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Capitalism is the greatest anti-poverty program the world has ever known

This week, charity-turned-left-wing-pressure group Oxfam issued a call for greater governmental control of the world economy in the name of greater ‘equality’. While some parts of the world are rich, others remain poor. The solution, according to Oxfam, is to take money from the rich countries and give it to the poor ones.

Wealth, not poverty, is the true mystery

In fact, poverty was the norm for most people for most of human history. Figure 1 shows estimates of the world’s per capita GDP; one (Maddison’s) going back to the birth of Christ and the other (DeLong’s) to the end of the last Ice Age. Material poverty is humankind’s natural state and there is no great mystery about it. The real question is why, about 250 years ago, for some of the human race, this changed. The graph, again, gives some indication, which I have helpfully highlighted. The incredible, unprecedented rise in economic growth and per capita incomes followed close on the heels of the emergence of capitalism. For the first time in its history, humanity was offered the possibility of freedom from material poverty.

Figure 1

This growth did not happen everywhere, as Figure 2 shows. Britain, for example, which had about the same per capita GDP as China and India in 1700 had vastly higher living standards than either country by 1950. In China and India, incomes were little different when Elvis Presley recorded his first single in 1954 than they were when the Pilgrims landed at Plymouth in 1620. And lets note that while there was much greater equality between Britain and China in 1500, that was because both were equally poor.

Figure 2 – GDP per capita 1500-1950

When we see poverty in the world today we aren’t seeing people who have had wealth stripped from them. We are seeing people who never had it in the first place. And they didn’t have it because they didn’t embrace capitalism until very recently. Look again at Figure 2 and note Japan. If the lines were carried on to the present day, Japan would have practically caught up with Britain. This is incredible when you consider the difference between the two in the 1880s.

It is production, not distribution, that makes us rich

Capitalism unleashed immense productive powers. It allowed us to produce more and consume more. When a middle class American walks into Cub to do their shopping, they can choose from a range of produce that would have amazed the richest French king. For that matter, the variety available in supermarkets in the capitalist nations used to amaze visitors from socialist countries before the Berlin Wall came down. If the poor countries of today are to grow rich, they will need to become as productive as the rich countries.

Oxfam was once a fine charity. Today, with its fixation on ‘inequality’, it is less interested in the poverty of the poor than in the wealth of the rich. Nobody has highlighted the moral and economic bankruptcy of this argument better than Margaret Thatcher.

John Phelan is an economist at Center of the American Experiment. 




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