Freedom & Poverty

In an article by Walter Williams, economics professor at George Mason University, he makes the following observations...

Egyptians who come to the U.S. tend to be much better off than those who remain in Egypt. The same statement can be made about Nigerians, Cambodians and others from the Third World. Why is that?

In Egypt, 40% of its 80 million people live at or below the poverty line established by the World Bank, $2 a day.

According to Hernando de Soto, president of Peru's Institute for Liberty and Democracy, over 90% of Egyptians hold property without clear legal title. An Egyptian entrepreneur therefore has what de Soto calls "dead capital". It cannot be leveraged to obtain a loan for working capital, or used as security for contractual agreements. As a result, businesses cannot grow. In addition, government gets in the way. Says de Soto:  "To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections." Not surprisingly, Egypt's underground economy is its largest employer.

To those who explain Third World poverty as being due to colonialism, Williams asks what about Canada, Australia, New Zealand, Hong Cong and the U.S., all of which were at one time colonies. What about natural resources as an explanation for the difference between rich and poor countries? Williams points out that South America and Africa are rich in natural resources, yet home to some of the world's poorest countries. Great Britain, Japan and Hong Cong are poor in natural resources, yet are among the richest nations.

So why the difference between rich and poor countries. According to Williams, the evidence strongly suggests that it boils down to economic systems. Those countries that are largely capitalistic (private markets, private property rights) as opposed to socialistic (state intervention, central planning, weak property rights), tend to be richer. In other words, there is a strong correlation between freedom and wealth.

Egypt and other Mideast countries where people are demonstrating to change governments will never be prosperous unless they allow their citizens economic freedom. Without that freedom, those countries will always suffer from abject poverty and thus be hotbeds for groups like the Muslim Brotherhood who preach hatred and violence. Perhaps Islam is simply incompatible with freedom, economic or otherwise, in which case the Muslim problem is going to be around for a long, long time.