Who Wants to Solve the Problem of Poverty?

For students researching and debating the economics/freedom/equity topic, “Who Really Wants to Solve the Problem of Poverty?” offers an excellent overview.

The article 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 have been able to lift 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. (Source.)

Tremendous economic growth in India and China also created large in income and wealth differences. Successful companies in China and India hired and trained workers by the dozens, hundreds, and thousands, and when they are well-managed and successful, earned millions for owners and top management. Those firms that failed lost millions of investment dollars and laid off managers and employees. No one designed market economies to make successful company founders and early investors rich, or to bankrupt failed companies and investors.

Companies that develop products and services they can sell for prices higher than the cost of developing, producing, and marketing, stay in business and pay returns to 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 usual 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 it’s success. But Macintosh computers and software attracted new competition and Apple almost failed after keeping Macintosh and laser printers prices too high for too long. Failed companies increase equality of income as wealth investors lose their investment. Founders and early employees of failed firms avoid increasing income inequality, and the firms avoid hiring hundreds or thousands of workers. Successful tech companies on the other hand often mint millionaires and they create jobs that range from low-pay janitors and assembly workers in China or Thailand, to higher-pay programmer and designers.

The debate over income inequality in the U.S. takes place against the larger story of the hundreds of millions around the world emerging from deep 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 anything so spectacular could happen so fast. Few thought backward rural and command economies like China and India could be transformed to dynamic market economies. Central and local governments still play a major role in corruption and mismanagement in India and China, but enough economic freedom was allowed.

New enterprises were founded and led by returning entrepreneurs who brought their experience and capital back from overseas. 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, was hard work, and often started with sweatshop conditions for workers with few skills suitable to modern economies.

Johan Norberg tells this story in his documentaries. The recent Free or Equal, streams online here (as of September, 2014).

Prosperity is also spreading in Thailand and Malaysia, and in parts of Latin America (Mexico, Panama, Columbia, Brazil, Chile, Peru), and in much of Eastern Europe.

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.

Here is where the reform story begins, in the workshops of the University of Chicago. This clip is also from The Commanding Heights:

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.

Here is a segment on transportation deregulation, enacted during the Carter Administration, following the research of transportation economists.

The success of deregulation, tax reform, and sound money in the U.S. and U.K. dramatically increased economic growth and created 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.”