Thursday, August 18, 2005

Reducing Poverty in Yemen (or anywhere else)

Rema Ahmed Al-Khateeb’s interesting piece on poverty in today’s Yemen Times describes without explaining. It seems to say that poverty (a low degree of ability to ‘enjoy the necessities, conveniences and amusements of life’, which the author attributes to Adam Smith, and which its opposite, a ‘high degree’, etc., constitutes affluence) is caused by or equates to ‘inequality’. A few people can afford ‘two square meals a day’; while many cannot, and the many factors ‘responsible for poverty, include: Unemployment and an unequal distribution of wealth.’ As a result, says the author, ‘the gap between the haves and have-not is widening’.

Of the cause causes of poverty – unemployment and unequal distribution of wealth – which of these would reduce poverty, permanently? Take redistribution of wealth. By wealth Adam Smith meant the annual product of the bounties of nature and the product of labour, or what amounts to the same, the annual exchange value of these products. Hence, redistributing the current unequal distribution, assuming this was done, would relieve poverty for the time it takes to redistribute the products, or their exchange value, but would not be repeatable to the same degree thereafter, until everybody in Yemen was equally poor.

Why? Because to conduct the redistribution would require government (or the ‘mob’) to forcibly seize the products of nature and labour from the affluent, and hand them to the poor. Once consumed, who would replace the next time period’s products? It is unlikely
that the affluent would do so, or be able to do so, because everybody – through all the gradations of rich and poor alike – would not know whether to work to replace their annual income, knowing it would be seized off them, or would be able to work, if they had jobs, because the employers would not know what they could keep, or if it was worth while to work and keep what they would regard as too little from their efforts.

Please, understand I am not raising the specter of this outcome in order to rubbish Rema Ahmed Al-Khateeb’s suggestion; I am treating it seriously and only pointing out some practical consequences, given the goal of eliminating poverty.

This leaves reducing or eliminating unemployment as the better means of tackling poverty. On this, Adam Smith had much to say that is still relevant, while discussing the wages of the labouring poor, of which Scotland had a lot at that time in the 18th century. His book, “The Wealth of Nations” was largely about how a nation could grow from the relative (and absolute!) poverty of the majority of people, common at the time in Europe, to becoming affluent generally. It sounds as if Yemen is in that same position with which Adam Smith was concerned in 1776.

For that to happe the country had to let the commercial age do its work. As men were primarily concerned with bettering their, and their families’, lives they would do so if free to do so. All, or at least most, interference in markets by government regulations, inspectors, and such like, lowered the necessary growth in the economy. At any one moment, the amount of work available was proportional to the amount of products produced by the economy. Now this quantity is not fixed – the good news – but it is influenced by the society concerned. All attempts to ‘speed it up’ by government or state agencies usually slow it down. The pursuit of the wrong economic policies – state managed industries, tariff barriers, protection and state monopolies of local producers – result in slower growth than is possible without that interference.

Growth produces more employment – hence, a reduction in poverty – and more employment creates more wealth, and more wealth means there is more to go around.

Wealth is created by mankind – poverty is the automatic consequence of not creating wealth. It has little to do with the existing distribution of wealth; it is the consequence of past decisions that prevented the creation of wealth in the recent past.

That is the real lesson of Adam Smith’s “Wealth of Nations”. That is why, though we have pockets of relative poverty today in Scotland, the living standards of the people in Scotland, including the relatively poor, are incomparably higher per capita than those alive when Adam Smith was writing. Indeed, the living standards of the average income earner in Scotland is today much higher than what passed for the rich of Scotland on the 18th century. The same is, and will be true, for the people of Yemen, provided they apply the lessons of “Wealth of Nations”.


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