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Why Won’t The Left Acknowledge That Capitalism Has Been The Greatest Anti-Poverty Program Ever Conceived By Mankind?

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In a recent interview, Rep. Alexandria Ocasio-Cortez complained that the Democratic Party wasn’t sufficiently leftist because it hasn’t embraced her style of socialism. “There are a lot of true believers that we can ‘capitalism’ our way out of poverty,” she complained.

We doubt there are very many such believers remaining in the Democratic Party, given that 70% of those who identify as Democrats now have a positive view of socialism.

To the extent that there are any free-market capitalists left in the Democratic Party, it’s possible that they are true believers because they’ve seen the data, which make it abundantly clear that capitalism has been the greatest anti-poverty program ever conceived by mankind.

The Brookings Institution, a center-left think tank in Washington, D.C., found that, “for the first time since agriculture-based civilization began 10,000 years ago, the majority of humankind is no longer poor or vulnerable to falling into poverty.”

The report – which came out more than a year ago – showed that more than 50% of the world’s population lived in households with enough discretionary income to be considered middle class or rich.

More specifically, it found that there were 3.59 billion people in the middle class in 2017, and 200 million who are rich. At the other end, there are 3.2 billion they classify as “vulnerable” and 630 million who are poor.

Based on current trends, over the next decade, the middle-class population will climb by 1.7 billion while the number who are poor or vulnerable will go down by more than 1 billion.

The authors called it “something of enormous global significance” that “is happening almost without notice.” And they are right.

It’s a tipping point. But not the kind of tipping point that the left would ever want to acknowledge.

Meanwhile, other data from the World Bank show that the number of people living in extreme poverty plunged by 1.2 billion, even as the world’s population increased by 2 billion, from 1990 to 2015.

The reason the AOCs and Bernie Sanders of the world want to ignore these trends is because of what’s driving them: Free market capitalism.

The past several decades have seen an increase in economic freedom around the world. The Soviet Union collapsed, China opened up its vast market, trade barriers fell around the world.

The Heritage Foundation, which has been tracking global economic freedom for years with its annual Index of Economic Freedom, says that the global advance of free market capitalism has contributed to a doubling of the size of the world economy.

The index notes that there’s “a robust relationship between improvements in economic freedom and economic growth.”

What’s more, people living in economies rated “free” or “mostly free” have “incomes that are more than twice the average levels in all other countries and more than six times higher than the incomes in ‘repressed’ economies.”

You need only to look at Venezuela to see what happens when a country goes in the other direction – abandoning capitalism in favor of socialism. The animated chart below shows how Venezuela went from one of the richest countries in South America to the absolute poorest … after it embraced the kind of socialist policies AOC and Sanders want to impose here.

The Brookings Institution, a center-left think tank in Washington, D.C., found that, “for the first time since agriculture-based civilization began 10,000 years ago, the majority of humankind is no longer poor or vulnerable to falling into poverty.”

Yet despite all this evidence, capitalism is in disrepute. A global survey found that 56% of the 34,000 people surveyed in 28 countries said that “capitalism as it exists today does more harm than good in the world.”

In the U.S., Democrats are increasingly infatuated with socialism, and so are the young. One big reason for this disconnect is that these data never see the light of day in high schools, or colleges, or in the news.

It’s time for more leaders – in politics, in business, in academia – to shout about the benefits of capitalism for the poor and the middle class, and warn of the deprivations of AOC and Sanders’ brand of socialism.

By John Merline, Issues and Insights.

Private Investment In Market-Creating Innovations Is What Eliminates Poverty. We Proved It In Nineteenth Century America.

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This week, top-tier business executives and global leaders will gather at the World Economic Forum’s annual meeting in Davos to discuss globalization and the world’s most pressing problems. One of the issues bound to be discussed is global poverty, and how to finally eradicate it.

To best understand how to do so, leaders should study the history of how the U.S. transitioned from poverty to prosperity.

Imagine a country where the average life expectancy is just 45 years old, infant mortality is at a staggering 200 deaths per 1,000 births, and fewer than 5% of people have access to electricity. In this country, the average person spends more than half of their income on food. There’s little help from the government, and corruption is rife at all levels—from local to federal; cronyism, not merit, determines most civil service jobs. What impoverished country would you guess this is?

It’s the United States of America—in the 19th century.

By almost any measure, the U.S. in the 1850s was more impoverished than present-day Angola, Mongolia, or Sri Lanka. Infant mortality was roughly three times worse than sub-Saharan Africa’s infant mortality rate in 2017. American society then, with a lack of stable institutions and infrastructures, looked nothing like it does today.

But that is exactly why the story of America offers hope to poor nations everywhere.

Despite being impoverished, unregulated, and poorly infrastructured, the U.S. became fertile territory for scores of market-creating innovations. These innovations transformed complicated and expensive products into simple and affordable ones so that more people in society could access them. Additionally, the creation of a new market brought about new jobs, profits, and a change in the culture of a region.

Take, for example, the story of Isaac Merritt Singer. Singer may not be the most famous American innovator but he had a significant impact on American prosperity through his mission to make the sewing machine accessible to everyone. With mechanical improvements that made the machine simpler, less expensive, and more reliable, Singer’s sewing machine reduced the average time it took to stitch a shirt from about 14 hours to just one.

Together with his partner Edward Clarke, Singer not only innovated a product, he developed a business model to ensure the company could survive in a challenging business and legal environment. These innovations included creating branch offices, sending out door-to-door sales and service staff, offering lessons to customers on how to use the product, and extending credit to cash-strapped customers.

As a result, sales boomed. In 1873, demand was so high that Singer had to build the U.S.’s largest sewing machine factory, with a manufacturing capacity of 7,000 units per week.

The market for sewing machines created markets for a host of other products and industries, including affordable clothing, department stores, and raw materials such as steel, wood, and cotton. With this came jobs, profits, and tax revenues that helped fund much of America’s infrastructure and institutions such as the establishment of the first patent pool and the building of railroadsthat transported the sewing machines.

Singer’s market-creating innovation was just the tip of the iceberg. Generations of American entrepreneurs succeeded, against staggering odds, by pioneering other market-creating innovations.

For instance, Henry Ford—who made the car more affordable so that many more people in America could own one—had more to do with the success of America’s road infrastructure than the U.S. government at the time.

As Ford’s Model T streamlined the car manufacturing process and made it more cost-effective, millions of Americans purchased the car. This, in turn, created a stable source of tax revenue (in the form of sales, gas, and tire taxes) for the government. These revenues further helped develop America’s transportation infrastructure and institutions.

The pattern for breaking out of poverty through innovation is clear. First, comes private investment in market-creating innovations, then public investment in infrastructure and institutions that help a nation become prosperous. Japan and South Korea have followed this path, with economic transformation fueled by their own cultures of market-creating innovations. In the aftermath of their devastating wars, the thought of revitalizing each of those economies seemed almost impossible. Yet within mere decades, Japan and South Korea transformed from impoverished economies to global powerhouses, built largely on companies that created successful market-creating innovations, such as Japan’s Sony and Toyota, and South Korea’s Samsung and Kia.

Clayton M. Christensen is the Kim B. Clark professor of business administration at Harvard Business School. Efosa Ojomo leads the global prosperity research at the Clayton Christensen Institute for Disruptive Innovation. Karen Dillon is a former editor of Harvard Business Review and a senior researcher on global prosperity at the Clayton Christensen Institute for Disruptive Innovation. 

The World Is Getting Quietly, Relentlessly Better.

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If you spent 2018 mainlining misery about global warming, inequality, toxic politics or other anxieties, I’m here to break your addiction with some good news: The world got better last year, and it is going to get even better this year.

Poverty around the world is plummeting; half the world is now middle class; and illiteracy, disease and deadly violence are receding. These things don’t make headlines because they are gradual, relentless and unsurprising. That is why they are worth highlighting. The problems the world faces are far smaller than those it has already overcome and can be solved the same way: not by betting on miracles but by patiently applying knowledge and tools we already possess.

For most of recorded history humanity lived on the brink of starvation. As recently as 1980 nearly half the world lived in “extreme poverty,” that is, consuming less than the basic necessities, which the World Bank values at $1.90 a day in 2011 dollars, adjusted for the differing costs of goods and services between countries. The proportion of people in extreme poverty was projected to fall to an estimated 8.6% last year and, given the correlation between growth and poverty, is almost certain to drop further this year.

Rising incomes alone cannot capture how much better life has gotten. “Nathan Rothschild was surely the richest man in the world when he died in 1836,” economists Max Roser and Esteban Ortiz-Ospina wrote in 2017. “But the cause of his death was an infection—a condition that can now be treated with antibiotics sold for less than a couple of cents. Today, only the very poorest people in the world would die in the way that the richest man of the 19th century died.”

Mr. Roser is the founder of Our World in Data, a website that tracks the evolution of human welfare over the last few centuries. Scroll through the charts, articles and data sets, and you will be stunned by how much better life has become in just the last few decades: Child mortality, illiteracy and deaths from violence have all plummeted, and life expectancy has gone up.

The world first eradicated a disease, smallpox, in 1980. It could soon eradicate a few more: 2016 saw just 46 new cases of paralytic polio recorded; in 2017, there were just 25 new infections of Guinea worm, a painful and disabling parasitic infection. These victories come not through laboratory breakthroughs but the meticulous application of tried-and-true tools, such as vaccination and improved sanitation.

Much of the decline in poverty happened in China, where per-person income has risen 25-fold since China’s then-leader Deng Xiaoping inaugurated its economic reforms in 1978. India‘s economy, though, is now growing faster than China’s. If India can maintain its pace, the impact on global well-being will be just as momentous, given that India’s population should soon pass China’s.

As with disease, poverty is being eradicated not through technological miracles but basic rules of growth: Invest more in your human and physical capital, open yourself to markets and trade—that’s right, globalization is good—and incomes will rise.

Allow this growth to continue long enough, and something else momentous happens. As of September, more than half the world—3.8 billion people—are middle-class or rich, Homi Kharas of the Brookings Institution and Kristofer Hamel of World Data Lab found. They define middle class as consuming between $11 and $110 a day, in 2011 dollars adjusted for varying costs between countries. At this level, households devote ever more of their incomes to discretionary items such as motorcycles, refrigerators, movies or vacations.

Money and well-being aren’t the same, but Mr. Kharas and Mr. Hamel note that moving from poor to middle class does correspond to a big jump in happiness and much greater demands on governments to deliver affordable housing, education, health care and safety.

If the world is getting so much better, why does everyone seem so miserable? Perhaps because in the U.S., life is improving more slowly than in poorer countries, and in some places it is getting worse. Yet for most Americans, life is getting better: Median incomes are rising, average health is improving, and violent crime, divorce and teen pregnancy are all trending down.

Perhaps it also feels irresponsible to celebrate the many ways the world is quietly getting better because it distracts from the fight against things that are loudly getting worse: polarized and authoritarian politics, deadly opioids, nuclear proliferation, and most of all, a warming climate—a consequence of all those new middle-class entrants burning fossil fuels.

Yet obsessing over such perils is how we’ll likely solve them. Take global warming: Public concern over climate change is rising in the wake of wildfires and floods. Some media reports last year made much of a federal assessment that a warming climate could leave the U.S. economy 10% smaller by 2100.

First, note that if growth continues at 2%, gross domestic product would be 350% bigger by 2100, as opposed to 400%. Second, only one study is that dire: The consensus is more like a 5% hit, not 10%.

More important, the policy tools and technology exist to avoid those worst-case scenarios at a price considerably less than 5% of GDP; we only need the political will to apply them. Today that political will looks remote. But in 1980, the prospect that most of the world would one day be middle class looked even bleaker.

First published at wsj.com 1-2-19

 

 

 

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