Why Global Poverty Has Declined 80%: Economic Liberalization Begets Prosperity and Equality
50 years after LBJ declared a “War on Poverty,” the U.S. would do well to take a page from the global playbook—whereby economic liberalization and more open trade has resulted in an 80% decline in abject poverty since 1976.
The graphs below, taken from the National Bureau of Economic Research Working Paper, “Parametric Estimations of the World Distribution of Income,” surely ought to impress even the most avid central-planner:
To see how it happened, start with these graphs showing GDP (red) against the Poverty Rate (blue) for various regions over the past 40 years:
As the paper’s authors observe:
It is immediately visible that the series are almost perfect mirror images of each other: the poverty rate falls when per capita GDP rises and vice versa. ... In particular, we see no examples of poverty reduction without growth (or sustained rises with poverty accompanying growth) on a regional scale. [Emphasis added]
Thus, contrary to recent controversies around the issue, a rising tide does indeed raise all boats—regardless of region.
And for those decrying supposedly increasing inequality, the paper reveals very good news on this front as well—showing inequality declining in sync with poverty:
A look at China provides just one dramatic example. Since Nixon’s visit opening trade with China in 1972, and China’s subsequent “Change, Reform, Open up” economic reforms beginning in 1978 and accelerating in the 1980s and ’90s, the Chinese economy has increased by 9.5% a year, resulting in vast improvements in both income levels and distribution:
While the paper’s authors did not include a survey of changes in economic policies across the regions covered by the study, any quick check against independent sources for such information makes its graphs just that much more exciting, with more and less dramatic improvements correlating with greater and lesser economic freedom.
It’s time for all who profess to care about the poor to join Bono in enlightenment. To all “Progressives” in the U.S. bemoaning the U.S.’s flat poverty rate over the past 50 years, and ramping up to make 2014 the year of the fight against “inequality”:
“Capitalism takes more people out of poverty than aid.”
And the economic growth that brings individuals out of dependency flattens inequality.
On this 50th anniversary of a failed domestic War on Poverty, let’s bring this global lesson home and hold up those responsible for prolonging economic stagnation in the U.S. and increasing the numbers dependent on government assistance as the true villains in the inequality play.