Thursday, December 29, 2005

Human Capital

This remarkable interview by African Economist, James Shikwati, says that the best way to help Africa is to stop all foreign aid. Africa is poor, he argues, because the people there lack skills and countries lack institutions, not because it does not have stuff. Foreign aid undermines the ability for either of these to develop, thus condeming the country to poverty.

I think he has a good point, but I'm not sure that cutting of aid will enable that capital to develop. Capital accumulation requires strong individual property rights, and I don't think anyone knows how to create institutions that support that.

The urge to redistribute is very strong. Brad DeLong reviews a book that argues economic growth is a good thing (the review was published in Harvard Magazine, where I suppose such a statement is still controversial) but in the end he concludes that the US should be more redistributional. This assumes that people in the US as poor because they don't have enough money, and that the skills and human capital destroyed by transfer payments is costless. I don't think that reflects the situation of the poor underclass accurately.

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