I’ve spent a lot of my life in “Third World” countries. (Nowadays they’re called “developing countries” … whether they’re developing or not.) That experience has given me a strong sense of what makes such countries tick.

In my book, America is becoming a Third World country.

Now, that isn’t easy to detect unless you know where … and how … to look. And unless you learn how to do so, by moving abroad you could easily leave the U.S. for some place just as bad … or worse.

Read on, as I lift the veil on how America is becoming a Third world country…

Symptoms and Causes

The typical definition of a Third World country focuses on “indicators”: poverty rates, infant mortality, literacy and so on. The United Nations even publishes a Human Development Report that ranks countries according to a composite of these indicators.

On one hand, that’s a good thing: After all, the main reason to care about development is its impact on human beings. But a focus on symptoms obscures the reasons why countries get stuck in Third World status.

For example, when I worked for an international development agency, my team worked to create a ranking system that would help us prioritize which countries to help. But some countries were perennially resistant to change no matter how much aid we threw at them. I wanted to know why, so our work could be more effective. After all, why focus on the symptoms if you can identify — and address — the causes of underdevelopment and poverty?

The Three Hallmarks of Third World Status

Three interrelated factors cause “Third World-itis”: lopsided distribution of income; a government hijacked by the economic elite; and a political focus on stasis rather than change. Together those features form a self-reinforcing engine that moves in one direction only: toward conflict, tyranny and eventual collapse.

It works like this. Lopsided income leads to lopsided wealth. Wealth means power — more power than any vote. The governments of highly unequal societies reflect this, as the “rules” are reinterpreted and bent to reinforce and protect those at the top. Since those at the top see no need to change a system that works in their favor, government policy focuses on preventing real change … regardless of what politicians say in public.

Of course, societies like this generate misery, which leads to resentment. That breeds disorder, which is met by increasing force. Government becomes paranoid and preoccupied with security. Sometimes, there’s a tipping point: France, 1789. Russia and Eastern Europe, 1917 and 1989. Cuba, 1959. Nicaragua and Iran, 1979.

Far more common, though, are societies that grind on, with increasing poverty, dissatisfaction, repression, and a narrowing of the economic base to little more than whatever serves the interests of the elite, making the economy highly vulnerable to external shocks. Chunks of Africa and Latin America fall into this category.

Third World What About America?

Undoubtedly, America is becoming a Third World country — in fact, it already is. To start, it’s clear that income and wealth in the U.S. have become vastly more unequal since the mid-‘60s. In 2010, 3.3% of households received as much income as the bottom 50%. Despite all the talk about “redistribution,” that trend is growing dramatically worse.

Third World
Third World

What about the elite capture of our government?

A rigorous statistical 2014 study by political scientists and Princeton and Northwestern found that compared to the economic elite, average voters have a nonexistent influence on public policies. “Not only do ordinary citizens not have uniquely substantial power over policy decisions, they have little or no independent influence on policy at all,” the authors conclude. In cases where the majority gets its desired policy outcome, it’s only because the elite happen to want the same result. Regardless of whether a small minority or a large majority of American citizens support a policy, the probability of policy change is nearly the same — approximately 30%.
Finally, government policy. Here’s where some will call me a heretic. When I step back and look at the big picture, I don’t see any change in America’s key Third World “policies” over the last 50-odd years: the dominance of corporate managers over shareholders; acceptance of monopoly and market abuse; favoritism towards the financial sector; and a justice system that ignores elite economic crime.

Those “policies” are so entrenched that they aren’t even noticed … and they have nothing to do with taxation and redistribution. They are the reason so many Americans want redistribution, since they distort how our society’s wealth is distributed in the first place. Compared to these pillars, Obamacare and the other so-called “socialist” measures favored by Democrats are just window dressing to keep the plebs in order.

Frying Pans and Fires

What if you could identify the structural causes of “Third World-itis” before a country started exhibiting the symptoms? What if you could determine its Third World status before you ever moved there? You can … just use the framework I’ve laid out here. If you’re considering investing or moving abroad, ask yourself:

  1. How unequal is this society?
  2. How representative are its political parties of the popular will?
  3. Does the government work to make society and economy fair for all citizens, so that high taxation and redistribution are unnecessary?
  4. Are the factors above getting better, or worse?

There are countries … most notably, in my experience, Uruguay and a few others … that fit this bill. Now you know why we recommend them.

Kind regards,

Ted Baumann
Offshore and Asset Protection Editor

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