How to Really Make Poverty History

Via Russell Roberts comes a real understanding of why rich nations are rich and poor nations are poor:

People in rich countries are not rich because people in poor countries are poor, nor vice versa. Rich countries are rich mainly because they have benefited from two centuries of evolution of political, economic and social institutions. Poor countries are poor mainly because they have not.

If this is even partly true, the capacity of rich countries to “make poverty history” is very limited. Rich countries can damage poor countries, by destroying their social structures or looting their resources, and they once did. But they have largely ceased to do this and when de-colonisation occurred there was widespread optimism about what could be achieved. Modern technology was available, so poor countries could be spared the long, unpleasant process of development experienced by existing rich countries. With sufficient investment in infrastructure, plant and machinery and education they could progress rapidly towards higher standards of living. Aid could bridge their funding gap. In retrospect, this all seems naive. Some still argue that these measures failed because of insufficient resources, but there is general acceptance that the principal weakness of the programme was inadequate attention to institutions.

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It is time to get serious. The good news about extreme poverty is that more people have been lifted out of it in the past 10 years than in any decade in world history; that this is mainly the result of rapid economic growth in China and India, which is in turn principally due to internal reform not external action; that the real contributions of rich countries have mainly been through trade and investment, not aid; and that world leaders have played only a minor though constructive role in that process. The lesson is that world poverty will be ended by the actions of poor people themselves.

The economic success of a nation or civilization is due to, in large part, its culture. Cultures that tolerate corruption, such as Mexico or Russia, do poorly. Cultures that promote entrepreneurship tend to thrive. Those that value bureaucratic power do not. Nations that value hard work are booming. Those that value lengthy vacations are not.

These are cultural decisions, and are therefore almost impossible to influence. Just as individuals make decisions about their priorities (e.g. paying for a master's degree or buying a new car) so do cultures establish priorities that determine their economic success.

There are external factors, such as invasions or natural disasters, but as we consider ways to Make Poverty History, it's worth noting that not all problems can be solved by the movement of small green pieces of paper. Some, such as those created by differing cultural values, are beyond the reach of outside forces. Progress must come from reform, and that starts from within.