Poverty is a tragically slippery word. It can be massaged and bent to validate almost any point. Some think that if we would just stop practicing poverty, we wouldn’t have any more poor people. Martin Fisher once made the ill-advised comment, “The great doctors all got their education off dirt pavements and poverty—not marble floors and foundations.” And H. Rap Brown famously said, “You see, the poverty programs for the last five years have been buy-off programs.”
The English word poverty came from the Anglo-Norman word poverte, and originally from the Latin word paupertat, which means “poor.” At its core, poverty refers to the lack of possessions to meet basic human needs. To further delineate the term, groups like the United Nations and the World Bank create categories of “absolute poverty” and “relative poverty” and varying standards of living. Bookshelves and web pages are packed with theories and opinions about the origins, causes, and consequences of poverty, as well as the proposed cures. It is, however, a shameful day indeed when we discover that by our own behavior, or our government’s behavior, we have been guilty of contributing to the bondage of poverty.
These few paragraphs can’t possibly tackle the vast subject of poverty in its entirety. But I do want to share what I have personally seen and experienced since my first involvement in international travel and economic consulting. Specifically, I want to pass on the differences I’ve observed between the countries that experience relative wealth and those that experience relative poverty. I have traveled in more than 150 countries and have visited a large number of countries several times. I have had the opportunity to become personal friends with ministers of finance, ministers of health, presidents, prime ministers, and kings and have had the privilege of speaking at many universities in developing countries. Economics is a hot topic in these countries and evokes spontaneous questions and lively discussion if given a chance.
In the course of my travels, I’ve come to realize that certain practices separate wealthy countries from poor countries. Countries that pursue the following practices are wealthy or are becoming wealthy, while those that don’t are poor or are becoming poor:
- Government is willing to allow the people to break the cycle of poverty. Ronald Reagan has been credited with saying, “Poverty is a career for lots of well-paid people.” The inevitable consequence of poverty is dependence. As in the case of subsistence farming, it’s a great temptation for the leaders of developing countries to allow the people to remain poor and dependent. It’s much easier to govern poor people who spend all their energy and time on daily survival. They don’t create any problems for the government, but the country remains poor.
- The people are given the right to hold and freely exchange private property. Private ownership of resources includes the rights of exclusive use and transfer.
- Individuals are free to enter into voluntary agreements and contracts with each other.
- The rule of law is established and applied equally to all parties. Making agreements and contracts assumes that a third party will act as an objective enforcer. Contracts are meaningless if they aren’t enforced.
- Individuals are free to fail. Everyone in the transaction must be better off, or the deal will fail. If the deal is successful, wealth is created. If the deal fails, the individuals involved in the deal must learn why it failed and discover what will make it succeed.
- Society as a whole understands that the pursuit of an individual’s best interests isn’t necessarily greed (i.e., pursuit of self-interest is different from selfishness).
- Society rejects the zero-sum mentality, which asserts that when one person gets a piece of the pie, another is deprived of his or her piece. Wealthy societies, by contrast, ascribe to the view that the pie is big enough for everyone. Getting a piece of the pie doesn’t prevent another person from getting a piece as well. Successful transactions create wealth. And people create successful business transactions. Just because someone creates new wealth doesn’t mean that someone else ends up with less. Wealth creation springs from people who are allowed to freely participate in business transactions.
To break the cycle of poverty in a developing country, income must be created. But income can only be created when resources are used to produce the goods and services people need. Countries like Vietnam, Cambodia, and China now understand and encourage that concept, and as a result, they are increasing their wealth. Those countries that don’t allow such practices—like Zimbabwe, Mauritania, and Cuba—remain in poverty.