Yet India’s success has been tarnished in several areas. The past 25 years can be largely summed up as a story of private‐sector success and government failure, of successful economic reform tainted by institutional erosion. Although many old controls have been abolished, many still continue, and a plethora of new controls have been created in areas relating to the environment, health, tribal areas, and land.
Reduce Refugees by Boosting Freedom
For students researching and debating the European Union immigration reform, Who Really Wants to Solve the Problem of Poverty? shares a success story of 600 million escaping poverty. The worldwide transition from poverty to prosperity has continued over the last ten years, explains Johan Norberg: The 2010s Have Been Amazing (HumanProgress.org, January 15, 2020):
“The gap in basic living standards is narrowing, with an unprecedented number of people in the world escaping poverty, hunger and disease.”
The World Bank reports that the world-wide rate of extreme poverty fell more than half, from 18.2% to 8.6%, between 2008 and 2018. Last year the World Data Lab calculated that for the first time, more than half the world’s population can be considered “middle class.”
Who Really Wants to Solve the Problem of Poverty? asks why people who express deep interest in reducing poverty in America rarely discuss the recent and astonishing reduction of poverty around the world. Consider the size and scope of poverty reduction: 600 million people worked themselves out of extreme poverty:
Most of the advances were made in the world’s two most populous nations, India and China. Three decades ago, India’s extreme poverty rate was 60%; it is now 33%. China’s progress is even more dramatic: it had a poverty rate of 84% in 1981; now it’s 12%. Latin America has also progressed, as has much of the rest of Asia and northern Africa.
Tremendous economic growth in India and China created large income and wealth differences. Successful companies hired and trained workers by the dozens, hundreds, and thousands, and at well-managed and successful companies employees became more productive, earned better income, and enabled managers and owners to earn even more. Firms that failed lost millions of investment dollars, letting go both managers and employees. No one designed market economies to make some company founders successful and others not; no central authorities planned for some early investors to get rich, and others to go bankrupt. Instead, consumers direct enterprises, rewarding some and punishing others.
Companies selling products and services to consumers at prices higher than costs, stay in business and can earn profits for investors.
It is unusual for single companies to be as successful at Intel, Hewlett-Packard, Microsoft, Oracle, and Apple have been over the last few decades. It is far more common for companies that break out with successful products, like the Atari, Apple, Commodore, and Texas Instruments computers of the 1980s, to attract competition that chases away profits.
Apple was able to innovate and design the Macintosh, a next generation of computers, and continue its success. But Macintosh computers and software attracted new competition and Apple almost failed after keeping Macintosh and laser printer prices too high for too long. Steve Jobs was pushed out and only later returned to help save, innovate, and expand Apple technologies.
Failed companies reduce wealth and can reduce income inequality, as tens of millions of dollars in ownership value evaporates. Founders and early employees of failed firms see their income and wealth reduced, and these firms miss the chance to create jobs for hundreds or thousands. Successful tech companies on the other hand often mint millionaires and create jobs ranging from low-pay janitors and assembly workers in China or Thailand, to higher-pay programmer and designers in the U.S. and around the world.
The debate over income inequality in the U.S. is set against the larger story of hundreds of millions around the world emerging from absolute poverty, and accomplishing what their parents never dreamed possible.
Development economists, philanthropists, and everyday people who understood the extent and depth of poverty in the world in 1990, hoped for poverty reductions. But few thought economic expansion so spectacular could happen so fast. Few thought backward rural and command economies like China, India, Thailand, and Vietnam could be transformed to dynamic market economies. Central and local governments remain corrupt and authoritarian in India and China, but enterprise and economic freedom has been allowed to flourish.
New firms were funded by entrepreneurs who had migrated away decades earlier, but returned with experience, networks, and capital. Robert Guest’s book tells some of these success stories from China and India: Borderless Economics: Chinese Sea Turtles, Indian Fridges and the New Fruits of Global Capitalism.
People and companies in China and India are following the footsteps of earlier success in Hong Kong, South Korea, Taiwan and Singapore. These four countries were similarly poor in the 1950s and 1960s, and each prospered with relatively open economies, low taxes, and few trade and investment barriers. Poverty to prosperity in a single generation took long hours and hard work, and often started with sweatshop conditions for migrants with few skills suitable to modern economies. (Sweatshop workers came as refugees escaping communist China, and after China’s market reforms of the early 1980s, rural Chinese, the “floating population” migrated to factory jobs in or near cities.
Johan Norberg tells the Hong Kong success story in his documentary Free or Equal, which streams online here. Hong Kong, has long had rule of law security in its founding charter, as other successful charter cities like Singapore, Dubai, and Monaco. Hong Kong was open to millions of refugees escaping Communist China. They started poor and worked long hours, even children, and they soon developed skills, improving skills to earn modest, then higher income. The Hong Kong model influenced China to set up its own charter cities like Shenzhen, an amazing success story now home to some 20 million. For more see: Shenzhen: The Silicon Valley of Hardware (Full Documentary) | Future Cities | WIRED
Economic freedom and prosperity spread in Thailand, Vietnam, and Malaysia, and to parts of Latin America (Mexico, Panama, Columbia, Brazil, Chile, Peru), and in much of Eastern Europe and Africa in recent years. Investment capital flows to opportunities.
The source of this amazing economic progress is much the same in each country, had little to do with foreign aid or democratic reforms, and most to do with deregulation, low taxes, sound money policies, migration, and open international trade and investment policies.
From The Commanding Heights, here is a glimpse at the story for India, with its British Raj to Permit Raj and socialist policies. Established companies worked with government officials to fix regulations to protect consumers but also to protect current jobs, companies, products, and profits. For more on India reforms: Twenty‐Five Years of Indian Economic Reform (Cato Institute, 2016)
Economic reforms that began 25 years ago have transformed India. What used to be a poor, slow‐growing country now has the third‐largest gross domestic product (GDP) in the world with regard to purchasing power parity and is projected to be the fastest‐growing major economy in the world in 2016 (with 7.6 percent growth in GDP).
Yet economic progress in India has been partial:
More in the documentary India Awakes with Johan Norberg.
In addition to taxes and trade restrictions, economic regulations slow development in the United States as well as the rest of the world (excepting maybe Hong Kong). Chicago School economists researched the history and theories of regulations and published their findings in journals and books. As the U.S. economy stagnated in the 1970s, policymakers considered Chicago school views that “rigid government regulations” were slowing economic growth in the U.S. and around the world. This story is told in the first episode of: Commanding Heights: The Battle of Ideas- Episode One (Official Video). And next see: Commanding Heights: The Agony of Reform- Episode Two (Official Video)
The success of deregulation, tax reform, and sound money in the U.S. and U.K. dramatically increased economic growth creating tens of millions of new jobs from the early 1980s to 2005.
These market-reform ideas made their way to India soon after the fall of communism in the USSR and Eastern Europe, spurred by the 1991 financial crisis. An economist was appointed finance minister and was given the “green light for free market reform.”
Europe and the U.S. face refugee challenges because so much of the world is still without governance to protect property rights, contracts, and enable legal enterprises, especially for the millions of poor living in the informal economy. For more on this story, see Hernando de Soto in Globalization at the Crossroads – Full Video and Power of the Poor. Plus, for insight into the problems in Middle East North Africa sending refugees to Europe, see: Unlikely Heroes of the Arab Spring.