McLeod on hardship
December 29th, 2007 at 9:49 am by David FarrarA worthwhile piece by Rob McLeod on how best to help people out of povety:
Recently I heard a successful businessman, nearing the end of his career, pondering what he would do if he had his time over again.
“I wish I’d given something back.” he lamented. “When I look at the poverty and suffering in the world today, I feel I could have made a difference to some other people’s lives if I hadn’t focused so much on my business.”
I reflected that his sentiment was admirable but his logic faulty. He had not taken anything from the community which he had a duty to give back.
On the contrary, he had produced goods and services that customers valued, created jobs, made money for investors and paid taxes.
Yes, being sucessful in business does not mean you have “taken” anything. It (generally) means you have provided jobs, made customers happy and generated tax for the Government to spend.
Philanthropy should spring from other motives. The impulses and values that drive it are the same as those that operate within a family or small community: love, a sense of responsibility, an urge to see our children do well, neighbourliness and altruism. At its best, voluntary collective activity works well, so it’s no wonder people turn to that model in trying to solve the world’s problems.
Again, I agree. It is not a sense of obligation that drives philanthropy for most people. It is that mixture of altruism and responsibility.
… simply giving money to individuals or countries, whether it be by individuals or governments, does not address the causes of poverty.
And McLeod, as I read it, is not arguing against doing this. Just saying donations alone alleviate but do not solve poverty.
Thirdly, governments cannot create wealth; they can only take it through taxation and redistribute it. There is ample evidence that redistribution can do harm as well as good, through creating welfarist attitudes and because it often breeds corruption.
Africa is a prime example of this, sadly. The Pacific is far from exempt also. And again I don’t read this as a call not to donate to these countries, but to realise there are downsides as well as benefits by what we do.
Consider the power of wealth creation compared to wealth redistribution in a New Zealand context – Treaty of Waitangi settlements. While important as a matter of justice, their economic significance has been exaggerated.
For example, there are about 633,000 Maori, and treaty settlements to date total around $743 million. This represents a one-off sum of almost $1200 per Maori which, at an after-tax rate of 4 per cent, represents an annual income of just $48 per recipient. The message is clear: governments, let alone treaty settlements, cannot be a source of material wealth for Maori.
This is a point Don Brash made some years ago. It is absolutely important to settle the historical grievances, and the settlements can certainly provide a good base for further development, but when you divide it down to a per capita amount the impact is very very modest.
Maori have to generate wealth by participating in the market. A Maori school-leaver who starts work at 16 on $12 an hour, plateauing at just $20 per hour at age 25, would by 65 have earned a lump sum equivalent of $646,000. The equivalent tertiary qualified Maori starting at age 25 on an income of $42,000 that continued to increase each year at an average rate could expect to accumulate a lump sum of around $1.7 million by 65.
An extra million over the working life due to education and employment certainly beats $48 a year.
The work we do and how well we do it is in the end the key to our productivity. Improving it through better worker knowledge and training, better technology or more capital to work with, improving incentives through lowering taxes and eliminating stifling regulation, promoting competition to force businesses to perform better, ensuring as a nation we do what we do best and trade for the rest is the key determinant of our standard of living and the single most important contributor to reducing poverty.
Now people might say hey that guy McLeod is the Business Roundtable Chair, so let us ignore his message and attack the messenger. I’ll just make the point that people should look at what Australian Labor PM Kevin Rudd is saying, and see if they can find much difference.
So in thinking about our New Year’s resolutions this year, for sure, let’s all commit to giving generously to our chosen charities. But let’s also remember the best thing we can do for New Zealand’s less fortunate citizens: promote the changes needed to improve productivity and create the rising tide that lifts all boats.
It is very unsexy but lifting productivity is what it is about.
No tag for this post.
December 29th, 2007 at 10:03 am
Poverty round the world will only be eliminated with the provision of cheap, renewable energy.
Technology will provide this.
Vote:December 29th, 2007 at 10:35 am
Talking about giving to charities, hardship and helping disadvantaged people the Press published another letter today regarding this subject;
Come, Holy Dollar
Vote:Does anybody else find it odd that the City Mission was inundated with a record attendance at its Christmas lunch – then Boxing Day was a shopping bonanza that broke all records as Kiwis forked out $90m and the tills sang Come, Holy Dollar.
December 29th, 2007 at 12:50 pm
I think long and hard about these issues every day. In my opinion most people love helping other people. The difference between say national supporters and labour supporters is in general that national supporters would like to help people with their own money but labour supporters would like to help people with other people’s money.
Take housing affordability since it is arguably the most critical issue facing NZ’s ability to move back up the OECD ladder. Almost invariably on the wish list of the right is that house prices will fall, so that the people who work hardest will get to buy a house of their choice. On the left’s wish list is more public spending on housing subsidies so that more wealth can be redistributed to people who are not prepared to or unable to work hard; and reducing house prices doesn’t figure in their list.
As I keep on saying, one of these approaches gives NZ a future and the other one does not.
Vote:December 29th, 2007 at 12:51 pm
No not surprising at all D4J. A large gap between rich and poor is the hallmark of third world countries with poor left wing governance.
Vote:December 29th, 2007 at 2:30 pm
But too often the right has ignored issues of poverty, access to health and education services and employee rights. They have simply left all that over to the left. Now we have fear of climate change with the left getting a running start with heavy handed statist solutions. The left have to be defeated on the issue the Government can and should solve everything and produce, as a monopoly, essential services. If the right can win the argument there then the Labour Party is destroyed for good. The logic of the Labour Party is the state should control everything including free speech. The EFA is a natural development. Soon the Labour Party will take away everything. A Government big enough to give you what you want is big enough to take it all away (if you do not behave).
Vote:December 29th, 2007 at 3:39 pm
The work we do and how well we do it is the key to our productivity.
Improving our productivity is the key to lifting our standard of living and reducing poverty.
The keys to improving productivity are:
1. Better worker knowledge and training.
2.better technology or more capital to work with
better incentives through lower taxes
no stifling regulation
more competition to force businesses to perform better
do what we do best and trade for the rest
Vote:December 29th, 2007 at 3:42 pm
My brother tells me that Jeffrey Sachs’ book on this subject is very good:
http://www.earth.columbia.edu/pages/endofpoverty/index
Vote:December 29th, 2007 at 3:43 pm
Sorry for the false start there. So what Mr McLeod is saying is this…
The work we do and how well we do it is the key to our productivity.
Improving our productivity is the key to lifting our standard of living and reducing poverty.
The keys to improving productivity are:
1. Better worker knowledge and training.
2. Better technology or more capital to work with.
3. Better incentives through lower taxes.
4. No stifling regulation.
5. More competition to force businesses to perform better.
6. Do what we do best and trade for the rest.
Mr McLeod is the head of the Business Roundtable, who socialists would have us believe care only for the rich.
Would one of them care to refute his recipe for reducing poverty?
Vote:December 29th, 2007 at 6:54 pm
John, the devil is in the detail and one of the details is attracting the right people. They need to be paid well and want to live in the country. The present government (and to a certain extent the post MMP 90s governnents) have decimated our competitive advantage, which was that people were prepared to live here despite lower wages because you could own a house and it was a nice place to bring up kids. Policies, such as forcing up house prices to “trade for the rest” and over-regulation so that wealth generated from innovation can be prevented or distributed right from the word go have been mainly responsible for this situation.
Consequently we find ourselves in the situation that Housing NZC is flat our building new apartments for people on low incomes in good Auckland suburbs such as Orakei, Mt Albert/Roskill becuase they cannot afford accomodation. To pay for this they tax hard working people who can then not afford to buy in these areas and have to commute 20-30km instead. They also lease a lot of houses at high rates and rent them out at low rates. There seems to be no immediate solution to this injustice.
Vote:December 30th, 2007 at 8:04 am
There is a Jesuit tag that translated goes: Without God no man is great.
Mr Successful Business man would do well to consider.
Vote:December 30th, 2007 at 2:10 pm
Kevin, any arbitrary intervention in a marketplace always produces winners and losers at the cutoff points, it’s unavoidable and management of the queue is open to corruption. Why do some local authorities provide low income housing and others don’t (and then ask for central government assistance when they need upgrading), surely that’s not fair either for those that happen to live in the wrong place? Vouchers/grants for the needy is the answer, leave the rest to the market.
Vote: