Red Dirt Liberty Report: The Way Out of Poverty

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Poverty has been on the decline in the past 100 years or so, with as high as nearly half the populations in even what are now considered developed nations living in poverty 100 years or so ago. Yet, that does not mean that poverty is something that should be overlooked. One of the chief goals of altruism on the world stage should always be to seek out the alleviation of poverty. I would contend that poverty can never be eliminated, as its definition changes with ever changing economic conditions. The poorest among us will always be considered to be living in poverty, and that will not change, but it is always a worthy goal to attempt to better their situation.

There is a strong correlation between freer markets, offered by expanded capitalist policy, and a decrease in poverty. In fact, the chief difference between 100 years ago and now is that the world economy is at its most accessible level than at any time in the past, and while markets are far from being totally free and open, I would argue that they are the most free and open than at any time previous. Developed nations are tightening economic freedoms through the expansion of socialist policies, but the rest of the world seems to be mostly expanding economic freedoms, even if those freedoms are often coming through underground markets. In any case, it is undeniable that the quickest route anyone in the world has to a market is through entrepreneurship and small businesses.

A person who is out of work can immediately employ himself or herself by opening a business, even a micro-business. It requires no commitment from any other person or organization, and therefore, provides an option for immediately available work. While it does not mean a guarantee for immediately available income, it does offer an immediate opportunity, if perhaps no other opportunity currently exists. And, in terms of percentages, the most rapid growth opportunities exist with small businesses who could have a need to hire additional people more quickly. A small business can, because of its small size and maneuverability, double in size more quickly than a large business, therefore representing greater employment opportunities, on aggregate, than large scale businesses. In fact, in the developing world, 78% of all employment opportunities come from small businesses.

In 2012, the University of West Virginia completed a study of the relationship to increased small business activity and poverty in the state. It concluded that there was a significant negative correlation between increased small business activity and increased poverty. In other words, when small businesses do well, poverty declines A 2008 study by Research of Poverty Alleviation concluded that the role of small businesses and policies that encourage their develop are key to fighting poverty in Africa, much more so than policies designed to foster growth in large scale businesses.

What all of this shows is that policies which foster crony capitalism, as well as policies that narrow access to markets through socialism, tend to put strains on the economic activities of small and micro businesses. Regulatory hurdles are the bane to the reduction of poverty and do not encourage the betterment of those living in poverty. The answers for reducing the harmful effects of poverty tend to surround ideas which foster the greatest growth of tiny industry and businesses.

Government programs which aim to provide income or which are even designed to supplement income are not nearly as effective at poverty reduction as are programs designed to foster available capital for starting new businesses. It may sound like a technical difference, but money granted in the form of a government grant or subsidy carries a branding of expected continuation of minimal income, whereas capital available in the form of loans carries an expectation of creating a means of paying the loan back.

There have been many successes in the world of micro finance – very small loans intended to give impoverished people a means to start a micro business. Most of these programs are funded privately either through charity or through private for-profit enterprise. The hurdles that stand in their way usually amount to regulatory problems. Some governments provide regulations that do not allow for the cost of providing small loans to be low enough to make them financially viable, and in some cases, make them illegal altogether.

Yes, there are many loans which go unpaid, and the chief criticism of these programs is that it leaves the impoverished in debt. However, consider that the alternative is to simply throw money at the issue such that people receive it outright. In that case, all of the money is gone with no hope of any of it returning to help grow future available capital, and there grows a sense of entitlement and even dependence because there are no strings attached. How much better it would be to allow private market capital access to the impoverished to provide a means of escape on their own.

The answers to improving the lives of the impoverished and reducing poverty, while not perfect, best lie in freer access to entrepreneurship and freer markets. Gifting funds, while helpful on a temporary basis, do nothing to provide a means of escape. Whereas access to capital and free enterprise provide a very direct means to potential. Not all who have access are guaranteed a way out, but far more will escape than under current circumstances. Even the impoverished in developed nations could benefit.

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Danny Chabino

Danny Chabino has a background in operating small businesses. He has been involved in managing and/or owning the operations of multiple retail establishments, a sub-prime lending company, a small insurance company, a small telemarketing venture, and insurance consulting. In addition to these activities, he also has spent many years managing investments in stocks and stock options as a successful trader. He is the married parent of two adult children, living as a proud lifelong Oklahoman and a part-time redneck. Danny writes for the enjoyment and pleasure of sharing ideas and for the love of writing itself. His opinions skew libertarian, but he enjoys hearing open debate and listening to or reading of opposing ideas. As an odd confession, he personally detests politics, but enjoys writing about political ideals and philosophies.