“Everybody knows that any war on poverty would start with a successful war on corruption. The grotesque disparity between the rich and poor is maintained and exacerbated by uncontrolled greed at the very highest levels of government,” writes Patrick Guntensperger, in the Jakarta Post.
The seminal difference between developed and developing nations appears to be the amount of trust they place in officials. The vast bulk of people are fair-minded but a few seek to exploit opportunities to enrich themselves. The more that corruption is overlooked, the more they will steal. And the more they get away with it, the more what they do is seen to be a normal way to get ahead.
There are many things that developed nations do that developing nations don’t; one of these is an unsympathetic view towards government officials who help themselves to the public purse.
Corruption, though, is a close relative of entitlement. Any society that feels that some historical slight gives the current people in power a manifest right to give themselves things they have not worked for will also encourage corruption. There is only a fragment of a shadow of a hair’s difference between mandating a legal right that goes against standard market practice and stealing something directly.
Consider the land “reform” process in Zimbabwe. The government identified that poverty was associated with landlessness and that peasants were unable to engage in subsistence farming without land. This lead directly to legislative initiatives to expropriate land from large-scale farmers and redistribute this to peasants. This created an entitlement in which peasants felt that they were entitled to land, whether they could do anything with it or not, whether it was theirs or not. Soon vast swathes of land was being reclaimed, often violently, and settled by unskilled peasants. Government officials took advantage of the confusion to snatch the most prized farms for themselves and use the army to protect that land.
Once fecund land fell into disuse since the new farmers had no idea how to farm. And Zimbabwe starves.
To fight corruption requires that governments in developing countries do something that is entirely counter-intuitive: stop ruling by popular decree. A populist government will appease the masses sense of poverty and despair by giving them entitlements to redistribute wealth. Redistributive policies will lead some people into thinking that, since they’re going to get it anyway, they may as well take it right now and not wait. Large-scale corruption follows and soon there isn’t anything left to take.
Tackling corruption requires investigation and incorrupt police and judiciary. This can be in short supply. Rather, nip the whole thing before it becomes rife by getting rid of any law that declares an entitlement; that anyone is entitled to something simply because of who they are rather than in earning it for themselves.
Imagine the happy day that an alien culture brings the light of their superior technology to Earth. Imagine for a moment that the Martians, resplendent in their latest fashions, meet with our leaders and indicate their willingness to trade with us.
We have minerals and resources they need; they make shiny things with buttons that go "bloop" that we love. They have dramatically different forms of governance than us; philosophies that have enabled their astonishing level of sophistication and development. There is nothing in our Earthling history that allows us to relate.
Overnight we are exposed to their galactic culture and popular fears. They feel sorry for us. "Our exploitative culture and pursuit for interstellar novelty is awful. Hyperspace drives are ruining the galactic environment. Intergalactic warming is pushing the planets out of alignment. But you must talk to us - we want to hear your opinions," the environmentally-conscious Martians from GalaxyF1rst tell us.
We express the desire to learn their technology and follow them out to the stars. "Oh, no, the simplicity of your existence is far preferable to our own. You really don’t want this." And they go on to teach us how to be self-sufficient, propping up our unsustainable habits with donations and largesse. Young Martians come to Earth as volunteers and work in schools and factories, not teaching, just doing what we used to do far better than we can ourselves.
It sounds patronising and protectionist. Patronising because they are maintaining a relationship of superiority over us by not sharing their knowledge about how to develop to their level; and protectionist because, by their actions, they limit our development and keep us away from their world. They are allowed to visit us, but they don’t want us near them.
And this is the way that many international development organisations treat the world’s poor. Amongst the demands by ActionAid, in a report entitled "Power Hungry: six reasons to regulate global food corporations" are these: i) that massive aid go into supporting small-scale subsistence agriculture; ii) that the small-scale producers themselves set their product standards; iii)that aid should go to governments irrespective of their poor governance or state-led control of their economies; iv) and that prices be "stabilised" by price fixing. In other words they are denying developing nations the very reforms that enabled economic growth and development in the most sophisticated countries; and they doom the poorest to perennial dependence on unpredictable subsistence farming.
If development organisations are really serious about ending poverty then we recommend the following approach:
Infrastructure development: ensure that local skills exist to build the necessary infrastructure so that they can move their manufactures to market - this would also include the telecommunications infrastructure necessary to move intangible products (such as stories, services and ideas).
Education: set up universities and colleges and academic programs to develop local school syllabi - create bursary programs for the most desirable skills; bursary recipients will be required to work their fees off at two years for every one of study in an industry that develops their country
Know-how and experience: share the stories of how wealthy nations developed and what was important for that development so that they may learn; don’t keep these stories just to the elite but work with media organisations to disseminate that information; asymmetrical control of information creates problems
Governance: ensure total disclosure of everything that the state does; any donations and the recipients must be easily available to anyone; work hard to develop civil society movements that act to counterbalance the power of the state (from newspapers, to NGOs, to independent judiciary, corruption investigators, and police).
Everything else must be bought and sold otherwise the shear advancement, sophistication and financial might of the donor will mean that every gift - no matter how relatively small on their part - will act as a colossal dumping of goods and services, distorting the local economy and putting local organisations out of business.
Development is the responsibility of the beneficiary. The donor’s responsibility is in communicating a path to development and allowing the beneficiary to build that path on their own.
The South African government has staked its reputation on a successful World Cup in 2010. “Success” equates with expensive stadiums the likes of which the world has never seen.
The BBC reports that two hospitals in the Northern Cape have been delayed as the money required has been transferred to building stadiums. With the costs already running exponentially over budget, the question arises: how much is too much?
Numerous studies have been conducted looking at the value of the World Cup to our economy. A Pretoria University study puts it at R 5 billion, 0.28% to GDP and the creation of 20 000 short-term jobs.
Grant Thornton, in a report issued as part of the official government application to host the cup declares that the event will: lead to direct expenditure of R12.7 billion; contribute R 21.3 billion to the GDP of South Africa; generate the equivalent of 159 000 annual jobs; and an additional R7.2 billion will be paid to Government in taxes.
Since then the cost has ballooned to R 410 billion. And that was before the stadium tenders were awarded. These have been some 30% higher than expected. For instance, the Cape Town stadium, which was to have cost R 2.6 billion, will now cost R 3.6 billion.
In other words, the total cost of the setting up stadiums and infrastructure could be over R 500 billion. We will be spending about R 100 for every R 1 we make - that is some serious wealth destruction.
The economy has seen tremendous increases in property values as investors price in potential gains from tourism. The future value to the economy has already been priced in and, by 2010, there will be little result for all our investment.
Cape Town will become the proud owner of a stadium so large, and so carefully situated, that it will block out views of Table Mountain from the harbour. And the poor will have been shown that state spending on inappropriate infrastructure is known as a “boondoggle”.
Blocking out the view people really want to see ...
Coffee has become a symbolic flashpoint for consumer and civil-society action. Oxfam believes the price is too low and demands that consumers pay more through their Fair Trade scheme. All coffee trades internationally on what is known as the “c” price which is set by the New York Board of Trade, an archaic price control mechanism. This type of price fixing is wonderful for large distributors and roasters, who are able to keep their input costs consistent, but is a disaster for small producers. No matter how good or bad a coffee is it will still fetch close to this “c” price. The price is currently around 105 c / lb (US).
By comparison, imagine if all wines were sold at a fixed price irrespective of the amount of work that a particular winery put into their product. Instead you are used to a wide range of prices, including a non-rated base price of cheap boxed wine if all you want is an alcoholic wine-flavoured beverage.
Poor people have no money. The measure of poverty is defined in terms of dollars-a-day earned. So we hear about “the number of people living below US$ 1 a day is 1.1 billion” without defining poverty or giving an indication of what the problem is. The real question should not be “why are people poor?” but rather: “why are people rich?”
Wealth is not a miracle; poverty is the real miracle here. If you consider that, despite the lack of concerts by Bob Geldof, or inspiring calls to action by Oprah Winfrey or Bono, European and US citizens are astonishingly wealthy (on average) by any measure you care to name. There are certainly pockets of poverty and deprivation – and these are just as curious. How does someone in the US – in the middle of one of the longest economic booms we have ever known, when more wealth has been created than ever – remain poor?
China too, despite super-star neglect, has over the past 20 years reduced the number of people suffering from absolute poverty from 268 million to 85 million.
The effects of poverty are clear to everyone: little money, little education, poor health, no jobs, and poor safety and security. The causes of these are less obvious since they are indirect. It is impossible for the rich to have become rich because of exploitation of the poor. The poor have nothing but their labour – and a large aspect of poverty is that the poor do not engage in productive work. If they’re not working then they can’t be producing anything that the rich can take – whether the rich pay for it or not.
Latin American producers introduced the Cup of Excellence competition to stimulate a market in fine coffees. The region has 25 million growers producing US$ 9 billion a year of beans. The Economist states: “Although the trade is profitable for importers and roasters, it has confounded governments and NGOs hoping to use the bean to stimulate developing economies. The collapse of trade barriers, a jump in production and a tendency by the largest roasters to treat coffee as a uniform commodity caused prices to fall to historic lows.”
The Cup of Excellence demonstrates that coffee is not uniform and that some coffees are truly outstanding, deserving of special treatment. The winner on January 16th – Fazenda Esperanca – sold their winning coffee online fetching 1 443 c / lb. A staggering 1 233% more than the “c” price.
It is frequently government interventions that result in mass hardship and poverty.
In Kenya coffee is traded in an open-cry warehouse similar to the New York Stock Exchange. All the coffee sellers get together. Their coffee is individually cupped and tasted by purchasers who are then able to decide for themselves the relative standards of the different producers. Prices are significantly higher than the “c” price and it would look as if the farmers get a good deal. But they don’t. Until very recently the entire sale process was controlled by the Kenyan government who took their cut, and then passed on the rest to the seller. The result is familiar to anyone in South Africa who has ever won a government tender; the process takes months. Farmers can be left without an income for almost a year after the crop has been sold. So Kenyan farmers have abandoned the open exchange for direct deals with buyers. Without the open comparison, though, prices have returned to “c” levels.
In Ethiopia the government buys the bulk of the coffee, sets a price, and then sells to international buyers. The price is fixed at “c” since purchasers are not allowed to taste in advance and have no means of evaluating what they buy. Farmers suffer accordingly.
There is some hope though. The most effective tool to ensure that farmers are not hurt by anti-competitive practice is in letting them know what the retail price of their product is. The most powerful tool working to farmers’ advantage has become one of the most rapidly deployed technological innovations of all time: the cell phone.
A number of SMS markets work to ensure that farmers know the latest auction prices for a range of products and are able to choose how to sell their own harvests. As governments and other controlled markets gradually lose control of being the single source of information it is hoped that more of the profits will go down to the producers.
The skilled, the highly skilled and the unemployed
China has issued the astonishing statement that there are now only about 85 million Chinese who may be considered as living beneath the poverty line. This means that China, a nation of over 1.2 billion people, has reduced their measure of absolute poverty from 22% (268 million people) to 7% over a period of 20 years. That is simply astonishing economic development.
This was managed without external relief efforts or any heroic international "end poverty now" campaigns. Simply through the expedient of employing people in low-paying work to produce stuff that the rest of the world wants to buy. The workers don't have any of the labour protections or safety rights expected in the developed world. The Chinese - as a people - don't have any of the democratic representation or equality before the law expected by developed nations. So democracy is not a requirement for economic growth.
South Africa, which does have a significant preponderance of laws that protect workers rights and democracy, has struggled with an official unemployment rate of 25.6% which has remained fairly consistent for more than a decade. Moodey's, the credit rating firm, recently issued a statement of concern regarding South Africa's skills deficit: "The risks facing Africa's largest economy in 2007 remain skewed to the downside due to a number of structural imbalances and sociopolitical tensions. One of the most pressing macroeconomic challenges ... is the ongoing battle with high unemployment and low skill levels, which pose a significant threat to economic growth while also fanning political and social unrest." They expect unemployment to drop slightly, but to remain stuck above 20% indefinitely.
There is a lot right in the new South Africa but there is also a lot wrong. Continued debate over racially motivated and discriminatory legislation has created a large number of obstacles to business efficiency. Without that efficiency South Africa has virtually no hope of being internationally competitive. The rest of the world may sympathise with South Africa's history but they will still buy their products from China. China concentrates on skills development to support businesses. South Africa concentrates on racial profiling of companies and arguing about definitions. A poll released at the World Economic Forum in Davos indicates that 63% of South Africans regard their political leaders as corrupt. Yet the ANC has a 70% parliamentary majority.
This is not to declare our democratic experiment a failure. Far from it; it has probably done more to releasing a lot of the frustration that the majority felt. China is still going to have to deal with that frustration and it may yet become extremely ugly - especially as their cities become large and diverse. Many cities are larger than the population of South Africa.
But South Africa is not going to achieve significant economic growth until people are told - in so many words - that the government cannot and will not provide jobs. That it will create opportunities to gain skills but that the onus is on individuals to become employable and then to accept terms acceptable to employers. Compromise is required and there has been precious little on offer.
The Europeans are already discovering the bitter lesson that expensive labour rights are wonderful for those who are lucky enough to have jobs, but those rights come at the cost of creating jobs for others. South Africa would do well to learn that lesson now before frustration over unemployment and government corruption undermines the very democratic institutions that so many fought for, for so long.
aloft: the whythawk blog 
The South African government has staked its reputation on a successful World Cup in 2010. “Success” equates with expensive stadiums the likes of which the world has never seen.
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