Haitian Economy and Outside Intervention

The dismay situation of Haiti, particularly its economy, indicates the reality of adverse impact of outside intervention. Countries that are intervened heavily by outside entities typically failed in their economy: Russia comes as an example. After the collapse of the Soviet Union, Russia received large amount of international aid for several years along with the “shock therapy” from Harvard economists. During that time, Russia experienced worsening economy year after year. We see that countries heavily intervened by the United States typically do worse than their neighboring countries. For example, Philippines, a country heavily intervened by US after World War II has much worse economy than Taiwan and Korea. Across Latin America, Honduras is experiencing much worse economy than Costa Rica.

When a country refuses outside intervention, like what Russia did today and China did in the last two decades, its economy is prospering. These countries may still have dictatorship, but their economy is more coherent and policy is more stable.  I am not to promote dictatorship here. There are many democracies that get little US intervention and prosper. The main point I am trying to make is that less outside intervention is necessary for a stable economy.

In 1994, Haiti had its “democratic” president restored by US troops. At that time, there was big celebration in US media for democracy. Since then, US and international aid have poured into the country. However, for more than a decade, the country is struggling with abject poverty and lack of democracy. In fact, the only two countries in America that are still listed as non-free are Haiti and Cuba. Haiti’s situation is attested by another country in big trouble today: Afghanistan. Abject poverty continued and worsened by US influence in Afghanistan. The disintegration of a society is made worse by outside military and economic intervention.

The de-stabilization situation for Haiti continued for the last 15 years. The condition dictated by international aid does not make things better.

Given the new awareness of Haiti’s dismal situation, what should be our response and future policy toward Haiti? We should focus on building a coherent internal society. The less “intervention” we give, the better a society will become. A prosperous economy requires stable internal policy and coherent social structure. If a country is subject to external help or whim, its economy cannot be developed coherently.

Of course, less intervention is only a necessary condition for economic growth, but not a sufficient condition. Many African countries do not get US intervention, but still struggle with economic development. That comes back to the fundamental issues of economic development. However we can start with the necessary condition. For Haiti, less intervention is crucial for its future. While it is tempting to “help”, the United States has to temper its desire and appetite for “good deeds”. Like a person, a country has to stand on its own. Only then it will be strong. Let’s hope Haiti will get stronger soon.

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The positive vs. normative economics

In many economics textbook, the opening statement is: We are only concerned with things that exist (positive study), but not thing that should be (normative study). In other words, economists confine themselves in understanding the fact that people are rational when they commit a crime (Becker, 1968) but not on whether crime is right or wrong. For example, with economics you can show that a poor person robs because his opportunity cost is low (no job, and no skill). But does it mean it is right for this person to rob? Economics falls silent on such questions.

Economics can show us how the healthcare reform is a deadlock because each party has their self-interests. But how to break this dead-lock? Economists show that a government consists of politicians who seek to maximize their personal interests, but how do we have a less corrupted government?

With economic theory, we understand perfectly why a white man prefers to live next to a white neighbor, but does that imply it is ok for him to drive out a neighbor of another race? After all, social reform is about taking a stand: what is acceptable behavior and what is not. It is about setting new law and new system such that the incentives for the old parties completely change. If we think racial integration is more important, we will force the school to open up their enrollment and gradually people will accept other races. If we think universal healthcare is more humane (and cost effective), we will move forward with such a system despite the pain of HMO companies and certain parties.

Economic study gives us perspective for people’s behavior within their current social structure, but it fails to answer how we should change that social structure. It may give us answers on how to promote economic growth, but not on how to share the fruits of growth. Equality, justice and humanity come from people’s demand. It is about changing our current social framework.

The demand for civil rights, for universal healthcare, and for voting rights of women, go beyond the realm of economics. While economics builds its foundation on the fact that people pursue their self-interest rationally, social reform builds its foundation on that fact that certain things are not justifiable with self-interest. Slave owners want slavery, but it is not justifiable. Men don’t want women to have equal rights, but that has to change. The change of a law or proposing a new law is promoted by one group of people over the objection of the other. The English never wanted to give up their control of India, but they are forced to. Such social change is beyond the realm of Economics. Instead they are better understood through the lens of political philosophy or legal philosophy.

Milton Friedman and Free Markets

Today Milton Friedman passed away. A promoter of free markets and an outstanding economist, Friedman has influenced me when I was still a student in China. In late 1980s, as economic reform was underway in China, intellectuals there were greatly influenced by the work of Hayek and Friedman. These authors have clearly argued for the benefit of free market against the state. Their works have quickly gathered followers in China as the magic power of free market demonstrated itself there after 1978.

I vividly remember reading Friedman’s small book on the invisible hand of market. He talks about the how a small pencil involves people around the world, from timber in Oregon, to rubber in Malaysia, to materials in South America. The invisible hand of market has brought these people together to create one single product, and people benefit others by pursuing their self-interest.

The United States is such a thorough free market today that people lost the appreciation for its power. Comparing to other countries, US has the highest number of new companies, and the highest number of entrepreneurs. All the industries are private even including defense manufactures. The federal government and state governments are all business friendly, giving a lot of incentives to allow business to flourish.