"What causes poverty? Nothing. It's the original state. The default and starting point. The real question is, what causes prosperity?" - Per Bylund

In the documentary titled "Poverty, Inc." a deep dive is taken into the state of poverty in the modern world, the role developed nations play in its perpetuation, and the true nature of the forces acting against impoverished nations in their pursuit of economic prosperity.

Perceptions of Poverty

"Perception is reality." Or, at least, our perception is the reality we tend to act within the confines of. We do not necessarily act towards those ends which are truly and objectively "best," rather we act towards those ends which we perceive as best, fully obscured by a number of circumstantial factors that contribute to our misconceptions.

In the case of impoverished nations, we in the developed world suffer from a severe lack of understanding of what the third world is truly like. Popular culture, "Big charity," and our own government have equivocated the realities of poverty into our minds in a manner that can only be harmful towards the poor, despite our own altruistic intentions.

Developed nations typically view poor people in undeveloped nations as less intelligent, less capable, and less willing to put in the work necessary to uplift themselves from poverty. In turn, we must step in to save the day by implementing aid programs so that they aren't simply out of luck and doomed to a perpetual life of poverty. This is simply far from the case. Numerous examples throughout the documentary support this point. A number of the people interviewed by the documentarists expressed their desire to start businesses, and some of them already had (although with limited success due to matters to be discussed below). Ultimately, the typical views held by many fortunate individuals with good intentions serve to further hinder impoverished nations. Gaining a full understanding of the economic implications of aid programs is necessary to guide this altruistic mindset in the right direction - in the direction of actually bringing about sustainable and long term prosperity.

The Economics of Altruism

By and large, the negative effects of aid programs have come from a place of altruism. While this is due in part to the misconceptions surrounding poor people as highlighted above, the bulk of the issues arise when the economic implications of such programs are analyzed for their effects.

First, let us look at the effects of mass donations on local economies. In an effort to alleviate shortages of certain necessities such as food and clothing, NGOs and other organizations donate these goods to impoverished areas. While this appears outwardly to be beneficial, the economic effects are far from positive. While short term shortages can be alleviated to a certain degree, local economic activity is stifled, particularly in regards to the local production of substitute goods for the donated commodities. The long term economic effect of this is severely limited growth due to the paternal dependence on the aid programs. The primary examples of this occurring in the documentary were shoe production and rice farming. Over time, as impoverished areas cut back on their production in certain areas to focus on other less valued ends (which they may or may not be able to fulfill) The economy settles into a state of dependence for the goods provided freely that cannot be easily reversed in the event that the aid program moves to another region or stops providing the service altogether.

The other side of the issue is the corruption of the governments of these nations, which is only amplified by the corruption riddling aid-providing nations. When restrictions are placed on the import of certain commodities from impoverished nations, this further disincentivizes their production of such commodities. This has the long term effect of stunting the growth of their economy. In concordance with their already limited ability to produce, it is clear that this is a recipe for very low or nonexistent economic growth. Additionally, much of the aid programs meant to stimulate economic activity end up in the wrong hands due to the corruption of local governments, who are often left to decide what to do with the funds they receive without recourse. It is easy to guess in whose favor a government, much less a government in a third world country, will use the money they receive.

The bottom line is, the implementation of many of the aid programs present in the world today seem beneficial until the economic effects of such programs are considered. A shift in the direction of incentivizing the buildup of local economies and industrialization is essential to promote long-term, sustainable growth.

The Necessity of Property Rights

The first step in promoting economic growth is undoubtedly a comprehensive system of property rights. Without a clear, enforced, and widely understood system of property rights, it is difficult to harbor the proper incentives for actors in the market. When the ownership of property is ambiguous or disputed, it is difficult for economic actors to fully utilize their property in the pursuit of greater wealth. This brings me to my final point, which is the necessity of a stable currency. It is only under such conditions that real, meaningful economic growth can occur under a market system.

In-Class Discussion

1. In class I will discuss the harmful effects of some altruistic programs on impoverished nations.
2. In class I will discuss the importance of property rights in building up an economy.
3. in class I will discuss the flawed view developed nations typically have of the poor in foreign nations.