Free Market Capitalism Helps the Poor Most

I came across a post from Michael Robertson today which has an awesome headline ” Gates and Buffet Have it Wrong” and it sums up succinctly how people with means can best-help the poor. I can’t help but agree with virtually every word. In summary, it explains that opportunity is the best way to help those in need. This coupled with a free-market system and a free flow of capital. If you disagree, then you should read his post for sure as it actually cites an example of how half a trillion dollars in charity directed at corrupt governments in Africa actually resulted in a reduction of GDP!

I have a relative in fact who detailed his decades of running factories in Africa which he explained were almost as productive as those in the US. His factories were constantly either confiscated by the government or corrupt officials kept skimming from his factories causing him to close and relaunch them in country after country in the continent until he threw in the towel and left.

Here is an excerpt:

Some might say, “What can it hurt to have charities distribute money?”. History indicates it can have a hugely detrimental effect. One can examine the great charitable experiment called Africa to see how a half a trillion of well meaning donations prop up cruel governments, cripple economic freedoms, and retard meaningful change over the last 50 years. By any measure the monies have achieved the exact opposite effect. Africa has seen its GDP decline during the last 50 years along with a decline in life expectancy.

When I took public I was a large shareholder and nearly overnight I went from a childhood where I knew poverty to not having to worry about money. At the time I pondered how I could use resources I now had to improve the world like those behind The Giving Pledge. To answer that question I called Nobel prize winning economist Milton Friedman. He invited me to San Francisco where I sat down with him and his equally sharp wife Rose in their condo. Over a glass of water I asked Mr. Friedman how I could improve the world. He told me that giving to charity has a certain psychological benefit to the giver, but economic growth is the path to improve people’s lives. To spur that on you inject more capital into the free market system. He wasn’t opposed to charitable giving, he called it honorable, but he cautioned that it wasn’t an efficient path to improve people’s lives. A few days later after my visit I received a handwritten note from Mr. Friedman and some photo-copied passages from one of his books. Watch video of Friedman on how the poor escape poverty and on our responsibility to the poor.

Mr. Friedman was right. To ultimately improve someone’s live requires economic growth. To achieve this requires a free market built upon a rule of law, property rights and the voluntary exchange of goods and services. Once those components are in place then providing capital (money) to spur the formation of businesses is the accelerant. Those with wealth should provide capital to start new businesses or take steps to make free market accessible to more people.

This post sums up the differences between conservatives and liberals/progressives in my opinion. Conservatives in general believe that free markets with little friction will pull the most people out of poverty as it provides the maximum number of opportunities. Progressives – especially those in the White House at the moment believe that they know best how to redistribute income in a way that will encourage prosperity.

As I have mentioned repeatedly, this model doesn’t ever work – it is all about free markets. Why else do you think the trillions of dollars of new spending programs result in a terrible economy? And I will remind you that we don’t really have free markets in the US – we are semi-socialist on the way to becoming extremely socialist/statist.

The absolutely abysmal economy was predicted by so many small business owners I speak with on a regular basis. I try to steer clear of politics but small company owners at many trade shows voice their serious concerns and I feel I am one of the only people who is comfortable sharing this information. I mentioned these concerns after Interop New York where many tech company heads complained about the hostile business environment. They feel and I agree (it is tough not to) that the direction our current administration is going in is absolutely wrong if you are looking to encourage job growth.

Between, unions growing in power, cap and trade, healthcare reform, banking reform, increased taxes on investment, increasing taxes on income and who knows how many other reforms I can’t even think of (update – thanks to a reader who sent me a list), most people I know with money have decided to wait until Obama leaves office before they spend it.

This means they are putting off plans to move to a different house and they are foregoing business expansion. In some cases they are cutting heads to offset increased taxes.

They don’t have anything against our president; it is just that this business environment scares the daylights out of them.

It is common knowledge that all of the above-mentioned items are job-killers and yet we keep pressing the accelerator or more job eating rules and regulations. And this is the absolutely worst thing that can happen to a recovering economy.

President Obama is very smart – and what an amazing speaker. The problem is with some people so smart; they don’t understand when they are wrong. Currently we are watching the most anti-business administration in our lives wreak havoc on employment. Moreover, the White House is filled with people who have no experience running companies. Sure, University professors are very knowledgeable but there is huge difference between this world and the real-world.

Many in the administration often point to the fact that taxes have been higher in the past and we have had increased regulation decades ago and the country has still found a way to grow. This time it is very different as jobs can be outsourced with the click of a mouse and already it is very expensive to hire in the US. Moreover, the threat of unions and increasing expenses in the form of taxes from states and the feds means every day the US government (and this started most recently with the Bush administration spending ) is adding an additional weight onto the backs of the American worker.

I have the utmost confidence in the United States. My father came here in 1956 or so and was able to build a successful media company with English as his third language. Every day I meet entrepreneurs from around the world who chose the US as a place to come to when launching a company and this has historically been the best place to launch a start-up.

As the government grows its debts and size we add friction to the free markets. As this happens, fewer companies are started. As this continues, jobs continue to be lost.

President Obama said, “elections have consequences.” And these consequences are lost jobs and moreover lost opportunity for the middle-class and poor. And this lost opportunity means fewer jobs for the middle and lower class who primarily voted for Obama in the first place.

Sam Zell explains how the administration’s current economic policies are killing jobs due to the “storm clouds” affecting decision-making



Successful real-estate investor Sam Zell recently said on CNBC’s Squawk Box (and I am paraphrasing) that recent policies such as extending unemployment benefits to two years, or surprise six-month moratoriums on oil drilling and changing the rules such as giving unions higher priority than GM’s bond holders has had major negative consequences. He further went on to explain, the key to the United States as the economic engine of the world has been predictability. Continuing on the theme he said we have been the beneficiaries of the lowest cost of capital in the world because we have been perceived correctly to be the most predictable, stable business environment in the world. He concluded by saying my concern is that this is being affected by a lot of policies that may have a base in doing good – but you have to be able to afford it in order to do it.

Sam Zell Explains that the November Election is perhaps the most important election of his lifetime (fast forward to 6:00 to hear it)


Perhaps this explains why he said November, 2010 will be the most important election of his lifetime. Moreover I would add it will be crucially important for those people concerned about their economic futures as well.

  • ruth romero
    August 13, 2010 at 12:32 pm

    estimado seƱor warren buffett le escrib desde venezuela para pedirle una colaboracion de 10.000 dolares para poder rener una inicial para comprar una casa para mi y mis hijos mucho sabria agradecerle esta colaboracion y que dios me lo bendiga y lo lleve a caminos y senderos de paz y armonia
    amen y gracias

  • Strelok
    September 13, 2010 at 8:25 pm

    Your post was great until this beautiful example of political ignorance:
    ‘And I will remind you that we don’t really have free markets in the US – we are semi-socialist on the way to becoming extremely socialist/statist.”
    Nope. Nope. Socialism is the mutual management of the means of production and the abolition of private property. Sorry, part-socialism is part-anything and is not explicitly part of or exclusive to Socialism. I’m a right-winger, but the amount of ignorance on the right-wing in terms of political stances is astounding.

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