Legendary rock star Bono may have learned this the hard way. Bono, born Paul David Hewson, was raised in a middle-class family and then skyrocketed to fame and wealth as the lead artist of U2. For four decades, he has dedicated both his music and the resulting wealth toward humanitarian crises, including global poverty and the AIDS epidemic. Bono has been at this for a long time and has created several foundations and organizations, including the ONE Campaign, whose stated goal is to create economic opportunities and healthier lives in Africa. He has received numerous awards for his work, partners with the World Economic Forum and George Soros, and was granted an honorary knighthood by Queen Elizabeth II. He is a big fish in a big pond and is animated by his Christian faith to pursue an end to poverty. Yet even his well-intentioned organizations are not immune to creating dependencies that impede long-term growth.
After almost three decades of poverty activism, Bono had a realization. At his now-famous speech at Georgetown University in 2012, he told a packed crowd: “Commerce is real. Foreign aid is just a stopgap. Commerce and entrepreneurial capitalism take more people out of poverty than foreign aid; of course, we know that. We need Africa to become an economic powerhouse.”
He argued in the same speech that we should not cut aid, but it took courage for Bono to publicly admit that commerce is a key to ending poverty. He’s correct; we do need Africa to become an economic powerhouse, and nobody knows this better than those who live in Africa, which has lagged behind the world in economic development over the last 50 years. Economic growth is never a guarantee, but there is no such thing as economic destiny, either. That is why his shift in thinking matters. He says, “of course we know that,” but do we?
To clarify this, we need a long look at human history and some economic thinking. The very famous and often-cited hockey-stick economic growth graph tells the story.
Going back two millennia, we see no sustainable growth until around 1800. The era of stagnation lasted at least 1800 years, and history goes back far longer than that. Poverty, famine, disease, plunder, and violence were ubiquitous. Early death was the norm rather than the exception. There was no hope for a brighter material future; rather, the goal was to survive. Birth rates per woman were much higher then than they are today, but maternal and infant mortality were higher, too, so population growth remained low.
Then something happened that changed the world: scalable wealth creation and economic growth fueled by the productivity of human capital. Wealth has causes that must be understood. It took Bono time to realize this because his compassion, while noble, was not propelled by the economic way of thinking, which, as economist Peter Boettke notes, is a tool for the curious and compassionate. Christians are commanded to help the poor, but this does not and cannot mean treating the poor as “the other,” incapable of unleashing their human creativity in service of themselves and others — the poor need markets, just like everyone else. The problem with the poverty industry is that it has been a rent-seeking cartel focused on creating high-paying jobs for PhDs from elite universities rather than helping the poor permanently escape poverty. This is why the “of course we know that” isn’t so obvious. Compassion paired with technocracy is not what the poor need; in fact, this leads to long-term dependency, a hollowing out of human dignity and agency, and a bevy of pernicious unintended consequences. The poverty industry robs the poor and transfers resources to NGOs, which are often government-subsidized bureaucracies.
It does this by redirecting aid to administrators and consultants and cultivates incentives for NGOs to allow poverty to persist rather than to help eliminate it. Moreover, nonprofits and NGOs fall victim to what Bill Easterly has documented as the White Man’s Burden: Western aid agencies, even the well-intentioned, devolve into modern paternalism. To continue to raise money from governments and other sources, they become increasingly bureaucratic and this results in a top-down planning mentality.
This creates counterproductive incentives in which well-paid consultants and project managers embrace arrogant mindsets in which they treat poverty assistance as an engineering project and in the process enrich themselves. Chris Coyne argues that this cultivates a host of pernicious unintended consequences and refers to it as “doing bad by doing good.” Not only is this incapable of ending poverty, the mechanisms by which the aid agencies increase their funding all but ensures that the problem they seek to solve grows and in organizational mission creep. The poor become an afterthought and effective bottom-up solutions and institutions get crowded out because we forget that economic development requires that human capital becomes more productive which requires that we focus on individual people. As Nobel laureate Robert Lucas argues, no country has become rich by redirecting resources from rich to poor but rather by increasing productivity.
We can end material poverty, but that requires robust institutions of economic freedom, including the rule of law, the protection of private property rights, independent courts, and, as Deirdre McCloskey argues, the freedom to give it a go. Entrepreneurial capitalism is about profit and loss; it’s the realization that Adam Smith articulated 250 years ago: markets are positive-sum enterprises. The butcher only makes a profit if he serves his customers well, and this works best when butchers compete with one another to serve the community. The threat of loss disciplines the entrepreneur, and the lure of profit motivates him to look beyond his own interests, consider the needs of strangers, and serve them well. This is not to say that we should never give the poor cash or in-kind transfers, but that this is insufficient for cultivating economic growth, and that if we do it poorly, we harm the very people we intend to support.
Why do we get this wrong so often? After all, Bono is just one of thousands who take this very seriously, as they should, but get it wrong. Part of the explanation is that we take economic growth for granted, especially if you are born in a rich country like the United States. The other part is that we are lazy, and it’s easy to write a check. The deeper underlying problem, though, is an intellectual misunderstanding that economic development is a zero-sum game. If some get rich, it must be at the expense of others.
We see this in American domestic politics with the cries to outlaw billionaires because they must have engaged in malfeasance to have so much. Zero-sum thinking is dangerous and leads not only to calls for punitive redistribution but also to a scarcity mindset. If we are stuck in a Malthusian trap, we must control the population; if resources are fixed, we must ration them; if wealth is finite, one person’s gain must be another person’s loss.
It is imperative to understand that economic growth is not only positive-sum, but the world’s best poverty-alleviation program. It’s why you and I were born into the sharp curve of the hockey stick, and it’s also why there is no economic destiny. Positive-sum thinking leads to a growth mindset, and the entrepreneur is at the heart of the market process. The motive to obtain a profit is the engine of prosperity, but this cannot be engineered by elites. Rather, it is a bottom-up process of commerce and service. Bono gets it now, but it’s not an easy lesson.
We have both economic theory and empirical evidence showing us how to care for the poor and ensure that poverty becomes an artifact of history. So yes, we do know that even if our aid models and policies fail to reflect it. There is no such thing as economic destiny; all countries and people were once doomed by poverty, but that is no longer the case. We must proceed with compassion and intellectual humility because we too can destroy the wealth we’ve enjoyed if we don’t protect the institutions of a free and prosperous society.
