Bono: Africa Unchained

Everyone loves Bono. He’s a good man. And U2 rocks. He has also been one of the strongest proponents of foreign aid. This is why the following has come as a bit of a shock:

Foreign aid has been blasted by the likes of economists William Easterly and Dambisa Moyo. But Bono? While not blasting it per se (not all aid is created equal, mind you), he recognized that it is economic development that is the key to reducing poverty. As The Economist recently reported,

The world’s achievement in the field of poverty reduction is, by almost any measure, impressive. Although many of the original [Millennium Development Goals]—such as cutting maternal mortality by three-quarters and child mortality by two-thirds—will not be met, the aim of halving global poverty between 1990 and 2015 was achieved five years early…The MDGs may have helped marginally, by creating a yardstick for measuring progress, and by focusing minds on the evil of poverty. Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution…[T]he biggest poverty-reduction measure of all is liberalising markets to let poor people get richer. That means freeing trade between countries (Africa is still cruelly punished by tariffs) and within them (China’s real great leap forward occurred because it allowed private business to grow). Both India and Africa are crowded with monopolies and restrictive practices.

Many Westerners have reacted to recession by seeking to constrain markets and roll globalisation back in their own countries, and they want to export these ideas to the developing world, too. It does not need such advice. It is doing quite nicely, largely thanks to the same economic principles that helped the developed world grow rich and could pull the poorest of the poor out of destitution.

Bono appears to have grasped this concept (he is a self-proclaimed “evidence-based activist”). And he rocked it at Georgetown University (if for nothing more than his Bill Clinton impression). He spoke of how “it’s not just aid. It’s trade, it’s investment, it’s social enterprise. It’s working with the local citizenry to help them unlock their own domestic resources so they can do it for themselves. Think anyone in Africa likes aid? C’mon.” He said that the hero will be “the nerd” and, more specifically, “Afro-nerds.” These individuals have been using technology and social media to expose government corruption and increase transparency.

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Bono with George Ayittey at TEDGlobal. The book is Ayittey’s ‘Africa Unchained: The Blueprint for Africa’s Future’.

Where did this come from? While it may have come from multiple sources, I’m willing to bet economist George Ayittey’s (above with Bono) impassioned TED speech and post-speech discussions with Bono had an influence. See why below.

A Titanic Blunder

My wife and I were trying to decide what to watch on NetFlix the other night and we somehow ended up watching Titanic: a film that was pretty good the first couple times (at least according to audiences and the Academy), but has worsened with each viewing.

But one scene in particular stood out to me with this viewing (no, not that scene). Recall as the young Rose (Kate Winslet) asked Thomas Andrews (Victor Garber) about the number of lifeboats, Andrews answered that there were only enough boats for about half the passengers. The reason? The deck would look too cluttered. This reminded me of a Wall Street Journal article from last year that was written for the 100th anniversary of Titanic’s sinking. The author, Australian columnist Chris Berg, explains that

the Titanic was fully compliant with all marine laws. The British Board of Trade required all vessels above 10,000 metric tonnes (11,023 U.S. tons) to carry 16 lifeboats. The White Star Line ensured that the Titanic exceeded the requirements by four boats. But the ship was 46,328 tonnes. The Board of Trade hadn’t updated its regulations for nearly 20 years.

Why no regulatory updates?

It had been 40 years since the last serious loss of life at sea, when 562 people died on the Atlantic in 1873. By the 20th century, all ships were much safer. Moreover, the passage of time changed what regulators and shipowners saw as the purpose of lifeboats. Lifeboats were not designed to keep all the ship and crew afloat while the vessel sank. They were simply to ferry them to nearby rescue ships…Had Titanic sunk more slowly, it would have been surrounded by the Frankfurt, the Mount Temple, the Birma, the Virginian, the Olympic, the Baltic and the first on the scene, the Carpathia. The North Atlantic was a busy stretch of sea. Or, had the Californian (within visual range of the unfolding tragedy) responded to distress calls, the lifeboats would have been adequate for the purpose they were intended—to ferry passengers to safety.

Yet, Cameron’s fictionalized account of the tragedy supposedly brought on by greed and aesthetics “hinges on a crucial conversation between Alexander Carlisle, the managing director of the shipyard where Titanic was built, and his customer Bruce Ismay, head of White Star Line, in 1910.” Carlisle proposed 48 ships, but Ismay and others rejected “on the grounds of expense.” But as Berg demonstrates, this too is untrue:

In the Board of Trade’s post-accident inquiry, Carlisle was very clear as to why White Star declined to install extra lifeboats: The firm wanted to see whether regulators required it. As Carlisle told the inquiry, “I was authorized then to go ahead and get out full plans and designs, so that if the Board of Trade did call upon us to fit anything more we would have no extra trouble or extra expense.” So the issue was not cost, per se, or aesthetics, but whether the regulator felt it necessary to increase the lifeboat requirements for White Star’s new, larger, class of ship. This undercuts the convenient morality tale about safety being sacrificed for commercial success that sneaks into most accounts of the Titanic disaster.

Nobody in the industry questioned the judgment of the Board of Trade. This was no longer the industry’s responsibility, but the board’s. The “private risk management” of business had evolved into mere “regulatory compliance.” As Berg notes,

This is a distressingly common problem. Governments find it easy to implement regulations but tedious to maintain existing ones—politicians gain little political benefit from updating old laws, only from introducing new laws. And regulated entities tend to comply with the specifics of the regulations, not with the goal of the regulations themselves.

While many things went wrong in the case of the RMS Titanic, when it comes to the number of lifeboats, Berg gets it right: “British regulators assumed responsibility for lifeboat numbers and then botched that responsibility.”

Policymakers, take notice.

“I, Pencil” and the Providential Invisible Hand

In the December 1958 issue of The Freeman, economics writer and FEE founder Leonard Read published his now-famous essay “I, Pencil.” The essay traced the “family tree” of the modern pencil, demonstrating the complexity of its creation and the numerous people involved. Nobel laureate Milton Friedman was so impressed with the essay that he used it in one of the episodes for his TV series Free to Choose. More recently, science writer Matt Ridley borrowed from the idea by declaring that literally nobody on the face of the planet knows how to build a computer mouse. Despite the individualistic rhetoric that often accompanies markets, Read’s essay provides a much needed reminder that markets on the whole are more communal, more cooperative, and more interdependent than the centralized planning that often employs these rhetorical fronts.

The discussion of the “invisible hand” toward the end is almost spiritual in nature. And with good reason. As Peter Harrison, historian and director of the Centre for the History of European Discourse at the University of Queensland, explains,

[D]uring the early modern period, in addition to increasing frequency of occurrence, we witness the emergence of a more distinct pattern of use or, more correctly perhaps, of two related concepts of the operation of ‘‘the invisible hand.’’ Most commonly the invisible hand was used to refer to the manner in which God exercised providential control over the course of history by subtly influencing human actions in order to bring about his ends. These ends are thus accomplished in spite of the intentions of human actors and without their knowledge. The second pattern of usage also refers to God’s providential action, but in the context of his superintendence of the natural world. Thus God’s invisible hand was glimpsed in the contrivances of the creatures and in the wisdom and foresight evidenced by the laws of nature, which again promote his ends. These two conceptions between them represent the most predominant uses of the expression in the seventeenth and eighteenth centuries and hence the most relevant background for Smith’s uses of the expression.

Just as the laws of nature were originally seen as “exemplif[ying] design, so too…did the laws of morality.” For Smith and his contemporaries, “the general laws of the moral, as well as of the material world, are wisely and beneficently ordered for the welfare of our species.”

Seems to be working out alright.

Conservative Mormon America vs. White Conservative America

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Salt Lake Tabernacle

The stereotype of American Mormons (according to socio-demographic data) is true:

  • We’re really, really white
  • We’re well-off financially
  • We’re highly educated
  • We’re overwhelmingly Republican

However, economist Miles Kimball of the University of Michigan finds that this white, conservative demographic is quite different from the typical white, conservative American. In his post “How Conservative Mormon America Avoided the Fate of Conservative White America” over at Confessions of a Supply-Side Liberal, he notes that

  • Mormons invest in marriage with an avoidance of premarital sex (and thus out-of-wedlock births) and relatively low divorce rates.
  • The Mormon prohibition of alcohol and tobacco leads to healthier and longer lives
  • Geographic congregations known as wards function as “ersatz small towns” and plug Mormons into an extensive social network

Kimball makes several other observations with extended commentary. Check it out. It goes along quite well with some of Megan McArdle’s comments in a recent Bloomberg article (which was covered here at Difficult Run):

The highest income mobility in the country, it turns out, is found in Salt Lake City — almost three times higher than the rate in Atlanta, the lowest-ranked city…Salt Lake City is in the reddest of red state places — not a lot of taxes and transfers going on there. And yet it’s highly mobile, presumably because of the influence of the Mormon Church, which essentially runs the most comprehensive and effective social welfare system in the country…maybe in the world. There’s money and other help to tide you over in bad times, but arguably more importantly, there’s all the efforts of your ward to get you back on your feet. Churches do this sort of thing everywhere, of course, but in few places is it so comprehensive and organized. And unlike the government system, it’s combined with intense social support, and a community whose norms about things like work, marriage and family (and drinking and drug abuse) encourage what you might call a prosperous lifestyle.

Social capital and cultural factors are big players in economic well-being and should not be ignored.

“Job Creation” Is Easy…And Sort Of Misses the Point

Nathaniel’s recent post on minimum wage touches on a couple of important–if not overlooked–points about the “job creation” debate: (1) innovation vs. job preservation and, implicitly, (2) wealth vs. jobs. If the goal is to create jobs for the sake of creating jobs, then the task is pretty straightforward.

As economist Steven Horwitz says above, “I would argue that creating jobs is easy; it’s the creation of wealth that’s hard.” The creation of wealth is intrinsically linked with innovation and the “creative destruction” it brings about. Even though many have partaken of what Scott Winship of the Brookings Institution calls “technophobia” (remember Jesse Jackson Jr.’s claim that the iPad was “eliminating thousands of American jobs” or the President’s concern that the ATM represented a “structural issue” in the American economy?), the fear is unjustified.

Arguing against technological progress because it “destroy jobs” ignores the mass benefits that will follow, including the rise in absolute standards of living. “In a free-market economy,” explains historian Thomas E. Woods,

businesses invest the vast bulk of their profits in capital goods that make labor more productive…[Different] kinds of machinery can multiply the efficiency of a single worker many times over, sometimes by orders of magnitude…This is how wealth is created: we can produce more with the same (or a lesser) amount of labor…As a result of capital investment, firms can now produce many, many times more goods than before, and at considerably lower cost. Thanks to the pressures of market competition, firms pass on these cost cuts to consumers in the form of lower prices, better quality merchandise, or a combination of both. The ordinary person’s standard of living increases…because business firms can invest in machinery that makes it possible for more and more goods to be produced with fewer and fewer hands, thereby increasing the overall amount of material goods available and rendering them less and less expensive.

A higher minimum wage will not help raise the poor out of poverty. It will simply eliminate jobs for low-wage workers (i.e. high school education and less).

But couldn’t one argue that technological advances eliminate low-wage jobs? Sure. But the difference is that minimum wage laws provide only a slight financial bump for some low-wage workers, while keeping others in the unemployment line. Innovation creates new jobs for low-wage workers, while raising the absolute standards of living for everyone (including the poor). When given these options, I would hope the choice is obvious.