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Economics

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Kill private capital, kill civilisation

by Jeffrey Tucker

The core of the problem [of crumbling buildings in Haiti] has nothing to do with a lack of regulations. The problem is the absence of wealth. It is obviously true that people prefer safer places to live, but the question is: What is the cost, and is this economically viable? The answer is that it is not viable, not in Haiti, not with this population that is barely getting by at all.

Where is the wealth? There is plenty of trade, plenty of doing, plenty of exchange and money changing hands. Why does the place remain desperately poor? If the market economists are correct that trade and commerce are the key to wealth, and there is plenty of both here, why is wealth not happening?

One can easily see how people can get confused, because the answer is not obvious until you have some economic understanding. A random visitor might easily conclude that Haiti is poor because somehow the wealth is being hogged by its northern neighbour, the United States. If we weren’t devouring so much of the world’s stock of wealth, it could be distributed more evenly and encompass Haiti too. Or another theory might be that the handful of international companies, or even aid workers, are somehow stealing all the money and denying it to the people.

These are not stupid theories. They are just theories — neither confirmed nor refuted by facts alone. They are only shown to be wrong once you realise a central insight of economics. It is this: Trade and commerce are necessary conditions for the accumulation of wealth, but they are not sufficient conditions. Also necessary is that precious institution of capital.

What is capital? Capital is a thing (or service) that is produced not for consumption but for further production. The existence of capital industries implies several stages of production, or up to thousands upon thousands of steps in a long structure of production. Capital is the institution that gives rise to business-to-business trading, an extended workforce, firms, factories, ever more specialisation, and generally the production of all kinds of things that by themselves cannot be useful in final consumption but rather are useful for the production of other things.

Capital is not so much defined as a particular good — most things have many varieties of uses — but rather a purpose of a good. Its purpose is extended over a long period of time with the goal of providing for final consumption. Capital is employed in a long structure of production that can last a month, a year, 10 years, or 50 years. The investment at the earliest (highest) stages has to take place long before the payoff circles around following final consumption.

In a developed economy, the vast majority of productive activities consist in participation in these capital-goods sectors and not in final-consumption-goods sectors . . .

Rising wealth is always characterised by such extended orders of production. These are nearly absent in Haiti. Most all people are engaged in day-to-day commercial activities. They live for the day. They trade for the day. They plan for the day. Their time horizons are necessarily short, and their economic structures reflect that. It is for this reason that all the toil and trading and busyness in Haiti feels like peddling a stationary bicycle. You are working very hard and getting better and better at what you are doing, but you are not actually moving forward . . .

Now to the question of why the absence of capital.

The answer has to do with the regime. It is a well-known fact that any accumulation of wealth in Haiti makes you a target, if not of the population in general (which has grown suspicious of wealth, and probably for good reason), then certainly of the government. The regime, no matter who is in charge, is like a voracious dog on the loose, seeking to devour any private wealth that happens to emerge.

This creates something even worse than the Higgsian problem of “regime uncertainty.” The regime is certain: It is certain to steal anything it can, whenever it can, always and forever. So why don’t people vote out the bad guys and vote in the good guys? Well, those of us in the United States who have a bit of experience with democracy know the answer: There are no good guys. The system itself is owned by the state and rooted in evil. Change is always illusory, a fiction designed for public consumption.

This is an interesting case of a peculiar way in which government is keeping prosperity at bay. It is not wrecking the country through an intense enforcement of taxation and regulation or nationalisation. One gets the sense that most people never have any face time with a government official and never deal with paperwork or bureaucracy really. The state strikes only when there is something to loot. And loot it does: Predictably and consistently. And that alone is enough to guarantee a permanent state of poverty.

Now, to be sure, there are plenty of Americans who are firmly convinced that we would all be better off if we grew our own food, bought only locally, kept firms small, eschewed modern conveniences like home appliances, went back to using only natural products, expropriated wealthy savers, harassed the capitalistic class until it felt itself unwelcome and vanished. This paradise has a name, and it is Haiti.

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