Mike Moore: Poverty is not inevitable and true democracy can fix it

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The article by Mary Dejevsky in Friday's Herald suggesting that a benevolent authority is better than democracy couldn't be more wrong.

Poor democracies have always outperformed authoritarian societies. Democracies score 20 to 40 per cent better even in poor nations, whether it be life expectancy, infant mortality, or farm production and clean water.

Democracies are less corrupt, more efficient because leaders are held accountable, and an active civil society and free media are the watchdogs, the cleansing air of transparency, and the adaptability of democracy drives up better results.

There has never been a famine in a democracy, no two democracies have even gone to war, and where there are democracies the numbers of civil wars go down. No evidence was produced to back up the claim that dictatorships do better.

Democracy is more than having a vote, it's also about freedoms such as property and human rights. This interests me because I'm a congenital do-gooder and know-all.

I'm the least distinguished member of a high-level UN Commission on the Legal Empowerment of the Poor.

It is chaired by former US Secretary of State, Madeleine Albright, and Peruvian economist Hernando DeSoto, and includes outstanding individuals such as former US Treasury Secretary Larry Summers and Supreme Court Justice Kennedy.

The commission's report, due out later this year, will be profound and may change the thinking on how we alleviate poverty.

Why is it that countries that should be wealthy, that have resources, have continued to underperform? Poverty is a man-made thing so we can fix it, but how and what works and what fails? What's the common denominator in success and failure?

Open economies always do better. Trade and competition drive up results and help to combat corruption, as well as allocate resources more efficiently. Private ownership, spread through society, works.

The tragedy of large-scale privatisation in countries such as Russia was the brutal insider wealth grabs. A free market without solid, trusted institutions, property rights, independent courts, a professional public service and democracy is not a free market but a black market.

Firm, predictable civil institutions create a vital factor to promote success. Trust. Trust in the courts, in contracts, is a serious issue. Good governance is fundamental.

This commission is mainly focusing on the legal rights of the poor. Without secure property rights, poverty will endure, corruption remains endemic, and investment withers. People without property rights cannot realise on their assets. The informal capital in Peru is estimated to be worth US$74 billion ($95.9 billion), Egypt US$248 billion, Tanzania US$29 billion, Albania US$16 billion, and Mexico US$310 billion.

People are driven underground because they don't trust their institutions, which is why 40 per cent of the economies of developing countries lie in the informal economy - in Thailand and Nigeria it exceeds 70 per cent of their economies.

Government regulations and interventions are costly and create opportunities for corruption. In Kenya, 1000 licences govern entrepreneurial entry, more than 130 laws regulate agriculture alone. It's worse in many countries. Why register a company if it costs so much?

This relegates local businesses to the backstreets. Secure property rights boost investment. Evidence abounds that when trust emerges, investment increases.

When China established de facto securitisation of property and liberalised agriculture, productivity jumped some 42 per cent between 1978 and 1984. Its more open economy has helped to lift hundreds of millions out of extreme poverty.

Access to justice is important. India has only 11 judges for every million people, 20 million legal cases are pending, and some civil cases can take 20 years to reach court.

Around a million cases are pending in Kenya, the average judge in the Philippines has a backlog of nearly 1500 cases. In New Delhi, there's an estimated 500,000 bicycle rickshaws driven, but only 99,000 licences allowed for legal drivers. It's the same story for street hawkers, who pay up to a third of their incomes to stay in business.

Licensing and restrictions create opportunities for the bureaucrats to take bribes and steal.

We can establish property rights which will encourage people into the formal economy where they are protected by the courts, can borrow formally against their assets, and employ more people.

This is not rocket science, the pattern is clear. It has been done before and those countries are doing better now, as are those that are adopting these principles of good governance.

* Mike Moore is a former prime minister and Director-General of the World Trade Organisation.

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