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World’s Poor: “We Want Capitalism” – Post-Colonial Capitalism at the Bottom of the Pyramid – Article by Iain Murray

World’s Poor: “We Want Capitalism” – Post-Colonial Capitalism at the Bottom of the Pyramid – Article by Iain Murray

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The New Renaissance Hat
Iain Murray
August 31, 2015
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In the forests of India, something exciting is going on. Villagers are regaining property taken from them when the British colonial authorities nationalized their forests. Just as exciting, in urban Kenya and elsewhere, people are doing away with the need for banks by exchanging and saving their money digitally. All over the world, poor people are discovering the blessings of bottom-up capitalism.

Sadly, though, developed country governments and anti-poverty activists ignore this fact and insist that developing nations need a paternalistic hand up. Both are missing an opportunity, because there are billions of capitalists in waiting at the bottom of the pyramid.

Next month, the United Nations will formally announce the successors to its Millennium Development Goals, the global body’s approach to poverty alleviation since the year 2000. These new goals will be touted as “sustainable.” The event will coincide with a visit by the pope, at which he is expected to concentrate on climate change and materialism as the greatest threats to the welfare of the people of the developing world.

Don’t expect to hear much on the way people in the Western world lifted themselves out of poverty: free-market capitalism.

The phrase “the fortune at the bottom of the pyramid” was coined by the late C.K. Prahalad, building on the work of Nobel laureate Amartya Sen. In his groundbreaking 1999 work, Development as Freedom, Sen pointed out that one of the most important aspects of development is freedom of opportunity, a vital part of which is access to capital and credit. Capital and credit, however, appear nowhere in the draft UN goals.

When capital is sufficiently available, would-be entrepreneurs at the bottom of the pyramid have demonstrated a willingness to launch new ventures and invest in their futures — that is, to embrace free-market capitalism to the benefit of all concerned.

There are several ways to ensure access to capital in the developing world, but the most important approach is to unlock the productive potential of the capital already available there.

Land Titling

In many countries, people could possess access to capital by virtue of the real estate they already occupy, but they are unable to prove ownership of the land due to inadequate land-titling systems or because of traditional forms of property ownership where everything belongs to the village chief. As Hernando de Soto explained in his book, The Mystery of Capital, land-titling reforms significantly benefit the poor, enabling

such opportunities as access to credit, the establishment of systems of identification, the creation of systems for credit and insurance information, the provision for housing and infrastructure, the issue of shares, the mortgage of property and a host of other economic activities that drive a modern market economy.

De Soto estimates that up to $10 trillion of capital worldwide is locked away unused because of inadequate titling systems. A recent study by the Peru-based Institute for Liberal Democracy (ILD), which De Soto heads, estimated Egyptian workers’ real estate holdings to be worth around $360 billion, “eight times more than all the foreign direct investment in Egypt since Napoleon’s invasion.”

Similarly, many local assets around the world remain in common ownership — in reality, owned by no one. Initiatives such as India’s privatization of forest resources seek to address this problem by enabling the titling of assets by indigenous peoples, who can then tap into those resources for access to credit to open up new opportunities. Estimates suggest that similar initiatives could be extended to 900 million plots of land across the developing world.

There are also exciting opportunities that could arise for the public recording and utilization of such capital through the distributed public-ledger system known as the blockchain, best known for its role in the development of bitcoin. Development of the blockchain for property recording and titling would significantly reduce both the transaction costs and the widespread corruption  associated with government-controlled titling systems. Significantly, De Soto’s ILD is promoting these initiatives.

Microfinance

Recent innovations have enabled the development of microfinance — access to small amounts of credit for specific purposes. Today, microfinance institutions all over the developing world provide small loans, access to savings, and microinsurance to families or small businesses.

By giving them access to proper investment capital and affordable financial institutions, microfinance providers help small- and medium-sized enterprises in developing countries to grow. Often, these businesses are so small that they can neither afford the interest rates on bank loans nor come up with the capital they need on the their own. When implemented correctly, microfinance loans empower their customers to invest, grow, and be productive, all of which contribute to diminishing poverty within communities.

One of the most prominent examples of microfinance is Muhammad Yunus’s Grameen Bank, first established in Bangladesh. According to a RAND Corporation study, areas where Grameen Bank offers programs saw unemployment rates drop from 31 percent to 11 percent in their first year. Occupational mobility improved, with many people moving up from low-wage positions to more entrepreneurial ones. There is evidence of increased wage rates for local farmers. Women’s participation in income-generating activities also rose significantly.

The Consumers at the Bottom of the Pyramid

Access to capital and credit enable new markets to spring up where none existed before. Entrepreneurial activity is unleashed. Consider one of Prahalad’s case studies of Nirmal, a small Indian firm that sold detergent products designed for rural village uses, such as in rivers. The products came in small packages at low prices suitable for Indian villagers’ daily cash flow. The company soon found itself with a market share equal to that of consumer-goods giant Unilever’s Indian subsidiary. Unilever responded by introducing similar products, thereby growing this new market. In the process, more environmentally friendly products were invented and sold, too.

As Prahalad points out, over four billion people in the world lived on an annual income of $1,500 or less (in 2002 dollars), with one billion living on less than a dollar a day. Nevertheless, based on purchasing power parity, this market represents an economy of $13 trillion or more, not that far off from the entire developed world.

The underdeveloped world is ripe for capitalism. The “unemployed” protestors of the Arab Spring were, in fact, small businessmen who were pushed to the breaking point by continually having their capital and profits expropriated by corrupt government officials, as De Soto points out. So, while the Western media portrayed the protests as being mostly about politics and freedom of expression, they were as much — if not more — about the freedom to do business.

Kenya: Mobile Phones and Payments

Despite corruption and bureaucracy, strong markets have grown up in developing countries. Kenya is a case in point. It leapfrogged the Western world’s development process for mobile communications technology. Kenyans went from having few telephones to virtually everyone having a mobile phone without needing the stage of landline infrastructure in between. A similar process is now taking place in personal finance.

Vodafone, along with its Kenyan subsidiary, Safaricom, developed m-pesa, a mobile payment and value storage system to be used on its phones. Transactions are capped at about $500, but crucially can be person-to-person, acting as digitized cash. Introduced in 2007, it had 9 million users — 40 percent of Kenya’s population — just two years later. By 2013, 17 million Kenyans were using it, with transactions valued at over $24 billion — over half of Kenya’s GDP.

M-pesa has in turn improved access to capital even more, and technology businesses are thriving all over Kenya as a result.

Kenya is not alone. The phenomenon is spreading to other African countries and to some South American countries such as Paraguay.

Environment, education, and health all benefit from wealth creation. Perhaps the real mystery of capitalism is that neither the United Nations nor the pope recognize the benefits it can bring to four billion of the world’s poor. Free enterprise and human welfare boom where governments allow new markets with access to capital and credit. That is all it takes to meet the UN’s development goals.

Iain Murray is Vice President at the Competitive Enterprise Institute.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

The Importance of Free Speech to Human Progress – Article by Iain Murray

The Importance of Free Speech to Human Progress – Article by Iain Murray

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The New Renaissance Hat
Iain Murray
January 10, 2015
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From Principia Mathematica to Charlie Hebdo

 

The massacre of 12 cartoonists and journalists at Charlie Hebdo magazine in Paris this week should remind us to ask: Why is free speech so important?

It is more than an inalienable individual right; it is fundamental to human progress. That is why it is one of the most important institutions of liberty.

When we look at the history of the freedom of speech in the West, we see that early on it was tied up with the freedom of the press, which is why the terms are used interchangeably in American constitutional theory. Yet, for most of the West’s history, the idea of “publishing” was meaningless. Books were copied by hand, first by scribes hired by Roman nobles to copy books they liked, then by monks in medieval scriptoria, with the more ancient texts copied as practice for copying the more important religious texts. As a result, many texts were lost, with others surviving by mere chance.

Having assumed the role of guardian of learning, the medieval church was ill-disposed toward innovations that threatened its position. The suppression of early English versions of the Bible is a case in point. Information traveled slowly, impeding the progress of intellectual innovation.

The printing press changed all that, as it brought about the first series of real struggles over freedom of speech. Ideas could travel more quickly, and literacy exploded.

As people could finally read the Bible for themselves, Reformation movements grew all over Europe. Then they took to using the press to spread other ideas. In response, the church and its allies in positions of power took steps to restrain this new free press. In fact, early copyright law arose from efforts to regulate the production of printers.

It should not surprise us that early libertarians were often printers. “Freeborn John” Lilburne was first arrested for printing and circulating unlicensed books.

The great poet John Milton wrote perhaps the first great defense of free speech when the English republican Parliament reintroduced censorship via the Licensing Order of 1643 (censorship had effectively been abolished in 1640 along with the Star Chamber, which tried Lilburne). In his Areopagitica, Milton passionately demanded freedom of the press and tolerance of heterodox publications, saying, “Give me the liberty to know, to utter, and to argue freely according to conscience, above all liberties.”

The licensing order lapsed in 1694 as a result of the Glorious Revolution of 1685, which instituted a more liberal constitution in England and helped to inspire the American Revolution — and eventually the Bill of Rights and First Amendment. But the Areopagitica is still with us. Fittingly, the US Supreme Court cited it as an authority on the inherent value of false statements in the landmark case New York Times v. Sullivan:

Even a false statement may be deemed to make a valuable contribution to public debate, since it brings about “the clearer perception and livelier impression of truth, produced by its collision with error.” Mill, On Liberty (Oxford: Blackwell, 1947), p. 15; see also Milton, Areopagitica, in Prose Works (New Haven, CT: Yale, 1959), vol. 2, p. 561.

The free press opened new communication channels for theoretical innovation. It is often noted that Sir Isaac Newton was born the day Galileo died. What enabled Newton to take Galileo’s experiments and turn them into modern physics was the printing press. Newton published Principia Mathematica in 1687, and revised it in 1713 and 1726. The book was published by the Royal Society, founded in Oxford in 1660, which essentially invented peer review (see this here fascinating series of videos on the society’s role in the invention of modern science). Newton’s book spread throughout Europe, which would not have been possible under earlier regimes where printing was tightly controlled.

Central to the principle of a free press is the right to be wrong — which enables peer review and criticism in the first place. It is also central to scientific and technological innovation and experimentation, and therefore also central to economic progress, which has led to the great explosion in human welfare we have seen over the last two centuries. Free speech allows more ideas to “have sex,” to use Matt Ridley’s phrase, and that is why societies that are frightened by the consequences of this ideological sexual revolution are those with the most severe censorship laws.

At this point, one might argue that it is absurd to compare a “blasphemous” cartoon to the Principia Mathematica. But that would be a mistake. As Stephen Law has written for the Center for Inquiry, the point of such cartoons is not to cause offense, but something far greater:

More often than not, the lampooning is done with intention of shattering, if only for a moment, the protective façade of reverence and deference that has been erected around some iconic figure or belief, so that we can all catch a glimpse of how things really are.

It is exactly that goal — to help us determine what actually is, rather than what is simply asserted — that free speech and free inquiry make possible. As an institution of liberty, free speech must be defended wherever it is attacked. (My colleague Hans Bader has written elsewhere about letting down our guard.) Those who seek to suppress free speech want to keep mankind mired in poverty and ignorance, subject to their own whims and beliefs. They cannot be allowed to succeed.

Iain Murray is vice president at the Competitive Enterprise Institute.

This article was originally published by The Foundation for Economic Education.