Haiti: Two Hundred Tragic Years

There is no doubt that what has beset Haiti is nothing less than a tragedy.  But, it was an avoidable tragedy.  The tragedy came into being not because Haiti’s rudimentary economy, with hardly any industrialization, suffered from a lack of natural resources or from a shortage of entrepreneurship.  Nor was it because of Haiti’s geographical position.  Neither was the tragedy a product of misfortune.  The extensive damage was inevitably caused by the poverty in Haiti.  This poverty exists only because of overbearing regimes, occupation and corruption.  While most onlookers fear for the near future, and hope for immediate assistance, the long-run will become more pertinent.  What Haiti really needs is not prolonged and voluminous international aid, but a government which can respect its people’s rights to property and liberty.  To achieve success, Haiti must allow the free-market to provide for the needs of those who form it—the people of Haiti.

Without a doubt, the immediate issue concerns the health of those still alive, whether caught beneath the rubble or looking for food in a city with no distribution centers left standing.  Apart from, perhaps, a strict follower of Ayn Rand—a woman who despised all forms of altruism, except those which she deemed absolutely necessary (usually in the form of government provision)—few libertarians would not concede that Haiti requires as much immediate aid as possible.  Whether or not this aid is given voluntarily, or is made up of government tax receipts, is inconsequential in the short-run.  In the strictest of libertarian arguments, government taxation is a reality, and this money is better redistributed to those truly in need rather to see it fund a war in which the perpetrators have completely detached themselves from practicality.

But, what is addressed here is not the short-term benefit of direct aid, but the long-term non-benefits of direct aid.  While aid is indispensable in the days immediately after the disaster, only a complete reconstruction of Haiti’s political organization will lead to solutions which will make the people of this small country less susceptible to similar tragedies in the future.  Those who shape public policy must refrain from intervening in the market.  Admittedly, the majority of people likely have a deep distrust in capitalism and the free market, given the bad name mercantilist nations like the United States have given it.  That is why an understanding of capitalism, and what it entails, and what it requires is absolutely necessary.  The role of capital accumulation, and the relationship of savings, investment, and freedom, must be understood.  The importance of free trade—something which would allow the suffering people of Haiti to bypass the decades of capital accumulation necessary to develop to a similar level as the United States—must be respected by a moral government, built from the beginning to guarantee property rights, liberty and health.  These are the building blocks to prosperity.

The road ahead is long.  As Bill Clinton says, Haiti can still be saved.  But, Clinton’s solutions will only lead to a handicapped recovery.  A better route must be adopted.  This route exists, and it is called the free market.

Role of Capital Accumulation & Freedom

If we look at any given first world country, what do we see?  We see an advanced, industrialized nation with ample government welfare programs—direct aid to the poor and extensive social insurance—and fairly large governments.  One can immediately come to the conclusion that these are the factors which most influence a nation’s prosperity.  But, the reality is that the road to prosperity is not nearly so simple.  These same countries went through decades, or even centuries, of relative poverty, where its people accumulated capital through savings and entrepreneurs invested said capital, creating wealth.  These were times with limited government—at least, when it came to purely economic matters—, where entrepreneurs and consumers could freely coordinate through the price system, providing each other with what they wanted and methodically making society as a whole much richer than it was before.

Taxes and income redistribution is not a means to this end.  While true that redistributing Person A’s $500 to Person B will make Person B $500 wealthier, that boost in income is only temporary.  Redistributed income comes mostly from the wealthy, those who have accumulated their wealth after years of entrepreneurship and investment.  They are the same people who have a higher propensity to invest towards the future.  These are not just the very rich, but also the middle class, struggling to invest in smaller businesses—book stores, cafés, et cetera.  By taxing these people, the government expropriates capital from those who are willing and able to invest, eliminating the opportunity to generatewealth.  Those who receive this capital have an obvious immediate boost to their purchasing power, but may not have the incentive or means to invest it in a similar fashion.  Usually speaking, such redistribution fuels consumption—consumption is necessary when done voluntarily, but forcefully redistributing capital from investment to consumption is only harmful in the long-run.

Entrepreneurship and investment, taking advantage of capital and labor, brings about an increase in wealth, because they inherently bring about an increase in production, or the introduction of new products—goods and services (of course, this assumes the investment was a good one).  It is only through capital accumulation and investment, for example, that real wages rise.  For example, imagine that within an economy the supply of Product A is x.  An entrepreneur thinks of a new method by which to double the production of Product A, borrows capital from a lender (or, uses his own accumulated capital), and begins to lengthen the structure of production.  In other words, the original owners of the capital forgo present consumption, allowing this entrepreneur instead to use it to exchange for capital-goods.  These capital-goods are used in more roundabout methods of production.  Let us say that first the entrepreneur must invest in the production of a belt way, or of a certain part.  These are individual phases in the new, lengthened structure of production.  Finally, the new machine is built and delivered to the plant which produces Product A.  The supply of Product A is now 2x.

Let us assume that the volume of money, or capital (not one in the same, but capital is more accurate), is Y.  The original price of Product A was Y/X.  The new price is Y/2x, or half as much.  The consumers of said product are now twice as wealthy in respect to Product A.  Now, consider the effects of investment amongst multiple industries.  The long-term effect is a decrease in the price of goods, and an increase in the wealth of a society.

Society is also rewarded with the creation of jobs, and the maximization of utility through the reallocation of labor to maximize the efficiency of the division of labor.  In this way, old firms are replaced with new firms, and these new firms compete for labor.  This suggests that over the long-run there is upwards pressure in wages—this can manifest itself in higher monetary wages, or through the extension of benefits and insurance programs.  For those who receive medical benefits from your employer, thank decades of capital accumulation and not government.

Capital accumulation is great, but accomplishes nothing on its own.  As aforementioned, it requires investment.  Investment usually comes only after property rights have been solidified.  In a society where property rights are not respected, little or no entrepreneurship is bound to take place.  This is why governments which take larger roles in economic planning and centralization tend to drive their societies into the ground.  This is why wealth is consistently being destroyed in countries such as Venezuela and Zimbabwe.  The forceful redistribution of wealth from entrepreneurs to consumers promises only greater poverty.  The right to property, including what one has earned through barter and trade, is paramount to a progressive society.  When there is government, there is a necessary legal code which must exist.  This legal code is not meant for the citizens of said government to follow, but instead for the government to respect.  For example, the United States Constitution is not a set of laws designed to restrict how Americans act and interact, but restrict the ability of the American government to deny their citizens basic and necessary freedoms.  Notice how a breach of this social contract between the people and their government has led to the creation of an overbearing American State.

Imagine a forester whose parcel of land on which his trees have been growing is not protected, or respected as his property.  If the future of his ownership of that land is in enough doubt, there is no incentive for him to maintain those trees, as the rewards for his efforts are not guaranteed to a sufficient extent.  This is why public land tends to degrade overtime.  There is no vested interested to maintain common property—i.e. “tragedy of the commons”.

Thus, an important relationship between liberty, property and wealth is created.  The liberty to accumulate capital and the guarantee that said capital (property) will be yours and yours alone, are necessary preconditions for the production of wealth.  Put differently, these are the building blocks to a first world and rich society.  If there is any hope for Haiti to crawl out of the hell it subsides in, these liberties and rights must be given back to the people of Haiti.

Importance of Free Trade and Moral Government

Globalization has made it so that decades of capital accumulation are no longer necessary to develop the capital-goods necessary to enrich society.  These capital-goods have fortunately been developed before, by other countries, and so a repetition of these steps is not necessary.  Globalization—the integration of markets around the globe—makes it easy to acquire these capital-goods.  For example, an entrepreneur in Taiwan can access a new steel producing machine that doubles the output of steel, from the United States, foregoing the process of saving and investing in Taiwan.  But, the efficient exchange of goods and services require unrestricted and free trade.

Free trade makes many things possible.  It allows Haitians to import necessary products for a much cheaper price than it would cost to manufacture them in Haiti.  It allows the Haitian economic structure to organize and divide itself in such a way that Haiti’s productive capabilities were fully utilized and maximized.  It allows this economic structure to create a division of labor in line with that of the global economy, so that Haiti’s production is organized in the same fashion.  It makes Haiti competitive on the global level, which over the long-run is a measure to only increase wealth.

For the individual Haitian worker, entrepreneur or laborer, it makes his lifestyle that much cheaper and affordable.  Wages will tend to push up in real and monetary terms.  This is not too different to how the average wage for the American increased between 1776 and the present day.  The difference is that Haiti can accomplish this same growth without having to sacrifice the amount of time it took the United States.  This is because a globalized economy, and free trade, allows the benefits of capital accumulation in the United States to be exported to Haiti for a relatively lower price.  This is another miracle of liberty.

Just like when it came to property rights, it requires a government which respects its citizen’s right to voluntary exchange with individuals of foreign countries.  It requires a government not interested in its own power.  A government that looks after an entire society, not just those who can afford to pay off the government to give them artificial advantages in the market.  It requires a State bounded by ethical or moral frontiers, similar to the original government of the United States.  This needs to exist for a sufficient amount of time so that the market can provide the people of Haiti the same standard of living afforded to the people of the first world.

Long-Term Vision

Surely, the road to prosperity is not easy.  Haiti cannot immediately raise itself out of this self-burial.  A rise in wealth will take time.  The first step is to mend the damages done by this most recent tragedy.  If it requires, within the constraints established by the existing political organization, foreign government aid, so be it: so long as the ultimate consequence is that it will allow Haiti to establish a far more efficient path to economic growth.  But, it is clear that over the long-run Haiti can only save itself if there is a government willing to respect its citizens’ rights to private property and liberty.  Further centralization, planning and tyranny will only push Haiti further down the rut it is already in.