The might of rights
An open economy, with property safeguards and the rule of law, is the key to beating poverty, writes Mike Moore
Here are some figures you won't believe if you only read the headlines about global poverty. More wealth has been created in the past six decades than in all previous history, and it has reduced poverty. The number of people living on less than US$1 a day dropped from 40 per cent in 1981 to 18 per cent in 2004. In the same period, the number living on less than US$2 a day has dropped from 67 per cent to 48 per cent.
Too many people still live in poverty; half a billion on US$1 a day and 2.6 billion on less than US$2 a day. But the evidence is clear that open economies, open trade and open societies - those that cherish the rule of law, property rights, labour rights and democracy - do better. Closed economies are always run by oppressive leaders. If they don't let people decide their economic rights, they are most likely to suppress their human and political rights. No two democracies have ever gone to war and there has never been a famine in a democracy with a free press.
Every now and again a serious report emerges that nails the issues, and its ideas are put centre stage. Success is when these ideas become cliches. A report by former German leader Willy Brandt invented the phrase 'north-south', and put forward the idea that rich countries should be obliged to give 1 per cent of their gross domestic product in aid to poor countries. A report on the environment by former Norwegian prime minister Gro Harlem Brundtland coined the phrase 'sustainable development'.
I am a member of the UN Commission on the Legal Empowerment of the Poor, chaired by former US secretary of state Madeleine Albright and Peruvian economist Hernando de Soto. We had our final meeting recently, and the commission's report will be profound; it may change the thinking on how we alleviate poverty.
Poverty is man-made; we can fix it. What's the common denominator in success and failure? Open economies always do better. Trade and competition bring better results and are powerful weapons to drive out corruption, as well as to allocate resources more efficiently. Private ownership, spread through society, works. Firm, predictable civil institutions create a vital factor to promote success: trust. Trust in the courts and in contracts is a serious issue. People are driven underground when they don't trust their institutions, which is why 40 per cent of developing nations' economies are in the informal sector. Why register a company if it costs so much? This relegates local businesses to the back streets. Secure property rights boost investment. Evidence abounds that when trust emerges, investment rises.
When China established de facto securitisation of property and liberalised agriculture, productivity jumped 42 per cent between 1978 and 1984. The mainland's more open economy has lifted hundreds of millions out of poverty.
The UN commission focuses on the legal rights of the poor. Seven in 10 children in the poorest countries have no birth certificate or legal identity. The Universal Declaration of Human Rights proclaims that everyone has the right to recognition everywhere before the law. Without secure property rights, poverty will endure, corruption will remain endemic and investment will wither. People without property rights cannot realise on their assets, which are considerable. Informal capital in Peru is estimated to be worth US$74 billion; in Egypt it is US$248 billion; Tanzania, US$29 billion; Albania, US$16 billion; and Mexico, US$310 billion.
Eighty per cent of all property in Latin America is held outside the law. The poor and indigenous people are not without assets. In Egypt, the assets of the poor are 50 times greater than all foreign investment ever recorded. But, just to establish a bakery in Egypt, for instance, can take 500 days, 29 visits to 29 agencies, compliance with 315 laws, and costs 27 times the monthly minimum wage. In New Delhi, there are about 500,000 bicycle rickshaws but only 99,000 licences are available. It is the same story for street hawkers, who are kept in limbo and pay up to one-third of their incomes to stay in business. Licensing and restrictions create opportunities for bureaucrats to take bribes and steal. In the Philippines, 65 per cent of homes are unregistered; in Tanzania that figure is 90 per cent. This explains why millions build their homes and businesses illegally. Bringing people out of the shadows formalises what they already own and safeguards them from predatory politicians, bureaucrats and local mafia. It widens the tax base which, in turn, makes people want to hold their politicians accountable.
Access to justice, to get your case heard, is important even when the appropriate law is enacted. India has only 13 judges for every 1 million people, and some civil cases can take 20 years to reach court. Around 1 million cases are pending in Kenya, and 800,000 in the Philippines in 2005. We can establish property and collective rights that will encourage people to move into the formal economy, where they are protected by the courts, can borrow formally against their assets and live better. Countries that adopt these principles of good governance do better.
Mike Moore, former prime minister of New Zealand and former director-general of the World Trade Organisation, is adjunct professor at La Trobe University in Melbourne, Australia