Capital Is the Way Out of Poverty

At the Spherical Model, we define a few terms related to the economy:

definitions from SphericalModel.com

Wealth isn’t evil; it represents valuable labor. Money isn’t evil; it’s simply a way to make exchanges of labor easier. Price isn’t evil; it represents a willing agreement to exchange labor. And capital isn’t evil; it represents a way to put surplus to good use.

Economists often use simple societies to explain these concepts. On the Spherical Model website, we use Robinson Crusoe on an island, which is how it was taught to me in a basic econ class.

Recently I had a conversation with a friend that I thought would be a good illustration.

My friend is from an African country that is currently in a lot of turmoil because of corrupt and probably incompetent leadership. Economic conditions are serious enough there that missionaries from my Church have been temporarily transferred out of the country. 

My friend has been living here in America for about a decade; her husband, also from her native country, immigrated to the US much earlier and became a citizen. Nevertheless, getting her permanent residency with full work privileges has been difficult.

Add to that, her husband has a record, from something long ago that I do not know the details of, but which interferes with his getting employment here. This has made for a hard life for them. My friend does caregiving that requires a lot of physical labor at relatively low pay. But she is nevertheless one of the most faithful, optimistic people I know.

The question has been whether they should return to their country. Some months ago, nearly a year, her husband decided to return and try to get a job there. He found someone willing to hire him to work at a college, doing work he is qualified for, as soon as funding becomes available. The problem is, the corrupt government is months behind in meeting payroll for government employees. So he waits, living with his mother, who doesn’t have much to spare. And my friend continues to work here, combining resources with their young adult son, who is working and attending community college.

oil palm trees
image from Wikipedia

They would like to reunite, in whichever country God leads them to. But to return to their country, she tells me, she needs capital—not just to get there, but to have a way to make a living there. She knows where to contact people, up in the hills, who harvest palm oil. The oil needs to be extracted from the palms, and she knows how to either do that or hire that to be done. Then she could bottle it and sell it. I think she may have done a business like that when she last lived there, before she got married and moved to the US.

Capital, to her, I'm guessing means no more than a few thousand dollars. But, how to get that is the challenge.

Capital comes from a few main sources:

1.      Savings—which means building up a surplus over and above basic living costs.

2.      Loans—which means someone else has a surplus they are willing to be used with an expectation of a return plus interest.

3.      Investment—similar to a loan in that someone with surplus is willing to have it be used, and they have an expectation of return. But rather than a simple interest rate, there is some other arrangement.

a.      There could be a partnership arrangement—ongoing sharing of duties and profits.

b.      There could be a stock investment arrangement—sharing the profits as long as the money remains invested.

There are probably other ways, but those are typical. People with surplus want their money to not just sit there, but to be put to use in a way that will make more money.

The personal savings route is going to be a long slog for my friend, unless she and her husband can come up with better/additional income sources than they currently have. But she presses on, expecting no one to just give them something they haven’t earned.

The thing about loans is, you need collateral; you need to have a way to pay back the loan in case the expected returns from the business don’t happen. In general, you need to not really need the loan except for convenience.

oil palm fruits on the tree
image from Wikipedia

But there are some investors in very small businesses like what my friend envisions. It’s called micro-capitalism. (I wrote about this here and here.) The examples I’ve read about, however, work with people in their own countries, where they’re connected with people who can advise them and hold them accountable as they work through the challenges of starting a business. Living half a world away from where my friend would set up a business means getting connected to these sources is an additional challenge. Still, capital is what she needs.

There are steps out of abject poverty. And capital—surplus above subsistence that can be used to produce more surplus—is key.

As I’ve said before,

Sometimes there’s an immediate need to give a man a fish. But that is never a long-term solution to his hunger. You teach a man to fish, and he has the skill to take care of himself. But maybe he also needs the means to make or otherwise get hold of a fishing pole or net.

Capital is the source of the fishing pole or net. I has to come either from personal ingenuity, or from using surplus money for materials or outright purchase.

Getting the capital into the hands of those who can use it—that’s a challenge. But capitalism is the natural solution. No other system can compare.

There may be times when we give a fish—to get someone by. That’s charity, when given freely. But it’s not a permanent solution. Even then, charity requires the production of surplus that can be willingly shared. But the step that moves a person into happy self-sufficiency requires their producing something of value themselves.

I think my friend is capable of producing something of value. If I had the surplus, I would consider investing in her. I hope she is eventually able to obtain what she needs somehow—although I’d prefer for her to stay here and find better opportunities than to move across the globe. One thing is certain, though, she’s smart enough to know that capital is the answer. That’s why it hasn’t occurred to her to complain and protest that no one is giving her a handout.

I pray for her. I tell her and she says, “I know. I can feel it. God is so good to me.” Her life looks very tough to me, but she inspires me with her happiness and perseverance.