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Helping people in need is an authentic and noble sentiment among people. Be it through acts of kindness, charity, volunteering, or any other means of providing something of value for people who lack that what we possess in excess or have at least enough to share.
Many thoughts cross my mind on the subject “charity”: one can be quite critical on things such as “how selfish acts of charity can be”: do people give for the sake of giving or in seek of the reward for being acknowledged as the ‘giver’ – the one in possession of a certain kind of power’? One can also be critical on “how to quantify the value of charity”: how to compare the value of a person’s X hours of volunteering versus another’s X dollars/euro worth of money-value invested in a cause? Is the input or the output value that really counts? Or should this even be measured at all?
Anyway, among these and other points of discussion on the topic, one particular discussion I recently had over coffee with some friends motivated me to write this text. And it is: the role of first-world (rich) charity in helping third-world (poor) nations fight poverty.
To start with, I choose to go back in time and think of the history of mankind as a social being. It is in our nature as human beings to provide for our own needs by making use of our skills. From the very beginning, the work of our own efforts – our own hands – has given us the product of our immediate consumption. Productivity, so to say, was there to cater for our own needs and there was no need for savings or accumulation of resources.
As mankind started to develop tools, machines – and up to modern-day society – computers and hi-tech equipment capable of assisting in increasing productivity manifold, we started having reserves. Since we became more productive, we started trading, which turned the accumulation of resources into an accumulation of capital, which allowed us to save and invest in ever more productive capital goods (such as machinery and technology), which ultimately increased our productivity even more.
And that is exactly where the difference between a rich nation and a poor nation lies: certain groups (rich nations) accumulated capital goods at a much faster pace while other (poor nations) lagged behind.
And what is the point I wish to make with this? It is not money that makes a nation richer. It’s how much Capital Goods they have! And this is how I connect this to the subject of charity money inflows from rich nations into poor nations.
[Please excuse the exceptions. It might sound more generalizing that it actually is.] The ability to produce more than needed for immediate consumption, which then triggers the ability to accumulate resources and savings and ultimately revert this accumulation into capital goods which will foster production (returning to step 1 of this cycle) is the only way one can generate wealth.
Having this said, imagine that a billionaire decides to share all his/her wealth equally among all the population of a poor country in order to take them out of poverty. While it might sound silly, visualizing this idea illustrates the idea quite well. The inflow of capital will provide for an immediate rise in life standards, which will be generated by immediate consumption.
[So poverty has been beaten, right? WRONG!]
Taking the people out of their level of poverty by providing them capital to consume more does not guarantee that these same people will be producing more. There is no accumulation of resources – no savings! Bottom-line: Increasing a poor nation’s ability to consume is not a synonym of beating poverty in this context. On the contrary, it is fostering poverty. It is prolonging its existence. The increase in life standards might disguise the phenomenon, but in the long run, consequences are inevitable.
In order for a nation to beat poverty, it does not require inflows of money. It requires inflows of Capital Goods, that is, the technology, knowledge, equipment, know-how, and all other forms of investments allowing its people to increase productivity. When individuals produce more, they will be eventually generating the gear of a nation’s rise from poverty: savings and more investments in capital goods!
I think my macro view on the subject might as well be an extrapolation of a rather simple concept: instead of feeding the poor, we should provide them the resources for them to be able to feed themselves.
To go back to where I started, my point is that I do have a very critical view on the charity work done by rich nations in poor countries. The money inflow to aid the poor are highly aligned with Adam Smith’s theory that distribution of wealth fosters social classes, which defend the rich and harm the poor.
While I do believe charity work is the engine of a brighter future with more equality, I highlight the importance of one’s interest in assessing the right way of giving. As aforementioned, the simple redistribution of wealth fosters poverty. Thus, we have to make sure we are not supporting any kind of demagogic appeal for eliminating poverty.
I might sounds silly, but it is indeed comparable to one of those typical gift-giving dilemmas: are we gifting the receiver with something he/she really needs or are we just offering them something we will eventually also draw benefit from?
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