Sunday, January 17, 2010

Charity vs. Investment

The tragedy in Haiti the last week has led to an outpouring of requests for charity. Haiti has been the constant recipient of charity in the form of aid from the US and others, and what has been accomplished? This creation of dependent states, from Haiti to Africa has only perpetuated poverty and throttled development in emerging countries.

So, what is the answer? The left would call it "exploitation," while I would call it "investment." Haitians would clearly be willing to accept wage rates that are below those in much of the western hemisphere, and creating manufacturing capacity there could be very attractive to many companies. To do so the Haitians would have to convince those companies that their investments would be safe from confiscation and experience minimal taxation - not an easy task for a country with such a turbulent history. Also, nations that were truly interested in Haiti's recovery would need to offer true free trade with them. With unions and other populists likely to be in opposition, another big hurdle to overcome. In the end I think we can expect that Haitians will continue to starve and be dependent - a failure that we can attribute to ongoing charity.

Investment is superior to charity because the investor is concerned about the results and expects a return. That means that he tends his garden, rather than casting the seed to the winds and hoping for the best. I believe that even families, which are commonly thought to be socialist units, are based on investments in the members. Parents invest in the kids, hoping they will be close companions and helpers in the future. Even friendship is an investment with expectations of good times, a sympathetic ear and help when something can't be accomplished alone.

Investment, not charity, is a recipe for growth and prosperity.

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