In his book The Politically Incorrect Guide to Socialism, economics professor and National Review editor Kevin Williamson gives the reader an easily understood yet highly informative disquisition on the nature of socialism, its inherent flaws, and the reasons it continues to spread. In connection with that last point, two of Williamson’s chapters cover the political infatuation with “energy independence,” which he argues is socialist in essence, and the push to saddle Americans with the politicized medical care system known as Obamacare.

Williamson’s arguments are sharp and his examples illuminating. His book is like a wrecking ball going to work on the already feeble edifice of socialism.

“Hold on a minute,” some will say. “You can’t compare the bad things that happen in a totalitarian state like North Korea with our well-intended and generally popular public school system in America.” Williamson shows, however, that the crucial element of socialism is present in both, namely governmental control over the provision of goods and services that would otherwise be done by private enterprise. That invariably leads to waste and inefficiency—or even worse.

Williamson does a first-rate job of explaining why those arrangements stifle productivity, depress quality, and hinder innovation. It is because government officials (and the type of government is immaterial) do not know what consumers want. That information only comes from the market’s price system, which socialism prevents from working. It is also because government officials have no incentive to satisfy consumer wants since their money is not given by buyers but taken from taxpayers. Starving peasants in Korea and illiterate students in the United States—the roots are the same.

The poverty of India has been compared to the remarkable wealth enjoyed by the people of Hong Kong and Singapore before, most famously by Milton Friedman, but that is no reason not to emphasize it again. Following World War II, Williamson observes, India was seemingly poised for great economic expansion, having suffered little from the war and benefiting from infrastructure built by the British. India’s economy, however, remained stagnant due to the naive socialism of Nehru, the first prime minister, who admired Soviet central planning. Grinding poverty gripped most of the country.

Singapore and Hong Kong, in contrast, had suffered considerable war damage. Nevertheless both enjoyed rapidly rising incomes for all income classes. The fact that prosperity was widespread is important in heading off the common objection that capitalism only helps a few. Those two city-states were able to escape from poverty by rejecting socialism and adopting laissez faire: prices were free, investors could seek profitable opportunities without government interference and keep their earnings (or swallow their losses) and taxes and regulations were minimal.

Williamson also points out that in recent years India has begun rapid economic development, but only because new leaders have lightened the heavy yoke of socialism.

Defenders of socialism almost always point to Sweden and say that its experience proves that socialism can work. Williamson’s chapter “Why Sweden Stinks” refutes that notion. Sweden seemed to have the best of all possible worlds—a high standard of living combined with an expansive “safety net” and generous government benefits. The trouble is that socialism is unsustainable because it erodes the human qualities that built up the wealth that the socialist state consumes. Williamson writes that Sweden “is rapidly transforming itself into the sort of society that will not be able to support the relatively successful welfare-state arrangements that characterized it throughout most of the twentieth century.” As Hayek observed, socialism changes the character of the people gradually, undermining habits of work, thrift, and self-reliance. We are seeing that in Sweden.

Speaking of Hayek, another of his famous insights regarding socialism was that under it, the worst people usually rise to the top. I wish that Williamson had included a chapter on that point. We hear so often from socialism’s advocates that their system would work beautifully if it were controlled by good people rather than murderous dictators like Stalin. It would have been worth several pages to attack the idea that there is some magic formula to keep vicious, power-mad people from scheming their way to the top of a system that gives them what they crave.

Finally, although I applaud Williamson’s effort, he has bundled together under the label “socialism” several policies better labeled “corporatist” or “collectivist” since they don’t entail government ownership or abolition of the market economy—only interventions that hamper it. Ethanol subsidies are bad, but we don’t have a federally owned energy sector and “public education” doesn’t prevent (though it surely hampers) home and private schooling. Such distinctions are important.

I’m not convinced.

To be sure, it’s easy to see why an uncritical observer might think people like Krugman and Robinson are right. We can certainly look back on centuries—millennia, even—during which poor people have gotten the short end of the stick, in which poverty has coexisted, heart-breakingly, with great wealth. And perhaps those memories make it tempting for some people to buy the civics-class story that the only thing standing between us and a world full of Dickensian nightmares is activist government.

But that would be a mistake. The poverty and exclusion evident throughout history, and still very much a part of today’s world, can frequently be traced precisely to the unjust acts of government officials and their cronies. When people are denied ownership of land they’ve homesteaded with their labor so feudal overlords can turn them into serfs, the culprit isn’t freedom, or the market—it’s government support for the wealthy and well-connected. Ditto for cases in which people are denied the right to work by laws, like England’s old Acts of Settlement, that limit their ability to travel in search of new opportunities.

More generally: There’s no reason to trust activist government because the people in charge can be expected, time and again, to back those with power and influence over those without. Being poor doesn’t make you a favored object of government attention—instead, it means you’re likely to be used and abused. Politicians will claim to be defending your interests when they’re really promoting their own. They’ll continue to enact rules that limit your ability to support yourself and make it costly for you to provide decent shelter and clothing for yourself and your family. And law enforcement agencies will subject you to violence—whether they’re enforcing drug laws or immigration restrictions, or ensuring that you conform to zoning regulations and local codes designed to be easy for middle-class people to follow while making your life costly and difficult.

Government action in contemporary society makes and keeps people poor. Licensing laws, zoning regulations, and similar restrictions make it hard for poor people to enter particular job markets and to operate businesses out of their homes. Without these kinds of government regulations in place, people would be less likely to be poor.

Poverty is a systemic problem. It’s a product of lots of different, overlapping, mutually reinforcing factors. Getting rid of just one abuse or inequity here or there might well leave many people poor. But systemic change, change that addresses all the different factors that make poverty a persistent, ugly feature of our lives, can make a profound difference. And the kind of systemic change we need is change that eliminates State-secured privileges and State-imposed liabilities, not another State-created bureaucracy designed to ameliorate problems the State itself has created.

State Poverty

Government’s role in making and keeping people poor is just one of the factors that make poverty endemic and make it hard to survive while poor.

For instance: Governments don’t treat recipients of the antipoverty aid they disburse especially well. It’s important to avoid comparing idealized State practice with imaginary worst-case practice in the government’s absence. If we focus on actual government practice we find that poor people are not served particularly well by the State, which routinely intrudes into the lives of recipients of assistance, violating their privacy and seeking to regulate their behavior. People pay a high price for aid from the State. Government aid programs come with hidden price tags.

And governments increase the number of poor people in part precisely through some antipoverty programs, which can create perverse incentives both for people to remain poor enough to qualify for government funds and for bureaucrats to keep people poor in order to retain their own jobs.

Governments raise the cost of being poor. Building codes and zoning regulations raise the cost of housing and so make it harder for people to find inexpensive homes. Some people are forced to live without permanent housing at all, while others must spend much larger fractions of their incomes on housing than they otherwise would. As for food, that’s also more expensive thanks to agricultural tariffs and import quotas. In the absence of government policies that make meeting their basic needs unnecessarily expensive, poor people would have more disposable income and would be more economically secure.

More than that, though, governments actively take money from poor people. Many poor people pay more in taxes than they get back in services under the State’s rule. These people would have more resources on net in the absence of the State’s demand for tax money. In addition many people are poor, or poorer, today because the State has actively stolen land and other resources from them or their ancestors or has sanctioned such thefts committed by the wealthy and well-connected. (Think eminent domain among other methods.) Historically the existence of a peasant class and of a class of displaced urban workers willing to accept employment on dismal terms is inexplicable without reference to State violence or State tolerance for or endorsement of violence by the wealthy and well-connected.

The government raises the cost of obtaining key goods and services. The State does a range of things (notably requiring professional licenses, hospital accreditation, and prescriptions and enforcing drug and medical device patents, and other restraints on trade) to make particular services such as health care especially expensive.

All these different factors fit together, each one making people’s conditions worse than they’d otherwise be and making the effects of the other factors more severe. People often start out with less money because of large-scale past injustices. They have less money now because of government limitations on the kind of work they can do and where they can do it. Their ability to provide decent lives for themselves and their families is further limited because the government raises the cost of living, and government regulation of the economy drives down the overall level of productivity even further in ways that obviously hurt the poor the most.

In sum the government plays a crucial role in creating and perpetuating poverty—and that’s really the most important thing to recognize. But of course that doesn’t mean that, absent the government’s abuses, people wouldn’t have accidents, confront disasters, and make unwise choices. With costs of living reduced, as they would be if the government completely left the economy alone, people would find it easier to deal with these challenges. They’d still need one another’s help, but those who think there’d be no way to get this kind of help except through tax-funded government agencies are mistaken.

The existence of State antipoverty programs crowds out alternatives and reduces the effectiveness of those that remain. It’s easy to view these alternatives as essentially ineffectual and anemic. But a crucial reason they’re not more vibrant is that State action commandeers money and attention that might otherwise be directed to these alternatives, creating the illusion that in the government’s absence, they couldn’t be much more effective.

Support for poverty relief doesn’t just come from tax funds now. People give money to charitable causes over and above their tax bills today, despite the huge sums the State claims. There’s no reason to think they would not do so if the government absented itself from economic life. It is naive to suppose that the wealthy and powerful are opposed to State funding for services to the poor at present; the poor have far less clout than the wealthy and powerful, and yet the State provides minimal services for poor people. Why suppose that wealthy and well-connected people willing to see the State spend their tax money to support services for the poor would be dramatically less willing to contribute to the support of such services if the government weren’t involved? (Why do people give money to good causes, including voluntary programs that help the poor? Why do wealthy and well-connected people endorse State spending on programs that provide services to poor people? Presumably for a combination of reasons, including, in no particular order, compassion, social norms, the desire for good reputations, the desire to avoid bad reputations, and the desire to avoid social disorder. All of these reasons would be operative in a free society.)

Mutual Aid

In addition, mutual-aid networks could provide many of the services well-intentioned statists want the government to offer. Societies in which people pooled risk and provided pensions, health care, and other services functioned effectively before the rise of State social services, and there’s no reason they couldn’t do so again in the government’s absence—and, indeed, wouldn’t function much better given that people would have access to more resources and the State would not be regulating them out of existence.

Both charity and mutual aid are more viable than government-run antipoverty programs, more able to help poor people, precisely because those programs have high administrative costs. (Thanks to Tom Woods for this point.) Programs supported freely by people in the government’s absence would not feature such high costs. Because donors could choose among multiple programs, there would be persistent pressure for administrative costs to be reduced.

In addition, social norms could ensure predictable, consistent support of community-wide aid programs without taxation. General acceptance of a social norm entailing regular contributions to a community income support fund, or leaving the edges of fields available (as in Leviticus) for gleaning, could ensure that poor people who needed it could rely on community assistance.

State-managed antipoverty programs draw on tax resources taken unwillingly from people. People work less energetically and enthusiastically when they know that some of what they produce will in effect be taken from them at gunpoint. Thus taking resources from people through taxation to fund antipoverty programs can function as a drag on the economy. By contrast, when people give willingly to support antipoverty efforts, their own objectives are not being thwarted; if they wish to support these efforts, they will be willing to work hard to do so. With the government out of the economy, people can work enthusiastically to earn wealth and foster overall economic productivity even as they support significant antipoverty efforts.

Advocates of government antipoverty programs sometimes worry that the absence of the State would mean a return to the misery and squalor typical of many people’s lives in the eighteenth and nineteenth centuries; they too often attribute these conditions to the absence of State regulation and antipoverty programs. But it’s important to emphasize that these conditions reflected the much lower overall levels of societal wealth. People weren’t poor because of the absence of State regulations and antipoverty programs; they were poor in part because there was very little wealth overall and thus less for those who wanted to help the poor. (Thanks to Tom Woods again on this score.) And of course the misery and squalor weren’t entirely natural or inevitable: Some resulted from persistent—and remediable—injustice on the part of elites and their political cronies.

Rectification

It’s also important to emphasize that getting the State out of the economy doesn’t—can’t—mean simply stopping State intervention. It also has to mean providing rectification for State-committed and State-sanctioned wrongdoing. Politically privileged elites have stolen land and resources from poor, working-class, and middle-class people—directly and by securing tax-funded subsidies and government contracts. There’s no way to understand the distribution of wealth and power in contemporary society without acknowledging this history of theft and violence. To the extent that it’s possible, past injustice ought to be remedied. For instance, people ought to be able to homestead land engrossed by the State, especially land allocated arbitrarily to the State’s cronies. If land and other resources were made available for homesteading or returned to those from whom they were taken, the poverty of the State’s victims could be significantly reduced.

Structural changes would also make poverty less likely in the absence of government intervention. Rules that made it harder for absentee landlords to sit on undeveloped, uncultivated land could open up this land for homesteading by people with limited resources and thus provide them an avenue to greater economic security. Eliminating subsidies and legal privileges for hierarchical corporations would increase the likelihood that people could enjoy the job security associated with working for themselves (with less risk than accompanies being an independent contractor in a less healthy economy) or in partnerships or cooperatives and that, when they did work for others, they could bargain successfully for better compensation.

Libertarianism isn’t a philosophy of atomism. Libertarians have every reason to value interdependence and shared responsibility. Obviously, that’s true of the interdependence fostered by the market order. But it’s also true of the interdependence of friends and family members and strangers who work together to help one another meet life’s challenges. People working together don’t need the government’s help to deal with poverty. The government often makes the problem worse, and it’s definitely not needed to remedy deprivation and economic insecurity.

Poverty has multiple causes—but many of those causes interact with and reinforce one another. Many are created by government action. If we get the government out of the economy and see to it that past injustices committed or sanctioned by the government are remedied, we can effectively meet the challenge of poverty together.

Thomas Friedman agrees in his New York Times column “The Earth is Full” (June 8, 2008), in which he says, “[P]opulation growth and global warming push up food prices, which leads to political instability, which leads to higher oil prices, which leads to higher food prices, and so on in a vicious circle.”

In his article “What Nobody Wants to Hear, But Everyone Needs to Know,” University of Texas at Austin biology professor Eric R. Pianka wrote, “I do not bear any ill will toward people. However, I am convinced that the world, including all humanity, WOULD clearly be much better off without so many of us.”

However, there is absolutely no relationship between high populations, disaster, and poverty. Population-control advocates might consider the Democratic Republic of Congo’s meager 75 people per square mile to be ideal while Hong Kong’s 6,500 people per square mile is problematic. Yet Hong Kong’s citizens enjoy a per capita income of $43,000 while the Democratic Republic of Congo, one of the world’s poorest countries, has a per capita income of $300. It’s no anomaly. Some of the world’s poorest countries have the lowest population densities.

Planet earth is loaded with room. We could put the world’s entire population into the United States, yielding a density of 1,713 people per square mile. That’s far lower than what now exists in all major U.S. cities. The entire U.S. population could move to Texas, and each family of four would enjoy more than 2.1 acres of land. Likewise, if the entire world’s population moved to Texas, California, Colorado, and Pennsylvania, each family of four would enjoy a bit over two acres. Nobody’s suggesting that the entire earth’s population be put in the United States or that the entire U.S. population move to Texas. I cite these figures to help put the matter into perspective.

Let’s look at some other population density evidence. Before the collapse of the Soviet Union, West Germany had a higher population density than East Germany. The same is true of South Korea versus North Korea; Taiwan, Hong Kong, and Singapore versus China; the United States versus the Soviet Union; and Japan versus India. Despite more crowding, West Germany, South Korea, Taiwan, Hong Kong, Singapore, the United States, and Japan experienced far greater economic growth, higher standards of living, and greater access to resources than their counterparts with lower population densities. By the way, Hong Kong has virtually no agriculture sector, but its citizens eat well.

One wonders why anyone listens to doomsayers who have been consistently wrong in their predictions—not a little off, but way off. Professor Paul Ehrlich, author of the 1968 bestseller The Population Bomb, predicted major food shortages in the United States and that by “the 1970s . . . hundreds of millions of people are going to starve to death.” Ehrlich forecasted the starvation of 65 million Americans between 1980 and 1989 and a decline in U.S. population to 22.6 million by 1999. He saw England in more desperate straits: “If I were a gambler, I would take even money that England will not exist in the year 2000.”

Expert Poverty

By a considerable measure, poverty in underdeveloped nations is directly attributable to their leaders heeding the advice of western “experts.” Nobel laureate and Swedish economist Gunnar Myrdal said (1956), “The special advisors to underdeveloped countries who have taken the time and trouble to acquaint themselves with the problem . . . all recommend central planning as the first condition of progress.” In 1957 Stanford University economist Paul A. Baran advised, “The establishment of a socialist planned economy is an essential, indeed indispensable, condition for the attainment of economic and social progress in underdeveloped countries.”

Topping off this bad advice, underdeveloped countries sent their brightest to the London School of Economics, Berkeley, Harvard, and Yale to be taught socialist nonsense about economic growth. Nobel laureate economist Paul Samuelson taught them that underdeveloped countries “cannot get their heads above water because their production is so low that they can spare nothing for capital formation by which the standard of living could be raised.” Economist Ranger Nurkse describes the “vicious circle of poverty” as the basic cause of the underdevelopment of poor countries. According to him, a country is poor because it is poor. On its face this theory is ludicrous. If it had validity, all mankind would still be cave dwellers because we all were poor at one time and poverty is inescapable.

Population controllers have a Malthusian vision of the world that sees population growth outpacing the means for people to care for themselves. Mankind’s ingenuity has proven the Malthusians dead wrong. As a result we can grow increasingly larger quantities of food on less and less land. The energy used to produce food, per dollar of GDP, has been in steep decline. We’re getting more with less, and that applies to most other inputs we use for goods and services.

Ponder the following question: Why is it that mankind today enjoys cell phones, computers, and airplanes but did not when King Louis XIV was alive? After all, the necessary physical resources to make cell phones, computers, and airplanes have always been around, even when cavemen walked the earth. There is only one reason we enjoy these goodies today but did not in past eras. It’s the growth in human knowledge, ingenuity, and specialization and trade—coupled with personal liberty and private property rights—that led to industrialization and betterment. In other words human beings are immensely valuable resources.

What are called overpopulation problems result from socialistic government practices that reduce the capacity of people to educate, clothe, house, and feed themselves. Underdeveloped nations are rife with farm controls, export and import restrictions, restrictive licensing, price controls, plus gross human rights violations that encourage their most productive people to emigrate and stifle the productivity of those who remain. The true antipoverty lesson for poor nations is that the most promising route out of poverty to greater wealth is personal liberty and its main ingredient, limited government.

Those words come, interestingly enough, from what is almost certainly the most successful charitable fundraising speech ever delivered. It was given over 6,000 times, provided almost 1,700 young people with the opportunity to go to college, and played a significant role in assisting 91,000 more to reach their educational goals. If the man who gave this speech had kept and invested the proceeds, an editor of the time observed, he would have had around $8 million (and this was back in 1917, when $8 million was still a lot of money). Virtually all the money was in fact used to provide a first-class education for people who would not otherwise have been able to afford it.

The author of the speech had been a poor kid himself. He could remember being embarrassed, during his year at Yale, that he had to wear such cheap, shabby clothes. Looking back even further, he remembered that the diet of his youth had consisted almost entirely of Indian pudding and baked potatoes, supplemented occasionally by salt pork and cider-apple sauce. It took his father 12 years to pay off the $1,200 mortgage on their farm and another year to come up with enough for an Estey melodeon (a small reed organ). Rather than money each of the three children had been given a hen to feed; a cackle from the chicken house meant a toy or a piece of candy. And yet there was always an empty plate on the table, just in case anyone (even a tramp) stopped by.

This is not the background or the record of a man who would harbor a grudge against the unfortunate. To read his words about the nature of poverty as an attack on the poor is to read them wrongly. His speech was addressed to struggling entrepreneurs and people who were down on their luck, and he wanted them to know that it was well within their power to vastly improve on their present circumstances. More important, and in sharp contrast with the “leading intellectuals” of his time, he insisted that becoming wealthy was one of the most honorable things they could do.

His name was Russell H. Conwell. He was born in 1843 and showed an early penchant for public speaking. To provide the money needed for his last term at Wilbraham Academy he got permission to speak in nearby schools about the recently executed John Brown. The children went home to tell their parents, who were soon waiting in line to buy copies of the biography that young Conwell (with amazing foresight) just happened to have in ample supply. When the Civil War came he went around speaking about the causes, called on men to enlist, formed a company known as “The Mountain Boys,” and at the age of 19 found himself one of the youngest captains in the United States Army. After the war he worked as, among other things, a newspaper correspondent and an attorney.

He then took over a small, struggling church, which after a few years under his leadership was neither small nor struggling.

In 1882 he accepted a call to Grace Baptist Temple in Philadelphia. He had not been there long when he was approached by a young man who, with only 30 cents to his name, wanted to get an education. His efforts to put the boy off with descriptions of the difficulties involved failed, and Conwell agreed to spend three hours a week with him. The new student arrived for the first lesson with five of his friends. For the second lesson there were 40. By the end of the second year 250 were enrolled in the night school being conducted in the church’s basement. The teachers were volunteers, attendance was mandatory, and examinations were notoriously difficult.

Students were required to pay tuition, but as the school expanded, the need for funds grew. Assistance from the wealthy of the surrounding community was not forthcoming. Employers were afraid that an education would turn their best workers to other pursuits, and the comfortably situated were unhappy with the idea of raising the poor above their proper station in life. There were no government assistance programs, but even if there had been, Conwell would not have applied. He believed it would be unjust to tax all of the people for something that would benefit only those with the ambition to take advantage of it. State-sponsored charities, he said, serve mainly to create a sense of entitlement and a great deal of petty fraud.

But there were now 590 enrolled at Temple, and it seemed to be faced with the necessity of a tuition increase that would close the door to some of its best students. Then Conwell had an idea. It had been bumping around in his mind since 1861, when he gave a lecture entitled “Heroes at Home” to a crowd of a few hundred in a Methodist church. Years of experience had ripened his thought on the subject and turned him into an excellent speaker. He decided to try his luck on the then-popular Chautauqua circuit, where Ralph Waldo Emerson had already made a name for himself. Before Conwell was done he had spoken to crowds as large as 15,000 and in places as famous as Madison Square Garden (back when it was still near Madison Square).

“Acres of Diamonds”

He spoke without notes, and he never put his words on paper, so the speech has come down to us in various forms, four of which were consulted in the preparation of this article. (The author would be delighted to provide specific sources and page numbers for any who are interested.)

Conwell’s introduction is the story of one al Hafed (given in some versions as Ali-Hafed), who was contentedly prosperous until a visiting Buddhist priest told him about the concentrated wealth of diamonds. Al Hafed inquired about the kind of place in which these might be found, sold his farm, and went off to search for them. Unsuccessful after many years, he threw himself into the ocean. The person who bought his farm had in the meantime come across a curious black stone that seemed somehow to catch the light. He set it on the mantle, and the next time the priest came by he recognized it as a diamond. “Had Al-Hafed remained at home and dug in his own cellar or his own garden, instead of wretchedness, starvation, poverty and death in a strange land, he would have had acres of diamonds,” Conwell said. The farm was in fact the scene of what would later come to be known as the Golconda Diamond Mines (in Conwell’s time, the word was often spelled Golkonda and was a synonym for incredible wealth).

The motivational speaker Earl Nightingale built one of his best presentations around this introduction; the point, he said, is that the grass on the other side of the fence may be greener because it is getting better care. While Conwell would have agreed with this observation, he was interested primarily in wider themes. He told several other tales about people who had missed the prosperity waiting on the doorstep, but his first major point was the development of a mindset for the discovery of opportunities. He was a voracious reader with a photographic memory and may have been familiar with Adam Smith. Even if he was not, his thoughts suggest a more than passing familiarity with the principles of economics.

To those who wanted to become wealthy he gave this advice: Find out what people want and get it for them. It seems obvious enough, but Conwell could remember a time in his life when he had yet to grasp it. As a boy he had on several occasions been left in charge of his father’s country store. Once a man came in and asked, “Do you have any jackknives?” (What was then called a jackknife is now referred to as a pocket knife.) No, he did not, Conwell replied. Another farmer came in with same question and received the same reply. A third was met with this somewhat more emphatic response: “No. Why is everyone around here asking for jackknives? Do you suppose we are keeping this store to supply the whole neighborhood with jackknives?” Looking back, Conwell realized that if they had kept the store for that purpose it might have been more profitable.

He told about how John Jacob Astor, having foreclosed on a millinery store, went into partnership with the man who had just failed. Astor did not put a nickel of new money into the deal. He just went out to sit on a park bench and see what the ladies were wearing. He wanted to learn which styles had the most positive effect on a woman’s feelings about herself. Conwell said that when Astor saw “a lady pass, with her shoulders back and her head up, as if she did not care if the whole world looked at her, he studied the bonnet” and went back with instructions for the hat maker. Then he repeated the process. The store was soon flourishing.

Conwell did not say Astor liked all the hats that seemed to have such an impact on the feelings of those wearing them. The point was not Astor’s feelings but those of the women in the park. Both parties felt better off as a result of the transaction.

“I say you ought to be rich,” he told the members of his audience. If they were not getting a little richer with each passing year, he said, it was only because they were not paying attention to what other people wanted. “If you will just take only four blocks around you, and find out what the people want and what you ought to supply and set them down with your pencil, and figure up the profits you would make if you did supply them, you would very soon see it. There is wealth right within the sound of your voice.” He told the story of a man who provided so well for people of his neighborhood that when they learned of his plans to move and build a warehouse, they petitioned him to stay.

There is nothing even slightly cutthroat about economic success, Conwell said. It is a matter simply of giving people what they want and letting them reward you for it. The true businessperson is the one who has found a way to serve and let himself or herself be served in return. The dishonest are a minority who might retain employees and customers for long enough to do some damage but not for long enough to build a business. Lasting success, he insisted, is always the result of serving others as you yourself would like to be served.

He had no patience with ministers who condemned the “filthy lucre” of material prosperity. They only talk like that, he said, until they pass the collection plate. “Money printed your Bible, money builds your churches, money sends your missionaries, and money pays your preachers, and you would not have many of them, either, if you did not pay them.” Significant material accomplishment is not only honorable in its own right but the means to much else that we honor.

Defending Prosperity

Conwell understood that in thus exalting the nature and consequences of the economic process he was swimming against the intellectual current of his time. “The age,” he said, “is prejudiced against advising a Christian man . . . from attaining unto wealth.” What he had to say about the nature of this prejudice is something early twenty-first century America badly needs to hear.

He pointed out that not everything in print agrees with the facts: “How little we can tell what is true nowadays when newspapers try to sell their papers entirely on sensation.” Neil Postman observed that in the case of television the effect of this sensationalism is compounded by the need to break everything up into 45-second bits. The program does not need to tell the whole story, but it does need to be entertaining. Television producers, like the yellow journalists of Conwell’s time, are more interested in getting our attention than in giving us the truth.

That, however, is the smaller part of the problem. The greater part is malicious jealousy. “If a man knows more than I know, don’t I incline to criticize his learning? . . . We always do that to the man who gets ahead of us.”

Even as he spoke, Germany’s Max Scheler, borrowing a term from Nietzsche, was writing a book entitled Ressentiment. Nothing so excites public indignation, he observed, as remarkable success. There is a great deal that is easily forgiven, but the thought of any impressive achievement that might just as well have been our own seems to fester. The one who is merely envious wants whatever the object of his envy has gained and may even confess to such a desire. The person who is consumed with ressentiment, on the other hand, is no longer conscious of where the feelings come from and is therefore incapable of admitting to them. He or she no longer cares about the accomplishment itself but longs to harm the person it belongs to.

There is much about Conwell’s world that has passed into history. Lies about the crimes of the successful and the ressentiment that gives birth to them remain. They are a central fact of American politics and the real issue in the debate over tax increases. Whatever else Barack Obama may be, he is not stupid. He knows perfectly well that even if all the loopholes could be closed and even if the marginal tax rate on incomes greater than $250,000 were 100 percent, there still would not be enough to put the government’s books in the black. His driving motive is not a desire to balance the budget but his unadmitted need to punish the successful.

It is by pointing to such motives that Russell H. Conwell makes his greatest contribution to modern America. There is a seminary that bears his name, and Grace Temple Baptist Church continues to carry on the ministry he began there. Temple University, no longer just for students who have to come in the evening, has become a leading institution of higher learning, complete with a hospital and a law school. More important than these, however, is Conwell’s reminder about the nature of the attack on prosperity and individual achievement. We need to keep it in mind whenever politicians represent themselves as our saviors and the real sources of national prosperity. They are the ones from whom we need to be protected.

Licensing, for example, prices poor people out of business.

Take taxis: in New York City, you have to buy a license, or “medallion.” New York restricts the number of medallions so tightly that getting one costs hundreds of thousands of dollars.

“There are not many black-owned taxis in New York City,” George Mason University economist (and Freeman columnist) Walter Williams told me. “But in Washington, most are owned by blacks.” Why? Because in Washington, “it takes $200 to get a license to own and operate one taxi. That makes the difference.”

Regulation hurts the people the politicians claim to help.

People once just went into business. But now, in the name of “consumer protection,” bureaucrats insist on licensing rules. Today, hundreds of occupations require expensive licenses. Tough luck for a poor person getting started.

Ask Jestina Clayton. Ten years ago she moved from Africa to Utah. She assumed she could support her children with the hair-braiding skills she learned in Sierra Leone. For four years she braided hair in her home. She made decent money. But then the government shut her down because she doesn’t have an expensive cosmetology license that requires 2,000 hours of classroom time—50 weeks of useless instruction. The Institute for Justice (IJ), the public-interest law firm that fights such outrages, says “not one of those 2,000 hours teaches African hair-braiding.”

IJ lawyer Paul Avelar explained that “the state passed a really broad law and left it to the cosmetology board to interpret.”

Guess who sits on the cosmetology board. Right: cosmetologists.

And they don’t like competition.

One day, Jestina received an email.

“The email threatened to report me to the licensing division if I continued to braid,” she told me.

This came as a shock because she had been told that what she was doing was legal. Twice, in fact.

No customers complained, but a competitor did.

One cosmetologist claimed that if she didn’t go to school she might make someone bald.

But this is nonsense—hair-braiding is just . . . braiding. If the braid is too tight, you can undo it.

The cosmetology board told Jestina that if she wanted to braid hair without paying $18,000 to get permission from the board, she should lobby the legislature. Good luck with that. Jestina actually tried, but no luck. How can poor people become entrepreneurs if they must get laws changed first?! Jestina stopped working because she can’t afford the fines.

“The first offense is $1,000,” she said. “The second offense and any subsequent offense is $2,000 each day.”

“It is not unique to Utah,” Avelar added. “There are about 10 states that explicitly require people to go get this expensive, useless license to braid hair.”

Fortunately, IJ’s efforts against such laws have succeeded in seven states. Now it’s in court fighting for Jestina, which, appropriately, means “justice” in her native language.

Once upon a time, one in 20 workers needed government permission to work in their occupation. Today, it’s one in three. We lose some freedom every day.

“Occupational licensing laws fall hardest on minorities, on poor, on elderly workers who want to start a new career or change careers,” Avelar said. “[Licensing laws] just help entrenched businesses keep out competition.”

This is not what America was supposed to be.

Only 10 of the 54 African countries can be labeled economic success stories: Angola, Benin, Botswana, Ghana, Madagascar, Malawi, Mali, Mauritius, Uganda, and South Africa. This hardly comes as a surprise as Africa is the most economically unfree continent. No African country is classified by the Heritage Foundation/Wall Street Journal’s 2011 Index of Economic Freedom as “free.” Mauritius is classified as “mostly free,” and listed as “moderately free” are Botswana, Cape Verde Islands, South Africa, Rwanda, Madagascar, Uganda, and Burkina Faso. (Some of the countries labeled economic success stories have undemocratic political systems: Angola, Burkina Faso, Madagascar, Rwanda, and Uganda.)

Ironically, traditional Africa, in contrast to modern Africa, was characterized by much economic freedom for centuries before the arrival of the European colonists. There the basic economic and social unit was the extended family, the lineage, or the clan. The means of production were owned by the lineage—a private entity separate from the tribal government—and thus privately owned, although individual ownership was common. Land, for example, was lineage-controlled, giving rise to the myth of communal ownership, while hunting gear, spears, and fishing canoes were individually owned. Nevertheless the extended family acted as a corporate unit, marshaled family labor, and decided what crops to cultivate on the family land. There was sexual division of labor, and the cultivation of food crops was always a female occupation in traditional Africa, which explains why over 70 percent of Africa’s peasant farmers today are women. Produce harvested from the farms was used to feed the family; any surplus was sold in free village markets.

Ubiquitous Markets

Markets were ubiquitous in precolonial Africa. Two types were distinguishable: the periodic (weekly) rural markets and the large regional markets. Some of these regional markets grew into large towns such as Timbuktu, Kano, Salaga, Sofala, and Mombasa. They served as exchange points for long-distance trade. Timbuktu and Kano, for example, served the long-distance caravan trade over the Sahara and the long distance trade from the coastal areas. Free-trade routes crisscrossed the continent. Goods and people moved freely along them. Men dominated the long-distance trade while women held sway over the rural markets, which largely involved trade in agricultural produce.

Prices on Africa’s markets were not controlled or fixed by chiefs or tribal governments. They have always been determined by bargaining in accordance with the laws of demand and supply. For example, when corn is scarce, its price rises, and the price of fish generally tends to be higher in the morning than in the evening, when fishmongers are anxious to return home.

Besides primary activities such as agriculture, hunting, and fishing, Africans engaged in a variety of industrial activities in the precolonial era—such as cloth-weaving, pottery, brass works, and the mining and smelting of iron, gold, silver, copper, and tin. In Benin, “the glass industry made extraordinary strides,” Cheikh Anta Diop writes in Pre-colonial Black Africa. In Nigeria, “the cloth industry was an ancient craft,” adds Richard Olaniyan in Nigerian History and Culture. Kano attained historical prominence in the fourteenth century with its fine indigo-dyed cloth, which was traded for goods from North Africa. Even before the discovery of cotton, other materials had been used for cloth. The Igbo, for example, made cloth from the fibrous bark of trees. The Asante also were famous for their cotton and bark cloth (kente and adwumfo).

Startup Capital

To secure initial startup capital for commercial operations, African natives turned to two traditional sources of finance. One was the “family pot.” Each extended family had a fund into which members made contributions according to their means. Among the Ewe seine fishermen of Ghana, the family pot was called agbadoho. Members borrowed from this pot to purchase their fishing nets and paid back the loans.

The second source of finance was a revolving credit scheme that was widespread across Africa. It was called susu in Ghana, esusu in Yoruba, tontines or chilembe in Cameroon, and stokfel in South Africa. Typically, a group of, say, ten people would contribute perhaps $100 each to a fund. When the fund reached a certain amount—say, $1,000—it was handed over to the members in turn, who invested the cash in an endeavor. The Grameen Bank in Bangladesh was built on this concept of a revolving rural credit scheme.

Profit made from these economic activities was private property; it was for the traders to keep, not for the chiefs or rulers to expropriate. The traditional practice was to share the profit. Under the abusa scheme devised by the cocoa farmers of Ghana at the beginning of the twentieth century, net proceeds were divided into three parts: A third went to the owner of the farm, another third went to hired laborers, and the remaining third was set aside for farm maintenance and expansion. Under the less common abunu system, profits were shared equally between the owner and the workers. Variants of this profit-sharing scheme were extended beyond agriculture to commerce and fishing.

Chiefs and kings played little or no role in economic production. Their traditional role was to create a peaceful environment for trade and economic activity to flourish. No tribal government enterprises existed. In most cases across Africa, Peter Wickins writes in An Economic History of Africa, “there was no direct interference with production.” In fact State intervention in the economy was the exception rather than the rule in precolonial Africa. As Robert H. Bates observed in Essays on the Political Economy of Rural Africa, “In precolonial Africa, the states underpinned specialization and trade; they terminated feuds; they provided peace and stability and the conditions for private investment; they formed public works. . . . In these ways, the states secured prosperity for their citizens.”

Peasant Capitalism

The system described above may be called “peasant capitalism.” It differs from Western capitalism in two respects. First, as noted, the operating unit was the clan, not the individual. Second, profit was shared. Regardless, the clan was free to engage in whatever economic activity it chose. It did not line up before the chief’s palace for permission to engage in trade, fishing, or cloth-weaving. If an occupation or a line of trade was unprofitable, African natives switched to more profitable ones and always enjoyed the economic freedom to do so. In modern parlance, those who go about their economic activities on their own free will are called “free-enterprisers.” By this definition, the kente weavers of Ghana; the Yoruba sculptors; the gold-, silver-, and blacksmiths; as well as the various indigenous craftsmen, traders, and farmers were free-enterprisers. The natives have been so for centuries. The Masai, Somali, Fulani, and other pastoralists who herded cattle over long distances in search of water and pasture also were free-enterprisers. So were the African traders who traveled great distances to buy and sell commodities—a risk-taking economic venture. The extended family system offered them the security and the springboard they needed to launch and take the risks associated with entrepreneurial activity. If they failed, the extended family system was available to support them. By the same token, if they were successful, they had some obligation to the same system.

Indigenous Africa under Colonial Rule

When Africa was colonized, the Western powers sought to control indigenous economic activities. For the most part, however, the natives were free to go about their business. In West Africa, European settlement was confined to the urban enclaves and the rural areas were left almost intact. In central and southern Africa the story was a little different. The plunder and barbarous atrocities against the natives in King Leopold’s Congo need no belaboring. In southern Africa, where the climate was more congenial to European settlement, there were widespread land seizures, massive dislocation of the natives, and restrictions on their movements and places of residence. Nonetheless, despite the formidable odds, the natives could open shops and compete with European firms. Many did and were successful. There were rich African shopkeepers as well as timber merchants, transport owners, and farmers during the colonial period. Given the opportunities and access to capital, African natives showed themselves capable of competing with the foreigners.

The Golden Age of Peasant Prosperity

The period 1880–1950 may be described as the golden age of peasant prosperity in Africa. Though colonialism was invidious, one of its little-acknowledged benefits was the peace it brought Africa. The slave trade and competition over resources had fueled many of the tribal wars in precolonial Africa. The abolition of the slave trade in the 1840s eliminated a major cause of war, and the introduction of cash crops to service Europe’s Industrial Revolution provided new economic opportunities. In addition, skeletal forms of infrastructure (roads, railways, bridges, schools, post offices, and so on) were laid down during this period. This greatly facilitated the movement of goods and people and gave economic expansion a tremendous boost. For example, A. A. Boahen writes in Topics in West African History,

The volume of cotton exports from French West Africa rose from an average of 189 tons in 1910–14 to 495,000 tons in 1935–39, while that of coffee soared from 5,300 tons in 1905 to 495,000 tons in 1936. The volume of groundnuts (peanuts) exported from Senegal alone increased from 500,000 in the 1890s to 723,000 tons in 1937. However, the greatest success story was that of cocoa production in Ghana, whose volume of exports rose from only 80 lbs in 1881 to 2 million lbs in 1901 and 88.9 million lbs in 1911. This made Ghana the leading producer of cocoa in the world, and the quantity continued to rise until it reached a record figure of 305,000 tons in 1936.

The economic system used by African natives to engineer that prosperity was their own indigenous system. Except for a few places in Africa, notably in the Portuguese colonies, plantation agriculture was unknown. Cash crops—cocoa, coffee, tea, cotton—were grown by peasant farmers on their own individual plots using traditional farming methods and practices.

The fundamental point is that African natives had the economic freedom to decide for themselves what crops they could cultivate and what to do with the proceeds. As Francis Kendall and Leon Louw—two white South Africans—noted in After Apartheid: The Solution: “The freedom that characterized tribal society in part explains why black South Africans responded so positively to the challenges of a free market that, by the 1870s, they were out-competing whites, especially as farmers.” But black success had tragic consequences. White colonists feared black competition:

Not only were blacks better farmers but they were also competing with white farmers for land. Moreover, they were self-sufficient and hence not available to work on white farms or in industry, particularly in the Transvaal gold mines where their labor was badly needed. As a result a series of laws was passed that robbed blacks of almost all economic freedom. The purpose of these laws was to prevent blacks from competing with whites and to drive them into the work force.

In 1869, 1876, and 1884 the Cape Assembly passed a series of Location Acts (the first set of apartheid laws) that sought to protect white farmers from black competition and to force blacks to become wage laborers by working for white farmers. Then came the Native Land Act of 1913. The rest is history.

Postcolonial Predation

Elsewhere in Africa the natives were stripped of their economic freedom by functionally and culturally illiterate leaders after independence in the 1960s. Claiming that free-market capitalism was a Western ideology, most of the first generation of postcolonial African leaders adopted State socialism—the antithesis of free markets—as their economic ideology. A proliferation of socialist ideologies swept the continent, including some quite bizarre examples: Julius Nyerere’s Ujaama (“familyhood,” or socialism, in Swahili) in Tanzania; Leopold Senghor’s vague amalgam of Marxism, Christian socialism, humanitarianism, and “Negritude” in Senegal; Kenneth Kaunda’s humanism in Zambia; Marien N’Gouabi’s scientific socialism in the Congo (Brazzaville); Muammar Gaddafi’s Arab-Islamic socialism in Libya; Kwame Nkrumah’s Nkrumaism (“consciencism“) in Ghana; Mobutu Sese Seko’s Mobutuism in Zaire; and Habib Bourguiba’s Bourguibisme in Tunisia.

Unoccupied land, along with the commanding heights of the economy, was seized by the State in Angola, Ethiopia, Nigeria, Mozambique, Tanzania, and other countries. Foreign companies were nationalized, and a plethora of government controls were instituted to assure State participation in the economy. A dizzying array of State enterprises was established haphazardly.

Fundamentally Alien

This socialist ideology is fundamentally alien and failed miserably everywhere it was implemented in Africa. State ownership, controls, and intervention were never part of Africa’s economic heritage.

More outrageous were the frontal attacks on trade and commerce the natives had engaged in for centuries. In many African countries they were squeezed. Indeed, there was a time when the director of the Club du Sahel, Anne de Lattre, would begin her meetings with the remark, “Well, there is one thing we all agree on: that private traders should be shot” (West Africa, Jan. 26, 1987, 154). Under Sekou Toure’s nonsensical program “Marxism in African Clothes” in Guinea, “unauthorized trading became a crime” (New York Times, Dec. 28, 1987, 28).

In Ghana the Marxist Rawlings regime denounced indigenous markets as dens of economic profiteers and saboteurs. It slapped stringent price controls on hundreds of goods during the 1981–83 period. Markets were burned down and destroyed at Accra, Kumasi, Koforidua, and other cities when traders refused to sell at government-dictated prices.

On May 18, 2005, another episode of economic lunacy was repeated in Zimbabwe. Paramilitary units armed with batons and riot shields smashed up stalls of street traders in a police operation in the capital, Harare. “The official statement claimed that the raids were aimed at black-market profiteers who were hoarding commodities,” the New York Times reported. In what President Robert Mugabe dubbed “Operation Murambatsvina,” which the State-owned press translates as “Operation Restore Order” but in Shona translates as “Operation Drive Out the Rubbish,” the police destroyed 34 flea markets and netted some Z$900 million ($100,000) in fines and seized some Z$2.2 billion of goods. “President Mugabe blamed the West for the nation’s economic crisis,” BBC News Africa reported. At least 22,000 street traders were arrested and over 700,000 people left homeless.

No African chief or king could commit such acts of economic lunacy and cultural perfidy and remain chief. There is nothing wrong with the traditional economic system of free markets, free enterprise, and free trade. All the leadership had to do after independence was to build on it. Only Botswana did this. But the vast majority of African leaders—an assortment of black neocolonialists, Swiss-bank socialists, quack revolutionaries, and crocodile liberators—instead went abroad and copied all sorts of alien practices to impose on their people.

Have they learned? No. Black neocolonialists have been busy importing another alien ideology, from China: On August 14, 2010, Xinhua reported: “A total of 25 Confucius institutes have been opened in 18 African countries.”

It was disheartening to read John Stossel’s uncritical endorsement of Hernando de Soto’s diagnosis of the causes of poverty in Third World nations as their lack of street addresses and legal titles to property (“Why Do the Poor Stay Poor?,” March 2011). The error of these claims in De Soto’s The Mystery of Capital (2000) has been pointed out by several authors. . . .

First, people who have property that would qualify for a street address, if such address system existed, . . . are not among the poor. Second, in the same Third World country, there are rich as well as poor people. The lack of a street address thus cannot explain why the poor are poor. Third, in the formal and informal sectors of Third World countries, people acquire loans all the time without the presentation of government certified titles to property. Indeed, de Soto himself describes the vibrancy of economic activity in Brazilian favelas where, for example, “street cottage industries have sprung up . . . manufacturing anything from clothing and footwear to imitation Cartier watches and Vuitton Bags.” Fourth, Stossel buys into de Soto’s mistaken view of lawlessness in most of the Third World: “They need the rule of law. But many places in the developing world barely have law.” But de Soto contradicts himself on that claim, too: “[A]sset owners in the extralegal sector are . . . relatively well organized [and] ‘law-abiding,’ although the laws they abide by are not the government’s.” Furthermore, people “in the undercapitalized sector do have . . . strong, clear, and detailed understandings among themselves of who owns what.” (For more on de Soto’s self-contradictory claims, see “Mystifying the Concept of Capital: Hernando de Soto’s Misdiagnosis of the Hindrance to Economic Development in the Third World,” Independent Review, Summer 2008.) In fact, only in the most chaotic countries or failed states are crimes against private property not punished by law.

De Soto’s claims have fascinated some in the libertarian community who find someone, originally from a Third World country, Peru (but who did not grow up there), arguing that adopting capitalism and the rule of law would eliminate poverty around the world, to be a useful ally. But de Soto has an incorrect understanding of the economic history of the more developed countries, including such recent ones as South Korea and Hong Kong, as well as of the hindrance to economic development in the less-developed countries. He does not recognize that economic development or the growth of wealth preceded the development of legal titles to property in the now-developed countries. Thus he seeks to reverse the order of causality: Institute legal titles to property and economic development will follow! He also does not recognize that savings constitute the “capital” that may be borrowed with or without the presentation of legal titles to property. Titles to property may qualify someone for a loan, but without savings in the community, there would be nothing to lend. Indeed, de Soto believes that knowledge of the source of “capital” for economic development is a “mystery” for people in both the more-developed and less-developed countries. But Adam Smith explains that in the Wealth of Nations (1776), which de Soto fails to recognize.

Stossel would do better to point his readers to Adam Smith’s explanation of the institutions and policies that promote the creation of wealth among nations than to endorse de Soto’s mistaken and frequently self-contradictory views about the hindrance to economic development in the Third World.

One reason Egypt’s political development was frozen for so long is the lasting influence of Gamal Abdel Nasser (president 1956–70), who allied the country with the Soviet Union, imposed a policy of economic nationalism and statism, and created huge loss-producing State enterprises and a bloated bureaucracy. Other reasons are Egypt’s geography, geology, economy, history, and geopolitical position, each of which has stifled the generation of an open political and economic system and strengthened the country’s static and authoritarian political system by providing revenue directly to the rulers, without requiring the consent of a productive population. Since the rulers don’t rely mainly on taxes, they have little reason to promote good governance or to be accountable to the people.

Sources of Revenue

Geography: The Suez Canal provides a direct passage between the Red and Mediterranean Seas. As an artificial sea passage between Europe and Asia, the Canal is of major importance because it avoids the long ship passage around Africa. The Suez Canal was nationalized by Nasser in 1956. Every day nearly 40 vessels traverse the Canal, producing some $3.3 billion per year in income to the State.

Geology: The land of Egypt is blessed—or cursed—with oil reserves that provide foreign exchange earnings estimated at $1.2 billion per year. The oil industry was nationalized in 1962 and provides rents to the State and the bureaucracy that it has spawned.

Economy: A rigidly controlled labor market has created huge unemployment and forced many Egyptians abroad in search of work. Every year Egyptians working in North America, Europe, and the Gulf countries send an estimated $4.3 billion to their families, providing an external source of income to the country without creating wealth at home.

History: Egypt’s inherited wealth of tourist sites draws some five million foreign visitors per year from the whole world. The sites are State-owned and -managed and accordingly poorly maintained, but because there are no close substitutes for seeing the Sphinx or the Pyramids, the State receives billions of dollars in foreign exchange earnings (some $5 billion in 2005).

Geopolitics: Egypt is a central hub in the chaotic politics of the Middle East, a neighbor to Libya, Sudan, Israel, Jordan, and Saudi Arabia (from which it is separated by the Sinai desert and the Red Sea). Apparently without consulting “the Egyptian street” (and the Arab street in general), the government of Egypt was the first Arab government to sign a peace treaty with Israel (the Camp David Accords of 1979). In return for being at peace, the United States has given the Egyptian government over $2.1 billion, including $1.3 billion in military aid, every year since 1980. Egypt’s leaders have occupied an increasingly difficult position, as they are seen as betraying the Arab nationalist ideals of Nasser and abandoning the Palestinians.

All those “rents” were captured by the ruling coalition, which until February was increasingly controlled by President Mubarak’s son Gamal. Those rents have supported a vast system of patronage through which Egyptian society has been controlled. The now-defunct National Democratic Party and the State organs it dominated controlled almost all the media, the unions, the secret services, and the political police. As a result, “democracy” was emptied of its meaning.

A “rent-seeking” political system that cemented its hold on society put Egypt in a perpetual pre-revolutionary situation and created a powerful, but quite brittle, security situation.

The demographics and economics of Egypt also have contributed to the brittleness. Egypt’s statist economic system generates few opportunities to create wealth, in contrast to receiving rents through State employment. Unemployment is probably over 30 percent, and with some 600,000 young people entering the job market each year, the situation has been worsening. Moreover, Egypt’s population is both rapidly growing, with some 26 million Egyptians under the age of 15, and poor, with 44 percent living on less than $2 per day.

Plutocratic Land of the Pharaohs

In short, the Land of the Pharaohs is a dual society, with a thin layer of powerful and wealthy people whose riches have largely derived from rents from the State ruling over a mass of impoverished people. The poorly managed “privatizations,” undertaken in a climate of pervasive corruption and hostility to independent business, have done little to address the country’s intolerable inequalities. Moreover, the country faces a total public debt above 100 percent of GDP, and public finances are taking a nose dive, resulting in delays in payment of wages to public servants, traditionally a strong base of support for such rent-seeking States. The pressure has been building for years, and the example of Tunisia accelerated the process, resulting in an explosion of anger and rage.

The desperate and left-behind have in the meantime been swelling the ranks of the more radical movements. The Salafists, Wahhabis, and more radical branches of the Muslim Brotherhood are the main beneficiaries of that process, as other avenues for political dissent have been stifled; the increasing bomb attacks and the recent uprising are the main consequences of this. But even the Muslim Brotherhood seems to have been surprised by the uprising in the streets. There is hope that perhaps something different will emerge, something that goes beyond the confrontation between a quasi-fascist one-party State and a radical Islamist movement working to take its place.

The roots of the revolt have been growing for years. It will take some time before we see what will grow from those roots: a pluralistic democracy, a renewed and even more tyrannical military State, or an intolerant Islamist tyranny.

There is very little either complicated or interesting about poverty. Poverty has been man’s condition throughout his history. The causes of poverty are quite simple and straightforward. Generally, individual people or entire nations are poor for one or more of the following reasons: (1) they cannot produce many things highly valued by others; (2) they can produce things valued by others but they are prevented from doing so; or (3) they volunteer to be poor.

The true mystery is why there is any affluence at all. That is, how did a tiny proportion of man’s population (mostly in the West) for only a tiny part of man’s history (mainly in the nineteenth, twentieth, and twenty-first centuries) manage to escape the fate of their fellow men?

Sometimes, in reference to the United States, people point to its rich endowment of natural resources. This explanation is unsatisfactory. Were abundant natural resources the cause of affluence, Africa and South America would stand out as the richest continents, instead of being home to some of the world’s most miserably poor people. By contrast, that explanation would suggest that resource-poor countries like Japan, Hong Kong, and Great Britain should be poor instead of ranking among the world’s richest places.

Another unsatisfactory explanation of poverty is colonialism. This argument suggests that third-world poverty is a legacy of having been colonized, exploited, and robbed of its riches by the mother country. But it turns out that countries like the United States, Canada, Australia, and New Zealand were colonies; yet they are among the world’s richest countries. Hong Kong was a colony of Great Britain until 1997, when China regained sovereignty, but it managed to become the second richest political jurisdiction in the Far East. On the other hand, Ethiopia, Liberia, Tibet, and Nepal were never colonies, or were so for only a few years, and they rank among the world’s poorest and most backward countries.

Despite the many justified criticisms of colonialism and, I might add, multinationals, both served as a means of transferring Western technology and institutions, bringing backward peoples into greater contact with a more-developed Western world. A tragic fact is that many African countries have suffered significant decline since independence. In many of those countries the average citizen can boast that he ate more regularly and enjoyed greater human-rights protections under colonial rule. The colonial powers never perpetrated the unspeakable human rights abuses, including genocide, that we have seen in post-independence Burundi, Uganda, Zimbabwe, Sudan, Central African Empire, Somalia, and elsewhere.

Any economist who suggests he has a complete answer to the causes of affluence should be viewed with suspicion. We do not know fully what makes some societies richer than others. However, we can make guesses based on correlations. Start out by ranking countries according to their economic systems. Conceptually we could arrange them from more capitalistic (having a larger free-market sector) to more communistic (with extensive State intervention and planning). Then consult Amnesty International’s ranking of countries according to human-rights abuses. Then get World Bank income statistics and rank countries from highest to lowest per capita income.

Compiling the three lists, one would observe a very strong, though imperfect, correlation: Those countries with greater economic liberty tend also to have stronger protections of human rights. And their people are wealthier. That finding is not a coincidence, so let us speculate on the relationship.

Rights and Prosperity

One way to gauge human-rights protection is to ask to what extent the State protects voluntary exchange and private property. These signify the rights to acquire, keep, and dispose of property in any fashion so long as one does not violate the rights of others. The difference between private property rights and collectively held rights is not simply philosophical. Private property produces systemically different incentives and results from collective property.

Since collectivists often trivialize private property rights, they are worth elaborating. When property rights are held privately the costs and benefits of decisions are concentrated in the individual decision maker; with collectively held property rights they are dispersed across society. For example, private property forces homeowners to take into account the effect of their current decisions on the future value of their homes, because that value depends, among other things, on how long the property will provide housing services. Thus privately owned property holds one’s personal wealth hostage to doing the socially responsible thing—economizing scarce resources.

Contrast these incentives to those of collective ownership. When the government owns the house, the individual has less incentive to take care of it simply because he does not capture the full benefit of his efforts. It is dispersed across society instead. The costs of neglecting the house are similarly spread. You do not have to be a rocket scientist to predict that under these circumstances, less care will be taken.

Nor is nominal collective ownership the only force that weakens social responsibility. When government taxes property, it changes the ownership characteristics. If government were to impose a 75 percent tax on a person selling his house, it would reduce his incentive to use the house wisely.

This argument applies to all activities, including work and investment. Whatever lowers the return from or raises the cost of an investment reduces incentives to make that investment in the first place. This applies to investment in human as well as physical capital—that is, those activities that raise the productive capacity of individuals.

To a significant degree the wealth of nations is embodied in their people. The starkest example of this is the experience of the Germans and Japanese after World War II. During the war, Allied bombing missions destroyed nearly the entire physical stock of each country. What was not destroyed was the human capital of the people: their skills and education. In two or three decades, both countries reemerged as formidable economic forces. The Marshall Plan and other U.S. subsidies to Europe and Japan cannot begin to explain their recovery.

Proper identification of the causes of poverty is critical. If it is seen, as is too often the case, as a result of exploitation, the policy recommendation that naturally emerges is income redistribution—that is, government confiscation of some people’s “ill-gotten” gains and “restoration” to their “rightful” owners. This is the politics of envy: bigger and bigger welfare programs domestically and bigger and bigger foreign-aid programs internationally.

If poverty is correctly seen as a result of the unwise government intervention and lack of productive capacity, more effective policy recommendations emerge.

I first met de Soto maybe 15 years ago. It was at one of those lunches where people sit around wondering how to end poverty.

I go, but I’m skeptical. There sits de Soto, president of the Institute for Liberty and Democracy in Peru, and he starts pulling pictures out showing slum dwellings built on top of each other. I wondered what they meant.

As de Soto explained, “These pictures show that roughly 4 billion people in the world actually build their homes and own their businesses outside the legal system. . . . Because of the lack of rule of law [and] the definition of who owns what, and because they don’t have addresses, they can’t get credit [for investment loans].”

They don’t have addresses?

“To get an address, somebody’s got to recognize that that’s where you live. That means . . . you’ve got a mailing address. . . . When you make a deal with someone, you can be identified. But until property is defined by law, people can’t . . . specialize and create wealth. The day they get title [is] the day that the businesses in their homes, the sewing machines, the cotton gins, the car repair shop finally gets recognized. They can start expanding.”

That’s the road to prosperity. But first they need to be recognized by someone in local authority who says, “This is yours.” They need the rule of law. But many places in the developing world barely have law. So enterprising people take a risk. They work a deal with the guy on the first floor, and they build their house on the second floor.

“Probably the guy on the first floor, who had the guts to squat and make a deal with somebody from government who decided to look the other way, has got an invisible property right. It’s not very different from when you Americans started going west, [but] Americans at that time were absolutely conscious of what the rule of law was about,” de Soto said.

Americans marked off property, courts recognized that property, and the people got deeds that meant everyone knew their property was theirs. They could then buy and sell and borrow against it as they saw fit.

This idea of a deed protecting property seems simple, but it’s powerful. Commerce between total strangers wouldn’t happen otherwise. It applies to more than just skyscrapers and factories. It applies to stock markets, which only work because of deed-like paperwork that we trust because we have the rule of law.

Is de Soto saying that if the developing world had the rule of law it could become as rich as we are?

“Oh, yes. Of course. But let me tell you, bringing in the rule of law is no easy thing.”

De Soto says we’ve forgotten what made us prosperous. “But [leaders in the developing world] see that they’re pot-poor relative to your wealth.” They are beginning to grasp the importance of private property.

Let’s hope we haven’t forgotten what they are beginning to learn.