NCPA - National Center for Policy Analysis

Countries Boost Incomes, Reduce Poverty with Capitalism

November 4, 2014

From 1990 to 2011, the percent of the world's population living in extreme poverty fell from 36 percent down to 15 percent. Why? Douglas Irwin, economics professor at Dartmouth College, says the answer is simple: capitalism.

The drop in poverty over the last quarter-century is the greatest drop in poverty in world history, writes Irwin, and it is due to the fact that developing countries implemented business-friendly economic policies. He offers a few examples:

  • China took major steps in 1978 when it allowed private businesses and private agricultural plots while putting an end to the state's monopoly over foreign trade. Today, Chinese workers have much higher wages, and fewer of them are living in poverty.
  • India began doing away with its government licensing system in 1991. The country had required state approval not only for people to start new businesses but to expand existing ones and purchase foreign goods and parts. Like China, the state has seen a resulting drop in poverty and a boost in wages.
  • Tanzania has seen major growth after it did away with price controls and other socialist policies in the 1980s.

Capitalism, says Irwin, was given a bad reputation by Marxists who equated capitalism with the exploitation of workers. But Irwin says Adam Smith had the better description of capitalism -- a "commercial society" in which all men could participate in markets. The growth of that commercial society has brought great improvements across the globe -- while 811 million workers earned less than $1.25 per day in 1991, that number had dropped to 375 million in 2013. 

Source: Douglas A. Irwin, "The Ultimate Global Antipoverty Program," Wall Street Journal, November 3, 2014. 

 

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