Acton Commentary

When Poverty Becomes Profitable


The drive from the airport to the hotel district was not what I expected. Given that the African nation of Zambia is one of the poorest in the world with an average income of less than $1 a day, I anticipated that the 20 or so kilometers would be filled with scenes of poverty, trash, dilapidated buildings, goats, and raw sewage running aside the road. But this was not the case.

The road was instead neat, clean, paved, and well-maintained. There were no signs of garbage in the streets. Behind the gates protecting the houses, yards were well-groomed. There were several strip malls that appeared to be have been built by the same people who build them all over the United States. The parking lots were well-lit and full of newer vehicles.

Aware of the economic statistics of Zambia, I knew that what I was seeing did not represent reality for the vast majority of Zambians, who live in extreme poverty. There is a huge gap between the rich dwelling along this road and the poor in the rest of the country. I have often read reports about this gap, how it is growing, and how wealth needs to be redistributed by the government and non-government organizations (NGOs) for justice to be done in the developing world. But who are these wealthy people? What do they do that enables them to live so far above the national average income?

Of course, the answer you often hear is that these are the greedy capitalists. These are the corrupt people of business who have built their wealth on the backs of Zambia’s poor. The rich hog more than their fair share of the wealth of Zambia and must be held accountable.

This all sounds reasonable to fair-minded people. But the man who met me at the airport and accompanied me to my hotel gave me a very different picture. He told me that the big houses along the road were occupied by those who worked in the government and for NGOs. The look on my face puzzled him. I explained that his answer was not what I had expected. I thought these would be the homes of the business people. He grinned at my ignorance. He went on to explain that those at the upper echelon of income were far more likely to be government officials and NGO employees than they were to be business people.

I then recalled a comment from James Shikwati, Director of the Inter Region Economic Network, a newly formed free-market think-tank in Kenya. In his travels, James noted that in the developed world, the nicest homes in the safest communities belong to business people who have produced something that people desired to buy. In supplying a need, they earned money and were able to afford expensive homes and cars.

But in the developing world, James said, the wealthiest portion of society consisted of government officials, public administrators, and those NGOs who were supposed to be alleviating poverty. While many charitable organizations in the developing world certainly do make a difference in alleviating poverty and other social ills, the fact remains: For many who work in the public sector and for aid organizations in places like Zambia, poverty has become profitable.

I explained this theory to my Zambian friend and again, he smiled at me. He explained how ambitious and talented children in Zambia did not dream of becoming business people or entrepreneurs. The real money was in NGOs or in securing a job at some level of the government. These were the jobs with a future.

In the 40-year history of the nation of Zambia, this was not always the case. At the time of its independence in 1964, the country experienced impressive economic growth primarily because of extensive copper and cobalt holdings. For 15 years, the economy expanded and wages increased. Of course, not everyone benefited equally. White mine owners still controlled much of the wealth, but a middle class was developing. Like all economic changes, it came in fits and spurts, but growth for Zambians was occurring.

This began to change in the 1980s. Kenneth Kaunda, Zambia’s first president, decided that the government must gain a greater control over privately-held industry. Unlike the current situation in President Robert Mugabe’s Zimbabwe, Kaunda did not simply declare that the government now owned various industries. The Zambian government, to its credit, did reimburse the owners of those who were forced to sell 51% of the company to the government. In some cases, the compensation was quite generous.

But a true redistribution did not occur and equity promises of the government were not fulfilled. What did develop were widespread corruption, market inefficiencies and the departure of foreign capital. Few companies will invest their money in a country in which they could suddenly be made a minority shareholder at the declaration of the government, even if they are compensated.

These factors, among others, led to scarcity and the proliferation of poverty. International financial institutions rushed in to provide capital, but not to business people. Instead, the money was given to a quasi-dictator who continued to consolidate power, gaining total control of the government and declaring a one-party political system.

In the 21st century, the poverty of Zambia continues and is worsening. The gap between the rich and the poor is growing. The spread of HIV/AIDS has devastated the society. It is now estimated that nearly 22 percent of adults in the capital city of Lusaka are infected. There can be little wonder that few Zambians are hopeful about their future. It should not be a surprise then that Zambian children grow up dreaming about landing jobs in the government or non-profit sectors of society.

In the thought of many quasi-socialists from the West, redistribution of wealth is supposed to occur through such agencies. Money earned by business people, they believe, ought to be fairly and impartially taken by government and given to the poor to bring about a more just society. Zambia is a classic example of how this thinking is misguided and based on a lack of understanding of both wealth and poverty in the developing world. Those with moral sensitivities for suffering ought to be deeply concerned about the poverty that occurs among the souls of Zambia. But to attempt to find an answer in the badly-formed economic theories of Marx and his ideological heirs will not lead to freedom, virtue, or economic development. Instead, this path merely extends the suffering.