Kowtowing to Capitalism’s Enemies

This article appeared in Forbes on August 9, 2001.
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Governments and corporations try to appease latter-day socialists who bizarrely seek the destruction of the verysystem that is best for the poor.

Since the end of the 1970s, free-market capitalism has been in and socialism has been out. Privatization,deregulation and open trade are now cutting-edge policies in most countries. The trend, however, is too much for thesuffering socialists. They are biting back. Violent anticapitalist protests have been de rigueur lately at internationalsummit meetings, as witness the shenanigans that bedeviled the recent European Union conclave in Sweden.

The political backlash against capitalism is pushed by a loosely connected collection of 40,000 outfits that areeuphemistically called nongovernmental organizations (FORBES, Nov. 27, 2000). Okay, the bulk of them say theyhave nothing to do with fomenting violence. But the larger point is that these NGOs are spewing out nonsensicalviews that would harm the poor who they claim to champion. Worse, NGOs are often underwritten by the verygovernments and corporations they self-righteously vilify.

Some of this appeasement money comes from Washington. The World Resources Institute, for instance, gets fundsfrom the Interior and Agriculture departments and the Environmental Protection Agency. Canada's governmentprovides almost half the funding for the International Institute for Sustainable Development. Uncle Sam kicked in$138,000 to this bunch through its fiscal year ended in March 2001. Don't go looking for detailed financial statementson most NGOs, though; they range from skimpy to nonexistent.

Then there's the absurd roster of multinational businesses that have climbed in bed with the NGOs. To Sir JohnBrowne, group chief executive of BP Amoco, "Business cannot afford to fall into the trap of seeing NGOs as automaticenemies." Perhaps it's no coincidence that his company has massively underperformed the S&P Oil Composite indexsince oil prices shot up in 1999. Sir John's soothing words about the NGOs recall General Douglas MacArthur's oneworddefinition of defensive warfare: "Defeat."

Royal Dutch/Shell is another huge corporation seeking to appease the NGOs. The oil giant released a report inFebruary boosting what's called "sustainable development"--in other words, the kind that's supposedly sensitive to theenvironment and society at large, as determined by the NGOs. The company credits three NGOs, including Businessfor Social Responsibility, with helping draft the report.

The great NGO game is laid bare in David Henderson's most recent book, Misguided Virtue: False Notions ofCorporate Social Responsibility, published by the Institute for Economic Affairs in London. Henderson, former chiefeconomist at the Organization for Economic Cooperation & Development in Paris, documents how uncompromisingthe NGOs are: Most of them will be satisfied with nothing less than an outright repudiation of the capitalist system.

A hallmark of the protesters' propaganda campaigns is that growth does little for the poor. According to Jeffrey Gates,head of a Laguna Beach, Calif.-based NGO called the Shared Capitalism Institute, "Capitalism does not raise allboats; it raises all yachts."

Not so. David Dollar and Aart Kraay of the World Bank have examined the growth-poverty nexus, looking at fourdecades of data from 80 countries, both developed and developing. They discovered that growth generated by freemarketcapitalism indeed helps the poor, raising their incomes as much as it raises those of the nonpoor. In fact,Dollar and Kraay found that most procapitalist policies--such as open trade and the rule of law--systematicallyaffected all segments of the population positively and proportionately.

And they found that two such policies favor the poor more than the rich. One is reducing inflation. This findingconfirms what survey data have always shown: The poor fear inflation much more than do the rich, who have manymore resources to protect themselves from its ravages.

The second policy is reduction of public spending. At first glance this is surprising, because public spending programsare often peddled as beneficial to the poor. Turns out that the rich are much better placed to feed at the public trough.The poor get crumbs. The leaders of business and government should wake up to what NGOs really are all about--and stop subsidizing them.