Tuesday, September 05, 2006

Wealth Creation Reduces Poverty

An interesting piece in Tim Worstall’s always interesting Blog (http://timworstall.typepad.com/timworstall/), which is a salutary lesson to much that passes today for compassion towards the ‘sweat shops’ of the poorest developing countries. It is clear that many commentators haven’t a clue about how economies develop their way out of poverty, often against heavy odds, and just how long it takes to get them going.

Tim Worstall regularly does his energetic bit to enlighten the unenlightened, unfortunately they remain in the dark, thinking that voicing passionate concern is sufficient – it certainly makes them feel better, but it does nothing for the poor, except to keep them poor.

Tim writes, quoting from
Rahila Gupta in The Guardian:

"Where does this downward pressure on prices lead us? In some cases to places such as Bangladesh, where the cost of clothing production is half that of China's; and to textile factories where women earning just £7 a month and often working 80-hour weeks make up more than 90% of the workforce.


According to this report, women's clothing prices have fallen by a third in 10 years. The cheap end of the market has doubled in size in just five years to notch up £6bn of sales in 2005. We now buy 40% of our clothes at stores such as Primark and its competitors with just 17% of our clothing budget."

[Tim adds his biting comment:}

“Exactly! Hurrah, Hurrah! Enlightened self-interest benefits us all!

We get to clothe ourselves more cheaply, women in Bangladesh get to move from no pounds a month and 100 hour weeks hand weeding the rice paddies to 7 a month and 80 hour weeks. We’re all winners!

Pity that Gupta doesn’t understand this but then there we are, you can lead a horse to water but you can’t make him drink. You can lead Guardian columnists to the evidence but you can’t make them think.”

Comment
His language may be blunt, but then Tim deals with similar views to Rahila Gupta’s in The Guardian almost every other day.

Let me try another tack. I recommend that Rahila Gupta takes a look at the economic history of the revival of commerce in the England, after the interregnum between the Fall or Rome and the 15th-16th-centuries. Similar forces were working across Western Europe.

Smith refers to this period extensively in Wealth of Nations (he was not writing an economics textbook; he wrote of his inquiry into what caused wealth – defined by him as the annual produce of a country (not its gold!). Among his evidence he cites (WN III.iv.209: page 244):

From the beginning of the reign of Elizabeth too, the English legislature has been peculiarly attentive to the interests of commerce and manufacturers, and in reality there is no country in Europe, Holland itself not excepted, of which the law is, upon the whole more favourable to this sort of industry. Commerce and manufactuers have accordingly been continually advancing during all this period.”

The details behind this statement can be followed in Joan Thirsk’s Economic Policy and Projects: the development of a consumer society in early modern England, Oxford University Press, 1978 (I am grateful to Professor John Pratt for drawing my attention to Joan Thirsk’s work). Without going into great detail, Queen Elizabeth’s governments supported small schemes to create markets in simple produce in the countryside. I quote a single instance, among many, of the beneficial effects on the ground:

Woad growing, for example, could raise the income of a household from the husband’s bare wages of 3s. 4d. a week to 5s. or 6.s, by employing his wife and two children, ‘to their great comfort, as one contemporary expressed it A new project in a village could thus transform a miserable collection of beggarly poor into a self-respecting community’ (p 3).

The significance of these developments must be set against the 1,000 years in which the living standards of generations of ‘beggarly poor’ Western Europe had stagnated. When we think of sweat shops across the world, we must consider them against the alternative of a permanent ‘beggarly poor’ existence. Sometimes the choices are worse beyond measure.

Not so long ago Western media was angrily denouncing a local factory for employing young boys for a ‘pittance’ making sports shoes for sale in Western markets. A long established BBC reporter in India noted that the boys had previously been ‘employed’ as ‘rent boys’, a ‘trade’ to which the closure of the ‘sweat shop’ condemned them to return. The ‘pittance’ in the ‘sweat shop’ was their passport out of their sordid lives (assuming they were not that way inclined). Similar prostitution of young girls 10-13 was their alternative to ‘sweat shop’ employment (with the same caveats).

It may be that in a wealthy developed country such stark alternatives can be short circuited by social pressure and welfare. But these options are not available – and will not be. Moving developed countries at the poorest end of the scale to wage, welfare, health and education standards by poring millions (even billions) into ‘aid’ schemes will not create any wealth (the annual output of goods and services). Funding poverty amidst the absence of markets is no route to wealth creation.

Funding small schemes direct to the families willing to participate in the division of labour in ‘sweat shops’ they own at ‘pittance’ wages and long hours can start the process of raising village incomes. The difference between 21st century grassroots development and Elizabethan development is not just scale. Unlike Elizabethan village folk, the world’s poor have the demonstration effect in global markets, technology and knowledge available, and, if allowed by the Western so-called ‘concerned’ Guardian writers and readers, and their governments, trade unions, ideologues and rabid ‘anti-globalists’, open access to western consumer markets, and, by their own governments, to each other’s developing economies to promote intra-African trade (for example).

No wonder Tim Worstall gets angry with the Guardian (as I am too).

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