Why Is Haiti Poor? [With comment by Paul]

I recently discovered, via a reader, an excellent web site called Manhattan Contrarian. There is lots of good stuff there, but consider this article: Why Is Haiti So Poor?

The wealth of nations, or lack thereof, is a topic of longstanding interest. Haiti and the Dominican Republic, which share the island of Hispaniola, are something of a laboratory experiment, a bit like East and West Berlin. Manhattan Contrarian notes that Haiti is, by any measure, one of the world’s poorest countries, and asks why.

The first hypothesis tested is that Haiti is dirt poor because it is pretty much all black. But that isn’t the problem:

In the case of the hypothesis that all black-dominated countries are poor, there are multiple counterexamples that prove it wrong. Number one is Bermuda (55% black), which is at the very top of the income distribution of countries, ranking way ahead of the United States in the CIA ranking (at $86,000) and just behind the U.S. per the World Bank (at $53,030). At about 85% black population, we have the Bahamas (IMF – $32,036; WB – $23,102; CIA – $32,000) — this country is right on the tail of places like France, Japan and the UK. Even among countries that, like Haiti, are well above 90% black in ethnic mix, we have Botswana (IMF – $16,377; World Bank – $15,675; CIA – $16,400) and Barbados ($25,181 – IMF; $15,566 – WB; $25,100 – CIA). These countries are solidly middle-income, and are considerably wealthier than, for example, Mexico and China. So no, black-dominated countries are not inherently poor.

Has Haiti been ruthlessly exploited by “the evil rich capitalist countries”? If only! Haiti, unfortunately, has all too little to do with the world of free enterprise and free trade:

Haiti’s exports in 2012 were $801 million — around $800 per person in a country of about 10 million people, which is rather pitiful. It seems that the rest of the world is just staying away, perhaps because Haiti doesn’t have much to sell — but it’s hard to call that “exploitation.” By comparison, close neighbor Barbados, with a population of only about 250,000, had 2012 exports of almost $500 million — about 25 times Haiti’s level on a per capita basis. Yet it is a middle income country. Somehow the evil exploiters are failing to keep Barbados down. My own view would be that trade makes you rich, not the reverse….

So what is the culprit? Manhattan Contrarian’s analysis is, I think, on the money:

Now, might I suggest hypothesis number 3, which is that endemic corruption and the absence of the rule of law make it nearly impossible to invest in or trade with Haiti. Let’s just look at a few pieces of data:

* In an International Finance Corporation project in 2012 called Doing Business, Haiti was ranked 187 out of 189 countries surveyed in terms of ease of starting a business.

* How about tourist hotels? Lots and lots of international capital is available to build them, and most every Caribbean country has used that capital as a source of good jobs for the people. Trip Advisor here lists some 47 tourist hotels in Haiti. Does that sound like a lot? They list 102 in Barbados — and Barbados has only one-fortieth the population! So Barbados has more than 80 times the number of tourist hotels per capita.

* According to Atlas Media, Haiti’s main exports, such as they are, are t-shirts, knit sweaters, other garments, and scrap iron. Notable for all of those is that these are things that do not require an expensive factory to make. Or to put it another way, nobody but nobody builds an expensive factory in Haiti. Why not? The labor is really cheap — couldn’t you make a lot of money? The simple answer is, you could make a lot of money if the government wouldn’t steal it. QED — If you make a big investment, nobody trusts the government not to steal it. The nice term for that is “absence of the rule of law.”

* According to the Center for Global Development here (2012), the so-called “formal sector” of the Haitian economy accounts for only 10% of employment. That’s another amazing statistic, which says that the large majority of all business activity is essentially hiding from the government.

* Transparency International in 2008 ranked Haiti the 4th most corrupt country in the world.

Ponder that next-to-last statistic: 90% of all business activity in Haiti is outside the legal economy. The United States is trending in that direction, but 90% is an astonishing number.

What is the standard Western reaction to poverty in a place like Haiti? Foreign aid! Will that solve the poverty problem? No:

Haiti is perhaps the all-time champ of foreign aid. If foreign aid worked to raise a country up out of poverty, then Haiti would be a rich country. The Center for Global Development (no enemies of foreign aid) here has a history of foreign aid in Haiti, including the statistic that by 1970 “foreign assistance was 70% of the Haitian national treasury revenues” and proceeded to increase from there: “aid levels rose to $35.5 million in 1975.” And “by 1991, Haiti received $380 million from abroad.” And so on. But the aid thing really exploded after the big earthquake in January 2010. A compilation here has the total of gifts and pledges to Haiti in the aftermath of the earthquake at $9,337.8 million. That’s about the equivalent of a full year’s GDP for Haiti! But the title of this report from Foreign Policy In Focus in January says it all: Haiti: billions in Aid, Pennies in Progress since Earthquake. You really need to read the whole thing to see how one government-imposed obstacle after another has kept Haiti from moving forward.

Barbados? They basically don’t get any foreign aid.

The rule of law is the sine qua non of prosperity, and has been a key to America’s economic growth for more than two centuries. But don’t be overconfident: the Democratic Party is eroding, every day, the rule of law here in the U.S. From Barack Obama ruling by unconstitutional decree, to judges who substitute their own policy preferences for the language of statutes, to the administration’s attempt to destroy the legal basis for national sovereignty, to–perhaps worst of all–the unconstitutional combination of legislative, executive and judicial powers in countless federal agencies that issue the equivalent of statutes with hardly any oversight, the rule of law is declining fast. If you want to see where that path ends, look at Haiti.

PAUL ADDS: My wife and I enjoyed a great vacation in the Dominican Republic earlier this year. I was struck by the contrast with Haiti, whose population migrates illegally into the DR much like Mexicans and Central Americans migrate illegally into the U.S.

John’s analysis, via Manhattan Contrarian, of why Haiti is so much poorer seems correct; the problem is a startling level of corruption. But why is Haiti so much more corrupt?

It isn’t a matter of race; John is right about this too. Note in this regard that the Dominican Republic is much “blacker” than many suppose (Trujillo actively worked to create the image/myth of a white DR, emphasizing the Spanish culture and suppressing the African one).

Note as well that the French originally ran Haiti, whereas the Spanish ran the Dominican Republic. If anything, this might cause one to suspect that Haiti was better administered during colonial times, and thus might be less corrupt today. But that’s not how it is.

Haiti was liberated from colonialism at a very early date — 1804 — via an extremely violent revolution (of course the U.S. broke away even earlier, but not before learning a fair amount about relatively proper governance from the English). The DR remained under Spanish control until 1821, when the army officer in charge of the colony “liberated” it from Spain rather bloodlessly. Soon Haiti seized control, and it wasn’t until the 1840s that the DR became truly independent.

Did Haiti suffer from severing ties with Europe so early and so cleanly? I don’t know; it’s a theory, anyway.