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Wrong Again, Mr. President

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Leave it to President Clinton to do the right thing in the wrong way.

Last week the President announced that he would forgive, with Congress’s consent, more than $5 billion in loans that 36 poor nations owe the U.S. government. This in itself is entirely proper for one simple reason: the governments of the debtor nations have only one way to repay those loans — by forcibly extracting the money from their already-oppressed populations. That is immoral and the U.S. government should not be a party to it.

It should be obvious that the people of those poor countries did not borrow the money. The loans were made to political leaders — usually dictators. Moreover, the money was either poured down ludicrous government rat holes for pointless airports and steel plants or diverted to Swiss bank accounts to enrich the various Presidents for Life. Do the names Marcos, Mobutu, or Duvalier ring a bell?

If someone proposed that the personal wealth of Third World dictators be surrendered to repay their downtrodden subjects and the American taxpayers, I would applaud. But to tax those subjects would add injury to injury. It is beyond insult.

That foreign loans have not produced wealth in the developing world is the fact that debunks President Clinton’s specific plan for forgiving the loans. It wasn’t enough for Mr. Clinton to propose canceling the debts. He had to attach conditions. We should be used to this. He is the man, after all, who doesn’t believe you should ever have your taxes lowered unless you do what he wants you to do. He calls it “targeted tax cuts.” I call it being bribed with your own money.

Similarly, Mr. Clinton tells the governments of poor nations that they don’t have to repay the loans if. If what? If they promise to use the money to pay for health, education, and poverty programs. Has this man learned nothing?

Since it is poverty that accounts for those nations’ poor health and education, we can deal with these issues in one fell swoop. The great myth is that without capital from the rich countries, the poor countries will never get rich. That is nonsense. As the great development economist P.T. Bauer has said for years, if it were true that an undeveloped country cannot develop without aid, no country would be developed today. To whom did the first rich countries look for aid? Another planet perhaps?

It is not capital that the poor nations lack. After World War II, Hong Kong had no capital, no resources, no domestic drinking water. But it had something that made the other things possible: economic freedom, the freedom to be enterprising. Those are abstract terms, so let me be concrete: the people of Hong Kong had private property and a legal system to protect it. I stress this point because many people think that the most important freedom is the political freedom found in so-called democracies, namely, the right to vote. The people of Hong Kong did not get such freedom until just before the British relinquished the island to China a few years ago. On the other hand, the people of India have had the vote since 1948, and they are still miserably poor.

It is indisputable that in the recipe for getting rich, the ability to vote means a heck of a lot less than the right to keep and control one’s own property. In Hong Kong the impediments to enterprise are close to nonexistent. Entrepreneurs are free to find ways to please their fellow consumers. Two things happen: entrepreneurs get rich and the people experience rising living standards. Did I mention that Hong Kong isn’t on the list of poor nations with government loans that need forgiving?

The upshot is that if governments in poor nations use the debt forgiveness as an excuse to create new bureaucratic obstacles to freedom, they will only doom their people to the poverty they are mired in now. Those nations cannot afford any more antipoverty programs. They need freedom, private property, and a rule of law that protects property and contracts. In a word, they need capitalism.

If Mr. Clinton gets his way, he can add another note to his dark legacy: the continuation of misery in the developing world.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.