Wednesday, August 14, 2013

Capitalism and Poverty

In 2000 the United Nations set forth "The Millennium Development Goals" in an attempt to spur international efforts to eradicate poverty, improve health outcomes, and promote gender equality. All the various goals are supposed to be met in 2015. The goals will not be met; however, there has been substantial progress on some dimensions ---progress that was not prompted by the Millennium Development Goals. Brett Schaefer and Terry Miller have a great article on National Review about the source of that progress. Also, in a recent speech at Georgetown U2 frontman Bono he remarked,

"Aid is just a stopgap. Commerce [and] entrepreneurial capitalism take more people out of poverty and aid. We need Africa to become an economic powerhouse."

The National Review article and the endorsement of capitalism from a rock star-humanitarian (not normal) prompts me to make this simple point: The leadership in these countries needs to unleash capitalism. What do I mean by capitalism? An environment where citizens are free to produce, consume, make investments, etc. without burdensome regulations that increase the cost of doing business. People in these communities already have problems. What capitalism does is coordinate these problems with problem solvers - and it does it better than any other economic system that exists.

No other economic system has generated more wealth than capitalism. In addition, there are a number of other benefits that flow from capitalism that are on the MDG list. For example, capitalism has been related to improving the treatment of women. For example, in the book Half the Sky Kristof and WuDunn write, 
"Microfinance has done more to bolster the status of women, and to protect them from abuse, than any laws could accomplish. Capitalism, it turns out, can achieve what charity and good intentions sometimes cannot." (p. 187) 

A friend at FSU is currently working on how broader economic policies are related to different female empowerment indicators. When she has a working paper I will post her findings on the blog. Another MDG goal that is addressed through wealth generating capitalism are the environmental goals. Yes, in the short run as countries became wealthier there would be more pollution. But, as those countries became wealthier they would begin consuming more environmentally conscience goods (This relationship is called a Kuznets curve). The logic is simple. When you are impoverished the environment is not a good that you pay a premium for. However, when you're wealthy you have extra money to spend on the environment. Finally, it should come as no surprise that as citizens become wealthier they spend larger portions of their income on health goods and services. 

No comments: