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Thursday, June 1, 2006

Book Reviews – June 2006

The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good

by William Easterly

Penguin Press • 2006 • 436 pages • $27.95

Reviewed by Richard M. Ebeling

In his inaugural address in January 1949, President Harry S. Truman made the case for foreign aid to underdeveloped countries. This became known as the “Point Four” program. He argued that those nations could not escape poverty and the threat of communism unless the West and, particularly, the United States undertook an expensive program of financial assistance for capital investment to governments in Latin America, Asia, and Africa.

In 1950 FEE published a monograph by free-market journalist Henry Hazlitt titled Illusions of Point Four. He argued, “We are much more likely to strengthen the fabric of world peace by letting private capital go to those regions that have built up the confidence of foreign investors by respecting their contracts, by respecting the legal rights of persons and private property, by creating an atmosphere of internal peace and order, and by refraining from socialization, nationalization, militarization, and all the other totalitarian symptoms that go with external aggressiveness.”

To make it attractive for private-sector foreign investment, Hazlitt stated, “The real reforms must come from within each country…. Each would-be borrowing country must make itself credit-worthy. It must inspire or regain the confidence of the private foreign investor. It can do this only by adopting or restoring a truly liberal economic policy” of free markets, rule of law, free trade, and limited government.

For more than half a century, the U.S. and European governments, and the international organizations they dominate, including the IMF and the World Bank, have chosen the path of international redistribution of wealth through politically funded foreign aid. The result has been one disaster after another.

A few voices were raised in defense of market solutions to global poverty, especially that of the late Peter Bauer. But the general presumption over more than five decades has been that only governments can guide humanity to prosperity. One recent and insightful voice on the negative effects of government-to-government aid has been William Easterly, a former economist with the World Bank. Easterly’s new book, The White Man’s Burden, dissects the harm that has been done by these government programs.

He begins by suggesting that the world may be divided into two types of mentalities: Planners and Searchers. Planners always assume they know the solution to other people’s problems and can design grand plans to remake society and its institutions. Searchers are the rest of us, who try to find ways in our individual corners of society to improve our circumstances through exchange and association through the division of labor.

Easterly argues that policymakers, too, can be Searchers, but only if they start from the premise that no one has the knowledge and ability to micromanage society. Instead, they look for ways to improve the institutions through which individuals will be better able to solve the local problems the Planner can never fully understand.

Easterly points out that Planners live in a linguistic fantasyland, deluding themselves and others about what they do and with whom they interact in less-developed countries. In a version of George Orwell’s “Newspeak,” Planners refer to war as “conflict-related reallocation of resources.” Working with mass-murdering dictators becomes “difficult partnerships.” A country where the tyrant loots the wealth of the society is called “governance issues.” When local politicians and bureaucrats try to steal the targeted foreign aid, this becomes “differences in priorities and approaches.”

Chapter after chapter details examples of foreign aid that went into political pockets, was “reallocated” to serve the ends of those in power, was wasted on high-profile investment projects that served no rational economic purpose, undermined the ability of the citizens of these countries to improve themselves, or actually brought about a regression in the economic condition of the population.

Easterly also hammers home the key point that the incentives of the foreign-aid providers usually have little or no relation to the needs of the people in whose name they squander tens of billions of dollars. To maintain their jobs, budgets, and comfortable lifestyle as global paternalists, they must impress the politicians and voters in their home countries who provide the largess on which they live. Their first priority is generating big goals, extravagant international conferences, major global “reports,” impressive statistics, and assurances that prosperity would be just around the corner for these parts of the world—if only more money were allocated to their tender care.

Peacekeeping efforts by the UN and NATO, and the attempts to introduce democracy by selecting or propping up existing political leaders, have had few successes, Easterly argues. Social, political, and economic change, if it is to be permanent and stable, must come from within these countries; it cannot be imposed by an outside power, no matter how well-intentioned that power may view itself to be. The “white man’s burden” of nineteenth- and early-twentieth-century colonialism left few success stories when the colonial power’s flag was lowered.

If this second version of the white man’s burden in the form of Western foreign aid also has been a failure, then what can help end the poverty and misery in these unfortunate countries? Easterly gives many examples of local and private avenues to investment, industry, and commerce that slowly but surely have been bringing about improved standards of living in Asia, Africa, and Latin America.

These efforts have worked most effectively when aid and investment have focused on the circumstances and abilities of the people themselves, and not on the grand visions of the Planners. The heart of the matter, as Easterly emphasizes over and over again, is the fostering of homegrown market economies that reflect the culture and history of the local population. It must be realized, as well, that societal change does not happen overnight; nor will it be a simple carbon copy of the institutions we take for granted in the West.

Richard Ebeling ([email protected]) is the president of FEE.

The Capitalist Manifesto

by Andrew Bernstein

University Press of America • 2005 • 394 pages $37.00 paperback

Reviewed by Gary M. Galles

Andrew Bernstein’s The Capitalist Manifesto claims to set forth the historic, economic, and philosophical case for laissez faire. It succeeds on the first two counts, but falters on the third.

The book begins by contrasting capitalism, based on “the fundamental moral principle . . . that individuals have inalienable rights and that governments exist solely to protect those rights,” with statism, “the subordination of the individual to the state.”

Bernstein, who teaches philosophy at Pace University, then debunks the false, but long-held claims that capitalism harmed workers, and does so in a manner that should be convincing to all but those determined not to believe. He shows how after centuries of economic stagnation, capitalism and the Industrial Revolution wrought an unprecedented and undreamed-of rise in living standards. History also demonstrates that freer countries prosper relative to less-free neighbors (for example, North versus South Korea) and that growth within a country increases with the extent of freedom (for example, the United States and Sweden).

The Capitalist Manifesto refutes other false accusations against capitalism. It shows that harmful monopolies result from government interference with the free market. The book connects excess unemployment to coercive government labor-market restrictions. Inflation and depression are similarly tied to government actions. While not breaking new ground, it provides a valuable account of how alleged “evils of capitalism” actually originate from its absence.

Bernstein also presents as heroic those individuals who created and developed the ideas that dramatically improved people’s lives. This “hero worship” is interesting but is not essential to the core argument that only capitalism, by not hamstringing entrepreneurs with restrictions, allows such mutual flourishing.

Unfortunately, when it comes to the basis for Bernstein’s minimal-state conclusions (conclusions I share), the book founders. He presents Ayn Rand’s Objectivist philosophy as the dramatic breakthrough allowing people to finally see that laissez-faire capitalism is the only moral economic system. Despite recognizing Rand’s importance as a leading twentieth-century advocate of liberty, especially able at highlighting statist assumptions behind policies, I found it unconvincing.

The claims made for Rand’s “breakthrough” overreach. For instance, the American Revolution is attributed to implicit understanding of her egoism-based philosophy. But that belief in self-ownership and the principles of liberty was religiously based, which contrasts sharply with Rand’s hostility to religion as substituting emotionalism for rational thought. Further, since self-ownership and liberty were similarly understood two centuries ago (for example, Samuel Adams’s assertion that “Men’s rights are evident branches of, rather than deductions from, the duty of self-preservation”), it seems that Rand primarily made the same claims, just leaving out religion.

The logic presented is sometimes short of rigorous. Sweeping language is often used to generate similarly sweeping conclusions, when more measured language would be appropriate. Broader conclusions are drawn than are justified deductively, such as that since we need to use our minds to advance our lives, no restrictions on their use can be justified, or considering it proven that since freer countries have prospered more than less-free counterparts, laissez-faire government would necessarily yield still better results (likely, but not proven).

Perhaps the book’s greatest problem is its assertion that Rand’s egoism is the only moral basis on which capitalism can be defended. That is incorrect. Capitalism is clearly defensible on Christian principles, and most historical defenses of liberty employed Christian, not egoistic, rationales. The book’s assertion implies that a Christian could not accept capitalism without rejecting Christianity, which will undermine far more believers in liberty than it will win. I think that asserting self-ownership, “Thou shalt not murder (kill)” and “Thou shalt not steal,” are sufficient to justify capitalism, without the unclear distinctions and attacks on those who don’t agree.

Despite an unconvincing assertion of Ayn Rand’s philosophy as the sole moral basis for capitalism and some presentation problems (including repetitious and irritating uses of unattributed quotations), The Capitalist Manifesto is a useful presentation of the economic and historical case for capitalism. But I fear the harsh tone of the philosophical discussion, reflecting the similar tone often used by Rand, risks keeping away many who would benefit from the book.

Gary Galles (([email protected]) is a professor of economics at Pepperdine University.

Water for Sale: How Business and the Market Can Resolve the World’s Water Crisis

by Fredrik Segerfeldt

Cato Institute • 2005 • 118 pages • $12.95 paperback

Reviewed by George C. Leef

Ask someone to name the essentials for life and almost certainly the first two words he’ll say will be food and water. All but the most strident leftist accepts that food is best produced and distributed through the free market, but many people insist that government must step in to ensure everyone enough clean water, either “free” or at “reasonable” prices. The idea of leaving water to the market evidently frightens many into advocating water socialism.

Socialism, as Ludwig von Mises so cogently demonstrated, necessarily makes people worse off by leading to inefficiency and the retarding of progress. The consequences are most dire for people living at the margin of existence, and especially so when the commodity in question is one as crucial as water. In Water for Sale Fredrik Segerfeldt argues that poor people around the globe are suffering because of government water monopolies and that they would be far better off with provision by the free market. Segerfeldt, a senior adviser to the Confederation of Swedish Enterprise (the book was originally published in Swedish by the think tank Timbro), points out that more than a billion people do not have what Americans take for granted—abundant supplies of clean water. Approximately 12 million deaths per year can be attributed to the lack of clean water. One would think that a problem of that magnitude would cause “social activists” around the world to battle for the replacement of ineffective government water systems with market alternatives.

But that’s not the case at all. Segerfeldt documents the vociferous opposition that proposals for abandoning socialism for private enterprise in water provoke. He writes, “Opponents of privatization look askance at the possibility of making money from people’s need for water and fear that the poor will have this fundamental necessity taken away from them if they cannot pay for it. Water, they argue, is a human right that the public sector is duty-bound to provide.”

That opposition is strong even though there have been many success stories with water privatization. For example, Segerfeldt notes that in Manila private enterprise had a tremendous positive effect when businessmen were allowed to establish a water company. People who had been getting water for only a few hours a day at high prices from the government system report that they now have access to water around the clock, and at lower prices. How much lower? Where a cubic meter of water used to cost 100 pesos, it is now only 15 pesos— a huge saving for a poor family.

Who are these vociferous opponents? Predictably, public-sector workers who enjoy their monopoly use all their political clout to oppose any move toward a free market in water. They find allies in various nongovernment organizations that reflexively oppose any measure with a hint of capitalism, and in the media, which usually give abundant coverage to the political/ideological foes of the free market. Segerfeldt writes with passion that “it would be not just a pity, but quite outrageous if millions of people were to starve, fall ill, and die through water shortages brought about by the strident propaganda of vested interests and powerful ideological movements with different ends in view.”

Showing the typical leftist preference for shared misery rather than capitalist abundance, opponents of water privatization often contend that since there isn’t enough water to go around, our emphasis should be on reducing water usage instead of increasing its supply. Segerfeldt crushes that idea in his chapter “A Shortage of Good Policies, Not of Water.”

In the course of the book the author indicts the governments of poor countries where water supply is so deficient. The priorities of the rulers and their supporters are such that clean water for ordinary people is of little importance. It’s an old, sad story that needs to be told again and again: Those who run governments should be counted on to do what is in their interest, not what is in the interest of the mass of the population.

Water for Sale is chock full of evidence of the success of free-market water projects and the failures of water socialism. The book is remarkably effective in demonstrating that supposedly cold-hearted capitalism does wonders for poor people when it’s allowed to function, and also that the supposedly compassionate advocates of statism are committed to policies that help keep the poor mired in poverty and misery.

So let’s hoist a glass of water—or any other beverage you choose—to Fredrik Segerfeldt for this enlightening book.

George Leef ([email protected]) is the book review editor of The Freeman.

Common Sense Economics: What Everyone Should Know About Wealth and Prosperity

by James Gwartney, Richard L. Stroup, and Dwight R. Lee

St. Martin’s Press • 2005 • 194 pages • $18.95

Reviewed by Tom Lehman

It is often said that common sense is not all that common. Another adage heard by economists is that economics is the “painstaking elaboration of the obvious.” Such clichés were happily ignored by the authors of Common Sense Economics. They give the reader dose after dose of common-sense economic analysis while taking the pain out of understanding not-always-so-obvious insights into how markets work. Gwartney, Stroup, and Lee have taken seriously the call for economic literacy, with the intent of making economics intelligible for the wider audience. If you are a student, a business professional, or just curious about the world and want to understand economics, this book is for you. If you are an instructor of economics, the book makes an excellent supplement to traditional principles texts.

The main theme throughout the book will be familiar to readers of The Freeman: economic performance depends critically on getting the incentives right, and private property, free enterprise, and minimal government intervention are the most effective means of harnessing incentives for the betterment of all. The authors know their economics and are gifted apologists for the “invisible hand.” They carefully lead the reader down a narrow path, avoiding both technical economic research and the half-truths of contemporary economic populism, all in a reader-friendly prose devoid of graphs and equations. As the authors themselves say in the preface, readers armed with the simple yet powerful tools of economic logic “will be better able to differentiate between sound arguments and economic nonsense.”

The book is tightly organized into four chapters. The authors preface each with a condensed list of the topics to be discussed. For example, chapter one, “Ten Key Elements of Economics,” begins with a list of standard economic principles including: incentives matter, no free lunches, and people earn income by helping others. Likewise, chapter three, “Economic Progress and the Role of Government,” begins with a similar list, including: government is not a corrective device, the costs of government are not only taxes, and central planning replaces markets with politics. These brief lists at the outset of each chapter significantly enhance the readability of the book. They will be especially helpful as a reference to students reviewing the book in preparation for their first economics exam.

Perhaps the book’s most impressive feature is its breadth (despite its conciseness) without distracting economic terminology. From Adam Smith to John Maynard Keynes to F. A. Hayek, Milton Friedman, and James Buchanan, the key ideas of the major contributors in economics are made accessible to the lay person, always with the intention of helping the reader appreciate the forces of the free-market process. For example, in the first chapter, the authors link the importance of pricing signals to the efficient employment of scarce resources by exposing readers to Adam Smith’s “invisible hand”: prices encourage individuals to employ scarce resources in a way that improves the well-being of society, even though they intended only to further their own interests. The authors then dovetail this concept into a discussion of Hayek’s “knowledge problem” by explaining how prices guide millions of people to cooperate anonymously with one another in the carrying out of their individual plans. In about three paragraphs the authors distill the salient points of Hayek’s 1945 scholarly article “The Use of Knowledge in Society.”

One thing that concerns me is the difference between accessibility and “dumbing down” in the worthy effort to promote economic literacy. The authors do a wonderful job of speaking “jargon-free” economics, placing conventional economic terms in a simple glossary at the end of the book. However, as an economics educator, I find at least some of that jargon useful in conveying a deeper understanding of certain topics (“elasticity” for example). Even the term “opportunity cost” is relegated only to the glossary. One wonders if the message the authors gracefully communicate might not possess greater staying power if a few more of those terms had been introduced.

The authors are clearly passionate about reaching a wider audience and improving economic literacy. They comprehend, as any dedicated economist does, that only when voter-consumers understand economics will they be inoculated against the bad ideas and half-truths that frequently lend support to wealth-destroying government policies. As the authors proclaim, a “nation of economic illiterates is unlikely to remain prosperous for very long.” Nor, one might add, is it likely to remain free. In this book, Gwartney, Stroup, and Lee have perhaps done for current and future generations what Henry Hazlitt’s classic, Economics in One Lesson, did for past: illustrate the compelling logic of economics in an accessible format that is enjoyable and intellectually enriching, while also respecting the reader’s time constraints.

Tom Lehman ([email protected]) is an associate professor of economics at Indiana Wesleyan University.

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