Is there a case to be made about central planning for undeveloped nations? It would seem like since the conditions for perfect competition don’t really exist, one could argue for investment in eduction or infrastructure. What should be done about underdeveloped areas of the world?
Why can’t people be left alone?
Maybe the so-called developed nations are actually the undeveloped and the so-called undeveloped nations are actually the developed? The undeveloped nations, that you mention, are not on their own and are preyed upon and have been preyed upon, depending on which country, by the so-called developed nations for centuries. How are they ever to do anything when they are raped and pillaged?
It seems you’ve constructed a narrow paradigm to investigate. This wasn’t very forthright of a post. specifics please.
What kind of education? What kind of infrastructure?
It makes more sense for these countries to stop centralization, and instead allow the free flow of capital into their country so that the infrastructure will be provided by the private sector.
No. There is never a case for centralization of economic power and decision making. Development comes from investment and open markets. Even the most primitive places can be developed if the locals are free to contract with people outside their community. The Law of Comparative Advantage is always at play regardless of the level of development. This is contrary to Freidman who advocated central control of an economy to develop primitive industries. He is of course wrong.
How can capital be accessed? If there is a group on unskilled workers, no great wealth of natural resources, why would capital come to them? Also, even if a government would want to have centralized planning, if the people are poor and resources are low, how would they do so? You need capital from outside sources, no?
Note that I am simply raising questions, I am not saying I believe any of this. However the following my line of thinking:
It seems like the wealth of capital that developed nations have came from instances in the past where they were underdeveloped (relative to today) but had access to financing. However, this financing, relative to today, would be thought of as MicroFinancing, or Microcredit.
Would it not follow than that the best way for these people to be pulled out of poverty would be through the access of credit, abliet by small amounts? Is this the fundamental theory behind MicroFinance.
Any comments or questions?
A lot of these undeveloped nations have already adopted central planning. In fact, it’s the primary reason why they are undeveloped.
There could be a variety of reasons that a foreign entrepreneur may want to invest and transfer capital into a developing nation. One of the most obvious examples are low wages. Third World unskilled labor is relatively cheap, and so attracts investment if the marginal revenue per worker is higher than it would be elsewhere (in the United States, high nominal wages propped by government has made this so). Or, perhaps, other costs (such as taxes) are lower in a Third World country (a tax haven, of sorts), attracting investment.
Foreign capital transfer allows there certain things to exist in countries without a prior requirement of capital accumulation, because that was already done elsewhere. So, machinery transferred to China from the United States did not require capital accumulation in China (it was the product of capital accumulation in the United States; at least, in regards to the technology that makes up the machinery). There can be capital accumulation in Third World countries, even if they are not resource rich. The process would simply last longer.
I’m not sure what you mean. The main feature is the access to property. Property rights are not well respected or easy to access outside of the United States. Even in Europe, which is considered largely developed, property rights are more difficult and expensive to access than in the United States. Most Third World countries simply have too large of a bureaucracy to allow for quick and cheap access to property. I illustrate this point in my critique of Stiglitz’ Making Globalization Work:
Stiglitz mentions private property rights three times, and these mentions are not even listed in the index of subjects. Two of the three times he is almost mocking the concept of private property rights, blaming the West’s pressure on the Third World to privatize on the fact that much of the privatization had just ended up as monopolization. The third time he says, “The capital market liberalization pushed by the IMF made matters worse because it made it easier for the oligarchs who had stripped assets from the corporations they controlled to take their money offshore, to places where secure property rights were already well established. They enjoyed benefits of weak legal frameworks at home and strong property protections abroad.” But, as we have already seen, the problem is not a lack of government regulation; it is too much government regulation. Let us not blame capitalism for what was the result of mercantilism and corruption.
If the government fails to retreat from the area of private property rights then any liberalization is likely to be doomed. The ability to own property is the central tenet of any healthy economy, and especially important to any capitalistic economy. Ludwig von Mises explains why capital accumulation is only secondary to the ability to acquire property, “Under capitalism private property of the factors of production is a social function. The entrepreneurs, capitalists, and land owners are mandataries, as it were, of the consumers, and their mandate is revocable. In order to be rich, it is not sufficient to have once saved and accumulated capital. It is necessary to invest it again and again in those lines in which it best fills the wants of the consumers.” How can one invest his accumulated wages without the ability to acquire property? How can an entrepreneur compete in the market if the State is restricting his ability to acquire channels of investment? For example, in Russia approximately 280,000 farmers own their own land, out of an estimated ten million. The problem is not a lack of legal framework. It is an issue of an overbearing state, restricting through bureaucracy its own people’s ability to acquire means of production.
No, the best way to be pulled out of poverty is to allow people to invest accumulated capital into means of production, or respect people’s property rights. From my article:
Peruvian economist Hernando de Soto went through great lengths to illustrate how the problem of the Third World was not a lack of capital or a lack of foreign aid. For example, he calculates that total “dead capital” (capital not in use) in the Philippines is fourteen times greater than the aggregate amount of all foreign direct investment, seven times greater than the amount of capital stored in the country’s banks and nine times larger than all State owned capital. Egypt’s dead capital is worth roughly fifty-five times greater than all foreign direct investment in the country. In all examined countries, dead capital, which could not be invested because the State was making it too difficult for one to guarantee his or her property rights, exceeded the amount of foreign investment (both private and “public”) provided during the 20th century
“I have a headache. It’s my only symptom. I go to see three doctors. The neurologist tells me it’s an aneurysm, the immunologist says I got hay fever, the intensivist can’t be bothered, sends me to a shrink, who tells me that I’m punishing myself because I wanna sleep with my mommy…You pick your specialist, you pick your disease” - Dr. Gregory House
When you ask a question to a collection of people sympathetic to LvMI style Austrian economics, you are essentially picking your answer. Since these folks have never seen a case for “central planning” they could stomach their answer to this question will always be “no”. (no offense 
)
If you want a more a lengthy discussion, I suggest making the question more open ended. For example, ask “what are the requirements for growth”. I think most people on this board would probably agree with Peruvian economist Hernano de Soto that one thing that is essential for growth is an explicit system for ownership (property rights).
Once you lay out what you think the requirements of growth are, you can argue whether “central planning” needs to be involved. In the case of property rights, most folks on this board will probably insist that a system could develop “naturally” without a central government (lot of anarchists around here). I tend to disagree and I believe so would Hernando de Soto. But that would be a good discussion to have.
Hernando de Soto has received much criticism from the “Mises circle”, and I think that a lot of it is unwarranted. In one book review on this website, he is effectively called or compared to a Socialist. I believe that Hernando de Soto does not consider himself a Capitalist (I think those are his own words), although he is considered a libertarian. However, it is clear that he holds tenets of Capitalism as very important, and believes in the overarching pillar of Capitalism which is private property. Other than that, I am not sure on the full-extent of his economic views.
In The Mystery of Capital, he comes to the conclusion (or so it seems) that what the “West” has and the “rest” do no is a “legal framework” to respect and protect private property. I’m not sure this legal framework alwasy existed, as opposed to coming into existance only based upon the existing natural framework of private property in the United States. In other words, it was not government which made private property possible, it was the natural characteristics of private property that shaped Federal law. So, I think that Hernando de Soto puts too much empahasis on the role of government. I do not speak from an anarchist point of view (although, I’m sure I could be considered one, to one degree or another), but I think that it is fairly clear that what is needed is less government, not more.
Africa is a paradise when it comes to raw resources and energy, much like “Mother Russia” to the north. Something real wonderful could occur if the people in these areas would succumb to the ideas of liberalism, unfortunately however, they are not overwhelmingly doing so that I can see.
I think these issues are the most important when looking at the slow and even backwards development on the African continent:
Lack of exposure to liberal ideas and the practical arts (technology) - Is this due to distance and language barriers? Religion?
Investment and transportation of capital goods is restricted. - It is difficult to bring machines and tools over if you aren’t in some government’s bed or another.
Oppressive and repressive governments (local and remote), tribes, and militias. - Perhaps the biggest hamper to development is violence, or the thread there of, abounding across this particular continent.
And don’t forget the WILD ANIMALS! THEY WILL EAT YOU!
Johnathan,
Well, I don’t think de Soto asserts that government “created” property rights. Indeed, as he documents in The Mystery of Capital, property rights often arise naturally among the poor in many developing countries. However, these informal property rights are very limited because they are not always clear (okay this scrap of land is “yours”, what does that mean?) or secure (whats stopping someone else from taking whats yours). Even if you want to argue that informal enforcement mechanisms like reputation and tradition can help over come these problems, there are still problems. For example, try convincing a bank from outside your community to give you a loan using your land as collateral when the only proof you have that the land is yours is that everyone else in your village agrees that it is (just ask 'em!).** This problem is further complicated by the fact that in many cases de Soto discussed, the land “legally” belonged to someone else.
Where government can play an effective role is in securing property rights. The government can codify who owns what and back up those rights with force.
Now, I am sure plenty of people here will disagree with that statement. But I have not yet seen a convincing argument or evidence that anarchy could produce an economic system that is sophisticated as the one we enjoy in the USA (David Friedman comes close, but imo falls short).
** This reminds me of a story. Back when I was a teen, I worked at a convenience store that was frequented by illegal immigrants. One day one of them wanted to buy some beer and I asked for an I.D. “ID?”" “Yah, I need to know how old you are.” “Hey Joseph, tell 'em how old I am!!”
Although the first part is true, I think what is being inferred is that property rights are naturally this ambiguous if they are not codified by law. I’m not sure that this is true (and I will explain below). I think that it should be remembered that what created this ambiguity in the Third World was not the natural state of property, but the role of government creating that ambiguity by meddling in the area of property rights. In the Third World, the main threat to property seems to be the government. If one can only invest in one’s property if he disposes of the correct piece of paper, then it makes sense that without an easy-to-handle legal framework this person can’t invest his capital. But, I don’t see why this would be the case if the government bureaucracy did not exist in the first place.
Long story made short, I’m saying that the Third World is devolving from a society with big government to one with smaller government, while many States in the West (like the United States) went small government to big government. I think a more practical example would be one like Great Britain, since this country suffered from much government regulation and then slowly became more liberal. Unfortunately, I don’t know too much about the history of property in England. It would be an interesting topic, I think, for anybody that did, though.
I don’t know David Friedman’s argument (or anybody else’s, to be honest), but based upon my own personal experience with agricultural property in Spain I have developed my own. Of course, my personal experience does not include a huge, transnational bank which may not be aware of the individual property holdings of an individual, without some certification. But, I think that in a free-market banks would play a much more local role, anyways (and most of the banks in my town are national, but the people who run the local branches know their clients pretty well). But, I don’t think that agricultural property rights in Spain developed thanks to a strong legal framework. Admittedly, I am not too strong on the history of Castilla-La Mancha in regards to property rights, but I do know that we rarely operate with the government today. There are moments in which we go to a government institution to bring up an aerial map of our holdings, but I’m not sure why this would not be provided by a private company.
What happens is that a farmer begins to plan over the boundaries of his land. The owner of the land being farmed upon complains. Since parcels of land are not very well physically distinguished (it depends, actually; most of the time, farmers try to provide these distinguishing features by planting something that stands our, or with rocks; prior to the Civil War, it was common for stone walls to be built) there can be a dispute over who owns the land. You go to Madrid and you pull up an archived aerial map, with your parcel highlighted. This is provided by the government, currently, but it’s a service which could easily be provided by the free-market if it was demanded. I’m not sure why private courts could not solve legal disputes and design legal contracts between property owners. Indeed, it is in the best interest of both to come to a compromise.
But, I feel that I might be stabbing in the dark. What do you mostly disagree with in the arguments for a free-market in property?
Johnathan,
When you say that “free market banks would play a much more local role”, do you mean in a system where there is a “free market in property” (meaning no government enforcement of property rights)? If so, I agree. I think it would be a matter of necessity. In my opinion, without a government to enforce contracts and property rights, reputation would be the primary mechanism for enforcement. And reputations are created and maintained locally.
This would be a very very sad development because it would mean the dissolution of the global capital market. There may be a great investment idea in San Diego, but investors in London can’t invest in it because they can’t vouch for a investor they never met. So a great idea possibly goes unpursued.This is why I simply don’t believe we could achieve the same standard of living that we now enjoy in the U.S. under an anarchist system.
That is actually my main disagreement with anarchists and why I wouldn’t want a “free market in property”. Even if everything goes exactly like they plan and we somehow create a stable, decentralized system of private property ownership that does not require government involvement, I just don’t see how in the world it could deliver the type of life style to which I have become accustomed. And I enjoy being rich (by historical standards) far too much to give it up for the “freedom” anarchists promise. If the life I’m living in the U.S. is “slavery”, then I’ll gladly buy it by the case.
I meant both a free market in banking and a free-market in property; I was thinking within the general framework of a free society.
I disagree. I don’t see why such an investment couldn’t be made. In my previous post, I established that if there was a demand for them then the market could provide a method by which property owners would be able to codify what they owned. That is, there would be methods by which to archive the physical boundaries of different properties. Indeed, such services already exist. As a result, let’s say that an English investor living in London wants to invest in property in San Diego. The fact that the San Diego property owner knows what he owns and what he does not, and the English investor knows what piece of property he wants to buy, I’m not sure why they could not come to an agreement (property in exchange for money, or whatever it might be). In the case that the investor needs to borrow the capital to invest he has several sources by which to come by this capital:
- A San Diego bank.
- An English bank.
If there was a requirement to prove what he could provide as collateral, I’m not sure why he wouldn’t have devised of a way to provide this proof. Or, he could have borrowed the capital from a bank that knows him better.
So what specifically hinders the developing countries from aquiring property? A lot of paperwork, the necessity to bribe a government official? I see that perhaps a lack of infrastructure could be the problem, but I am not sure what property rights some underdeveloped countries are missing. If anyone could elaborate, it would be much appreciated.
"But that trade and investment is also generating unease and criticism, especially on questions of human rights. Last month, just weeks after Guinea’s soldiers killed more than 150 people and raped scores of women in public, China struck a $7-billion mining deal with Guinea’s repressive regime.
The deal would allow a Chinese company, China International Fund, to gain access to Guinea’s wealth of mineral resources, including bauxite, diamonds and gold. The deal has been criticized by human-rights groups, since it could help to prop up a brutal dictatorship, but China has refused to give any details of the deal.
China has also become a major economic ally of controversial regimes in Sudan, Angola, Zimbabwe, Congo and other African countries. Many of these countries are providing oil or mineral exports to China – a key strategic need for Beijing’s economic growth.
Equally controversial is China’s impact on labour rights and local manufacturing in Africa. Its exports and investors are often criticized for flooding African markets, squeezing out local competitors, and weakening labour standards.
In countries such as Ethiopia, where Beijing has become a major economic partner, Chinese construction companies are often praised for improving the country’s potholed roads. China is also a leading investor in Ethiopia’s telecommunications sector. But, at the same time, it is criticized by many Ethiopians for providing surveillance systems that allow the government to monitor the cellphones and e-mails of opposition leaders."
It’s knowing the history of these countries. It’s knowing current events. It’s understanding the IMF’s development programs that were part of Argentina and other countries economically collapsing. It’s understanding what the free market is. It’s understanding what initiated coercion does. It’s understanding what debt not only is, but what it does to whole countries locked into such governmental deals as above between China and various African countries. It’s also understanding what property rights are.
Above is a slight, extremely slight glimpse of deals with other countries that have been on-going before Columbus even sailed the ocean blue.
I had asked for specifics earlier. This is too much to chew and impossible to consider anything with accurate knowledge in the broad statement “underdeveloped countries”. I’m serious. That’s not enough. Please elaborate. Maybe the brief news clipping I gave might be a foundational starting point. idk.
High costs of owning and trading property, costs which break down into risk, bribes, red tape, and so on.
Security is the foundation of any advanced civilization. Africa is rapidly falling backwards into anarchy.
The amount of steps their governments make them take to get the proper certificates to legally own their property and invest on it. It’s not just ownership, but the ability to build and invest. The more bureaucracy you are forced to go through, the more money you have to pay to make it through these steps. It’s time consuming and costly. Then, when those who capable of doing it actually do get their property legitimized in the eye of the State, there’s little guarantee that those certificates will be honored. For example, if the country is unstable and there are frequent firefights, the high probability of having your property shot up or bombed out provides a disincentive for investment (which is why it’s so difficult to accumulate and then invest wealth in countries like Palestine, Afghanistan, Iraq, Democratic Republic of Congo, et cetera). Or, if the State is corrupt and known for property expropriation, then that is also a disincentive (like Zimbabwe, and now South Africa).
The lack of infrastructure is not the problem. If there was less government, and more freedom to do with your property as you wished (and protect your property as you could) then the infrastructure would be built on its own. For example, in an “article” I wrote, I illustrated how roads came into existence in rural Spain.