Free Markets and the Eradication of Poverty

My reading, as of late, has been heavy with economics books – from Hayek to Friedman to Adam Smith. The casual observer might note that list is comprised entirely of free market economists, and they’d be right. I believe personal liberty and economic liberty are one and the same, and it is the best way to promote the general welfare of all people. And according to a newly-published report by the World Bank, global poverty levels have plummeted Guy Sorman elaborates:

Thirty years ago, half of the planet lived in utter misery, and many commentators argued that poverty was destiny. At best, most pundits conceded that pockets of poverty could be alleviated through international aid. Only a handful of economists begged to differ: Theodor Schultz, Milton Friedman, and Peter Bauer were the mavericks advocating free-market policies for every nation as the way out of poverty. They have been proven right. China’s economy has been growing since the mid-1980s—when Deng Xiaoping, its de facto leader, abandoned central planning, opened the borders for foreign investment, and promoted entrepreneurship at home.

In 1991, after the Soviet economic model proved bankrupt, India left behind its socialist ideology, opened its borders to foreign competition, and deregulated its economy. The economies of the two most populous countries on earth have grown without interruption ever since. Remember, too, that South Korea and Taiwan understood the virtues of free markets long before China or India discovered them. Many smaller countries, across a huge range of cultures, soon followed suit. African governments, too, converted to free-market economics with significant results— Kenya, Uganda, Senegal, and Sierra Leone, among others. The International Monetary Fund, though useless as a lender, has proven beneficial in Africa by persuading local leaders to create independent central banks, which now manage reliable and stable currencies. The central banks, among other free-market institutions, have ignited economic growth in Africa, formerly ravaged by hyperinflation. The reconversion to monetary stability has also played a decisive role in rekindling Brazil’s economy, which had been stalled in the 1970s by monetary follies.

Global growth, thus, is not a miracle, but the outcome of sound economic policies. This confirms what free-market economists have been writing since 1776, when Adam Smith published his Wealth of Nations: economic policies based on entrepreneurship, open borders, and competition, prove successful. Socialism, promoted throughout the twentieth century as a way to bridge the gap between poor and rich countries, has failed everywhere. The debate is over, or should be. Humanitarian aid has helped alleviate misery in specific conditions, but it is no substitute for sound economic policy.

I highly recommend reading the whole thing.

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3 Responses to Free Markets and the Eradication of Poverty

  1. roopost says:

    Drae,
    Hmmm…..China a free market economy…I’m not that’s entirely true – and India as well is heavily regulated – just try starting your company up in India. India is only now beginning to relax its foreign investment rules. The notion of a truly ‘free market’ economy presumes a great deal of honest dealing on the part of the participants. I have seen no evidence to suggest that such behaviour exists, let alone is contemplated.

    Hayek has always a bit too ‘dog eat dog’ for my liking. Sure, personal liberty and economic liberty are joined – but as Holmes said – ‘Your right to swing your arm ends at the tip of my nose.’ Likewise for economic liberty.

    Kind regards,

    • Drae says:

      Roopost – I think the author’s point was that China and India made strides towards free market principles, and those changes are what has helped grow their economies, but we could even go so far as to say the US and Canada don’t truly practice free trade. I think America’s current policies are closer to what Adam Smith called mercantilism, with special treatment for certain companies or industries and for which capitalism was a cure. And I naturally think the best example of this in the US is marijuana , where many industrial special interests were actually targeting industrial hemp. It’s a policy this country is still paying for dearly to this day.

      • roopost says:

        Drae,
        “the US and Canada don’t truly practice free trade.” True, just ask any Canadian involved in soft wood lumber, or any member of the former monopoly known as the Wheat Board. However, these ‘strides’ are not without limits nor are they confidently left to the ‘unseen’ hand. In fact, Chinese currency manipulation is anything but Hayakian.

        Your author’s best quote I would turn on its head – ‘Sound Economic policy is no substitute for humanitarian aid.’ Herein is where I part company with the ‘free market’ as opposed to the regulated economy. Yes, there are winners and losers in the economy and so it should be; but, a properly run economy should have the ability to provide opportunity. I see ‘humanitarian aid’ as this opportunity. Whether it is health care, or education, such ‘aid’ enlivens the economy. It produces consumers.

        Your example (the legalization of marijuana, or lack of it) is evidentiary of what happens when moral policy overrides economics. Now, as morals change, so to should the economic policies. I don’t see the US advocating (or do I) the legalization of heroin. But, if we are comfortable with Jack Daniels, I’m sure we can make some room for a little Kiwi Green. Yet, morals are the problem – more so I think than economic policies which, should in most cases be devoid of moral obligations other than an absolute adherence to even handed application. Morals have their place though and it is impossible for a society to apply its economics without at least a nod to them.

        Kind regards,

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