The poorest of the poor.
A large
proportion of the funds available to governments are allocated to projects,
activities and policies to alleviate the suffering of the poor. The argument is that the poor are not in that
state because of their own fault, and so deserve to be given assistance by the
wealthier in an attempt to give them an opportunity to enjoy what the rest of
us do. Funds are allocated to provide
medical services, to support their children, to prevent starvation, to provide
free housing, free water, free electricity, free or subsidised transport.
These
supports have, almost everywhere, achieved a proliferation of the poor, with
exploding numbers of welfare recipients, huge amounts being spent on services,
and a rapid growth of the poor population.
Morally, these expenditures appear to be justified, but are they really?
It is a
fact that the numbers of poor increase considerably more quickly than the
numbers of well-off. While Africa has a
birth rate in excess of 3,7%, Germany, a generally wealthy country, has a
declining population, and the same phenomenon is seen within a country. The problem that arises here is that the poor
are the least economically productive, yet they consume a disproportionate (in
economic productivity terms) share of the wealth produced by the society. The allocation of a portion of the wealth of
the society to the poor produces a lower economic return that the same
allocation to the more wealthy, and so represents a drag on the economic growth
of the society. While the diversion of a
part of the wealth of the country to the poor may be justifiable in different
ways, from an economic point of view, the greater the proportion allocated to
the poor, the more slowly will the economy of that country grow. That allocation, in recent times, has
increased because the numbers of poor voters have made them an irresistible
pool for the governing Party, so that the hand-outs to them per capita have
tended to grow, and the numbers have grown at the same time. In South Africa, the number of recipients of
social assistance far exceeds the number of taxpayers, and the ratio of recipients
to taxpayers is growing.
If the total
of the funds distributed by Government to the poor were to be diverted to
investment to grow the economy, the effect would almost certainly be that the
economy would grow sufficiently quickly to shrink the numbers of the poor. Obviously, this could not be done, but the
lesson is clear. The growth of an
economy is directly related to the funds invested in it, and the reduction of
that investment has a profound effect on the rate of growth, and so on the
creation of economic activity that will provide earned income to the
participants in the economy.
The other
aspect is that social assistance in the form of social grants, such as
pensions, support to the indigent, support for children, free housing and
services, and similar, provide a magnet to attract those who might have earned
a living by subsistence farming, by selling their labour as farm workers, and
in similar ways, to the cities, where they do not have the infrastructure or
the job opportunities to live a ‘decent life’, requiring that the Government
provide free or subsidised housing and services. Living in this way tends to break down the
fabric of the society, resulting in an increase in the number of children born
to teenage mothers and to single-parent families, with the result that those
children have fewer opportunities to work their own way out of the poverty
trap. An indiscriminate increase of
support to the poor, usually undertaken by a Government as a means of
attracting their vote, will almost always result in an increase in the number
of the poor and so in an increase in the amount of funds, which otherwise would
be applied to the development of the economy, being diverted to this
economically unproductive use.
The
existence of a number of poor tends to attract an increase in that number and,
if not harnessed at an affordable level, it will result in a slowing of
economic growth until that growth starts to decline.
The
concentration of the Government on the poor is misdirected. In a team sport, there will be some effort
expended on developing a selected group of players with potential, but the
greatest pay-off for effort expended will be achieved by improving the quality
of the performance by those players who have proven their capability. So it is in industry and in business. An
undue concentration of effort and expenditure to develop people who have not
proven their potential will distract from the development of those activities
that are already producing results. It is
much easier to grow a proven business than to develop a start-up business, and
the bang for the buck will be much greater in assisting proven businesses and
people than in attempting to bring those who do not have any of the skills,
experience, capital or developed abilities to the level of those who are
already there. Those with potential will
tend to find a way to realise that potential, at least to the extent where the
society will find it economically justifiable to expend scarce resources to
develop that potential further. An
attempt to force the creation of a potential that does not inherently exist is
doomed to failure. This is even more so in
an economy in which there the availability of investable funds is severely
limited.
Income redistribution is a
moral imperative.
There is no
natural law that entitles a person who produces less to take from the high
producer. In Nature, a lion that is an
inept hunter starves: he is not subsidised by his more successful
colleagues. An antelope that cannot
outrun the predator becomes a meal for the predator: his colleagues do not attempt to block the efforts
of the predator if the result will be that they are eaten. So it is in less developed societies. Only when the democratic system comes into
play does the need to protect the weaker arise, largely because the people who
hold the purse strings realise that, by encouraging the potential voters by
transferring some of the wealth of the more successful (and generally fewer in
number and so less vote-strong) members of the society to the economically
lower performers, those lower performers will vote them into power to continue
the redistribution of wealth that they would not otherwise enjoy. The wealthy generally go along with the
redistribution, happy to share their good fortune to a reasonable extent,
encouraged by the religious and moral attitudes they absorb as part of their
culture. However, a limit to this
largesse is reached when the demands grow to the point that the economic
success of the wealthy is threatened by the diversion of too much to the poor,
and, often, by the development of a belief by the poor that they are entitled
to more as a right based on nothing more than the fact that they are poor. At that point, the means of transferring the
wealth, taxes, becomes oppressive and something to be avoided by any means
possible. At that point, generally, the
numbers of the poor are such that the wealthy have effectively lost control of
the ability to limit the politicians who use the redistribution to shore up
their pool of voters, and so the wealthy are forced to find other means to hold
onto what they earn. This may take the
form of tax evasion, of setting up businesses in other jurisdictions in which
the rules are more friendly to those earning their wealth, rather than being
the recipients of redistribution of the earnings and wealth of others, and,
ultimately an emigration of the business to such a jurisdiction, to the loss of
the country which believed that the wealthy represent a tied pool of
largesse. This process started in South
Africa with the departure of some of the mainstays of the economy, such as
Anglo American, SA Breweries and Gencor, as well as the emigration of many
skilled professionals, businessmen and industrialists (e.g. Egon Musk of Tesla
fame), all of whom could see the writing on the wall. In many cases, the real reasons for the
emigration were not stated, in order to protect what remained behind from the
wrath of the politicians, but the result becomes clear over time. Anglo American is a prime example. In the past, this company was a driver of
industrial development, with a strong interest in more than half of the
industrial companies listed to the Johannesburg Stock Exchange. Now it is in the process of downsizing its
South African operations to a tiny fraction of what it used to be. The loss of those companies and people should
be a matter of serious concern to the Government, and urgent action should have
been taken to stem the outflow, but the imperative to secure re-election by
number of votes, rather than by quality of economic performance was too great,
and the result is now clear to see – a declining economy, a skills-base wasteland
and an economy in crisis.
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