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Toastmaster Speech 3: Why some countries are poor

December 9, 2012

The objective of this speech is “Get to the point”.

Why some countries are poor

Toastmaster of the day, fellow toastmasters, dear guests…I’d like to start by posing a question to some of you. “What was the biggest problem you had to face and/or solve in the last few days”….For eg, to me the biggest problem was whether to honor the commitment to deliver this speech as I planned.

….You see, what most of us have are “rich people” problems so to speak. Right? Now let me take you to a different world, into the world of a significant part of India or Somalia, the part of the world that never sees limelight, that is impoverished, poor and leads a Hobbesian existence. The biggest problem in that world faced daily is the uncertainty of living the next day – whether one can quench one’s hunger for once that night, that moment or die the next day in starvation…or consider the humanitarian crisis in Somalia – whether keep walking to a secure place in search for food and on the way get raped and killed by bandits or continue to stay in the same place and starve to death. It is stark truths like these that prompted the economist and Nobel Laureate Bob Lucas Jr to say, and he said in this in the context of India, “….The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else”.

Why do some societies organize themselves to prosperity while some remain in stark poverty, a plight that could make you cringe and wonder whether you are fortunate to be on surplus side of the equation in this random draw of life or unfortunate to be a witness to the other world of darkness in this life. My own quest for an answer that explains the causes behind this inequality lead me to learn some basic economics – where the answer to this question lies.

Most economists agree that economic freedom is fundamental to development. This can be verified empirically as well. For eg, if you observe the developed part of the world, in addition to the surplus of goods and services, you would notice one common and striking feature which is the freedom that its people enjoy. On the contrary,  you would notice in the undeveloped world, individual liberties are restricted, and there is a perpetual scarcity of some basic necessities. This is a clear example of engineered scarcities by the respective governments.

Why do I say it is engineered? Because scarcities are theoretically not possible. Consider an example. Suppose there is a scarcity of potatoes in Belgium. Then, that would mean growing potatoes can be profitable for the potato farmers as they could charge a premium. At the same time, many others would vie to enter the potato market as it is profitable. Competition ensues, there is more supply, and no more scarcity of potatoes. So, if a scarcity of a commodity exists perpetually, you can be assured that it is engineered. 

So, what is being economically free? As my mentor and economist Atanu Dey says: Economic freedom is the production, consumption and exchange of goods and services among people without any coercion. Anytime the free enterprise of people is restricted by government control, it leads to shortages and the country remains in perpetual poverty.  Consider the example we just discussed again. If the government restricted entry into the potato market, what would happen? It would remain scarce and moreover the collusion between the monopolistic producer and the government and sometime the monopolistic producer can be the government itself,  can lead to rampant corruption and waste of public money. Now, lets consider another example: When you go to India for eg, you would notice that both rich and poor have cell phones but neither can get 24×7 uninterrupted power supply. It is perplexing to say the least. A technology that is only a couple of decades old is in great supply compared to one that is more than a century old. And the reason? Government of India supplies power while there are a bunch of cell phone companies that compete fiercely to get as many customers as possible which drove the cost of owning a cell phone down such that even a very poor person in India could actually own it.

So, to sum it up in the interest of time, the primary reason behind the poverty of some nations as we observe boils down to one simple concept – the lack of economic freedom. And I end this speech with a hope that one day I see my home country and other undeveloped nations following policies that pull them out of their poverty rut.

Thank you.

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