Will Richard Fuld, the disgraced CEO of the now defunct Lehman Brothers, go down in history as the father of Bolivian socialism? If we learn the wrong lessons from the global financial Crash of 2008, he very well could.
That's because the crash arrived at a crucial moment in the global fight to reduce poverty. For Bolivia -- and so many other countries like it -- the crash represents much more than a temporary downturn; it could mean the end of one of the greatest openings for prosperity in decades. Amid today's gloom, it is easy to forget we have just witnessed half a century of the greatest mass escape from poverty in human history. The proportion of the world's population living in extreme poverty in 2008 (those earning less than a $1 a day) was a fifth of what it was in 1960. In 2008, the income of the average citizen of the world was nearly three times higher than it was in 1960. But those tremendous gains are now in peril. For this crash hit many poor countries from Asia to Africa to Latin America that are still experimenting with political and economic freedom -- but have yet to fully embrace it and experience its benefits. For decades, these countries have struggled tremendously to realize the potential of individual creativity as opposed to the smothering hand of the state. And it even seemed that the power of individual liberty might be winning.
It wasn't happening because experts had handed out some blueprint for achieving economic growth to governments and then down to their people. What happened instead was a Revolution from Below -- poor people taking initiative without experts telling them what to do. We saw such surprising success stories as the family grocer in Kenya who became a supermarket giant, the Nigerian women who got rich making tie-dyed garments, the Chinese schoolteacher who became a millionaire exporting socks, and the Congolese entrepreneur who started a wildly successful cellphone business in the midst of his country's civil war. Perhaps not coincidentally, the share of countries enjoying greater levels of economic and political freedom steadily and simultaneously shot upward.
Then came the crash.
Today, global economic calamity risks aborting that hopeful Revolution from Below. As India's Prime Minister Manmohan Singh warned late last fall, "It would be a great pity if this growing support for open policies in the developing world is weakened" because of the crash. Singh understands that the risk of a backlash against individual freedom is far more dangerous than the direct damage to poor countries caused by a global recession, falling commodity prices, or shrinking capital flows. We're already seeing this dangerous trend in Latin America. In Bolivia, President Evo Morales has openly crowed about the failure of Fuld's Lehman Brothers and other Wall Street giants: The capitalist "models in place are not a good solution for humanity... because [they are] based on injustice and inequality." Socialism, he said, will be the solution -- in Bolivia, the state "regulates the national economy, and not the free market." The leaders of Argentina, Bolivia, Brazil, Ecuador, Nicaragua, Honduras, Paraguay, Venezuela, and even tiny Dominica to varying degrees align with these anticapitalist pretensions, all seemingly vindicated by the Crash of 2008. And it's not confined to Latin America: Vladimir Putin blamed the U.S. financial system for his own populist mismanagement of Russia's even more catastrophic crisis. A spreading fire of statism would find plenty of kindling already stacked in the Middle East, the former Soviet Union, Africa, and Asia. And there are many Western "development" experts who would eagerly fan the flames with their woolly, paternalistic thinking.
To Jeffrey Sachs, perhaps the foremost of these experts, the crash is an opportunity to gain support for the hopelessly utopian Millennium Development Goals of reducing poverty, achieving gender equality, and improving the general state of the planet through a centrally planned, government-led Big Push. "The US could find $700 billion for a bailout of its corrupt and errant banks but couldn't find a small fraction of that for the world's poor and dying," he wrote in September. "The laggards in the struggle for the [goals] are not the poor countries... the laggards are the rich world." To Sachs and his acolytes, poor people can't prosper without Western-country plans -- and the crash only serves to turn Western governments inward. Therefore, progress on poverty is bound to suffer. To governments of poor countries that have failed to give their people the freedom needed to prosper, the neglect of Western governments is an easy excuse. So the gospel of Sachs and his disciples, though terribly condescending and wrongheaded, could attract many converts in the coming months.