Philanthropy versus Government Welfare
Philanthropy is the voluntary promotion of human welfare. Its Greek origin means “love for humankind.”
by Fred E. Foldvary, Senior Editor
There are two directions that philanthropy can take. Philanthropy can promote social good, or it can alleviate social distress such as poverty and unemployment. In a prosperous economy that has opportunity for all, philanthropy would not need to help the poor, because there would be full employment at wages well above subsistence. The free market has a natural minimum wage, namely the productivity of the marginal worker, which in a high-tech economy would be lifted up by the insatiable demand for labor. A free society would also provide the schooling that creates the human capital that enables workers to have an even higher wage.
Advocates of government welfare for the poor say that philanthropy is not sufficient to provide a safety net of welfare aid to the poor and unemployed. Governments throughout the word do indeed spend trillions of dollars and pounds and euros to provide medicine, schooling, housing, and food to masses of poor folk. How could philanthropy possibly fill this role?
But that begs the question of why mass poverty and unemployment exist in the first place. There are three possible answers. It could be nature’s fault in not providing enough natural resources. Or it could be the fault of the poor, in being indigent because they are indolent. Or it could be the fault of dysfunctional human institutions that block people from natural opportunities.
Clearly, even with today’s world population, we cannot blame nature for poverty. The poorest continent today is Africa, which is much less densely populated than Europe, and which is highly rich in natural resources. There are high-density places such as Hong Kong and the Netherlands which are much richer than low-density countries such as the Congo in Africa.
We also cannot blame massive poverty on the poor. Go anywhere in the world today, and you will find that those who are poor or unemployed want to be gainfully employed. The French government has been providing welfare aid to alleviate the poverty of its Muslim immigrants, who suffer from high unemployment. We have seen the tragic results in the last two weeks: the civil chaos of riots and destruction. Ask the Muslim youths what the problem is, and they will tell you, they are frustrated because they have no jobs. Productive and adequately rewarded labor provides people not just with the means to live but also with dignity and the satisfaction of being productive and contributing to social well-being.
Poverty is therefore caused by the failure of human institutions. And the most powerful human institution is government. Here on one side are idle workers, and over there are underused capital goods and land. Why don’t they combine to create wealth? There must be some barrier that has come between idle labor and idle resources. The intervention, which means “coming between,” consists of restrictions and imposed costs on labor and enterprise, which make it impossible to hire labor or make labor too costly to employ.
In South Africa, for example, the unemployment rate is somewhere between 26 and 40 percent, depending on how it’s measured. This extremely high unemployment rate is caused by labor laws, especially the minimum wage. It does not help the poor to have a minimum wage law that leaves many workers with a wage of zero.
The high unemployment results in an extremely high amount of violent crime as well as a high cost for governmental welfare aid. The crime then imposes a high cost on the middle class and wealthy, as they spend huge amounts to create walls and electric fences around their homes, plus private security services and insurance.
We look to government to provide social welfare, yet government is itself the cause of much of the social distress. The economic diseases of poverty and unemployment are largely iatrogenic, diseases caused by the doctor. Governments worldwide are poisoning their patients with toxic policies. Taxation creates the economic toxic waste which economists call a “deadweight loss” or “excess burden.” By artificially raising costs and reducing gains, the taxation of labor, profits, goods, and exchanges reduces output and growth, and thus depresses the wage level. Why is housing unaffordable to so many working folks? Because government policies pull up the price of housing while depressing wages. The housing problem too is iatrogenic.
Government can play a useful role in providing security and in responding to emergencies. But much of the damage caused by catastrophes such as hurricane Katrina have been iatrogenic, caused by government failure. The federal government long ago took on the role of providing the flood walls around New Orleans, and then neglected its responsibility. The federal Corps of Engineers built canals through the wetlands that led to a massive reduction of the bayous that had protected the area from hurricane damage.
The question then is, can civil society do any better?
Civil society is the voluntary sector of the economy.
Civil Society consists of commerce, philanthropy, and association. Commerce -- the market -- provides society with employment, goods, and insurance against calamities. Philanthropy promotes social goods such as the arts, education, science, wildlife, and religion. Voluntary association can and does provide services by mutual aid, with organizations such as cooperatives, condominiums, social clubs, financial societies, and other nonprofit groups.
Note that philanthropy is only one section of civil society. In a free market, the job of preventing poverty and unemployment is that of commerce, as labor is what ultimately limits production. There is therefore an inherent insatiable demand for labor in a free market, and that demand, combined with highly productive technology, lifts wages up to what we call a living wage. Labor cannot be exploited in a truly free market, because there is an unrestricted alternative, self-employment.
But no economy today has a truly free market. In all economies, government intervenes to impose barriers on labor and enterprise. A pure free market has no intervention in peaceful and honest enterprise. Government can play a useful, market-enhancing role in a free society by providing security, protecting human rights, and by helping to enforce contracts. Instead of creating toxic economic waste, the public finances can actually promote environmental and economic well being by charging for pollution and congestion, by tapping the land value generated by governmental security and infrastructure, and by charging fees for specific services.
So critics who say that philanthropy cannot completely alleviate the distress of hunger, poverty, and unemployment are correct. But governmental aid will also always be deficient in dealing with these social problems, because welfare aid only treats the problems, and often creates even worse problems. We are witnessing this failure starkly in France. Social justice requires the that poverty not just be treated, but extirpated, pulled out by its roots.
At best, philanthropy can only treat poverty, not cure it. It is like a person having a disease and going to a doctor to treat it. He gives the patient pills to treat the pain, but this does not cure the disease, so the patient has to keep taking the pills indefinitely. Since the disease has not been cured, the patients health can become worse, and the doctor prescribes stronger pills to treat the pain. Charity is like the pill; it can reduce the pain, but it will not cure the disease.
Deep social justice therefore requires us to harness our compassion and conscience to extirpate and not just treat poverty. We should indeed use philanthropy to provide charity to the poor to feed the hungry, but at the same time, we should promote policies to eliminate need in the first place. And both theory and evidence show that the policy that eliminates poverty is economic freedom. For the past ten years, there has been a publication called Economic Freedom of the World, updated every year, available at the web site www.freetheworld.com. That study shows a high correlation between a country’s economic freedom and its growth and per-capita income. Economies such as those of Hong Kong and Taiwan with high economic freedom have risen from poverty, while per-capita incomes in countries such as Argentina and Zimbabwe with high government intervention have fallen.
There is an Irish song, My Lagan Love, with the line, “For Love is Lord of All.” The economist Henry George wrote,
“If you would move men to action, to what shall you appeal? Not to their pockets, but to their patriotism; not to selfishness, but to sympathy. Self-interest is, as it were, a mechanical force - potent, it is true; capable of large and wide results. But there is in human nature what may be likened to a chemical force; which melts and fuses and overwhelms; to which nothing seems impossible. 'All that a man hath will he give for his life' [Job 2:4] - that is self-interest. But in loyalty to higher impulses men will give even life."
In The Theory of Moral Sentiments, Adam Smith wrote of the human motivation of sympathy: "Nature .. exhorts mankind to acts of beneficence, by the pleasing consciousness of deserved reward.” By “sympathy,” Smith and George do not mean pity for the sick and poor, but rather having empathy for others, feeling both the joy and pain of others. Sympathy is broader than compassion, since it includes doing good in addition to helping those in distress.
We need competence to most effectively channel our sympathy to most effectively promote social good and prevent social ills. It is the job of education to provide that competence, while also inciting conscience and compassion. Education should teach us how to cure social problems as well as how to treat the effects. Love is not all we need; we also need knowledge, and philanthropy can help promote the knowledge we need to achieve the deepest social justice, namely, the elimination of environmental destruction, violence, and poverty.
-- Fred Foldvary
Copyright 2005 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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