The New Deal - Good intentions but bad planning.

I came across an old article today, one talking about the global New Deal plan that was supported by the then UN Secretary General Kofi Annan to fight poverty in poorer nations. The plan was meant to, and in many ways did, raise several questions. But their key issue to tackle was whether the standard of living could be improved in these poorer countries. It was a routine article that spoke about the pros and cons of this plan, one that I did not think I would remember a few minutes after I read it. But for some reason, I did.

Frankly, I found Kofi Annan's approach a little suprising. It was basically the same as the New Deal that was implemented by Franklin Roosevelt during the Great Depression. That is, government welfare and political intervention into economic activity would be the two primary tools used to allviate poverty. The reason I found the plan suprising is that it expects poor nations to operate on the same conditions that the United States did during the depression. The plan assumes that there are wealthy people to tax and economic activities to regulate. But what about countries where the overwhelming majority lives in poverity and there is virtually no economic activity that is worth regulating?

Let's assume that one million people live in Nilanopia, all of whom live in desperate poverty. No one has a net worth exceeding $100, and those who are able to find jobs receive $1 a week. Living and health conditions are terrible. About 10 percent of the population die each year of malnutrition.

Could anything be done to alleviate the poverty of the people of Nilanopia? The New Deal plan says "The government of Nilanopia should enact a New Deal and tax those who have wealth and give welfare to the poor. It should enact a minimum-wage law requiring every employer to pay workers $100 weekly, and it should impose price controls on food, housing, and other necessities to ensure that the poor are able to afford them."

Do you see the problem? There are no wealthy people in Nilanopia to tax and no businesses on which to impose wage and price controls!

Annan's answer seems to be: The rich nations of the world should be taxed and the money sent to the United Nations, which would distribute it to government officials in Nilanopia, who would then give it to the poor. But Annan's approach, of course, by-passes some crucial questions: Why are there wealthy people in Europe and not in Nilanopia? What if the entire world was in poverty? What good would a global New Deal do then? Is it not dangerous to implement a plan on this scale when it works in such a deceptively subjective nature?

But what is the cause of wealth in a society? The answer is a counterintuitive one, and it has been the solution to poverty in many ravaged nations. The key to economic prosperity and rising standards of living, especially for the poorest people in the world, is: Stop governments from trying to 'help'.

The key to economic success, especially for the average person, lies in economic liberty - the unrestricted freedom to engage in economic activity, to enter into mutually beneficial trade with people all over the world, and to accumulate unlimited amounts of wealth. By trading their goods and services with others, people will gradually be able to improve their respective economic positions. And a rising collection of private capital (tools and equipment) makes workers more productive, which results in rising wage rates, especially in a highly competitive environment. If the UN was just willing to provide them with some capital instead of political intervention, the results are likely to be fare more fruitful.

Thus, a society in which people have greater freedom to work, trade, and earn their wealth will always have a higher standard of living than a society riddled with governmental regulations, taxation, and welfare. The intent has no relevance here, what the population needs is a positive result. That is why West Berlin had a higher standard of living than East Berlin. And why Hong Kong has a higher standard than Cuba.

Annan's plan for a global New Deal is not entirely wrong-headed but his approach definitely is. It has a higher chance of lowering standards of living and dooming people in poorer nations to even more poverty than of elevating it. What these people need is some cash and a plan, not a handbook that attempts to tell them how their life should be run.

Too bad the United Nations begs to differ.