A Misdirect in Our Fight Against Poverty
For several years, under the pretext of fighting “inequality," certain organizations have supported an international movement against wealth— but it is clear that fighting the accumulation of wealth alone does not alleviate poverty. On the contrary, in certain contexts the socioeconomic class struggle adopted by these organizations can even deepen conditions of extreme poverty by negatively impacting sustainable economic development opportunities for those who need them most.
In my country, Mexico, and across the Central and South American region there is a different development context— one that has historically posed a fine line between the fight against poverty and politicized redistributive policies that set back development indicators, and the lives and well-being of millions by decades. One need only look to the humanitarian crisis in Venezuela today to see the result of these socialist politics.
Last week, as Oxfam published its annual study on economic inequality in the world, I would raise the issue that in many places around the world the problem with talking about inequality diverts our attention from the most pressing issue: eradicating poverty. It is fundamental to emphasize that inequality and poverty are not the same, and to confuse them is a fallacy that misdirects our tools and efforts to fight it. Our priority must always be focused on eradicating the cycles of extreme poverty that affect so many millions around the world.
It is an amazing fact that although we share our world with almost 8 billion people, there will never be two equal human beings. This form of inequality is one that enriches us. Our specialized talents and unique abilities are a strength of humankind.Our diversity is strength, and it also requires that we always ensure the equality of all before the law, as well as the equality of opportunity to reach our full potential.
Our diversity is strength, and it also requires that we always ensure the equality of all before the law, as well as the equality of opportunity to reach our full potential.
There is danger in a focus on the equality of results, in that it threatens the strength of the diverse potential of human capital. We possess infinite dimensions; the most transcendent of which go beyond our physical qualities. They are our talent, attitude, creativity, altruism, and the ability to work as a team, among many other values that we do not share with any other species.
To be successful in any activity, the transcendent always counts more than the mundane. For example, any tennis player knows that Roger Federer, Kei Nishikori, Rafael Nadal, or Novak Djokovic rose to the top of the sport because of their personal attitude, mental strength, and discipline, more so than any other factor. Let’s consider the difference between the five most successful players, who are paid exponentially higher than the lowest ranking; no one would advise distributing the income equally between Djokovic, Nadal , and those lower ranking players.
And, as Dr. Stephen Hawking showed us, despite suffering a debilitating disease, he persevered to become one of the brightest and most important scientific minds of modern times.
The differences in our “transcendent qualities”— our greatest individual skills and abilities— become exponential in the passions, creativity, and labor we pursue. We should embrace and encourage the space for this diversity, by focusing on fighting the circumstances of poverty and investing in human capital in a way that allows everyone to achieve their best individual potential.
What are the consequences of income equality-focused policy?
Income equality-driven policies have been tried, and the results are clear— from the failed communist and socialist experiments in Cuba, North Korea, and the Soviet Union, to most recently in Venezuela. This last nation holds the largest oil reserves in the world, and yet went from being one of the most stable and wealthiest in the hemisphere, to one of the most impoverished. It is thanks to politicization and government policies to redistribute wealth that the majority of the Venezuelan people have been progressively impoverished. In this way, we see that what is distributed with these policies is not wealth, but misery.
In contrast to inequality, the trapping cycles of poverty are terrible circumstances that we must fight with all the effort, resources, and creativity within our reach. The most recent statistics tell us that almost 8 percent of the Mexican population faces conditions of extreme poverty, and as much as 44 percent live in moderate poverty— in an upper middle-income country. It is unacceptable that households do not have access to the basic goods, food and nutrition needed to survive; that these families’ incomes are so low that life is focused on subsistence that leaves them vulnerable to health and livelihood shocks that risk a healthy life.
Poverty is a condition that sinks us, prevents us from moving forward, and that strips us of human rights. It can become easy for an "intellectual" to confuse inequality as a problem comparable to poverty because surely they have never experienced a life in poverty. It strikes me today, that some organizations that were founded to fight poverty, may seek to grab trending headlines with reports on inequality rather than focus on the complex challenges of poverty that require our true attention.
Poverty is a condition that sinks us, prevents us from moving forward, and that strips us of human rights.
In Mexico, we remain optimistic that it is feasible to eradicate extreme poverty in a decade. To achieve this, we must stay committed and avoid deviating from our end goal with distractions generated by a harmful, politicized agenda that risks the delivery of results to the millions who live in poverty today.
How can we fight poverty? Create wealth.
History shows us that when governments focus on redistributing wealth, it is destroyed and economies are brought to collapse. Therefore, we must begin by accepting that wealth cannot be redistributed; wealth must be created.
The accumulation of capital is a necessary condition that is critical to economic and social development, so it must be encouraged, not inhibited. Not many years ago, the Mexican economy was totally incapable of generating internal savings, and so was addicted to external resources.
In Mexico, it is impossible to forget the consequences of this: a succession of terrible crises that devastated the small financial wealth of millions of Mexican families and enterprises. I'll never forget it, because the company that took my family three generations to establish was left on the verge of bankruptcy. This risk of poorly implemented policy, especially where so many live on the margins, poses a great risk to development.
How do we create wealth?
Wealth creation is a virtuous cycle and we need to create the conditions for its success:
- The Great Idea: Someone identifies a market need and has an exceptional idea of how to satisfy it by using existing technologies. After much effort— design, patents, trademark registrations, business plan development, securing investors, and a long list of etceteras— the entrepreneur manages to put their idea in motion through a company. Some entrepreneurs manage to capitalize on their idea, take it to market, benefit their clients, create jobs and succeed. Others unfortunately will fail; this happens frequently. Fail or be successful, society always benefits from the innovation efforts of entrepreneurs. They must be encouraged and cultivated.
- Replication and Maturation: The brilliant, successful idea of the original entrepreneur, goes on to inspire hundreds or thousands of others around the world, who try to copy this idea and make improvements, which also benefits customers and generates employment opportunities. This new product— with all its variants— becomes mainstream. An entire industry is created and as time goes by expanded competition causes the margins and the price to decrease, which benefits the consumer even more. Let's consider the amazing impact as access to smartphones has expanded even to the world’s poorest households— creating vast new opportunities in communication, banking, and connectivity, from shop owners, to smallholder farmers, to community health workers.
- Disruption: The new market reality is gradually normalized... until another great idea emerges that takes us back to Stage 1, in a creation cycle of well-being improvement.
Recommendations for an environment to create wealth
This virtuous circle of wealth creation requires a specific environment, including key factors such as:
This virtuous circle of wealth creation requires a specific environment, including key factors such as freedom of action, access to capital and a cultural change.
“Freedom of action”: This is a critical concept that allows entrepreneurs to put their ideas into practice, because without action there is no company. To guarantee freedom of action we need simple regulation that: makes the fiscal framework reasonable and efficient, prevents monopolies or industry cartels, removes privileged conditions of access to the market, and prevents subsidies that benefit a few. Protectionist trade policies also limit our freedom of action.
Access to capital: To put ideas into practice, an entrepreneur requires access to capital. As capital has no borders, in order for a country's entrepreneurs to have access to capital, it is necessary that the economy where they operate offers stable investor conditions. For this reason, it is also important not to face unfair competition from the government or favored public sector contractors in access to the capital markets. Unfortunately, in Mexico access to the capital markets is still restricted to a few, which limits our possibilities for development.
Cultural change: In Mexico, as in many growing countries around the world, it is critically important to support the formation and expansion of Entrepreneurial Culture. In Mexico, for example, we are highly risk averse. However, we need to develop a willingness to face uncertainty in order to take the risks needed to create well-capitalized companies. Unfortunately in my country, those few who risk everything in entrepreneurial ventures, do so with little support and also have to overcome considerable red tape. Entrepreneurs should be protected and encouraged, not attacked with excessive taxes and regulations that hinder the growth of formal employment activities for our people. Unfortunately, when facing a hostile environment, many Mexican entrepreneurs have emigrated to other countries, where they have greater freedom of action, access to capital, and are not inhibited by restrictive government policy.
Entrepreneurs should be protected and encouraged, not attacked with excessive taxes and regulations that hinder the growth of formal employment activities for our people.
Refocusing on Action to Eradicate Poverty
Far from a focus on fighting inequality as the primary goal, a mission that could have severe unintended consequences for those who need development opportunities the most, the mandate of governments must be to preserve and strengthen the conditions for entrepreneurship, growing businesses, and shared wealth creation— so that each individual can access prosperity through of their own effort, dedication, and the full development of their individual human capital.
What we must all demand is equality before the law and the equal access to opportunities, not an equality of results. When incentive to achieve excellence is eliminated, in a globalized environment, we would be destined to defeat. History, in Latin America and around the world, reminds of the dangers of these policies. Redistribution of wealth has only spread misery.
We must focus on eliminating the vicious cycles of poverty that limit people. We must enable all with the conditions to learn, grow, live healthily, and progress; and they will naturally seek to generate greater wealth for themselves and their families. These positive feedbacks— that help create greater inclusive prosperity for the rest of society— are a delicate virtuous circle that we must cultivate.