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Poverty by Design

Poverty by Design

“Poverty is not an accident. Like slavery and apartheid, it is man-made and can be removed by the actions of human beings.”

Nelson Mandela

A South African Christian leader I greatly respect once explained his country’s former policy of Apartheid as merely “separate development”, implying that it was not a policy designed to oppress the blacks but an allowance of the natural cohabitation of two very different social and economic cultures. My friend didn’t deny that the enforced separation was in any way a good thing, but the implication was that the blacks of South Africa were not ready to accept modern economic or social institutions and that their economic backwardness (compared to the obvious modern development of the white-dominated society) resulted from their traditional (and inferior) culture. What he did not say was that this common view denied the historical truth that such an economic backwardness was not the result of any traditional values, but was a government policy plan.
The South Africa of the Apartheid era represented the idea of the “dual economy”, modern industry co-existing with traditional poverty. This idea was originally described by Julius Herman Boeke in his 1942 book The Structure of Netherlands Indian Economy, where he argued that in the Dutch East Indies (modern Indonesia) the modern Western economy (characterized by modern commercial industrialization) could co-exist with a more traditional economy (characterized by poorer, underdeveloped agricultural communities). The industrialized sector was managed and maintained by white colonials, who reaped the benefits of modern prosperity, while the more rural Indonesians co-existed on a lower plane within the same country.

This theory was later developed by West Indian economist Arthur Lewis into a model by which developing nations could become more industrialized. Lewis, who received the Nobel Prize in economics in 1979, took for granted that many countries held dual economies due to the clash of modern industrial colonial powers with the intrinsic backward culture of their subordinate indigenous populations. In many ways Lewis had perhaps adopted the idea that industrial and commercial development was somehow alien to the non-western inhabitants of the world and they had to be lead into modern prosperity by the “white man”. It did not occur to him that poverty and commercial under-development might not be an accident of culture but might in fact be deliberate policy of suppression by colonists.

The idea that commerce and industry is a uniquely white Western invention has been recently championed by Niall Ferguson in his popular book Civilization: The West and the Rest (mentioned in my previous blog). Ferguson’s argument, that the West developed uniquely due to it’s own cultural “killer apps”, sounds convincing, and he does have some points in his favour, however he does not address the issue of non-white cultures that began the process of commercial development but were forcibly deviated from the path by brutal European policies that destroyed local economies in the cause of gaining economic advantage for themselves.

In 1599 the Maluku Islands in the modern-day Indonesian archipelago were the main producers of the spices nutmeg, mace and cloves, all in high demand in Europe. While there were various trade monopolies set up between the rulers of many of the Islands and the Portuguese, the Spanish and the Dutch, a small group of the islands banded together under a mutual agreement to open the trade to competing buyers and to form the beginnings of a commercial organization (similar to modern-day OPEC). This would have allowed them to have a far greater share of the wealth from their produce and to bargain with the European powers as near equals. The Dutch East India company, finding they could not subvert the group through bribery or by co-opting their leaders, decided to destroy the nascent cartel by eliminating the people themselves. The Dutch colonials massacred over 15,000 Maluku Islanders and forced the remainder of the population into slavery to work on their now wholly-owned spice plantations. Some Maluku survivors fled to other parts of the archipelago taking the news. Other independent spice-producing islands and mainland groups, fearing a similar fate, destroyed their spice crops and reduced themselves to subsistence agriculture in order to avoid attracting the attention of the avaricious Dutch. The potential for early independent commercial development in South-East Asia was stifled.

There are other examples that are perhaps less dramatic but nonetheless effective in eliminating indigenous development along European lines. While it cannot be argued that many countries would have had their own industrial revolution had it not been for the horrible white man’s interference, the idea that adoption of economic development is not intrinsic to non-Western cultures has to be given a kick by the facts of history.

If we go back to South Africa, the (predominantly white) idea that it was black African cultural backwardness that caused the tremendous poverty seen in the 20th century (and even today) is typical of the historical amnesia that effects many in the country. During the nineteenth century many European visitors noticed that many black farmers took the opportunities available to them to buy land and begin their own farms, weakening the traditional holds the tribal chiefs had over them. The chiefs, fearing the lessening of their own power, tried to resort to traditional means of control, the witch doctors, however increasing black aspirations to commercial success meant that these fear incentives to force control diminished in power. With near equal property rights between blacks and whites, the number of industrious black farmers grew. However, with the discovery of huge diamond deposits in the interior, the need arose for cheap labour for the new mines, labour that could not be easily gathered amidst growing black prosperity. In order to remove blacks from the land, the Natives Land Act of 1913 legislated that 92% of all the land had to be in white ownership with all the black people (80% of the population) forcibly moved to the remaining 7% of the land. This small percentage was increased to 13% in 1936. To add to this, the mining industry introduced the first “colour bar” which stated that no black person could work in skilled trades, the list of which was long and detailed. The only work black people could undertake in the mines was unskilled labour. This colour bar was expanded to the whole economy in 1926. Between 1911 and 1921 wages for mine workers dropped 30% and even by 1961 mine wages were still 12% below 1911 levels.

Education for the blacks was also discouraged with few (if any) black schools being funded by the government. In the 1950s the government under prime minister Hendrick Verwoerd introduced the “Bantu Education Act” which attempted to limit the kinds of education blacks could undertake. This Act locked the blacks of South Africa out of the modern world economy and out of the potential for western levels of prosperity. This was the stated goal of the Act and Apartheid as a whole. Verwoerd himself stated the fact in a 1954 speech:

The Bantu must be guided to serve his own community in all respects. There is no place for him in the European community above the level of certain forms of labour. Within his own community, however, all doors are open. For that reason it is to no avail to him to receive training which has as its aim absorption into the European community while he cannot and will not be absorbed there.

For the supply of cheap labour to be guaranteed, the white nation needed a black population uneducated, impoverished and devoid of all economic aspirations. The poverty of South African blacks had nothing to do with the backwardness of their culture or their lack of economic aspiration. In order to prevent economic competition and the ensure a cheap labour supply, the black South Africans were systematically impoverished over decades. Generations later, when modern whites look upon the vast shanty towns with horror, they forget that this economic situation was their own past government’s design.
I don’t write this to inflame hatred or to kick sleeping dogs. Apartheid was abolished nearly 20 years ago and an entire generation of South Africans of all colours have grown up without the institutional racism that afflicted their parents. What I want to communicate is that poverty is not always due to the inherent nature of particular people groups or cultures. Today we in the west look on our less developed neighbors and and shake our heads, wondering why they can’t be more like us. But we must remember that many tried and were forcibly held back from development and prosperity by the greed of powerful individuals and groups who didn’t look upon the brown-skinned people they came across as potential partners in commerce but as inferiors worthy of little more than exploitation if compliant or, in extreme cases, extermination.

Greater prosperity for all often has to mean less prosperity for some and it is these few who reap the lion’s share of economic benefits who have the most to lose in a fairer world. Austrian political scientist Joseph Schumpeter argued that economic progress often involves what he called “creative destruction” of the old forms, often represented by the power-holding elites. Whenever this destruction has been allowed to take its toll on traditional power bases, new, often more democratic forms of power have emerged and greater economic development often ensues. However when the few traditional power holders manage to suppress the mass of the population and continue in power, poverty of the entire nation becomes the legacy. Many nations are poor because they have been (and continue to be) exploited by those who rule them. Just because many of us reading this are fortunate enough to have been born in a situation where our ancestors fought for an won greater freedom to become prosperous doesn’t mean that we are smarter/more industrious/more entrepreneurial than those who still live in poverty.

Further Reading.
James A Robinson and Daron Acemoglu, Why Nations Fail: The Origins of Power, Prosperity and Poverty (2013).
The Natives Land Act of 1913
The Bantu Education Act No.47 of 1953
Segregationist Legislation Timeline 1856-1979

There are no invisible hands.

There are no invisible hands.

“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

Adam Smith

Life is like a piano, what you get out of it depends on how you play it.

Tom Lehrer


Due to the complexity of the world around us we have a tendency to attribute our situation to either the hand of providence (if things are good) or hidden cabals and conspiracies (if they are not). For Adam Smith things were very good. Britain in the eighteenth century was a prosperous commercial society with what appeared to be the best of all possible worlds. At least it was for Smith and those in his social class or above. It was easy for the Scottish philosopher to imagine that such good fortune had the hallmarks divine favour, and in his two treatises he described the out workings as the “invisible hand”.

Whether this invisible hand was that of God or the natural machinery of a Newtonian universe is still debated. What is agreed by Smith’s modern acolytes is that order comes out of apparent chaos, not by human design, but by sociological propensities toward selfishness. As we act toward our own self interest, Smithians would argue that “things just work out best for all concerned”, and the economy and social order rises toward ever more evolutionary perfection. It is like it is being guided by an invisible hand (see what I mean?)

What I would like to say is that this is rubbish. But I can’t say that without seeming reductionist (and crass). So I will say this; Adam Smith was only partly right. And the modern armchair economists who wax lyrical about the laissez-faire idea of free market capitalism view the world through this jaundiced looking glass. Things do NOT just work out well for everyone when we all act selfishly. Thing actually screw up majestically, mostly for those below Smith’s class, the working and the poor. This was the case in 1776 when Smith wrote his famous tome “Wealth of Nations” and it continues today. While certainly the oft-quoted “it is not from the benevolence of the butcher, the brewer, or the baker, that expect our dinner, but from their regard to their own interest” contains the superficial ring of truth, it is only a part of the truth. Successful business has always had to swallow a degree of other-interest in order to maintain their client base. In other words, it’s not just about the price and supply of goods, but also the relationship between the seller and the buyer, and other nuances that create order and social benefit. Modern business knows this but classical economists still love to pontificate about “the market” as if it was a highly trained tiger that will perform its tricks meekly so long as it is fed a raw steak every now and again. I think Siegfried and Roy (or “the Tiger King”) would beg to differ.

OK, I can imagine some readers might say, “Who do you think you are to argue with centuries of economic and sociological wisdom?” Well I am nobody. But I am a nobody with a PhD in the history of political and social reform. My research took me through the ideas eighteenth-century Scottish philosophers such as Adam Smith and his contemporaries. Even then, their ideas of self-interest as the driver of providential growth was challenged by men and women who saw many social injustices the “invisible hand” allowed to continue.  Today the idea of the invisible hand of providence guiding the growth of our modern world has become a tool to hijack our economy and decimate the common good. What Milton Friedman might have shrugged helplessly and called “the market” was actually the results of decisions; decisions by people to change things, either through clever ideas, political lobbying or by mass movements of protest. Leaders with a concern for “the common good” made decisions to legislate us into the kind of prosperity we have come to see as the norm in the developed world. If we saw any kind of well-being, it wasn’t because we all acted toward our own self-interest, but because we acted partially toward this common good.

Today. Much of the world seems to many to be spiraling into chaos and disorder. I as write this, the world is aflame with protests (and some rioting) in support of the Black Lives Matter movement. We are also in the midst of the Covid-19 virus pandemic. There is a narcissistic liar ruling like a king in the United States and Britain has given a “two finger salute” as a farewell to EU membership. People are wondering how we got here. I am not totally sure, but one thing I do know is that it wasn’t Adam Smith’s invisible hand. People were to blame. Their hands are visible and their fingerprints are all over the messes we are living through. My purpose in this blog is to investigate and report what others have found about who these hands belong to, to argue for blame as well as cause and effect.

Welcome to The Visible Hand.