Lord Bauer on Africa’s First Aid

Published on 21st February 2006

Public awareness of the poverty and disease afflicting much of Africa has grown recently. Stories about the terrible AIDS epidemic have been in the news. Public figures ranging from government officials, like Treasury Secretary Paul O’Neill and Sen. Jesse Helms, to international rock stars, such as U2’s lead singer Bono, have called attention to the plight many Africans face.

 

Of course, the two problems are intrinsically related. The lack of wealth in Africa has inhibited both the provision of basic medical care and the innovation required to develop new medicines and treatments. The high rate of disease incapacitates potential members of the labor force pool, compounding the problems of an already weak economy. It is demonstrably a good thing that so many people in the United States, Europe and elsewhere in the developed world have taken an interest in these problems.

 

Unfortunately, the solutions many of those concerned keep offering, is simply more of what has failed in improving the economies of Third World countries for decades. As important as humanitarian assistance may be in giving sick people needed medicines, ultimately Africa needs to modernize its health care system, a task that can only be undertaken once it has modernized its economy and begun to increase its wealth creation.

 

The economist Peter Bauer, who was posthumously awarded the Cato Institute’s first Friedman Prize, was once alone in questioning the idea that foreign aid is the economic solution for developing countries. Now, thanks in large part to his groundbreaking work, growing numbers of people realize that free markets are preferable.

 

Lord Bauer - made a peer by British Prime Minister Margaret Thatcher -wouldn’t have called upon Africa to rely on the generosity of rock stars and Western governments. He pointed out that these countries were once as poor as the Third World is today, yet many escaped poverty and attained prosperity once unimaginable before there even was such a thing as foreign aid or the field of development economics. The key to this understanding is the realization that the Third World is not a place where the normal rules of economics don’t apply; rather, these countries are simply in a much earlier stage of economic development than industrialized nations like the United States, Japan or the countries in the European Union. Thus, the same market incentives will work in the Third World as elsewhere.

 

"Before 1886," Bauer once observed, "there was not one cocoa tree in British West Africa. By the 1930s, there were millions of acres under cocoa there, all of it owned and operated by Africans." Bauer’s study of the rubber industry in Malay also confirmed that poor and uneducated people could in fact create wealth. This is why he opposed "the classification of groups as helpless" that accompanies many of these pitches for foreign aid and debt forgiveness. He understood that "contempt for ordinary people" and a rejection of market economics was really "two sides of the same coin." No country in the developed world moved from poverty to wealth through the kinds of policies recommended to developing countries. They all did so by allowing the market to provide goods and services and keeping the institutions in place that the market needs to function.

 

Instead of more government aid and planning, Africa needs to create and sustain an environment conducive to wealth creation. This requires free enterprise, secure property rights, contract enforcement and the rule of law. Every one of these attributes is sorely lacking in Africa now and none of these will be helped along by more foreign aid.

 

Throughout Africa, marketing boards that exist to stabilize prices end up preventing farmers from realizing a profit from their crops. In Zimbabwe, the government is confiscating land from white farmers and giving it to Robert Mugabe’s political supporters. Free markets are suppressed, so farmers end up regressing back to subsistence farming and other transactions take place on the black market. Countries that could be food exporters end up depending on imports to feed their people.

 

Economic reform must coincide with political reform. Too many Africans suffer under dictatorial regimes. Democracy must mean more than "one man, one vote - once." The idea that the most sacred human right is to be ruled by a thug of one’s own race must be eschewed. Corrupt governments also undermine foreign aid programs through their control over how the funds are allocated. Instead of greater accountability, some are looking for recipient nations to have even greater flexibility in spending foreign aid. South African President Thabo Mbeki calls this "democratization" of aid, but this presupposes democratic governments. Bauer warned against government-to-government transfers that could end up "transferring money from poor people in rich countries to rich people in poor countries."

 

If the developed world is looking for a way to help, it could start by opening its markets to African goods. Four years ago, the United States enacted the Africa Growth and Opportunity Act in order to move in this direction. But African goods still face formidable tariff barriers. According to a World Bank study, African exports would increase by $2.5 billion a year, if all such barriers in the U.S., Europe, Canada and Japan were eliminated. This is a lot of money for countries with per capita incomes in the $300-a-year-range. Yet some of the very same politicians who advocate foreign aid and debt forgiveness are reluctant to give this tariff relief.

 

Winning a prize named after Milton Friedman, an economic giant and one of the greatest public intellectuals of the 20th century, is certainly a great honor. But it would be an even better tribute to Lord Bauer if we applied his common-sense teachings and helped Africans revive Africa through the free market.

 

Published originally at EtherZone.com: W.J. Antle 111can be reached at [email protected]

 

 

 


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