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It’s the greatest achievement in human history, and one you probably never heard about

Dartmouth economics professor Douglas Irwin has an excellent op-ed in today’s Wall Street Journal — “The Ultimate Global Antipoverty Program,” with the subtitle “Extreme poverty fell to 15% in 2011, from 36% in 1990. Credit goes to the spread of capitalism.” Here’s an excerpt:

The World Bank reported on Oct. 9 that the share of the world population living in extreme poverty had fallen to 15% in 2011 from 36% in 1990. Earlier this year, the International Labor Office reported that the number of workers in the world earning less than $1.25 a day has fallen to 375 million 2013 from 811 million in 1991.

Such stunning news seems to have escaped public notice, but it means something extraordinary: The past 25 years have witnessed the greatest reduction in global poverty in the history of the world.

To what should this be attributed? Official organizations noting the trend have tended to waffle, but let’s be blunt: The credit goes to the spread of capitalism. Over the past few decades, developing countries have embraced economic-policy reforms that have cleared the way for private enterprise.

The reduction in world poverty has attracted little attention because it runs against the narrative pushed by those hostile to capitalism. The Michael Moores of the world portray capitalism as a degrading system in which the rich get richer and the poor get poorer. Yet thanks to growth in the developing world, world-wide income inequality—measured across countries and individual people—is falling, not rising, as Branco Milanovic of City University of New York and other researchers have shown.

Capitalism’s bad rap grew out of a false analogy that linked the term with “exploitation.” Marxists thought the old economic system in which landlords exploited peasants (feudalism) was being replaced by a new economic system in which capital owners exploited industrial workers (capitalism). But Adam Smith had earlier provided a more accurate description of the economy: a “commercial society.” The poorest parts of the world are precisely those that are cut off from the world of markets and commerce, often because of government policies.

MP: From a December 2013 CD post, “the chart above could perhaps qualify as the ‘chart of the century’ because it illustrates one of the most remarkable achievements in human history: the 80% reduction in world poverty in only 36 years, from 26.8% of the world’s population living on $1 or less (in 1987 dollars) in 1970 to only 5.4% in 2006. (Source: The 2009 NBER working paper “Parametric Estimations of the World Distribution of Income,” by economists Maxim Pinkovskiy (MIT) and Xavier Sala-i-Martin (Columbia University).

In that post, I also featured the video below, where AEI president Arthur Brooks also makes the case that free markets, free enterprise, and capitalism are responsible for the remarkable reduction in world poverty over the last 40 years:

It turns out that between 1970 and 2010 the worst poverty in the world – people who live on one dollar a day or less – that has decreased by 80 percent (see chart above). You never hear about that. It’s the greatest achievement in human history, and you never hear about it.

So what did that? What accounts for that? United Nations? US foreign aid? The International Monetary Fund? Central planning? No.

It was globalization, free trade, the boom in international entrepreneurship. In short, it was the free enterprise system, American style, which is our gift to the world.

I will state, assert and defend the statement that if you love the poor, if you are a good Samaritan, you must stand for the free enterprise system, and you must defend it, not just for ourselves but for people around the world. It is the best anti-poverty measure ever invented.

Discussion (11 comments)

  1. thomas thiel says:

    In the recent past, it was possible to view and search well over a thousand pages of articles in the (outstanding) Carpe Diem archives.
    Apparently that is no longer possible–at least I have not been able to to so.
    Can you help?
    I often refer to previous CD posts for my college math class.

    1. Jon Murphy says:

      On the left-hand side of the screen, there should be a “refine content” slider. Click on that and you can search by keyword or by scholar, or both.

  2. Jon Murphy says:

    This, to me, is just mind-blowing. I mean, 80% in a mere 40 years. 80%!

    This was probably the single greatest factor is why I embraced the free-market ideology.

  3. Johnny says:

    Indeed. For all the negativity in the world, anyone studying poverty stats in 1980 would be thrilled to see what the 2014 poverty stats are.

    Now, to be fair, most of this is due to one country – China. Now that China has elevated itself to middle-income, progress may plateau for a while (Africa is not seeing prosperity gains).

    1. Jon Murphy says:

      Yes, China and Southeast Asia have been huge contributors. All the more reason. Those countries have liberalized their economies in a huge way since the 1970’s.

    2. plutchin says:

      Go to the Wall Street Journal and read the entire article. India was right behind China in eliminating poverty by ridding themselves of most of their “license raj” laws. Indians needed government approval to ” start a business, expand capacity or even purchase foreign goods.” Think computers and spare parts. The article also points out Tanzania.

      1. Johnny says:

        While India has seen some progress, the results pale in comparison to China.

        China was poorer than India until 1993. Now, the per-capita of China is about 4x higher than India, despite India’s own not-too-shabby growth.

        1. Michaelb says:

          Also the full of the Soviet Union I’m sure had a big part to play. apple is works for enterprise great I don’t understand why liberals Seem to hate it so much

  4. Tom Sullivan says:

    Poverty reduction is probably the greatest thing at the greatest rate ever, yet the “progressives” insist that the method of reduction – free enterprise – did not build that, somebody else made that happen, and corporations and businesses don’t create jobs.

  5. juandos says:

    Hmmm, whatever this particular blog program is its really poor at posting comments…

  6. Christoph says:

    To be honest, this is hard to believe. 800 Million People starve today. In most parts of the world, poverty increases, think alone about the people without home in USA or Portugal.

    O.k., lets think about the statement that the “extreme poverty” was reduced, evidence according to the text is an earning of “less than $1 a day”fallen from 811 Miiion in the 1990s to 375 Million in 2013.

    Did the writer think about the extreme increase in food prices, mostly caused by speculation and the use of food plants as energy provider for the western world? Did anyone hear about inflation?

    Also, in many countries there was a broad so called subsidiary economy. an economy that does not exchange money and just lives well with own farming and exchange in small communities. These were probably many of those below $1 income a day but they did not starve. When many of them now earn money, that means that the subsidiary economy has gone for them. Which is bad news for most of them, to be honest.

    Finally: Please think about those statements before you write about it and think about what the origin wants to achieve with this information.

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