Poverty and Famine Beckon

Living On Borrowed Time

Classical economics tell us that the two key contributors to the production of goods and services are labour and capital.  Without both being used and deployed, a society will remain in grinding poverty.  Nothing much will be produced.  People will live from hand to mouth, and often hand will not be able to produce enough to satisfy mouth.  Famine and starvation beckon.  

It's a long, long time since famine stalked the land in Western countries.  In other places and nations, however, famine remains a latent threat, always a risk.  What makes the difference between famine being no threat at all, and it being a latent, stalking beast is the nature of the civilisation that sits atop the land.  The wealth of a nation resides in what its citizens collectively know and in how effectively they work and apply existing capital stock to exploit the latent opportunity present in all nations and lands.

Wealth effectively depends upon, and in large measure resides in, the space between our collective two ears.  The Bible contains the only belief system which explains why this is the case.

Western Riches

Who Owns What?

If We Don't Know And Can't Tell, Poverty Beckons

One of the more challenging aspects for the Western reader of Hernando De Soto's book, The Mystery of Capital is to be confronted with how much we all take for granted.   We are privileged to have inherited a system of title to property, the end result of which is to set us free from serfdom.

There are few serfs left in Western countries.  In New Zealand, those that are serfs are kept in that position by oppressors, acting criminally.  We have had instances of migrant labourers being kept in a state of slavery as their "owners" seize their passports, pay them a pittance in cash under the counter, and work them to exhaustion.  We have foreign fishing vessels working in our national waters being crewed by slaves.  So serfdom continues, in a few extreme cases, but it requires criminal intent and action to exist.

How did we escape the life of a serf?

The Potency of Title

Civilisation is Skin Deep

Sometimes the most profound realities stare us in the face every day and we fail to see them for what they are.  Property and property rights are one of these profundities.  In the West, we take them for granted.

When ordinary people have few or no property rights, they are stripped, vulnerable, and naked--subject to the slings and arrows of outrageous fortune--and to the depredations of tyrants.  A recent movie which illustrates this most powerfully is Leviathan,  Set in Russia, it is one of those masterpieces which haunt you for weeks afterwards.  Central to its plot is the issue of property rights, or the lack of them in Putin's Russia.

Westerners live in societies so grounded in fundamental and derived property rights that we scarcely think of them.  It takes an outsider to point out what we all take for granted.

The Mystery of Capital

Of Course!

We have just completed reading Hernando De Soto's The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Perseus/Basic Books, 2000.)  It is a seminal piece of work and deserves wide readership.

De Soto's thesis can be summarised in a series of seven propositions (which he sets about establishing in the book).

1.  The existence of capital is inextricably related to establishing a system of legal title for property.

2. Once legal title is established, property can be transformed into other forms of wealth.  Land to which one has legal title, for example, can be used as collateral for a bank loan.

3. Long before a system of legal title is established in a country or state, an informal system of ownership usually exists which recognises (amongst the participants) a person's title to property.

Dirty Money

Ten Kilometre Chain Gangs

An unexpected outcome of secularism taking control of our society is lots of belly laughter.  There is  no shortage of material to lampoon and ridicule. 

One inanity which has generated a great deal of raucous mirth over the years has been "private-public partnerships" or "public-private partnerships" (depending on whether you are representing the gummint or the people).  These partnerships have come into vogue in a few western countries in recent years as the socialists running things have realised money was running out.  Faced with electorally disastrous options, they have scrambled to find new sources of capital.  Cutting spending was the least palatable option--elections are won or lost on the weight of bribes offered.  More borrowing was an equally hazardous route.  Rising borrowing levels and printing money risk taking countries to the brink of credit downgrades which have lots of bad consequences for voters. 

It was Margaret Thatcher who tartly observed that socialists eventually run out of other people's money.  And so it is coming to pass.  But wait--what about public-private partnerships, or "PPP" for short, or if you are way cool, "P3"?

Burger King's Smart Move

The Capital Express Is On the Move

"Progressive"  ideology is generally anti-business, anti-profit , pro-taxes and pro-redistribution of property.   But in our modern world, "time" has moved on; capital and labour are now more global and international than ever before. Because trade is increasingly global, pay rates in China affect trading conditions in New Zealand.  Capital and labour are more mobile than ever and can move relatively freely around the world. 

In the face of this growing internationalism (theoretically favoured by progressive ideology) progressives have actually become more and more regressive, wanting to drive national economies back to a more autarkic past with higher taxes and more government interventions to control wages, prices, and business activity.  One manifestation of this retrogression is the complaint of governments that "business" is evading tax by setting up in lower foreign tax jurisdictions, channelling their profits through the lower tax regime and maximising returns thereby to their shareholders.  President Obama has moaned about this tax leakage in terms which suggest he regards the practice as unpatriotic, if not corrupt.  Left-wing politicians in New Zealand have chanted the same mantra with respect to multi-nationals doing business in New Zealand.

Naturally the most easy and straightforward solution to a shrinking corporate tax base is to lower corporate tax rates.  If taxes are lower, businesses are encouraged to stay put; international businesses are encouraged to set up shop if the tax rate is competitive.  But since progressive ideology calls for an ever vaster government, lowering taxes is a hard trick to perform.   Meanwhile, business is driven by economic rationality and the globalisation of business requires that one must remain competitive world-wide or eventually be driven under.

The most recent high-profile example is international conglomerate, Burger King which is moving its business headquarters out of the United States to Canada, where its tax burden will be less.

The Pillage of Progressive Government

Evasive Action Increasing

It's a hard lesson to learn, but sooner or later even the antediluvians amongst us will begin to comprehend.  Point #1: Capital and labour are the core components of any commercial enterprise.  Point #2: Capital and labour are mobile.

Now this has not always been the case.  Before the development of technologies that can move people relatively quickly and inexpensively from one side of the globe to the other, labour was relatively immobile.  In a particular area, the number of jobs were necessarily limited; in times of recession, sometimes severely limited.  That meant that employees were effectively reduced to being "price takers".  They had little economic leverage to increase wages.  The number of employment opportunities was small or fixed; there was often surplus labour chasing those jobs.

Now, labour is globally mobile--more so than at any time hitherto in our age.

Christian Activists

Hard Work the Highest Service

The general medieval world-view was deeply suspicious of economic motives.  Lucre was, after all, filthy.  Therefore, it had to be limited, controlled, and governed.  All economic activity had to be carried on for the public good; profits must be restricted to sustenance payments.  Clearly, the medieval world had a problem with the Parable of the Talents. 

These generalisations hold generally true.  But there were exceptions.  Gradually, as Western economies developed, the exceptions became more common, more widespread.  Medieval theology, and the economic theories it produced, were broken apart by economic realities.  Theological understanding did not catch up until the Reformation--and then, only gradually.

John Calvin argued that laws against usury were entirely inconsistent.  They simply did not make sense.