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Capitalism Eliminates Poverty, Despite These 4 Common Misperceptions.

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Equality is the wrong thing to worry about and the wrong outcome to pursue, because it’s both unnatural and unattainable. The elimination of poverty and the elevation of all is the better goal, and free-market capitalism is making tremendous progress.

You might have heard the phrase, “the rich get richer and the poor get poorer.”

Yes, it’s true that the rich (tend to) get richer, but the poor get richer too—especially if we look at a time span of decades or longer, and if we focus our attention on people living in countries where governments adhere to a basic respect for the rule of law and property rights.

Consider: Even those who would be called “poor” in today’s Europe or the United States have a standard of living that would astonish the nobles entertained in the Court of Versailles of Louis XIV (who lived from 1638-1715). Forget about private jets, air conditioning, television, wifi, or automatic elevators: the guests of the famous Sun King didn’t even have flushing toilets, which reportedly caused serious problems at heavily attended parties. Nutrition and medical care wasn’t the best back then, either: Of the six children Louis XIV had with his first wife, only one survived to adulthood, and even he died (at age 49) before his father, such that (because of other early deaths) the crown passed to Louis XIV’s five-year-old great-grandson upon his own death.

“Okay, sure,” you might hear. “Inventors make discoveries every now and then, so over the course of centuries that piles up and even average people end up richer. That’s just the operation of science and technology. But I’m talking about the economic process under unregulated capitalism, which is characterized by stagnation for most participants.”

Actually, that summary gets things backwards. For most of recorded history, humans had very slowly rising living standards, but then material progress suddenly exploded:

Source: American Enterprise Institute

As the chart makes clear, our current living standards vis-a-vis the nobles at the Palace of Versailles is not merely due to routine technological inventions; the progress in the last few centuries is literally unprecedented. In a 2016 New York Times column, economic historian Deirdre McCloskey explains the astonishing surge in economic growth in this way:

[A] mere idea, which the philosopher and economist Adam Smith called “the liberal plan of equality, liberty and justice.” In a word, it was liberalism, in the free-market European sense. Give masses of ordinary people equality before the law and equality of social dignity, and leave them alone, and it turns out that they become extraordinarily creative and energetic.

“Yes,” you might hear, “we know socialism doesn’t work, and that the modern capitalist approach gives people an incentive to build and keep great fortunes. But those ‘per capita’ figures hide the massive inequalities in a largely unregulated system. Capitalism is great at producing but not at distributing fairly.”

Again, this misreads the historical record. It was precisely the “lower classes” who benefited the most from the economic progress unleashed in the so-called Industrial Revolution and beyond. Yes, the “captains of industry” personally became quite rich, but the rise of big business primarily benefited the working class. After all, the titans of industry engaged in “mass production” in order to sell products to… the masses.

For example, in the United States during the “Roaring ’20s”—and under the laissez-faire administration of Calvin Coolidge—regular American households saw a fantastic improvement in their quality of living. Gene Smiley explains: “A key to much of this growth was the spreading use of commercially generated electricity,” which in turn allowed average consumers to obtain “refrigerators, phonographs, electric irons, electric fans, electric lighting, toasters, vacuum cleaners, and other household appliances.” (Gene Smiley, Rethinking the Great Depression (Chicago: Ivan R. Dee, 2002), pp. 5-6.)

“Fair enough, there may have been some low-hanging fruit when regular households didn’t have the things we now take for granted. But in more recent history, the forces of unrestrained liberalism are actually hurting the most vulnerable. Maybe not in the United States and other advanced countries, but certainly in poorer countries that are often exploited in international affairs.”

On the contrary, this too gets the facts backwards. As the World Bank reports, the global rate of “extreme poverty” (defined as people living on less than $1.90 per day) was cut in half from 1990 to 2010. Back in 1990, 1.85 billion people lived in extreme poverty, but by 2013, the figure had dropped to 767 million—meaning the number of those living on less than $1.90 per day had fallen by more than a billion people.

The following chart summarizes the overall progress of humanity in shrinking the problem of extreme poverty:

Of course, there is more work to be done on this front, but the spread of market institutions (sometimes disparaged as “neo-liberalism” and “globalization”) have gone hand-in-hand with rapid and unprecedented increases in human welfare, even for the poorest among us.

Will John Tamny’s New Book Start the Anti-Lockdown Movement?

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Up here in Maskachusetts, in the Berkshire Hills, we have a new form of fascism that might well be called “phasism” as our Governor Charlie Baker phases out our freedoms and our economic life. Banning music and theater and Tanglewood concerts and tennis tournaments and baseball games and track meets and schools and colleges, he has put his knee on the arterial flow of our tourist and services dependent economy and it can no longer breathe.

For the last couple months, I’ve been hunkering down and hiding out from this mad-phasist Fuhrer with his menacing black mask inscribed Science will Win and his new COVID forever police state.

Imposing a new travel ban and new alcohol prohibition rule early in August while COVID deaths sink to virtually none, the Governor has been rescinding “step 2 of phase 3” of his reopening plan. He storms at reports of a “recent [beer] kegger in Chatham, that graduation event in Chelmsford, the booze cruise in Boston Harbor, the football camp in South Weymouth, the lifeguard party in Falmouth, the prom in Cohasset,” as the inimitable Howie Carr recounts in the Boston Herald. Like some demented puritan divine, the governor seethes at “troubling clusters” of “private recreational activity”.

Hey, I’m guilty as sin. I still watch unmasked TikTok dancers, and pruriently ponder Doctor Anthony Fauci’s porno YouTube “film clips” of nude happy faces of people dancing in the streets. I travel freely about the country. I’m trusting you not to tell Governor Charlie!

Skulking under my sheets, I write timidly in the knowledge that Baker has scores of thousands of apparatchiks hounding down any secret hoarders of residual capacity to think for themselves without gubernatorial guidance and medical counsel.

I only cherish a futile hope that Baker doesn’t amend his mask order with Doctor Fauci’s proposed mandate for goggles. I can hardly breathe in a mask, and I sure don’t know how I can prophesy in goggles.

But I’m relieved to report that righteous scriveners and saner doctors, academics and statisticians across the land are publishing books debunking this amazing COVID madness. I’ve told you already about my Discovery Institute colleagues Jay Richards and Douglas Ax and statistician William Briggs and their demonstration in The Price of Panic (available in October) that lockdowns do no good whatsoever in suppressing epidemic but do effectively devastate much of the economy. I’ve written of my Moonshots colleague John Schroeter’s stirring ebook, already available on Amazon: Covid19: A Devil’s Choice.

With cogent authority, these books present all the statistical arguments on the insignificance of COVID compared to earlier, more deadly epidemics that brought no lockdowns or mask edicts.

Once to every man and nation, however, comes a moment to speak truth to power without statistical distractions or utilitarian extenuations. Now John Tamny, the libertarian star of Forbes’ Real Clear Markets, has unleashed a devastating tract, to be published as soon as possible (AIER possibly), entitled When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason.

Naming names and describing the endless carnival of outrageous overreach, Tamny vividly shows that Governor Baker is just one of many demented governors reveling in power like a Charlie Chaplin Fuhrer during this mass media madness.

Tamny is not much interested in COVID-19 data, except to dismiss the virus drama as just another epidemic event like scores of others over the centuries. He derides the call to continue lockdowns until the arrival of vaccines. He quotes Holman Jenkins of the Wall Street Journal,

“There were no vaccines for the ’57 Asian flu [that caused 70 thousand US deaths, including many young people (nearly equivalent to Covid-19 deaths adjusted for population)], or the ’68 Hong Kong flu or the 1918 Spanish flu [50 million world deaths]. They were never ‘cured.’ They ended when people decided to accept and adapt to the virus’s existence.”

Nothing offers any answer to the all-cause death data that show COVID to have been a trivial event in medical terms, with some 300,000  lives lost, average age over 80, in the face of some 58 million global all-cause deaths in 2019. COVID deaths, even according to the Imperial College of London, will be drastically fewer in 2020 than the some 1.4 million new tuberculosis deaths resulting from the lockdowns and COVID hospital distortions.

As Tamny points out, the relative triviality of Covid-19 was blatantly evident as early as March 18, 2020, when Fred Smith, the venerable FedEx founder-CEO, was interviewed by Fox News’ Bret Baier. Smith had extensive operations in the epicenter of the virus in Wuhan, China, and 907 employees there, delivering packages for weeks all over the stricken city. All employees were tested for the virus and only four tested positive. Of those four, two proved to be false positives. None of the FedEx workers got exceptionally sick and all recovered.

Tamny concluded: “That [Smith’s Wuhan] employees were largely spared the virus’s spread, and that none had died from it, reads as a reasonable market signal going back over two months (and realistically much longer than that) [discrediting] the presumed lethality of Covid 19.” COVID seems chiefly to threaten people already dying and physicians who expose themselves repeatedly to a load-dependent viral attack.

What we have undergone is an egregious and perhaps criminal and certainly unconstitutional power grab by politicians. Whether merely stupid or demagogic or driven by polls or by a nefariously political media, the politicians from Trump on down simply blundered like no others in the history of public policy.

“Proper history,” Tamny writes, “will indicate that what happened in 2020 was a global debacle…The reaction by pols…amounted to the biggest crime against humanity [in two centuries]. When politicians panicked, those with the least suffered in unimaginable ways…According to a UN study he cites, some 285 million people may die of starvation [because] of “an American upper middle class that was making decisions for everyone and for whom lockdowns were merely an inconvenience or vacation.”

“To blame this on the coronavirus is to excuse ineptitude that is the norm when the combined decentralized knowledge of millions and billions of humans is ignored in favor of the centralized and highly limited knowledge of very few politicians, and even fewer experts.”

“In robbing us of our freedom to live and work as we wanted…politicians suffocated wealth creation along with the information necessary to save us from the maladies and death brought by the virus. [It was] tragic…The expert standard replaced the market standard…”

Tamny understands economics with an intuitive and uncanny contrarian eye that penetrates beyond all the macroeconomic fantasies of conventional economists. He points out: “If the virus had been lethal, the lockdowns would have made even less sense…The biggest enemy of life is poverty.” Lockdowns simply cause poverty without relieving disease in any way.

“Let’s never again fight disease with the taking of freedom and wealth so essential to knowledge, prosperity, and by extension life itself.”

As AIER’s Jeffrey Tucker declares: “This country needs a serious anti-lockdown movement, one that is not just political but cultural and intellectual, one that is deeply educated on history, philosophy, law, economics, and all sciences, and can rally around traditional American civic postulates concerning individual freedom and the limits of governments, and also around universal principles of human rights. If liberty means anything, it means that we are not locked down.”

Tamny is giving us a heroic book just in time to lead this movement. We have been suffering not from a medical crisis but from a political and economic and institutional crisis. We have undergone a vast breakdown of moral, educational, intellectual and journalistic standards. Tamny tells this story better than anyone else. All should read his shocking tale.

This article by George Gilder appeared at aier.org.

The Progressive Left Promises Heaven And Delivers Hell. “Systemic Racism” Is The Perfect Excuse.

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Imagine the perfect excuse for political failure. Everyone complicit in the failure would need to agree upon this perfect excuse and give it throaty amplification, preferably executed in unison whenever circumstances required it. Forging such a consensus would not be too difficult, given the perpetrators preference for the collective over the individual and their common desperation to make sure their precious ideology avoids culpability for their coming failure.

This perfect excuse would have to cover every instance of failure, a comprehensive failure blame-shifting plan. Further, this perfect excuse would zero in on the perpetrators’ opponents as the “real culprits,” in other words, people who had nothing to do with the making the mess and, indeed, people who were opposed to the undertaking all along. Armed with this weapon of relentless propaganda and supported by media complicit in the failure, the perfect excuse convinces the victims of their failure to punish the innocent; and to reward those who actually failed with more chances to succeed with the same failed methods. (Spoiler Alert: the failures fail again.)

One need not imagine this perfect excuse. For the Left, it already exists: systemic racism.

As one dispels the slander that America is systemically racist, it is human to focus on the moral outrage of that monstrous lie—specifically, the corrosive effect it has on relations between fellow citizens. It encourages estrangement rather than engagement, suspicion rather than solidarity. Yet, since the Regressives believe politics is life and not merely a part of it, one must necessarily understand the Left’s political rationale for crafting this lie. If one doesn’t, the Left not only will prove unaccountable but victorious.

The Left’s strength is in what its policies promise; the Left’s weakness is what its policies deliver. In the cities, counties, and states run by Democrats, citizens do not vote to get higher rates of poverty, unemployment, illiteracy, and crime. They vote for Leftists because they trust them to fulfill their promises to end these social ills through the implementation of “progressive” policies. When reality trumps their ideology and the Left inevitably fails, it needs a reason. And the truth won’t do.

Enter the perfect excuse: “systemic racism.”

Yes, the insidious canard of “systemic racism” is morally bankrupt. But sadly, the lie of “systemic racism” has been a political boon for the Left. It has allowed the Left to blame their failures upon their enemies—Republicans, populists, conservatives, et al.—who allegedly are operating within this ubiquitous (though nebulously, if ever, defined) racist system.

Thus, the Left contends, their policies would have worked but for this systemic racism. All they need is more time and power to overcome this systemic racism so they can turn their promises into reality. Tragically, the victims of the Left’s failures believe this lie; reelecting them time and again to reprise and compound their failures and the concomitant civic misery.

As with so much of the perverse leftist ideology, the sane (to their credit) have a difficult time comprehending why it is able to gather such a large political following. The perfect excuse of “systemic racism” works precisely because it focuses on the moral rather than the political dimensions of the argument.

Morally, one can rightly argue that America is not systemically racist. But this is bound to ring hollow, especially for inner-city minority residents trapped in an environment that breeds paranoia, dependence, and despair. What more could a collection of inveterate racists do to harm these communities than what has already been done by leftist policies? For these communities it must certainly feel like racism and, in any event, the effects are the same.

Any discussion of the morality of the Left’s claim of American systemic racism, while important, cannot allow one to overlook the only systemic racism that actually exists in America: that coming from the Left. Focusing on the difference between what the Left has promised and what they actually have wrought will reveal their immorality and undermine their perfect excuse of “systemic racism” by turning it on its head.

The Poorest 20% of Americans Are Richer on Average Than Most European Nations (Despite What The New York Times Says).

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A groundbreaking study by Just Facts has discovered that after accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries. This includes the majority of countries in the prestigious Organization for Economic Cooperation and Development (OECD), including its European members. In other words, if the US “poor” were a nation, it would be one of the world’s richest.

Notably, this study was reviewed by Dr. Henrique Schneider, professor of economics at Nordakademie University in Germany and the chief economist of the Swiss Federation of Small and Medium-Sized Enterprises. After examining the source data and Just Facts’ methodology, he concluded: “This study is sound and conforms with academic standards. I personally think it provides valuable insight into poverty measures and adds considerably to this field of research.”

In a July 1 New York Times video op-ed that decries “fake news” and calls for “a more truthful approach” to “the myth of America as the greatest nation on earth,” Times producers Taige Jensen and Nayeema Raza claim the US has “fallen well behind Europe” in many respects and has “more in common with ‘developing countries’ than we’d like to admit.”

“One good test” of this, they say, is how the US ranks in the OECD, a group of “36 countries, predominantly wealthy, Western, and Democratic.” While examining these rankings, they corrupt the truth in ways that violate the Times’ op-ed standards, which declare that “you can have any opinion you would like,” but “the facts in a piece must be supported and validated,” and “you can’t say that a certain battle began on a certain day if it did not.”

The Times is not merely wrong about this issue but is also reporting the polar opposite of reality.

A prime example is their claim that “America is the richest country” in the OECD, “but we’re also the poorest, with a whopping 18% poverty rate—closer to Mexico than Western Europe.” That assertion prompted Just Facts to conduct a rigorous, original study of this issue with data from the OECD, the World Bank, and the US government’s Bureau of Economic Analysis. It found that the Times is not merely wrong about this issue but is also reporting the polar opposite of reality.

The most glaring evidence against the Times’ rhetoric is a note located just above the OECD’s data for poverty rates. It explains that these rates measure relative poverty within nations, not between nations. As the note states, the figures represent portions of people with less than “half the median household income” in their own nations and thus “two countries with the same poverty rates may differ in terms of the relative income-level of the poor.”

The OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.

The upshot is laid bare by the fact that this OECD measure assigns a higher poverty rate to the US (17.8 percent) than to Mexico (16.6 percent). Yet World Bank data show that 35 percent of Mexico’s population lives on less than $5.50 per day, compared to only 2 percent of people in the United States.

Hence, the OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.

The same point applies to broader discussions about poverty, which can be measured in two very different ways: (1) relative poverty or (2) absolute poverty. Relative measures of poverty, like the one cited by the Times, can be misleading if the presenter does not answer the question: Poor compared to who? Absolute measures, like the number of people with income below a certain level, are more straightforward and enlightening.

To accurately compare living standards across or within nations, it is necessary to account for all major aspects of material welfare. None of the data above does this.

The OECD data is particularly flawed because it is based on “income,” which excludes a host of non-cash government benefits and private charity that are abundant in the United States. Examples include but are not limited to:

  • Health care provided by Medicaid, free clinics, and the Children’s Health Insurance Program
  • Nourishment provided by food stamps, school lunches, school breakfasts, soup kitchens, food pantries, and the Women’s, Infants’ & Children’s program
  • Housing and amenities provided through rent subsidies, utility assistance, and homeless shelters

The World Bank data includes those items but is still incomplete because it is based on government “household surveys,” and US low-income households greatly underreport both their income and non-cash benefits in such surveys. As documented in a 2015 paper in the Journal of Economic Perspectives entitled“Household Surveys in Crisis”:

  • “In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
  • There has been “a sharp rise” in the underreporting of government benefits received by low-income households in the United States.
  • This “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”

Likewise, the US Bureau of Economic Analysis explains that such surveys “have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items.” The US Census Bureau says much the same, writing that “for many different reasons there is a tendency in household surveys for respondents to underreport their income.”

There is also a wider lesson here. When politicians and the media talk about income inequality, they often use statistics that fail to account for large amounts of income and benefits received by low- and middle-income households. This greatly overstates inequality and feeds deceptive narratives.

The World Bank’s “preferred” indicator of material well-being is “consumption” of goods and services. This is due to “practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.” Likewise, as a 2003 paper in the Journal of Human Resources explains:

  • “[R]esearch on poor households in the U.S. suggests that consumption is better reported than income” and is “a more direct measure of material well-being.”
  • “[C]onsumption standards were behind the original setting of the poverty line,” but governments now use income because of its “ease of reporting.”

The World Bank publishes a comprehensive dataset on consumption that isn’t dependent on the accuracy of household surveys and includes all goods and services, but it only provides the average consumption per person in each nation—not the poorest people in each nation.

However, the US Bureau of Economic Analysis published a study that provides exactly that for 2010. Combined with World Bank data for the same year, these datasets show that the poorest 20 percent of US households have higher average consumption per person than the averages for all people in most nations of the OECD and Europe:

The high consumption of America’s “poor” doesn’t mean they live better than average people in the nations they outpace, like Spain, Denmark, Japan, Greece, and New Zealand. This is because people’s quality of life also depends on their communities and personal choices, like the local politicians they elect, the violent crimes they commit, and the spending decisions they make.

For instance, a Department of Agriculture study found that US households receiving food stamps spend about 50 percent more on sweetened drinks, desserts, and candy than on fruits and vegetables. In comparison, households not receiving food stamps spend slightly more on fruits & vegetables than on sweets.

The fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.

Nonetheless, the fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.

Another important strength of this data is that it is adjusted for purchasing power to measure tangible realities like square feet of living area, foods, smartphones, etc. This removes the confounding effects of factors like inflation and exchange rates. Thus, an apple in one nation is counted the same as an apple in another.

To spot-check the results for accuracy, Just Facts compared the World Bank consumption figure for the entire US with the one from the Bureau of Economic Analysis. They were within 2 percent of each other. All of the data, documentation, and calculations are available in this spreadsheet.

In light of these facts, the Times’ claim that the US has “more in common with ‘developing countries’ than we’d like to admit” is especially far-fetched. In 2010, even the poorest 20 percent of Americans consumed three to 30 times more goods and services than the averages for all people in a wide array of developing nations around the world.

These immense gaps in standards of living are a major reason why people from developing nations immigrate to the US instead of vice versa.

Instead of maligning the United States, the Times could have covered this issue in a way that would help people around the world improve their material well-being by replicating what makes the US so successful. However, that would require conveying the following facts, many of which the Times haspreviously misreported:

  • High energy prices, like those caused by ambitious “green energy” programs in Europe, depress living standards, especially for the poor.
  • High tax rates reduce incentives to work, save, and invest, and these can have widespread harmful effects.
  • Abundant social programs can reduce market income through multiple mechanisms—and as explained by President Obama’s former chief economist Lawrence Summers, “government assistance programs” provide people with “an incentive, and the means, not to work.”
  • The overall productivity of each nation trickles down to the poor, and this is partly why McDonald’s workers in the US have more real purchasing power than in Europe and six times more than in Latin America, even though these workers perform the same jobs with the same technology.
  • Family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility has strong, negative impacts on household income.
  • In direct contradiction to the Times, a wealth of data suggests that aggressive government regulations harm economies.

Many other factors correlate with the economic conditions of nations and individuals, but the above are some key ones that give the US an advantage over many European and other OECD countries.

In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.

The Times closes its video by claiming that “America may once have been the greatest, but today America, we’re just okay.” In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.

Last year, the Times adopted a new slogan: “The truth is worth it.” Yet, in this case, and others, it has twisted the truth in ways that can genuinely hurt people. The Times makes other spurious claims about the US in this same video, which will be deflated in future articles.

James Agresti is a contributing writer at Intellectual Takeout.

Entrepreneurship Is The Most Direct Way To Address Poverty And Unemployment, Despite Red Tape And Bureaucrats.

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Behind every successful entrepreneur is a cause or passion that pushes them to persevere even though the toughest situations. For Richard Branson, his desire to create a more reliable and affordable air travel experience for consumers helped him navigate the exhaustive regulatory hurdles that stood in the way of creating Virgin Airlines. For Dr. Devi Shetty, his desire to make heart surgery more accessible to the masses fueled him as he used economies of scale to create surgical centers that now bring life-saving procedures to more people than ever before.

But for Senegalese-born Magatte Wade, her passion for business is driven by her desire to demonstrate firsthand the role entrepreneurship plays in creating prosperity.

In addition to bringing high-end, organically made skincare products to consumers via her company Skin Is Skin, which will soon be sold in select Whole Foods locations, Wade, as she explained in a popular Ted Talk, wanted to bring something else to the world: the antidote to poverty.

Why Are Some Countries Wealthy?

Wade was born in Senegal in a small fishing village south of Dakar in 1976. Her parents moved to Europe for work shortly after she was born, so Wade was raised primarily by her grandmother for the first several years of her life.

After leaving Senegal as a girl to live with her parents in France, Wade was immediately struck by the differences between her new home and her home country. She was puzzled as to why one region of the world was so prosperous, while another was struggling with extreme poverty.

In the documentary Made in Mékhé, produced by the Foundation for Economic Education (FEE), Wade commented:

Why is it that a couple decades ago, China, for example, was at the same level as many African countries. And yet today … countries like Singapore made it, countries like Hong Kong made it. Even a place like Dubai, bare land of sand—desert sand—and then all of the sudden within 12 or 15 years Dubai is one of the financial centers of the world. What happened?

The question took root and would eventually shape her career.

The Power of Entrepreneurship

The difference, Wade came to believe, boiled down to a single word: entrepreneurship. She noticed that in wealthier nations, commerce and trade are allowed to occur and even encouraged. In places like Hong Kong and Dubai, she saw, it was much easier for individuals to start and operate a business than it was in her own country. And more business means more economic opportunities for the entire country.

Each year, the Fraser Institute, as well as other organizations like the World Bank, releases a report that ranks each country by their degree of economic freedom. According to the 2018 annual report, Senegal ranked 125 out of 162 countries. Hong Kong, on the other hand, leads the world in economic freedom, besting America by five spots.

Starting a business might not seem inextricably linked to economic prosperity at first glance, but it is through the formation of new companies that new jobs are created. And with more employment opportunities comes the ability for more people to improve their circumstances and rise out of poverty.

In many African countries, and especially Senegal, excessive regulations prevent many would-be entrepreneurs from starting businesses and not only bettering their own lives but also the lives of those for whom they are creating new employment opportunities. And without a robust job market, many are forced to take on dangerous trades.

In Wade’s hometown, there are few jobs available for those wanting to break the cycle of poverty. As a result, many young men eager to provide for themselves are left with no other option than to take positions as fishermen, leaving their homes and families for shoddy vessels. Many never return.

“Some of my most entrepreneurial people … are right now serving as fish food at the bottom of the ocean,” Wade tearfully told an audience recently.

I grew up with stories of people dying at sea. Why? Because they had to leave their country because there are not enough jobs, and why are there not enough jobs? Because the business climate sucks.

Wade came to believe the only way to change the situation at home would be to take on the challenge herself and bring the manufacturing of her products to Senegal.

How Employment Empowers

Of her company, Skin Is Skin, Wade often says that it was born in Austin, Texas, and made in Mékhé, as Wade splits her time between those two places. Recognizing full well how regulation was inhibiting her country’s economic well-being, she decided to brave the bureaucratic storm and navigate through a sea of red tape to bring the production of her skincare products to Mékhé. Since she only uses the best available ingredients for her products, she imports many that she can’t find within her country from elsewhere, which means everything she purchases is subject to a 45 percent tariff. That alone causes huge financial strains, but Wade has persisted nevertheless.

Skincare products might not seem revolutionary, but workers employed by Skin Is Skin say it has been life-changing.

Production manager Ibrahima N’Dour lived in a small one-bedroom house with his wife and their five children before he was hired. At night while they slept, three people would crawl into bed while the rest lay next to each other on the floor, he says. After being hired by Wade, whom he considers family, N’Dour was able to move his family into a bigger home where his children have space to play and beds to sleep in at night. N’Dour is not the only one who has bettered his circumstances thanks to Wade’s entrepreneurship. In addition to economic prosperity, employment gives individuals a sense of dignity and self-sufficiency that helps them lead more fulfilling lives.

Traditionally, in Mékhé, the women stay home while the men go off to fish or farm. This is just the way it has always been. Adji Maria had never held a job before meeting Wade. Now employed at Skin Is Skin, she has been able to provide not only for herself but also for her entire family. Her work has helped her gain a sense of independence she would not have had otherwise.

In addition to economic prosperity, employment gives individuals a sense of dignity and self-sufficiency that helps them lead more fulfilling lives. Mame Mareme Cisse, another female employee at Skin Is Skin, explains, “This work has changed a lot in my life. Now I can provide everything I need for myself without having to ask anyone for it.”

The jobs created by Wade’s company are not limited strictly to the manufacturing of the actual skincare products, however. She is also helping other local businesses survive the harsh economic climate of Senegal. Each Skin Is Skin product comes in a hand-sewn leather bag made by CAWAAN, a family-run Senegalese company that has been making handmade leather goods for five generations.

CAWAAN, like Wade, has struggled to obtain the goods they need to offer quality consumer goods because of high tariffs. Understanding these difficulties firsthand, Wade has continued to use CAWAAN. The company has said that Wade’s commitment to their businesses has “encouraged us to work hard and optimize everything.”

Through one small business, Wade has been able to transform the lives of many living in Mékhé and encourage more commerce to occur.

Tackling Poverty One Day at a Time

Above all, Wade holds that in order to break the cycle of poverty you must strike at the heart of the problem. She believes the real problem is unemployment caused by barriers to entrepreneurship in Africa. And when it comes to doing what she can to remedy the problem, she is not content to merely stop at Skin Is Skin.

Wade recently created a new school curriculum in Senegal to promote entrepreneurial skills to young people.

Wade has been working closely with the mayor of Mékhé—whose name is coincidentally also Magatte Wade—to provide and support more opportunities for farming, energy, training, and educational ventures. She recently created a new school curriculum in Senegal to promote entrepreneurial skills to young people by teaching children the power of business and entrepreneurship.

“I never woke up one day and said, ‘Ohh, I am going to become an entrepreneur,’” said Wade, who was recently named director of the new Center for African Prosperity. “I think what happened for me is what happened to a lot of entrepreneurs and businesspeople. I think a lot of founders, the way they get into starting a business is they see something that sucks or they get inspired by something that’s awesome.”

 

“Out of Poverty” Shows Us How Sweatshops Are Helping the Third-World

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One of the wonders of the free market is the role it plays in alleviating poverty around the globe. Recently, I had the pleasure of reading economist Ben Powell’s book, Out of Poverty, which explains the role sweatshops play in helping third world countries enter the global economy.

While reading the book, I began to wonder how proponents of the free market could best convey our arguments to those who do not understand the role these factories and plants play in helping to bring others out of poverty.

As a result, I compiled a list of common concerns shared by many anti-sweatshop activists. Using Powell’s text, I provide answers that address these concerns and help others understand how these sweatshops are helping those in developing countries.

Sweatshops abuse human rights are inherently evil and we should do everything we can to shut them down.

For those of us living in prosperous, fully-developed countries, it is easy to condemn the use of sweatshops in the developing world. In America, we are so fortunate to enjoy some of the best working conditions in the entire world. So, when we get a glimpse of working conditions in places like Bangladesh, we are understandably concerned.

However, the fact of the matter is that what we refer to as sweatshops are actually helping to bring developing countries out of poverty and into the global economy. And when we actively call for boycotts or for the shutdown of these factories, we actually harm these workers and stall economic development. To demand that these factories shut down would also mean trapping these nations in perpetual poverty.

In order for these nations to raise their own standards of living, they must be free to compete in the global economy. These factory jobs are integral in making this happen.

Okay, I understand that these jobs are important and it’s great that the economies of these countries are growing, but shouldn’t governments at least institute minimum wage laws to ensure that employers can’t take advantage of their employees?

Okay, I understand that these jobs are important, and it’s great that the economies of these countries are growing, but shouldn’t governments at least institute minimum wage laws to ensure that employers can’t take advantage of their employees?

To understand the economics of wage determination in sweatshops, we need to understand how wages are determined to begin with. As economist Ben Powell says in his book, Out of Poverty:

“Wages and working conditions in sweatshops are set by the same process that sets wages and working conditions in wealthier countries: supply and demand. The wages are conditions are determined by bidding between employers and potential employees. Employers can often make the offer, but potential employees are free to accept the offer or reject it. If employees cannot attract enough workers at thh wage they are offering, they will need to raise the wage to convince more workers to choose to work for them.”

As it stands currently, these factory jobs are actually some of the most sought after in the developing world, which means that these employers are not having a hard time finding people to voluntarily agree to come work at the factories. And since these wages are voluntarily agreed upon, it would be unjust for wealthy Americans to intervene and mandate higher wages.

Plus, we already know what happens when minimum wages are legislated, both from theory and from repeated historical experience: unemployment rises. An employer can’t afford to pay a worker more than the revenue his work brings in: doing so will eventually lead to bankruptcy. If employers can only offer a wage higher than that, they will have no choice than to lay workers off or not hire them in the first place. And it is precisely the workers who need the money the most who will find it harder to get work thanks to the minimum wage.

But a couple of dollars an hours is absurdly low!

To an American, sure. But you cannot compare the economy of developing nations to that of the United States. We have a standard of living in this country that far surpasses that of anywhere else in the world. Holding a nation like Bangladesh to the same standards as are our own country is entirely unrealistic. Especially when we compare the wages paid in sweatshops to those in other sectors in the developing world.

In most of these countries, a majority of the workers earn less than $2.00 per day. However, according to Powell’s research, “Out of the eighty-three specific sweatshop jobs for which we could calculate earnings, seventy-seven resulted in workers earning more than $2.00 per day.”

When we compare the average wage paid in these factories, as opposed to other sectors, we find that it is actually well above the national average. These jobs are always filled because they offer the workers opportunity to earn more money than in other sectors and learn new skills. Many of these workers came from rural farms. But factory work has given them the opportunity to leave the farm, learn new skills, and have the ability to break the cycle of poverty that their families have endured for generations. Many of these workers even go on to start their own factories because of the education they receive while working in factories.

But none of this makes up for the fact that the working conditions are so horrible. This type of environment would never stand in America.

We should always strive to foster a culture with the best possible work environment, but holding factories in the third world to American standards is not a realistic goal. Also, if conditions were to be improved, that money would come at the expense of the worker.

Powell says:

“Activists naively assume that demanding better working conditions will improve the lives of workers. Unfortunately, they are wrong. Improving working conditions raises firms’ costs of hiring labor.”

He continues:

“A firm can respond to demands for improved working conditions in three ways. First, just as when higher wages are mandates, the firm can cut back on the number of workers it employs, which throws some workers into worse alternatives. Second, depending on the particular demands, the firm may improve some working conditions, while making other conditions worse. For example, when confronted with demands for increased safety,  the firm may compensate by requiring longer hours. Third, when working conditions improve, the firm can lower the wage necessary to attract employees.”

But since each of these is dependent on employee preference, no firm or factory will be able to please all workers 100 percent of the time. 

What about the rumors that workers are jumping off buildings?

Any loss of human life is dreadful. But when we discuss suicide rates in third-world sweatshops we have to stop comparing the numbers to that in the U.S. In 2010, it was revealed that 18 employees had attempted suicide at the Foxconn plant in China. Almost instantly, Americans were outraged, pointing to the suicide rates as reasons to protest these sweatshops.

Tim Worstall addresses this issues, stating:

“The first is the spate of suicides at the Foxconn plants. Suicides did indeed take place and each and every one an individual tragedy. Both for those who died and for those they left behind to mourn them. However, we are talking about some 18 suicides in 2010. What we actually want to know is whether that is a high or a low number. Suicide does happen in every society and country, so before we start blaming working conditions we’d like to know whether that rate is higher or lower than that in the surrounding society.

The general suicide rate in China is 22 per 100,000 people. That is a high rate by international standards but that is the one that we should be looking at to try and judge the suicide rate at Foxconn.

Foxconn employs some 1 million people in total so, if the Foxconn workforce were to have the same suicide rate as the general Chinese population (which, to be accurate, it won’t for suicide is not equally divided over age groups and the workforce is predominantly young) we would expect to see 220 suicides among such a number each year.”

When we look at sweatshops, and all the concerns that arise from their very mention, we need to ask the question, “compared to what?” Comparing numbers of third-world countries to those in America is not an accurate assessment.

It is one thing to accept an adult’s right to choose where he or she works, but what about child labor? Employing children is immoral and we should definitely ask governments to outlaw this practice.

It is absolutely heartbreaking that some nations are so impoverished, children must work long hours in factories. However, having to work is a necessity. And if these factories did not exist, many of these children would be forced to take jobs that put them in more danger than sweatshops.

Powell writes:

“In 1993, U.S.  Senator Tom Harkin introduced the Child Labor Deterrence Act, which would have banned imports from countries employing children. In response, Bangladeshi garment companies fired approximately 50,000 children that fall.”

But unfortunately for the labor activists supporting these efforts, just because a child is let go from a factory does not mean they will then automatically enroll in school. Children who work in the developing world work because they must; their circumstances require it. Without access to these jobs, children will be forced into other sectors.

Even economist Paul Krugman agrees that regulations will not help:

“The direct result was that Bangladeshi textile factories stopped employing children. But did the children go back to school? Did they return to happy homes? Not according to Oxfam, which found that the displaced child workers ended up in even worse jobs, or on the streets—and that a significant number were forced into prostitution.”

Again, when we are looking at the issue of sweatshops, instead of automatically calling for their demise, we need to ask ourselves if the workers of these factories would be better off without these jobs. And if we wish for those in developing countries to be elevated out of poverty, the answer is a resounding no, banning sweatshops would not benefit workers. It would, however, perpetuate the cycle of poverty.

To Alleviate Poverty, Treat the Cause Not the Symptoms

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When we fall ill, our bodies give us symptoms to signal to our brains that trouble is afoot. A fever, for example, lets us know that our body is working in overdrive to fight off some sort of infection. While it may be causing us tremendous discomfort, we know that the fever itself is not the real problem, but rather a symptom of a greater problem that is about to manifest itself.

But if we are in search of lasting relief, we must first discover what is causing the fever in the first place. Sure, we can try to mask the discomfort by using aspirin or ibuprofen, but this relief is conditional and only lasts for so long. Unless the root causes are identified and treated, the symptoms will come back as soon as the medicine wears off.

When put in terms of our health, recognizing that symptoms are merely consequences of a bigger problem but not the actual disease seems obvious. But many fail to see how this principle translates into other realms in life. Poverty, for example, is a vicious cycle with many observable symptoms. Starvation, lack of clean drinking water, and insufficient housing are all symptoms of poverty, but they are not the cause.

And yet, no matter how well-intentioned many charities and organizations may be, a lot of them perpetuate this cycle by focusing only on treating the symptoms of poverty, completely ignoring the root causes.

Everyone is familiar with the saying, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.” Yet, few of us actually make use of this wisdom.

The Problem with TOMS

One summer, I noticed that everyone on my college campus was wearing TOMS shoes.

It didn’t take long for a Google search to tell me everything I needed to know. On paper, TOMS appeared to be revolutionizing the way we approach charity by capitalizing on consumer incentives. First-World consumers love participating in a cause bigger than themselves, especially when almost nothing is required of them. And TOMS brilliantly found a way to use this to its advantage.

TOMS’s mission promises that for each pair of shoes you purchase, another pair will be sent to the developing world and given to a child in need. And for my fellow college students desperate for a cause to be passionate about, this was a golden opportunity.

But TOMS’s popularity wasn’t limited to college students. Bleeding-heart consumers were buying these shoes in droves. And they weren’t just buying one pair either. New colors and styles of TOMS were being invented to keep up with the increasing demand. American consumers, as it turns out, loved feeling as though they had personally helped alleviate poverty. And before you knew it, TOMS was being held up as a beacon of conscious capitalism.

There was just one problem: handouts cannot fix systemic poverty. And a pair of free shoes can change a person’s life no more than one free fish can. Sooner or later, you run out of fish or your shoes develop holes and need to be replaced. And by creating a dependence on these donations, you actually help perpetuate the very problem you are trying to solve.

Without self-sufficiency, no developing village can ever hope to break the cycle of poverty. And when a village that is fully capable of producing its own shoes instead relies on free American shoes, it reinforces the notion that these countries “need” First-World countries to swoop in and provide them with their basic needs. This is not a particularly empowering message.

And while it may feel good to know we have helped a child receive a free pair of shoes, this act alone does not help keep anyone out of poverty. It serves only to treat a symptom of poverty without acknowledging the cause.

What Can Be Done?

So what can be done to help impoverished villages in Africa? Encourage commerce and create jobs. Senegal, for example, is one of the worst places in the world to start a business. This is why the country earned the 124th slot on the Fraser Institute’s Economic Freedom Ranking. To give some perspective, America, which is extremely free when compared to other countries, is the 11th freest country out of 159 countries included in the ranking, putting Senegal towards the very bottom of the list.

This biggest problem in Senegal comes in the form of overregulation. Because it is so hard to enter the market as an entrepreneur, the country suffers from a lack of businesses. Where there are no businesses, there are no jobs. Where there are no jobs, there is no income. And where there is no income, there is poverty. But it doesn’t have to be. In fact, despite all the regulatory hurdles standing in her way, one woman is single-handedly showing Senegal how integral entrepreneurs are in building economic prosperity.

Magatte Wade was born in Meckhe, Senegal, and was shocked when she first traveled abroad as a child. Baffled by the economic prosperity enjoyed in foreign countries, Wade wanted to know why these economies were so different than Meckhe’s. It didn’t take her long to realize that job creation played a major role in determining the prosperity of a nation. Determined to bring jobs to her home village, Wade has had to navigate through a sea of government red tape in order to start and operate her business within the country.

Wade started Skin Is Skin, a high-end skin care line based in Austin, Texas, but produced in Meckhe, Senegal. And while a skin care line might not seem revolutionary on its face value, to the employees whose lives Wade has changed, Skin Is Skin has been the difference between poverty and prosperity.

Ibrahima N’Dour is Skin Is Skin’s production manager. Prior to working with Wade, N’Dour lived in a tiny one-bedroom home with his wife and five children. At night, they would squeeze three people into their one bed while the rest of the family slept on the floor. Now, he lives in a beautiful home where each of his children has beds and room to play. None of this would be possible without his job at Skin Is Skin.

Adji Maria is another employee of Wade’s who had never held a job before finding Skin Is Skin. Since Meckhe’s economy is entirely based around farming and fishing, roles historically held by men, many women were expected to work in their homes cooking and serving their families. But thanks to her job, Maria has gained skills that have allowed her to provide for her parents and family in a way that was never before thought possible. And Maria is not alone in this. Other employees featured in FEE’s new documentary about Skin Is Skin are positively glowing when they speak of the opportunities Wade has brought to their village. Mame Yakhara, another employee, spoke of the inspiration Wade has given her:

If it was not for Magatte, I would be just staying at home, like before, cooking, serving, while waiting for a husband…we have not seen anyone do what Magatte did, come and open a business in a place like this, to provide work to people like us who are inside our homes, sitting without a job. To get us out of our houses and provide us with this type of job… we do not get many opportunities like this.

Another employee, Mame Mareme Cisse commented, “This work has changed a lot in my life. Now I can provide everything I need for myself without having to ask anyone for it.” Not only is Magatte Wade bringing jobs to this village, she is also empowering the local women in a way they have never before known.

But the jobs created by Wade’s company are not limited strictly to the manufacturing of the actual skin care products. Each product purchased from Skin Is Skin comes in a handsewn leather bag made by a Senegalese company, CAWAAN. The family who runs the company has been making handmade leather goods for five generations. Over the years, as tariffs have increased to rates as high as 45 percent on imported materials, CAWAAN has also struggled to obtain the goods they need to offer quality consumer goods. Understanding these difficulties firsthand, Wade has continued to use CAWAAN, a relationship the company has cherished. In fact, the company has said that Wade’s commitment to their businesses has “encouraged us to work hard and optimize everything.”

Wade understands that in order to break the cycle of poverty, you must strike at the root of the problem: unemployment. And since jobs are scarce in her own village, as well as others in Africa, Wade has dedicated her being to creating jobs through her entrepreneurship, something that is clearly resonating with others. In fact, Wade is now working with the mayor of Meckhe in order to provide more opportunities for education and job training.

The path to economic prosperity will not be found in government regulations or seemingly charitable handouts, like TOMS. For individuals to be able to lift themselves out of poverty, they must have the freedom to be self-sufficient through their own entrepreneurial efforts. And Magatte Wade is a living example that entrepreneurship and job growth are the antidote to poverty.

Governments Are Trapping Underbanked Populations in Perpetual Poverty

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Those of us living in economically advanced countries can take for granted how easy and inexpensive it is to transfer money between individuals. With payment platforms like Venmo and Paypal readily available, sending and receiving payments is as simple as tapping your smartphone screen a few times.

But for those from poor countries who have left their families and communities behind in search of a more opportunity-rich life in America, sending large sums of money back home comes with a hefty price tag. In fact, by the time the money actually crosses borders and reaches its recipients, between eight and ten percent of the funds have been lost to service fees.  

On its face this may seem like a relatively small percentage, but these fees add up quickly, a point Bill Gates recently emphasized when he said, “If the transaction costs on remittances worldwide were cut from where they are today at around 10% to an average of 5%, it would unlock $15 billion a year in poor countries.” It goes without saying that $15 billion can go a long way, especially in underdeveloped countries.

Unfortunately, the regulatory burdens placed on the money transfer industry, known in the finance world as Money Services Business (MSB), have made service fees unavoidable. Since Money Transfer Operators (MTO) must pay extravagant costs before they are allowed to legally conduct any monetary transfers, the sector has seen an increase in the fees pushed to the consumer since these institutions are left to bear the ever-increasing burden of government regulation.  

While governments often claim they are committed to helping the less fortunate, it is precisely because of state regulations that those living in underdeveloped regions have had to pay large service fees that make access to capital more difficult, resulting in a large portion of the underbanked population being completely cut off from participating in the global marketplace.

Fortunately, the popularity of cryptocurrencies and blockchain technology are revolutionizing the MSB sector and giving the underbanked populations the opportunity to get ahead economically.

A Labyrinth of Red Tape

The government has made it incredibly difficult for anyone to get involved in the MSB industry or become an MTO. Federal regulations set up to combat money laundering have made this particular industry a huge financial risk for the small businesses that wish to conduct cross-border money transfers and for the banks that store the money these institutions receive.  

Before an MSB can conduct any transfers, it must battle its way through a maze of costly red tape on both the federal and state levels. As paymentsviews.com notes:

“Registration with FINCEN and development of an AML Program should cost in the lower 5 figures upfront, with ongoing administration and reporting costs being variable depending on your business. It is compliance with the state requirements that can add up.”

While not all states have occupational licensing requirements for these institutions, many do and the fees are not necessarily a fixed price one can plan for ahead of time. In many instances, a portion of the mandated fees are dependent on the amount of time a government entity spends conducting the background check phase of the process. For those states with fixed permit fees, the costs can range from $250 (Alabama) to $3,000 (New York). But the bad news is, this is not a one-time payment. Most licenses need to be renewed annually, making the regulatory process a constant burden for MSBs and MTOs.

New York’s laws are particularly rigid and collectivist in nature. The annual licensing fees for these businesses are based on their share of the total transaction volume among all license holders in the state. But even in the relatively “business-friendly” state like Texas, the annual fees are anywhere from $1,950 to $15,000 per license.

And on top of all the annual licensing fees, there are other regulations that require fees based on the net worth of the company and these fees by themselves range from $25,000 to $500,000. Additionally:

“You will be required to keep in place a surety bond, or deposit of qualifying securities in lieu of bond in all jurisdictions, dedicated to activities in the jurisdiction. This size of this bond ranges from a base of $10,000 in some small states to $500,000 in New York, with a typical bond requirement being $50,000-$100,000, with the option for the regulators in the jurisdiction to require higher amounts at their discretion. The cost of a bond can be 1-3% of the face amount, and can be higher for higher-risk entities”

Adding insult to injury, the government also requires that you pay for the application and investigatory process, in which your participation is mandatory. Likewise, after you’ve paid all the fees you must also make sure you are complying with all the paperwork requirements, like submitting annual reports and other financial statements to regulators.

Yet, even after you have complied with all the costly regulations, there is no guarantee that your business will be able to secure an account with a bank, something essential to a primarily cash-based business.  

Not Worth the Risk

Since many of these businesses operate mainly in cash transactions, as many of the “senders” themselves are part of America’s “underbanked” population, the owners of such establishments are having to routinely deposit large amounts of cash into their bank accounts. While there is absolutely nothing sinister about this, the post 9/11 world has led to increased regulations, especially when it comes to dealing with cash deposits being sent outside the United States. Since banks are monitored heavily by federal regulations, doing business with companies dealing mainly, if not solely, in cash puts targets on the backs of these banks and opens them up to federal investigation.  

Fernando Lopez has been the owner of Interamericana Express, an MSB storefront in Atlantic City, for years. Dealing primarily with monetary transfers to Mexico, Lopez and his patrons have contributed to the average of around $24.3 billion that is remitted from the United States to Mexico each year. But even though Lopez has obtained all necessary permits and complied with every law and regulation on the books, Interamericana Express has routinely found that its bank accounts have been frozen or shut down altogether.

Since cash deposits are so heavily regulated, it is not in the bank’s interest to conduct such business. In fact, even large banks like Bank of America and JPMorgan Chase have abandoned their own money transfer programs since the risk is not worth the benefits received. Additionally, Citigroup recently experienced firsthand the harsh realities of the overly-regulated MSB sector when it was forced to pay $140 million for a “failure to safeguard” against money laundering.

Since banks cannot confirm the identity or origin of the cash deposited by these MSB institutions, it is a huge liability, which is why many banks just stopped participating in this market altogether. But for those who are still willing to work with these MSBs, they are able to raise the price since it is both a high-risk transaction on the part of the bank and, to put it frankly, the MSBs no longer have a lot of options when it comes to finding a financial institution willing to work with them.  

Luckily, blockchain technology is offering a modern solution to this outdated problem that is not only making cross-border money transfers more affordable but also giving the underbanked populations of the world a chance to become major participants in the global economy.

Enter The Blockchain

While governments love to claim they are committed to helping the less fortunate, it precisely because of state regulations that these underdeveloped regions of the world have had to wait so long to become participants in the global marketplace.

But unfortunately, under the current system, the obstacles to cross-border money transfers don’t end with service fees. For those on the receiving end of cross-border monetary transfers, finding the means to actually “cash out” and physically receive the funds presents a whole separate set of issues. When living in isolated or otherwise remote regions sometimes thousands of miles away from the nearest bank, accessing these funds becomes a feat all of its own.

Without access to traditional financial institutions, the money is often useless unless one has the means to travel to a location that can help facilitate the final phase of the transfer. But a new tech startup is addressing both the high costs and bank accessibility problems associated with cross-border transfers.  

Boston-based startup accelerator “MassChallenge” recently announced its 2017 finalists who will be on the receiving end of funding to be used towards their respective endeavors. Among the finalists selected this year was the company “Token Labs,” a startup which utilizes blockchain technology to make cross-border peer-to-peer payment transfers both affordable and more accessible to the underbanked populations.

CEO and co-founder Dave Aiello describes his startup’s mission as:

“Enabling people to easily send bitcoin peer-to-peer around the world. We also connect them with local Bitcoin exchanges in their country so they can receive their local currency for Bitcoin wherever they may be.”

Not only is the Token platform aiming to reduce service fees from ten percent down to one percent, they are also solving the problem of underbanking in impoverished or otherwise underdeveloped regions of the world. Instead of having to worry about finding a bank in order to cash in on the sent funds, cryptocurrencies, like Bitcoin, are allowing those in unbanked and underbanked areas to access the money almost instantaneously.

The blockchain has allowed for such a hassle-free transfer of money largely because smartphones are so prevalent even among the underbanked. While this may sound like a shocking assertion, a study released by the FDIC found that “more than two-thirds of unbanked households (68 percent) and more than 90 percent of underbanked households own a mobile phone. While smartphone ownership lags somewhat among the unbanked (33.1 percent), underbanked households (64.5 percent) are more likely to have a smartphone than the fully banked (59 percent).”

Since cryptocurrency can now be purchased, managed, and transferred via smartphone apps like Token, the need for a traditional banking institution has become almost obsolete. In fact, in many regards, those in underbanked and even unbanked regions are surpassing America and other first world nations when it comes to innovating the entire banking industry. While this may sound like a stretch, the reason for this advancement is a direct result of smartphone technology.

While those in these regions have been largely left out of participating in the global economy, the invention of smartphones has made blockchain technology and thus, cryptocurrency a major game changer. Essentially, those living in these undeveloped regions have completely skipped past the era of centrally controlled banks, and have instead sprung forward and embraced the world of decentralized cryptocurrencies made possible because of the blockchain.

While blockchain enthusiasts like Aiello bring a great deal of hope to those wishing to liberate the world from the strain of regulation and centralization, the government still poses the same threat it always has, even if, for the time being, the blockchain remains almost impenetrable by the state.

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