If You Hate Poverty, You Should Love Capitalism

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Aug 31, 2017

Did you know that since 1970, the percentage of humanity living in extreme poverty has fallen 80 percent? How did that happen? Arthur Brooks, president of the American Enterprise Institute, explains.

Poverty has fallen 80 percent since 1970. So what’s responsible for the greatest anti-poverty achievement in world history? Capitalism.

  • Research published by the National Bureau of Economic Research estimates that between 1970 and 2006, the number of people living in poverty worldwide has fallen a stunning 80 percent.View Source
  • The same research found that measures of inequality has been reduced between 128 and 145 percent.View Source
  • Similar results were reported by the World Bank in 2011, which showed that the world’s population living in extreme poverty had been reduced to 15 percent from 36 percent in 1990.View Source
  • WATCH: Scholar Arthur Brooks on eliminating poverty.View Source
  • Related Reading: “Wealth and Justice: The Morality of Democratic Capitalism” – Arthur Brooks, Peter WehnerView Source

Five innovations have pulled billions out of poverty: globalization, free trade, property rights, the rule of law, and entrepreneurship.

  • The five incredible innovations that have managed to pull billions of people out of poverty in the last half-decade are globalization, free trade, property rights, the rule of law, and entrepreneurship.View Source
  • Research published by the National Bureau of Economic Research estimates that between 1970 and 2006, the number of people living in poverty worldwide has fallen a stunning 80 percent.View Source
  • WATCH: Scholar Arthur Brooks on eliminating poverty.View Source
  • Related Reading: “The Road to Freedom: How to Win the Fight for Free Enterprise” – Arthur BrooksView Source

Is globalization hurting the U.S. economy? No, in fact, globalization has benefited the economy by over $2 trillion since 1950. 

  • The tension between globalism and U.S. national interest is not a zero-sum game.View Source
  • Research by the Peterson Institute for International Economics estimates that the United States benefited by over $2 trillion since 1950 from globalized trade.View Source
  • The same estimates show that globalization has increased per capita GDP by over $7,000.View Source
  • Globalization and the resulting free trade is responsible for the movement of billions of people out of poverty.View Source
  • Related Reading: “The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America” – Arthur BrooksView Source

Free trade means open access to markets and people all around the world—that benefits everyone, particularly the U.S.

  • Free trade is responsible for the movement of billions of people out of poverty.View Source
  • Free trade has increased America’s wealth as well as the rest of the world. Increasing imports while decreasing exports has improved America’s standard of living.View Source
  • Research by the International Monetary Fund suggests that lowering tariffs and trade barriers could increase aggregate productivity by 1 percent, which might seem small but in fact would significantly contribute to economic growth.View Source
  • Related Reading: “The Road to Freedom: How to Win the Fight for Free Enterprise” – Arthur BrooksView Source

Protecting property rights is essential to maintaining a thriving economy as it promotes economic activity and long-term investment.

  • Property rights promote economic activity by creating a stable and safe current and future social environment conducive to long-term investment.View Source
  • When people feel that their money is safe, they are more likely to invest for future returns, and investment is key to growth.View Source
  • Property rights promote economic activity by securing the returns to work and creativity and protecting them from the state and others.View Source
  • Well-defined property rights ensure peaceful competition that promotes economic well-being instead of competition by violence.View Source
  • WATCH: Arthur Brooks on building a fairer, happier, more prosperous America.View Source

One key reason America has thrived economically is our commitment to the rule of law, protecting businesses from the whims of the state.

  • The rule of law is the idea that the government should be constrained by laws rather than by the whims of the political leadership, and that citizens should be protected from coercive action by the state or any other individual.View Source
  • The rule of law brings predictability to markets and society.View Source
  • Related Reading: “The Battle: How the Fight between Free Enterprise and Big Government Will Shape America's Future” – Arthur BrooksView Source

Entrepreneurship is the creativity of free people to dream up new products that we never knew we wanted or needed.

  • Entrepreneurs are driven by earned success, which can mean traditional business success, as well as creating beautiful art, helping the poor, building a non-profit, or raising kids.View Source
  • Contrary to the left’s portrayal of businessmen and women, entrepreneurs are not driven by greed. The average entrepreneur makes 19 percent less money than the average government manager.View Source
  • Entrepreneurs recognize new opportunities that are not seen by others in the economy.View Source
  • Entrepreneurs respond to new market needs and drive technological innovation.View Source
  • WATCH: Arthur Brooks on the moral case for capitalism.View Source

Is free trade hurting the country? Just the opposite. Increasing imports while decreasing exports has improved America’s standard of living.

  • Free trade has increased America’s wealth as well as the rest of the world. Increasing imports while decreasing exports has improved America’s standard of living.View Source
  • Research by the International Monetary Fund suggests that lowering tariffs and trade barriers could increase aggregate productivity by 1 percent, which might seem small but in fact would significantly contribute to economic growth.View Source
  • Free trade is responsible for the movement of billions of people out of poverty.View Source
  • Related Reading: “Gross National Happiness: Why Happiness Matters for America--and How We Can Get More of It” – Arthur BrooksView Source

The next time you hear someone complain about capitalism, consider this: The percentage of people living at starvation level poverty has fallen 80% since 1970. Before then, more than one in four people around the world were living on a dollar a day or less. Today, it’s about one in twenty.

This is the greatest anti-poverty achievement in world history. So, how did this remarkable transformation come to pass? Was it the fabulous success of the United Nations? The generosity of U.S. foreign aid? The brilliant policies of the International Monetary Fund and World Bank? Stimulus spending? Government redistribution?

No. It was none of those things.

It was capitalism. Billions of souls around the world have been able to pull themselves out of poverty thanks to five incredible innovations: globalization, free trade, property rights, the rule of law, and entrepreneurship.

Globalization means the ever-increasing ability to move goods, people, and ideas from one distant location to another. Free trade is open access to markets and people from all over the world with few, if any, barriers. Property rights is ensuring that what belongs to you can’t be taken away on a whim by the state. The rule of law safeguards contracts, assuring that they will be respected and lived up to whether the deal is made in Peru or Poland. And entrepreneurship is the creativity of free people to dream up new products that we never knew we wanted or needed.

It’s worth noting that in places like East Asia, these five things were all made possible by the historic peace after World War II that resulted from America’s global diplomatic and military presence.

Let me put this in a slightly different way:

The ideals of free enterprise and global leadership, central to capitalism and American conservatism, are responsible for the greatest reduction in human misery since mankind began its long climb from the swamp to the stars. This remarkable progress has been America’s gift to the world.

So, if these American conservative ideals have done so much to lift up the world’s poor, you would think conservative ideas would be gaining strength every single day – everywhere. And not just gaining strength among conservatives, but also among young idealists, immigrants, minorities, and advocates for the poor—all embracing the principles of free enterprise and unleashing its power on behalf of the vulnerable. 

But this hasn’t happened. To the contrary, capitalism is struggling to attract new followers. Indeed, some believe it’s destined to fade away – just as it has in much of Europe.

According to a Harvard Study, only 42% of young Americans 18 to 29 have a favorable view of capitalism. What explains this discrepancy between the incredible results of capitalism and its popularity? Why does capitalism get such bad rap?

One answer is simple: The defenders of free enterprise have done a terrible job of telling people how much good the system has done around the world. Capitalism has saved a couple billion people, and we have treated this miracle like a state secret.According to a 2013 survey, 84 percent of Americans are unaware of the progress made against poverty worldwide. Indeed, more than two-thirds think global hunger has actually gotten worse.

This ignorance has consequences because there is no substitute for capitalism and the five innovations that make it work. Years of economic research tells us no other system comes close. Certainly, not communism; not even socialism.

You need a system that works while you sleep. One that creates the foundations of human prosperity without “central planning” or benevolent bureaucrats. More capitalism, more growth. The formula might seem deceptively simple – but it works.

So, how we do lift up the next billion?

The answer should be clear: If you really want to help the poor, stand up for capitalism.

I’m Arthur Brooks, president of the American Enterprise Institute, for Prager University.

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