service possible to the rest of the community, even when that is not the original intention.” That is elementary, of course, but necessary to repeat, over and over. And, as a respecter of facts, Vargas Llosa has no doubt about what lifts up the Third World: “entrepreneurship, not Western guilt.”
The case studies begin with the Añaños family in Peru, which founded Kola Real — soft drinks “priced within reach of the poor.” This family started with next to nothing, and now has next to everything: and has employed thousands of people in the process. They have also faced enormous odds, in a business environment that is not exactly, um, Californian. How easy we Americans have it! For one thing, the family had to dodge the Shining Path. For another, they had to cope with the illogic and unfairness of the Peruvian government.
We next have another Peruvian case, this one involving Aquilino Flores, who came to Lima at the age of twelve. He arrived from the hinterland “with one hand covering his front, the other his rear” (which is Peruvian for “without a pot to [you-know-what] in”). This boy started washing cars. And then he sold some T-shirts. And then he found ways to figure out what people wanted, and sold a lot of shirts — becoming Topy Top, a textile company with annual sales in excess of $100 million.
A quick word about the character of the people described in this book: The authors use such words as “gumption,” “tenacity,” “charisma,” “determination,” “intuition.” Do all people have those qualities? No, at least not in generous doses — but they tend to have some of those qualities, in whatever doses. And they need not become a cola giant, or a textile giant, to improve themselves, and others.
Move next to Kenya, and the case of a supermarket chain, Nakumatt. The authors of this study — June Arunga and Scott Beaulier — state, “In the Western world, we take supermarkets for granted; many of us are, in fact, highly critical of these institutions. But in extremely poor parts of the world, such as Kenya, one would be hard-pressed to find a more important source of human flourishing.” Amen.
Kenya is a disaster of an economy, and a disaster of a country, where life expectancy is 48. But the people behind Nakumatt managed to find a way. “This story helps us understand that the entrepreneurial spirit cannot be destroyed, even when governments are providing a weak and perverse institutional environment.” That word perverse is exactly right. Almost everything in Kenya conspires against the individual, and therefore against the people at large. One local economist made a moving statement. There is nothing wrong with the country, he said — not really, not fundamentally. All that Kenyans need is “a government that will leave them alone to run their businesses and their lives.”
From the authors’ description, Nakumatt is an African Wal-Mart, selling anything and everything, promoting sales clerks to management, being almost fanatical about customer care. Nakumatt’s success, say the authors, “has led to the rise of a new class of farms growing fruit and vegetables in Kenya.” The company has been accused of corrupt dealings, and in particular of tax evasion. Whether the charges are true is unclear. In any event, as the authors state, “we should not allow the perfect to become the enemy of the good.”
We then go to Nigeria, where the clothing-design industry employs thousands of people — “most of them women with little or no education who have used their entrepreneurial drive to make a living and create wealth where there was previously only misery.” And we later read of the “barter clubs” in Argentina, which arose when that country’s economy collapsed. These clubs “were not a permanent solution but a private attempt to solve a public problem.” The resilience and imagination of people in the face of desperate circumstances are astounding.
In a concluding essay, Joshua C. Hall and Russell S. Sobel write, “Entrepreneurship is the catalyst for economic growth and progress.” Note, the catalyst, not a catalyst. They continue, “A primary determinant of entrepreneurship is economic freedom.” I hate to sound like a global-warming hard-liner, but the case is closed — or pretty much so. There is scarcely any need for extended debate. We know what works in defeating poverty: entrepreneurship, the rule of law, transparency in government, low taxation, light regulation, a disinterested judiciary — freedom.
If that is so, why do socialists and kleptocrats do so well at ballot boxes, even when the elections are fair? Well, as Jeane Kirkpatrick once explained — to an exasperated and inquiring Bill Buckley on Firing Line — the rhetoric of socialism and collectivism can be stronger than the rhetoric of economic freedom. More alluring. And it is certainly more easily mixed with demagoguery. In addition, people may shy from entrepreneurship, even from opportunity. Thomas Edison once said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Lessons from the Poor is not a page-turner, and is unlikely to be a bestseller. The case studies are laid out in painstaking detail, complete with charts and graphs. This is technical, B-school stuff — but infinitely important stuff. The book returns you to the basics of economic life, and even somewhat to life itself. As in all elevated economic texts, there is a dose of spirituality here. I intend to keep this book on my shelf, for factual reference and even, perhaps, for inspiration.
One of the glories of this book is that there is nothing ideological about it. It simply searches the questions, “What works and why?” Material progress is not everything in life, but, as V. S. Naipaul once observed, the poor need it — and they could have it, if only others would get off their throats.
– This book review first appeared in the June 30, 2008, issue of National Review.