Why are Egyptians wealthier in America than they are in Egypt?

Walter Williams

This is from Walter Williams, my second most favorite economist after Thomas Sowell.

Excerpt:

Why is it that Egyptians do well in the U.S. but not Egypt? We could make that same observation and pose that same question about Nigerians, Cambodians, Jamaicans and others of the underdeveloped world who migrate to the U.S. Until recently, we could make the same observation about Indians in India, and the Chinese citizens of the People’s Republic of China, but not Chinese citizens of Hong Kong and Taiwan.

[...]Much of Egypt’s economic problems are directly related to government interference and control that have resulted in weak institutions vital to prosperity. Hernando De Soto, president of Peru’s Institute for Liberty and Democracy (www.ild.org.pe), laid out much of Egypt’s problem in his Wall Street Journal article (Feb. 3, 2011), “Egypt’s Economic Apartheid.” More than 90 percent of Egyptians hold their property without legal title.

De Soto says, “Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called ‘dead capital’ — property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor.”

Egypt’s legal private sector employs 6.8 million people and the public sector 5.9 million. More than 9 million people work in the extralegal sector, making Egypt’s underground economy the nation’s biggest employer.

Why are so many Egyptians in the underground economy? De Soto, who’s done extensive study of hampered entrepreneurship, gives a typical example: “To open a small bakery, our investigators found, would take more than 500 days. To get legal title to a vacant piece of land would take more than 10 years of dealing with red tape. To do business in Egypt, an aspiring poor entrepreneur would have to deal with 56 government agencies and repetitive government inspections.”

Poverty in Egypt, or anywhere else, is not very difficult to explain. There are three basic causes: People are poor because they cannot produce anything highly valued by others. They can produce things highly valued by others but are hampered or prevented from doing so. Or, they volunteer to be poor.

Some people use the excuse of colonialism to explain Third World poverty, but that’s nonsense. Some the world’s richest countries are former colonies: United States, Canada, Australia, New Zealand and Hong Kong. Some of the world’s poorest countries were never colonies, at least for not long, such as Ethiopia, Liberia, Tibet and Nepal. Pointing to the U.S., some say that it’s bountiful natural resources that explain wealth. Again nonsense. The two natural resources richest continents, Africa and South America, are home to the world’s most miserably poor. Hong Kong, Great Britain and Japan, poor in natural resources, are among the world’s richest nations.

What is necessary for wealth is a capitalist economy, that emphasizes the rule of law, private property, judicial restraint, limited government, etc. Egypt has none of those, and that’s why Egypt is poor. India and Chile used to be like Egypt, but then they revamped their societies to be more like America. Now India and Chile are more prosperous. Economics is not rocket science.

Capitalism creates wealth, and raises the standard of living of the poor and the wealthy. It doesn’t matter what rung of the social ladder someone is on – as long as they can keep what they earn, instead of having it redistributed by socialists, then they will work hard to create something of value to share with others. Poverty is caused by economic ignorance.

More Walter Williams stuff here, and more Thomas Sowell stuff here. These are the clearest-thinking economists operating today.

Filed under: News, Capital, Capitalism, Capitalist, Contracts, Courts, Economics, Economy, Egypt, Entrepreneur, Entrepreneurship, Free Trade, Investment, Judicial Restraint, Law, Money, Poverty, Private Property, Profit, Property Rights, Rule of Law, Saving, Socialism, Statism, Thomas Sowell, Walter Williams, Wealth

A brief introduction to the blind faith religion of Marxism

The American Thinker has this post up explaining the blind faith of Marxism. (H/T Douglas Groothuis)

Marx thought that value was proportional to the labor spent in creating a product:

Marx claimed that all products contain value that is directly proportional to the amount of labor embodied within them. He was wrong. All the rest of Marxism is based entirely on this mistaken and falsifiable premise.

That’s clearly wrong. The price of products varies depending on supply and demand!

Marx thought that the free market would create monopolies:

Marxists claim that the operations of markets have a natural tendency to spawn monopolies. They call this “monopoly capitalism.” In reality, markets have a natural tendency to break up and undermine monopolies. Almost all monopolies under capitalism are those set up by governments stifling and interfering in the operations of markets.

That’s clearly wrong. Government regulation is needed to insulate monopolies from competition. And in capitalism, capitalists agree that government should take an active role in destroying monopolies and fostering competition, in order to give consumers choices. When consumers can choose, producers have to add value and reduce prices. Socialism, on the other hand, allows consumers one choice: the state-run firm.

Marx had no idea what incentives and laws were needed in order to foster conditions in which entrepreneurs would want to create wealth:

Marxists and socialists in general care a lot about the distribution of material wealth. But they have no idea how to bring about the creation of the material wealth that they wish to redistribute. They just assume it all gets produced all by itself. That is why people in communist regimes starve.

Wrong again!

Marx believed that capitalism was bad for workers.

Marxists claim that workers are oppressed in capitalist societies. Workers in communist societies always try to sneak out into capitalist societies. No one in South Korea is trying to sneak into North Korea. The Berlin Wall was not built to keep West Germans from sneaking into East Germany’s collective farms. Cubans in Florida do not steal boats to seek asylum in Cuban collective farms.

Why is it bad to encourage people to take risks, start their own companies and hire workers? Isn’t it better for for workers to have a choice of employer, so that they can leave if their working conditions or remuneration are unacceptable? How do people leave their employer in Marxism? Oh yeah – by firing squad or by jumping the wall.

But what about companies? Aren’t they all owned by greedy, colluding capitalists?

Marxists claim that capitalists do not work and that workers do not own capital. That is why they comprise “social classes.” But nearly all capitalists work, often in work days with very long hours. Meanwhile, a huge portion of capital is held by workers themselves through their pension funds and other institutional investment intermediaries.

…Marxists claim that businesses are owned by a small closed clique of capitalists. Actually, most businesses are “public,” meaning they are owned by shareholders and anyone at all can be a shareholder in them.

But isn’t capitalism opposed to democracy?

Marxists claim that capitalism cannot be democratic. But every single democratic society on earth is predominantly capitalist. Not a single communist regime was ever democratic. Communists take power via military coups and military conquest, not via elections.

But isn’t violence used against people in order to preserve capitalism?

Marxists claim that capitalists use violence to protect their perquisites and privileges. In truth, Marxists in power use violence to protect their perquisites and privileges. They use violence to suppress opposition wherever they manage to seize power, including violence against opposition groups of workers. It is conservatively estimated that 100 million people were killed by Marxism and by Marxists in the twentieth century.

But aren’t workers less well off in capitalist economies?

Marxists think that only things matter in economics, meaning tangible products, and so services do not. They believe that big products are more important than small products, big industries being more important than small industries. They also believe that consumer goods are superfluous and should not be produced much. All those ideas are why the quality of life and the standard of living are so miserable under communist regimes. In wealthy countries, small- and medium-size enterprises are the main engines for producing wealth.

But aren’t people poorer and less free in capitalist economies?

Marxists claim that under Marxism everyone receives according to his needs and contributes according to his capabilities. In reality, under Marxism everyone receives according to whatever the entrenched party apparatchiks decide their needs are, usually sub-sustenance levels of consumption, and the same people decide what are your abilities, generally assumed to be your ability to work endlessly at whatever you are told to do without getting paid much. To put this differently, in the absence of positive incentives, no one is capable of doing anything and everyone’s needs are infinite.

But isn’t a centrally-planned economy with fixed prices better than a free market capitalist economy?

Marxists think that “experts” can tell what needs to be produced. They cannot. That is why Marxist experts produce starvation. In some cases Marxist starvation has produced cannibalism. There is not a single Marxist scholar or expert on earth who could produce a pencil by himself.

But letting people earn money based on what they do leads to lower productivity, right?

Marxists believe that economic incentives do not matter. That is why they think there is no need to pay people more for working hard or exerting effort. It is enough to appeal to their “class interests.” That is why people starve under communism.

But in a Marxist economy, everyone is equal, right?

Marxists pretend to be in favor of the working class collectively owning all property. In reality Marxists always steal the property of members of the working class and turn it over to well-paid party apparatchiks.

But in capitalist economies, when two parties freely agree to exchange items of value for money, one of them is oppressing the other, right?

Marxists believe that in every voluntary transaction, one side wins and the other loses, and so it is impossible for two sides to profit from it. That is why they think you should be told what to buy and how much you should pay for it.

But capitalists go all around the world imposing their free market ideology through military force, right?

Marxists claim that capitalist countries engage in imperialism. But since World War II the largest empires of imperialist conquest were those headed by Marxist regimes.

Marxists believe that there are no real conflicts of interest between the workers living in different countries and speaking different languages or coming from different cultures. That is without a doubt the very stupidest idea of all coming from Marxism. In any case, that is why Marxism is generally spread only via military conquest.

This article is one to e-mail to all your friends who voted for the Marxist Obama. Obama’s Marxism was well known to everyone who took the time to read his books, and to read about his past actions and policies. Now we are going to be governed by someone who knows less about economics than Al Gore knows about climate science.

Maybe one day Obama will release his grades, so we can finally find out which of them is smarter.

Filed under: Commentary, Barack Obama, Cantral Planning, Capitalism, Capitalist, Communism, Demand, Democracy, Economic Illiteracy, Economics, Entrepreneur, Free Market, Freedom, Imperialism, Incentives, Liberty, Market, Marx, Marxism, Monopolies, Monopoly, Price, Socialism, Supply, Unintended Consequences, Wealth, Worker