On May 2 the best friend of the world’s poor died at home in London. Peter Bauer was 86 and had just been named winner of the first Milton Friedman Prize for Advancing Liberty, awarded by the Cato Institute.
Never heard of Peter Bauer? That’s because his analysis of poverty in the developing world and his solution to it weren’t shared by the political and media establishment or by mainstream development economists, such as Gunnar Myrdal and John Kenneth Galbraith. They all favor socialism for the “third world.” Bauer favored individual freedom, private property, the rule of law, and limited government: that is, capitalism. That’s why you haven’t heard much about him.
Development economists have a dozen reasons the laws of economics that work so well in developed countries do not work in poor countries. Their rationalizations come down to a few main points: that poor people do not respond to market incentives; and that they won’t invest now in order to reap a larger return later. This is known as the “cycle of poverty,” which can be broken, development economists said, only by government planning and massive handouts from the West. Unfortunately, when countries were getting free from the colonial system after World War II, their Western-trained autocratic leaders listened to Myrdal and Galbraith. The result was a decline in material well-being and decades of miserable poverty. Meanwhile, guilt-ridden Western leaders sent billions of dollars in foreign “aid” to those countries, achieving little besides the fattening of the bureaucratic class and the politicization of society, which only aggravated their condition and even provoked civil wars.
Through it all the Hungarian-born Bauer’s lone, gentle voice painstakingly showed why socialist development polices would doom the people of the developing world. He started out with a deceptively simple question: If the development economists were right, how did anyone ever get rich? After all, poverty is mankind’s natural state. The human race did not start out with capital, and before the first people grew affluent, there was no one to provide foreign aid.
So how did it happen? Bauer, through empirical studies of West Africa and Malaysia and an elaboration of economic theory, showed that capital is the effect, not the cause, of material progress. The causes are ambition, hard work, supportive cultural attitudes, and a rule of law that protects property; in a word, capitalism. Where those conditions obtain, progress follows. Hong Kong, which was extremely poor after the war, is only the most striking example. Asia is full of others examples.
In one of his best-known essays, “Western Guilt and Third World Poverty,” Bauer showed that the West need not feel guilty for world poverty. The poorest of the poor countries are the ones that have had the least contact with the capitalist countries. The richest of the newly developed countries were colonies until recently. (Hong Kong was a British possession with little democracy until 1997.) The guilt trip is just a way for elitist third world leaders to extort money from rich Westerners. But the money has not raised the living standards of the people. Only market reforms have accomplished that.
In other words, advocates of free-market globalism (not the government-managed kind) can hold their heads high. Free trade with the developing world is good for everyone concerned. In fact, it is the only route out of the abject poverty so many in Africa, Asia, and Latin American find themselves in.
Bauer also was an early opponent of government population-control programs. For him, the simple question is: who should make decisions about having children, parents or the state? The answer is obvious. Moreover, he pointed out that a growing population is not an impediment to economic progress — quite the opposite. The populations of England and America grew dramatically when those countries were first getting rich. In much of the developing world, the problem is too few people to support an infrastructure capable of efficiently moving goods to markets.
Finally, where the mainstream development economists’ writings drip with condescension for the apparently helpless poor, Bauer’s words glow with goodwill and respect. The inhabitants of the developing world are people, he reminded us. They need freedom too.
