James S. Albus
Sunday, April 11, 2004
Conservatives and liberals both agree that poverty is bad. Everyone agrees that the elimination of poverty would be a good thing. The question is how? Is it even possible? There are good reasons to believe that it is.
In his April 11, 2004 Washington Post column, Charles Krauthammer notes it was 40 years ago that Hubert Humphrey declared,
"This is the first generation in all of recorded history that can do something about the scourge of poverty. We have the means to do it. We can banish hunger from the face of the Earth."
Unfortunately, although we may have had the physical and technological means in 1965, we did not implement economic policies that would bring it about. The principal economic policy tool for world economic development applied during the last half of the 20th century was foreign aid. This was largely successful in the industrialized nations of Europe and Japan where capitalism was simultaneously established. But it was largely a failure in the third world where, as Krauthammer points out,
"foreign aid enriched urban elites who brought luxury goods, while socialist controls and food donations suppressed food prices, thereby ruining the farmers on whom subsistence economies depended."
But, Krauthammer declares
"We now know that the secret to curing hunger and poverty is capitalism and free trade."
He rightly points out that capitalism and free trade have made rapid strides in eliminating hunger and poverty in Hong Kong, Taiwan, and South Korea. In a single generation, these countries have gone from subsistence economies to First World status. Now millions in India and China are being lifted out of poverty as a result of free markets and free trade.
Sadly, Krauthammer does not take the logical next step. He fails to grasp that if capitalism and free trade are the means to eliminate poverty, then we should strive to make everyone a capitalist. Instead he uses his brilliant analysis as a launching pad for berating the Democratic presidential candidates for opposing free trade.
For the Democrats, of course, the problem is that competition in free world markets for labor drives down wages for millions of American workers. Thus, labor unions and unemployed workers understandably view free trade as a threat to their livelihoods. And because labor unions are an important part of the Democratic constituency, there is strong pressure on the Democratic candidates to oppose "outsourcing" jobs overseas.
Unfortunately for the Democrats, opposition to free world markets is not a good long range strategy. The ultimate solution to corporate outsourcing is not to impose protectionist barriers, which hurt foreign workers and punish domestic consumers, but to transform American workers into capitalists. So long as income for the average American is almost totally dependent on wages and salaries, competition from low cost foreign labor will be a threat.
However, if all Americans were capitalists, in the sense of deriving a substantial part of their income from dividends based on ownership of capital stock, then “outsourcing” would be advantageous to everyone. Income based on ownership would rise whenever less expensive labor, capital, or raw materials were employed in the process of wealth production. Each more efficient approach to production and marketing would produce larger profits, and result in more disposable income for consumers. This would create a virtuous spiral toward prosperity, both in this country and abroad.
Furthermore, if most personal income were based on sources other than compensation for labor, many would voluntarily drop out of the labor force, thereby reducing the supply of workers and forcing employers to pay more for those still wanting jobs. Thus, wages would rise both here and abroad.
The bottom line is that the Democratic candidate, instead of opposing free trade, should advocate making all American citizens into capitalists. Instead of punishing corporations for trying to maximize profits, Democrats should promise all Americans a larger ownership share of the means of production. Create an economy where everyone benefits from rising corporate profits. Give all Americans a piece of the action.
Every citizen a capitalist!
Peoples’ Capitalism is a policy that would work for America – and for rich and poor around the world. It is a policy that could bring about the elimination of poverty and lead to world wide peace and prosperity.