Tanzania: Example Of What The Third World Should Not Do David Storobin, Esq. - For many years, Tanzania received more per capita aid from the World Bank than any other country in the world.  By 1985 when Julius Nyerere retired, the nation got $6.4 billion of foreign aid. Despite this, Tanzanian economy shrunk an average of 0.3% between 1965 and 1986.  Much of the poverty in which this African nation is mired today is the fault of the support of Julius Nyerere by the World Bank and the IMF. In 1967, the dictator ordered peasants to market their crops only through state-run marketing boards. He also imposed a policy of massive price controls and nationalized banks, nearly all businesses and labor unions. The natural results were shortages, corruption and black market activities.  If a seller can't sell his goods at a price that a buyer is willing to pay (and that allows the seller to make a profit), then he either will not produce/sell (causing a shortage) or will sell on the black market - often by engaging in corrupt, "under-the-table" deals with politicians and law enforcement. The government responded to the shortages and corruption by forcing every able-bodied person to engage in "productive" labor - while defining intermediaries, traders and other indispensable people as "unproductive" and even "corrupt." The government proceeded to arrest 15,000 innocent people as "enemies of socialism" who were accused of being "jobless loiterers" and forced them to work on government plantations. The "War Against Economic Sabotage" caused the nation's output to fall to under 50%, with many goods completely disappearing and the population on the verge of a famine.  In the early 1970's, Nyerere also began the "villagization" program where the army drove peasants off their land and burnt their homes, while "transferring" the people to places where the politicians thought they should live by forcing them onto trucks at gunpoint. The people were forced to build houses they did not want, in a place they didn't want to live - with the politicians taking credit internationally for providing housing to the masses. Nyerere, with the approval of the World Bank, wanted to end his people's capitalist tendencies to make a profit by working. He also disapproved the lifestyle they were leading, thus forbidding them to sleep in their own gardens. With people forbidden from guarding their crops by sleeping outside, monkeys and other animals stole the farmers' food.  While the government took away people's property, it often failed to provide them with other private land, instead "renting" it to the people. Viewing rented land as temporary, many Tanzanians stopped farming or were no longer taking long-term care of their land. The World Bank reported in the 1980's: "In Tanzania, the grower . . . is always voiceless and marginal in the system, and everybody's costs are considered except the farmers'."  So how can one be surprised that the nation was lacking food? If the government interferes with food-producers, what else but a food-shortage can result? Yet, these policies were supported by the World Bank and the IMF. Senior IMF staffer Stanley Please wrote in 1983: "as a committed socialist ... I was surprised and shocked by the emphasis which the bank at the time gave to the public sector in general, and to the government, in particular." The IMF "had more confidence in the rationality, morality and competence of governments than I ever had."  When Nyerere retired in 1985, Tanzania was ranked the 7th most restrictive/socialist economy in the world.  Even though Tanzania is not widely regarded as being a socialist country, its policies were clearly very restrictive and semi-socialist in nature. It is, therefore, little wonder that the country was one of the poorest in the world. Economic freedom - meaning the right of the people to make decisions where to shop, what to produce, who to work for (or to start your own business or to retire) without interference from politicians - brings prosperity, while the socialist, centrally-controlled economy breeds poverty and corruption. If one divides the world's economies into 5 groups, from the freest 20% to the most socialist 20%, one finds that the freest 20% have a per capita GDP of $23,450, the next 20% is $12,390, followed by $6,235, then $4,365 and finally $2,556 for the most socialist economies.  Thus, we see that the most capitalist economies are almost 10 times wealthier than the most socialist ones. Some newly capitalist nations, such as Estonia, are still behind the U.S. and other long-term capitalist nations, but even they are catching up very rapidly. Looking at annual growth, we see that the freest economies grow at an average of 2.56% annually, while the least free economies become 0.85% poorer each year (in the middle 60%, growth is less than in the freest 20% and more than in the least free 20%). People in the freest economies also live 14 years longer than in socialist countries - the more capitalist the economy, the longer people live. Likewise, the quality of life is highest in most free economies and lowest in most socialist economies, and again we see that even in the middle 60%, the freer the nation, the higher the quality of life.  Economic freedom doesn't just help the wealthy, but also reduces poverty among the very poor. In restrictive economies, 36.62% of people are poor as per the U.N. Poverty Index. In the most free economies, only 14.6% are poor (in the middle between the most and the least free nations, the study also showed a strong correlation between poverty and economic freedom).  A World Bank survey of 80 nations over 40 years found that poor people benefit just as much from economic growth as the rest of the population.  In fact, taking off the academic blinders for a second, anyone with even the most cursory knowledge of the world's economies knows that the poor in the wealthy Hong Kong or the U.S. live better than the poor in mid-range Turkey; and the poor in Turkey live better than the poor in Tanzania. The World Bank study merely confirmed what everyone already knew - if only because of the massive migration of the poor from around the Third World to wealthy nations. Few people, rich or poor, choose to move from Hong Kong to Tanzania, or from the United States to Cuba. Additionally, the World Bank Development Report 2000/2001 found that no country - not one - ever reduced poverty without long-term economic growth, no matter what social welfare policies were implemented. Moreover, no country experienced steady growth without implementing free trade policies.  The Brookings Institute study agreed with the World Bank, finding that closed underdeveloped economies grew at a rate of 0.69% and closed developed economies grew at a rate of 0.74%. Meanwhile, developed economies that embraced free trade grew at a rate of 2.29% and free trading poor nations grew at a rate of 4.49%. While some may claim it's easier for underdeveloped countries to post a greater percentage of growth due to their small economies, we find no correlation between underdevelopment and growth among countries that rejected free trade (both developed and underdeveloped nations grow at a miserly 0.74% and 0.69%, respectively).  Economic freedom also promotes economic equality between the rich and the poor. In the least free nations, the top 20% made 32.49 times more than the bottom 20%. In the most free nations, the top 20% made only 14.37 times more than the bottom 20%.  The Foreign Policy magazine also conducted a study and found that, "The general pattern of higher globalization and greater equality holds for most countries, both in mature economies and emerging markets."  Fact is that the reason some countries are wealthy and others are poor is because some countries produce more than others. They produce more because they open their markets to competition - both domestic and foreign - and they allow their people the freedom to work and invest - and the right to make a profit. Politicians and government workers have no incentive to make a venture successful by improving the quality of goods or reducing prices. Nor are a few dozen or a few hundred politicians capable of knowing what each and every individual around the country wants. But a business is more localized, focusing on the specific region or industry. Furthermore, it has an incentive to provide what the consumers want. If a business can't cater to its customers, it becomes bankrupt - and gets quickly replaced with another that can make a profit by providing consumers with wanted goods. As such, it is hardly surprising that Tanzania became so poor as a result of property confiscation, government expansion, business regulation and tariffs on imports. In recent years, the nation's economy began to be liberalized. As the people were given a choice where to live, what to buy/sell/produce, as well as other economic freedoms, the nation's economy began slowly recovering. Growth in 1991-2002 featured an increase in industrial production and mineral production. In 2004, the nation's projected economic growth is 5.2% , which follows 2003 when the economy grew at a very solid 5% . However, it is still amongst the poorest nations of the world. While 5.2% growth may be a huge improvement over the 0.3% that the country was losing annually under the semi-socialist policies of Nyerere, it will not make Tanzanians wealthy overnight. Starting with a current per capita GDP of $600, even growing at an unbelievable 10% a year, it would still take nearly 30 years to get to $10,000, roughly a third of the per capital GDP of the world's most capitalist economy - Hong Kong. Thus, generations will continue to starve because of the socialist experiments by Nyerere. Additionally, while the new Tanzanian government seems to be on the right track, many of its policies are very harmful. An income tax rate of 30% kicks in at an income of only $800 a year. Tanzanians also pay a Value Added Tax (VAT) of 20%.  Many Tanzanians still reject globalization as an anathema, looking for an "indigenous solution" that would close the country to world's imports and exports. The country's growth and reduction of poverty will be slowed and lessened because of this. Instead it would be wise for Tanzania and all other developing nations to follow the example of Hong Kong or more recently, Estonia, which is growingly rapidly in its attempt to overcome the economic stagnation caused by communist occupation by the USSR for 50 years.