Sunday 11th September, 2005

 

Getting out of the vicious cycle

 
 
 
 
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The ravages left by recent natural disasters in Indonesia, and Louisiana bring sharply into focus, the sociological adage: the vicious cycle of poverty.

This construct supports a view that poverty is self perpetuating, and an entrapment, within which developing nations are doomed to fracas.

But escape is possible along two tangents. They are education, and a savings discipline. But there is another window of opportunity, it is government.

A cursory view of development in places such as Dubai, Doha, and Kuwait, shows spiralling growth and development, and stories of rags to riches, funnelled by progressive governments who have discovered the real bargaining power of their natural resources.

And while that is happening, too may of us will look back and ask a foolish question “What happen?” when it “done happen.”

Economists believe that the gamut of problems funnelling vicious poverty in developing countries reside in six areas.

The first is a scarcity of capital formation (money) in savings, the second is improper human resource management, the third is a cowardly entrepreneurial spirit, the fourth is a lack of social overhead capital, the fifth is a chronic dependency on First World nations, and the sixth is corrupt practices.

It is possible that this scarcity of capital is the result of inadequate incentives for citizens to save from their earnings, to save from taxation, and to make long term investments in a well regulated business environment, and a secure political climate.

In addition “capital flight” is a disease from which we suffer, characterised by acute onset in cycles too short for the overall good.

Capital flight occurs when savings, in terms of accumulated dollars as well as resources of human expertise leave our shores in search of better and safer opportunity for earnings and investment, in other countries.

Often that flight is initiated by active recruiting from the developed countries, which place a higher value on human capital, without prejudice of race and religion.

As was so evident in New Orleans, only those who had the means of transportation and health could leave.

A poor workforce is likely to be unhealthy, and disease is a leading threat to development in many developing nations.

The human resource has to trained, and retained, and education ought to be big ticket expenditure, and all our schools should be open for all our children, on time, every time. There is absolutely no excuse for that failure.

Social overhead capital refers to basic infrastructure, built with revenue from the resource utilisation and taxpayers. It includes support systems such as schools, water supply, police and defence, electricity, pest control and telephone communication.

In a 1974 World Bank publication, it was concluded that growth and development may not be the same thing. In fact growth may be rapid, but if one third of the population reap no benefit, it is not development.

More and more our social insurances: old age pension, disability benefits, NIS, and aid for widows and orphans are being questioned as programmes without long term viability from the actuarial perspective.

In addition, is the role of government, to provide a “safety net” or is it to manage all our resources in such a way that prosperity is visible and redounds to all?

If governments fail to fairly administer those large scale programmes that engender social capital development, which are in fact too large for private enterprise to undertake, the question then arises: what is the role of personal savings, beyond capital formation, in and of itself? Is it fuelling some other vicious cycle?

(Continued next week)

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