Bake the cake first

“For the poor you will always have with you in the land. Therefore, I command you, ‘You shall open wide your hand to your brother, to the needy and to the poor, in your land.’”

The implications of this statement and the command that follows are many.  One important implication is that there is no permanent solution to poverty. Some will escape that “glue trap” and by all means they should be assisted in doing so, but more will replace them. Poverty is an ongoing issue for which there is no one time solution! Poverty exists even in the wealthiest countries

Like poverty, we also have the wealthy. Why not just redistribute wealth? Wealth is defined as the “abundance of valuable currency or possessions”. The currency portion is difficult to track down and can quickly go “underground” (such as under mattresses) or worst, overseas. This category of wealth, which includes “working capital”, is supporting enterprises and entrepreneurs producing goods and services that make up the GDP or “cake” in which we can all share. This is the part that is used to purchase inputs and equipment, create jobs, build roads, hospitals and schools, all of which are the “economic ladders” that may be used to alleviate poverty. These are the flour, yeast and sugar that allow us to bake our economic “cake” which we need to do on a daily basis. However, this cake cannot be distributed before it is “baked” (produced).

A major portion of the world’s wealth is in the form of capital assets – land and buildings – which are more tangible than the working capital and therefore most often targeted for redistribution. However, without the working capital to go with them such assets are useless. When such “capital wealth” is taken from one and given to others (redistributed), its potential for exploitation is destroyed unless there is working capital to complement it.

The key to poverty alleviation then is not wealth redistribution even though “the wealthiest one percent of people in the world could feed all the hungry in the world six times over” but that feeding would only happen those six times. The hungry must be fed every day of their lives and giving them food will only feed them for a period (a day or two) whereas helping them to feed themselves is the only way to feed them for their whole life. The key to poverty alleviation is therefore distribution of the economic cake after it has been baked with the goal being to bake enough cake to feed everyone.

The temptation to take what looks like a simple solution to poverty – redistribution of wealth – is too great for many politicians, since most of the electorate is in the poor category, but redistribution is a onetime occurrence and poverty needs a long term, sustainable solution.

The “cake” can only become wealth if it is conserved and not consumed. Much as our socialists might hate this concept, redistributed assets are useless without the working capital! Ask Forbes Burnham of Guyana, Michael Manley of Jamaica, Robert Mugabe of Zimbabwe, or Hugo Chavez and Nicolás Maduro of Venezuela who have all tried to redistribute the wealth in their countries and succeeded only in pauperizing them, while blaming others!

Barbados’ economic history may also help to clarify the foregoing.  Following adult suffrage in Barbados, Sir Grantley Adams was elected and his administration promoted, among other things, wealth creation and employment for the benefit of all through improved productivity of agriculture and the sugar industry with its “windfall” earnings which helped to build the deep water port, the Queen Elizabeth Hospital, schools and roads across Barbados from which everyone benefited, with Barbados being one of the most developed countries in the Caribbean. In a sense, Sir Grantley was Barbados’ Nelson Mandela. Barbados’ current economic situation has been the result of subsequent administrations not following the Adams’ model!

“History repeats itself, first as tragedy, second as farce” – Karl Marx

“It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible” – Mark Twain

“If history repeats itself, how incapable must Man be of learning from experience” – George Bernard Shaw

Peter Webster is a retired Portfolio Manager of the Caribbean Development Bank and a former Senior Agricultural Officer in the Ministry of Agriculture.