Poverty is being destroyed by free trade and capitalism

If you listened to the Media party and the Opposition you’d think that poverty was rampant and increasing.

The claims with regard to NZ are particularly specious, and data shows that poverty, globally, is shrinking, dramatically.

America’s poverty problems are real, and worth the serious attention of policy makers. But on the global level, it’s important to remember that poverty is falling in stunning, unprecedented fashion.

As this chart from American Enterprise Institute expert Mark Perry illustrates, global poverty levels have fallen from an astounding 94% in 1820 to just 9.6% in 2015, with the most dramatic fall coming in the years since 1970.

This is a good chart to show your friend who can’t stop complaining that everything is getting worse, all the time:

poverty

As World Bank chief Jim Yong Kim noted in the organization’s October report on the state of global poverty, which showed a global reduction in poverty of roughly 200 million people in the last four years alone:

“This is the best story in the world today—these projections show us that we are the first generation in human history that can end extreme poverty.”

Despite having increased in the past decade, overall poverty levels in the U.S. have fallen significantly since 1960.

poverty-1

The greatest gains in poverty reduction have come in China and India, which, together, have lifted just short of 1 billion people out of poverty.

pr-in-china-india-and-brazil1The common recipe for the countries that successfully lifted their populations out of poverty, according to the Organization for Economic Cooperation and Development (OECD), was market and trade liberalization, combined with investments in education and infrastructure.

And those are the very things that Labour now opposes. They’ve opposed market and trade liberalisation by opposing the TPPA. They oppose charter schools…and they oppose new roads.

Further, the falling global poverty rate results in other important milestones:

infectious-disease-rates-from-1900-to-1999-2

And politicians want oppose the benefits of free trade and liberalisation. Leaders like Jeremy Corbyn, Bernie Sanders and Andrew Little are dishonestly telling voters that they care, when their policies demonstrable will not work.

 

-Fusion

 


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  • Simon

    That’s because you can pay a 3rd world worker less than you need to a first world worker when you can offshore jobs/production from the 1st world to the 3rd. Don’t get me wrong – free trade can be a good thing – however things need to be equal, eg if country A has a high minimum wage, plus compulsary super, plus all kinds of regulations – versus country B which has none of those things – it’s a no brainer for businesses to minimise their costs by moving their production from A to B. China/India are prime examples as the article states.

    • taurangaruru

      Yes it is the middle class in the so called rich nations that are paying for this via increased taxation and the off shoring of jobs. Part of the reason why Trump resonates with that sector in the USA

    • Second time around

      The current trend is to reclaim the jobs shipped off to those countries, instead using robots and automation at home. It shortens the supply lines, gives better quality control, and also avoids getting preached at for tax avoidance and exploitation of vulnerable workers. It is ironic that putting a third world person out of work is more conscionable than giving them a low paying job.

      • David Moore

        The jobs are gone and cannot be reclaimed. As you have said, if the manufacturing moves back it’s with robots, not employees.

        Manufacturing is going through the same process agriculture went through 150 years ago.

    • Wheninrome

      Incredible isn’t it that some of our largest tourist numbers come from China, how can that be I wonder if they are worse off because NZ sends its manufacturing jobs there?

    • Brian Dingwall

      Yes and in your example both country A and country B are better off than if they didn’t trade. Free markets are always a good thing. As a bonus, competition makes markets more efficient, irrespective of which side of the border the competition comes from.

      • Simon

        Free markets yes, however markets aren’t free when there is a minimum wage, and regulations and other government mandates. Again, I’m all for free trade however when those nations have vastly different governments and policies then it’s inevitable that the nations where businesses will have far cheaper costs that will attract businesses and jobs at the expense of others.

        • Brian Dingwall

          I agree that minimum wages are an abomination, preventing ill prepared, or ill educated people from competing on price for unskilled work, but as to your real thesis, it is exactly because of different conditions in different countries that intrnational trade works for both countries. Far from being “unfair” in any way its the reason it works for both countries, and, in particular, for consumers in both countries. (The purpose of production is consumption, not job creation). All competition challenges jobs…unsuccessful competitors lose people, successful ones add them.

          For a detailed and ongoing conversation on these two subjects (trade and minimum wages), I read each day Don Boudreaux at Cafe Hayek. I presume you are familiar with Ricardo and Comparative Advantage?

          I was of your opinion until the mid-90s when I visited the sweatshops of the Philipines, what I saw there didn’t gel with the horror stories in vogue then. I then spent a great deal of money (for me) studying economics…..hope it wasn’t wasted :-)

          If you consider for example trade between China and the USA…yes it has enriched China more than without that trade. But the magic is that USA is also enriched, probaby even more than China…new wealth is created, its not a zero sum game. The key is that it is voluntary….if it is not beneficial, it wont happen.

          • Political Nit Wit

            Serious question. Please explain how new wealth is created?

          • Brian Dingwall

            Interesting question that has fascinated economists, and created a large literature.

            Readable books include Matt Ridley’s Rational Optimist, subtitled “how prosperity evolves”, and Deidre McCloskey’s recent new book published in AprilBourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World

            (Disclaimer I haven’t read this yet)

            and on the other side of the fence are the Marxian ideas of capital (Piketty has written a much acclaimed by the left, criticised by the right, large book on this) exploiting labour, implying it is labour that creates wealth. (Production = wealth in their view, and indeed it is production we measure. GDP is a measure of what we produce).

            So one could write for Africa and not resolve the question.

            But in very simple terms, not confusing wealth (the ability to have, do, and be what you want) with money (a store of wealth which stuffed under a pillow diminishes in value over time), wealth is created when voluntary trades happen…each trader is better off, otherwise they wouldn’t do it. Such trading led to specialisation, and division of labour (everyone benefits if we each do what we are best at, and exchange the results). Schumpeter identified that the only driver of economic growth is innovation. Other candidates are resources (minerals, oil, etc), capital, institutions etc. Each as been well studied.

            Institutions (eg private property rights) and (non extractive) policy settings that facilitate trade and markets are typically associated with faster growing economies. Higher taxes reduce growth.

            A recent situation that sheds light on the drivers of growth in my view is growth rates in China pre and post the death of Mao. The explosive growth of the Chinese economy since 1980 is almost entirely due to the reintroduction of the market economy for goods, in my view. (The late Ronald Coase, and Nancy Wang, wrote “How capitalism came to China” a couple of years ago, well worth a read.

            Its a really interesting topic, and well worth a more detailed examination if you are interested.

            Best

          • Political Nit Wit

            Thank you for this. Really appreciate it and I obviously have a lot of reading to do.

            I guess I view it with an unhealthy dose of simplicity, and can’t see how wealth is created, as opposed to just being transferred.

          • Brian Dingwall

            No Problem. Simple wealth transfer is akin to robbery, can benefit the taker, in an amount equal to the loser’s loss, but affords no net benefit to the economy. (Not quite true, in that the new “owner” might deploy it more efficiently, but near enough. Reminds me of the book I am readin at present “Logic of the Market”..an insider’s view of Chinese Economic reform.. author Zhang Weiying contrasts the logic of the market (capitalism) with the logic of robbery (socialism), and shows how only the former leads to growth.
            Another way to think of it is that markets are emergent like languages, no one plans them, we trade voluntarily (and usually peacefully, its a very moral system). The supermarkets have exactly the right amount of food each day to feed the nation without central planning. Socialism has to be imposed by the state, and there is no way ( no profit signal) to plan how much of anything will be demanded.
            Best for your journey…I’m nearer 70 than 60 and still learning….

          • Political Nit Wit

            But surely i am trading $1 for something with $1 of value?

          • Brian Dingwall

            Say you grow 4 cabbages, leave one at home and take three to market. Exchange these for three things (say) a bunch of carrots, a lettuce, and a pound of tomatoes, and return home. You are now wealthier than when you had four cabbages….if you value the other vegetables….if not you wouldn’t do the trades…..it worked even before money (a store of wealth, or potential wealth) was invented.
            Say you contract to work for 10 hours for $100 per hour. You value the $1000 more than you value the time or outputs, your customer values your time or output at more than $1000. You are both better off than if you didn’t do the trade.
            You now spend the $1000 on an i-pad, both you and Apple do this because you each believe you will be better off after the trade. That better-off-ness is the new wealth the trade has created.
            Easy really.

          • Political Nit Wit

            “Better offness” is my new favourite term!
            I understand the concept but I can’t get my head around being able to apply it in a stored wealth way.

          • Simon

            Very detailed post and hard to answer all of it. My point is though – that trade is all well and good, and free trade is a good thing between relative equals, and even if not there can be good outcomes. However there can be negative consequences that are often ignored or not realised, and are a result of opening up markets to outside competition without those markets being able to compete with the new competition.

            A sound economy should be based on production and savings, rather than consumption and debt – this is the real result for example in the US where once an economic powerhouse is now the largest debtor nation in the world. Detroit was once the worlds wealthiest city, now a bankrupt hellhole – as manufacturers moved their operations overseas. You are correct when you say that the point of production is consumption, however that ignores the reality that consumers need to be paid to consume, and at a macro level if a nations consumers aren’t producers themselves, then the only way they can continue to consume is by taking on debt – which is now at completely unsustainable levels.

  • RightofSingapore

    Easy access to birth control is also another big factor in reducing poverty. Birth rates and standard of living go hand in hand.

  • sandalwood789

    A very good post.

    A *huge* number of jobs have been created in what were poor countries (e.g. clothes – they all seem to be made in China or Bangladesh now).

    Look at cellphones too – they have been a massive boost to the poor. Almost everyone in even the poorest countries seems to own a cellphone. Education too – that has been improved in many poor countries.

  • JC

    The person who single handedly did more to reduce poverty and feed millions in the last 100 years was Norman Borlaug.. he was the American who developed dwarf wheat which turned India, Bangladesh and Pakistan and Mexico from importers to self sufficiency or net exporters of wheat.

    He is not well regarded by the Greens and socialists throughout the world.

    One spinoff to food security is poor countries no longer needed to raise big families to get some to maturity to keep the family alive, so birth control became much more popular and per capita wealth increased.

    JC

  • Political Nit Wit

    The term cognitive dissonance comes to mind.
    The wealth gap is growing, and there are greater levels of poverty than ever before in New Zealand. Instead of trying to find ways of justifying an opposite opinion it would be more helpful to address the issue at hand.

    • Uncle Bully

      I think the first step should be to nail down a useful and meaningful definition of poverty in lieu of the current benchmark, ie living in a household that earns less than 60 per cent of the median disposable income.

      Once poverty have been defined in absolute terms, then the first step to solving it is to figure out how to stop low wage earners and beneficiaries having so many children.

      The next step would then be how to encourage these same low wage earners and beneficiaries to instill in their children the value of education so they can make the best of the state provided education, and promote inter-generational social and economic advancement.

      Giving poor people more money just because they’re poor won’t fix anything. It will only exacerbate the current mindset of welfare dependence.

      • Political Nit Wit

        I don’t think poverty needs a definition, we all know of good people that are struggling week to week.
        I agree with you on education, although I fear it’s too late to expect some parents to take ownership of this. The state should be over investing in this area, possibly investing up to 4x as much as they are already in order to break this cycle.
        At the same time as this, we should also address the imbalance of remuneration within businesses. It serves no societal purpose to offer 7 or 8 figure salaries while others remain at or near minimum wage.

        • David Moore

          “I don’t think poverty needs a definition, we all know of good people that are struggling week to week.”

          Why? So you can make it mean whatever you wish it to mean? Is a person that ‘struggles’ now in poverty? I’m struggling to pay off my 911 and motor yacht, am I also in poverty?

          “The state should be over investing in this area, possibly investing up to 4x as much as they are already in order to break this cycle.”

          In what way does increasing spending 4x make any difference at all? Isn’t it just going to drive up costs?

          What is it you plan to spend less on to find the money?

          • Political Nit Wit

            My observations are that there are greater numbers of families struggling to maintain a basic and standard way of living. Granted, they still have a greater standard of living than those in true poverty around the world, but that’s hardly the point.

            I would prioritise substantially increased spending on education. It’s absolutely necessary to break this current cycle, so if not able to be reappropriated then it should be borrowed.
            The long term benefits would pay back this investment.

    • David Moore

      People getting richer is what causes inequality. If you value equality over all else, all you have is a world where the vast majority live in abject poverty. That is what you want is it?

      Also, poverty is not increasing in New Zealand, you have simple used a metric which is a measure of inequality, not poverty. Was that a mistake, or did you set out to deceive?

      • Political Nit Wit

        Mistake. Inequality is the term I should have used.

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