Poverty Shrinks As Capitalism Grows

Cody Findlay explains why the world is getting less poor with free market institutions.

In a recent article by Reason they outline the vast improvements in standards of living of the worlds’ poorest people.

Despite the media constantly painting a doomsday picture of the world’s current state and path into the future, there is a lot of hope to gain from this article with a few basic statistics.

Extreme poverty is defined as living off about $1.90 a day or less. The rate of extreme poverty in the world in 1990 was 37% of the entire world’s population. Since then, the global population has risen by 2 billion people but the extreme poverty rate has fallen by 1 billion. This has led to the extreme poverty rates declining from 37% in 1990, to 13% in 2012, and likely lower than 10% today.

In just 26 years the extreme poverty rate has reduced from over 1 in 3 to under 1 in 10 of the world’s population. This in large is largely due to the wealth creation bought about by the free market enterprise and countries accepting more free market institutions. China and India have adopted a more free market approach in the last few decades and have seen a huge reduction in extreme poverty. While large amounts of the absolute number of the extreme poverty are in countries like China and India where the rates are relatively low, 1 in 10 and 1 in 5 respectively, but they have very large populations. While conversely there are many countries throughout the world with high rates of extreme poverty with very small populations like Uganda and Haiti.

While both the absolute and relative poverty rates matter, some countries will be harder to economically develop due to limited valuable resources and institutions which hinder economic progress. In 2012 42.7% of the Sub-Saharan population was in extreme poverty due to limited valuable resources to create wealth while the next highest rate of extreme poverty being in South Asia area with 18.8%.

The Sustainable Development goal 1 is to eliminate extreme poverty by 2030. While we have made great progress in the last 26 years, this goal is quite ambitious with some places being harder to help than others. With extreme poverty projected to be between 4-6% by 2030, this is an absolutely remarkable human achievement.

Since 1820 the world has moved from the vast majority of the population living in extreme poverty to a small minority, all with a 7-fold increase in the population. This has happened in the blink of an eye in human history.

This will only get better, probably.

Cody Findlay is a 2nd year Economics and Finance student currently interning for the Australian Taxpayers’ Alliance.

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