The world’s most successful anti-poverty program

by Ryan Streeter on October 1, 2013. Follow Ryan on Twitter.

This opening line of WSJ’s lead editorial caught my eye:

Between 1998 and 2012 the global economy more than doubled in size—to some $71 trillion in GDP from $30 trillion.

That data point is astounding. It’s a GDP-centric account of the world’s most successful battle against global poverty to date.

The Economist took a fair look at this issue in June. The author writes that most Millennium Development Goals, such as improving children’s health in the developing world, will not be met on time. However, “the aim of halving global poverty between 1990 and 2015 was achieved five years early.”

Why?

Most of the credit…must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.

Poverty rates started to collapse towards the end of the 20th century largely because developing-country growth accelerated, from an average annual rate of 4.3% in 1960-2000 to 6% in 2000-10. Around two-thirds of poverty reduction within a country comes from growth. Greater equality also helps, contributing the other third. A 1% increase in incomes in the most unequal countries produces a mere 0.6% reduction in poverty; in the most equal countries, it yields a 4.3% cut.

The author continues, concluding that it’s ironic that countries that have benefited from liberal markets are trying to roll them back and encourage developing countries to do the same:

The world now knows how to reduce poverty. A lot of targeted policies—basic social safety nets and cash-transfer schemes, such as Brazil’s Bolsa Família—help. So does binning policies like fuel subsidies to Indonesia’s middle class and China’s hukou household-registration system (see article) that boost inequality. But the biggest poverty-reduction measure of all is liberalising markets to let poor people get richer. That means freeing trade between countries (Africa is still cruelly punished by tariffs) and within them (China’s real great leap forward occurred because it allowed private business to grow). Both India and Africa are crowded with monopolies and restrictive practices.

Many Westerners have reacted to recession by seeking to constrain markets and roll globalisation back in their own countries, and they want to export these ideas to the developing world, too. It does not need such advice. It is doing quite nicely, largely thanks to the same economic principles that helped the developed world grow rich and could pull the poorest of the poor out of destitution.

In a follow-on post, the Economist sums things up nicely:

Presidents and prime ministers in the West have made grandiloquent speeches about making poverty history for fifty years. In 2000 the United Nations announced a series of eight Millenium Development Goals to reduce poverty, improve health and so on. The impact of such initiatives has been marginal at best.

Almost all of the fall in the poverty rate should be attributed to economic growth. Fast-growing economies in the developing world have done most of the work.