Dropping out of college didn’t stop Bill Gates from making tons of money, but it kept him from classes where he might have learned about the beauty of spontaneous market processes.
Never mind. I forgot that he attended Harvard. He might not have learned about markets after all.
Gates spoke at Harvard recently, urging graduating students to take on the "world’s deepest inequities [including] world hunger … the scarcity of clean water … children who die from diseases we can cure." All of us want those problems solved, and through their charitable foundation, Gates and his wife, Melinda, have certainly put their money where their mouths are. But Gates seems unaware that these problems can’t be eliminated in the simplistic way he advocates.
He told the grads, "The market did not reward saving the lives of these children [in poor countries], and governments did not subsidize it. So the children died because their mothers and their fathers had no power in the market and no voice in the system."
What is Gates talking about?
Can he name one poor country that permits the free market to operate? The problem is not that the market doesn’t make it profitable to save lives — it most certainly does. The problem is that Third World countries have overbearing, corrupt governments that are obstacles to private property and freedom. That’s why the children’s parents have no voice or power.
Poor people in the West and in East Asia lifted themselves out of poverty by relying largely on the unplanned market process. That process — countless individuals pursuing their own interests by trading with one another — is, as Nobel Prize-winning economist F.A. Hayek put it, a "discovery procedure." Through the price system and free competition, it clarifies tradeoffs of scarce resources, generates the lowest-cost solutions, and provides feedback about success and failure through profit and loss.
This spontaneous order is far better at "saving the lives of these children."
Maybe the Gates Foundation’s private charity will work wonders, but more government-to-government subsidies won’t do the trick. The trillions spent in foreign aid have little to show for it. As William Easterly writes in "The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good," "Economic development happens, not through aid, but through the homegrown efforts of entrepreneurs and social and political reformers. While the West was agonizing over a few tens of billion dollars in aid, the citizens of India and China raised their own incomes by $715 billion by their own efforts in free markets."
At Harvard, Gates said, "We can make market forces work better for the poor if we can develop a more creative capitalism — if we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities."
He misses the point. Gates faults the free market for problems caused by governments. What constricts the reach of the free market is the state. Gates seems oblivious to all the ways that governments here and abroad cripple enterprise. In poor countries, corrupt bureaucracies smother entrepreneurship while enriching cronies. The lack of formal property rights and stable law keeps average people from accumulating capital. So the poor stay poor. That’s what causes "scarcity of clean water" and kills "children who die from diseases we can cure."
Gates said, "We also can press governments around the world to spend taxpayer money in ways that better reflect the values of the people who pay the taxes."
He should know that for spending to better reflect people’s values, governments must butt out. Politicians are notoriously bad at improving the lot of their populations. What they are good at is confiscating money and spending it the way they want it spent. It’s only when governments do less, and tax people less, that people are free to earn and keep their own money. Only then does their money really "reflect their values."
You want poor countries to get rich, Bill Gates? Work for free-market reform.
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