Wednesday, November 3, 2010

Charity Has Still Never Solved Anything

You may recall, or you may not want to recall, my comments on Carlos Slim’s response to Bill Gates and Warren Buffett. Link here.

When Gates and Buffett challenged the world’s billionaires to give half their money to charity, Carlos Slim responded that charity never solved anything.

Slim was saying that free market capitalism was by far the best way to help underdeveloped countries to overcome poverty.

He was not saying that it was all that was needed, but he was saying that it was the primary thing. When all is said and done, charities rarely create very many jobs. They are not engines of economic development and prosperity.

However well-intentioned their donors, and however much charities commit to scientific research, they tend to support leftist causes and leftist solutions to problems.

Whatever their founders intended, charities tend to fall into the control of people who hold progressive beliefs. Those who make careers out of giving away money rarely understand the entrepreneurial spirit. They distrust markets and prefer to believe that they can make better decisions than those who receive their largesse.

Some people find the issue difficult to understand. And that does not just include commenters on the blog. According to John Dizard many savvy investors are missing the story of the economic progress happening today in Africa. Dizard explained the issues in his Financial Times column on poverty in Africa. Link here.

First, he addresses the question of what charities have done to help Africans overcome poverty. Dizard answers: “I grew up surrounded by international do-gooders. Much of the foreign aid they advocated came in the form of free food imports (that impoverished local farmers) or consulting contracts (that paid for their graduate theses).”

Then he adds: “In Africa, neither Soviet, nor American and European foreign aid transformed the continent. Instead, the aid tended to inflate the parasitic elements of the post-colonial state structures. When that created internal conflicts, the secret services of all sides got involved, with miserable results. To the degree the leaders’ money came from foreigners, they had less reason to pay attention to the needs of the public. Development handed down from above did not work.”

Like it or not, good intentions do not make for economic progress. Nor do top/down management directives.

As it happens economic progress is coming to Africa today. But it is not coming from charities. It has been spurred, in part, by Chinese investment in commodities.   

Giving away food might make you feel better than going into Africa and buying up mineral resources and creating industries to make use of those resources, but the latter produces and spurs far more economic activity than the former.

As Dizard writes: “What is working now, and what is creating a sustainable expansion of investable African opportunities, is growth from below. Yes, Africa is a commodity exporting continent, and it is earning much more from exports of metals, oil, and agricultural commodities.”

But that is not the whole story. It is not, Dizard says, just a “China story.” The economic activity that has been stimulated by the commodity boom has provoked an entrepreneurial spirit among Africans. Especially among those who have gotten over the idea that they would be saved by charity from abroad.

So, “32% of the continent’s GDP growth between 2000 and 2008” is attributable to income from natural resources. But that is only part of the story. The rest, Dizard explains, “came from growth of internal sectors, including transport, telecommunications, more efficient wholesale and retail, and manufacturing.”

Investment in natural resources provided the impetus to economic growth and development. This does not mean that charity has no place. It simply places the correct emphasis on what really does  solve problems.


Obsidian said...

Hi Doc,
Looks like I might be needing another assist from you:

You can get a bit of the backstory here:

You're a good Man, Doc. Don't let this crime - and that's what it is - go unchallenged. Use your voice. Speak up.


The Obsidian

Dennis said...

Charity serves in far too many cases as a way to absolve the person from a personal involvement with those who would be the beneficiary of that charity. Charity should seek to create an independent individual and not a dependent individual.
There is in each of us an inherent desire to succeed in life on our own merit. Anything that works against that desire only does damage to the individual. We DO NOT respect that which we get for free other than that that helps us to strive to be a full human being. Yes, we will say and do what we have to in order to survive, but real respect will be absent.
Many countries have taken our largess, but invariably begin to dislike us because we do not stay to help them deal with the what are the underlying problems.
Every charity should be accomplished with the idea of aiding the individual to be self sustaining. Too much feeling good and not enough doing good.