Opinions - 18.12.2012 - 00:00 

"The end of poverty"

Advent is the time for charitable donations. A better impact could be made by economic freedom as a key for prosperity and welfare. A comment by Christian P. Hoffmann.<br/>
Source: HSG Newsroom


19 December 2012. In the weeks of the run-up to Christmas, the motto is “Every penny counts!” when charitable organisations compete for support. One goal can be found particularly frequently in appeals for donations of organisations like Switzerland’s Glückskette: the alleviation of the globally destructive consequences of poverty: hunger, disease, environmental pollution, illiteracy and oppression. There are many good reasons for civil commitment. But what can we do to put paid to poverty? Fortunately, research provides clear answers.

In the late 18th century, Europe experienced a population explosion. For the economist Thomas Malthus, it was clear: the production of foodstuffs would never be able to keep pace with the increase in the number of hungry mouths. Misery and poverty would be the consequence. At that time, 130 million people lived in Western Europe; a hundred years later, the population had nearly doubled. Yet misery and poverty failed to materialise – to the contrary: Europeans became more and more affluent and healthier, and they lived longer. How could this happen?

Market-economic enlightenment
Malthus knew that Europe’s economic production had only developed sluggishly for centuries; incomes hardly increased at all. But in the mid-19th century, something unexpected occurred: a “bourgeoise revaluation” (Deirdre McCloskey), a kind of market-economic enlightenment. For the first time, the idea prevailed in Europe that individuals should have secure property rights and the right to free economic activities. It was recognised that economic success was far from morally reprehensible, but socially desirable.

The consequence was that entrepreneurs were no longer thwarted and oppressed but admired and celebrated. The Industrial Revolution followed in the wake, and the per capita gross domestic product soared. England’s Manchester Liberals fought for the repeal of protectionist laws which limited prosperity to small powerful cliques, and thus ensured that the general public was able to partake in rising European affluence.

Europe is a kind of blueprint for the world, for today the poverty of nations is still closely related to their institutions: the Fraser Institute’s index of economic liberty evaluates the politics of 144 countries every year. It measures their constitutionality, their respect for individual property, their freedom to engage in international trade, and their entrepreneurial freedom in the form of low taxation and little regulation. The results are unequivocal: the freer a country, the richer its inhabitants.

Economic freedom reduces poverty
The percentage of extreme poverty is 2.7% in the freest quarter of countries and 41.5% in the countries with the lowest degrees of freedom. The income of the poorest 10% of citizens in the free countries is more than double the amount of the average income of the unfree countries. When a country increases its economic freedom, the poverty level registers a rapid decrease. This has been particularly evident since the end of communism: for the first time in history, we are experiencing a reduction of poverty on a global scale.

In South Asia, extreme poverty has decreased from 18% to 3% of the population since 1980. Thousands of millions of people in the “rest of the world” are slowly beginning to profit from secure property rights, the freedom of contract, constitutionality and free trade. And research also reveals that the inhabitants of economically free countries are healthier, live longer, enjoy better training and education, have more equal rights and more political freedoms than citizens of unfree countries.

Thus two lessons can be learned: firstly, the end of poverty is possible, and secondly, what is necessary for this are not donations and certainly not development aid, but a strong cultural foundation for liberal political framework conditions. It is not for nothing that Switzerland is among the world’s freest and most affluent nations. In times of pre-Christmas generosity, this analysis may appear to be chilly or even provocative – however, it brings enormously hopeful news, indeed tidings of joy, to the poor of this world.

Photo: Photocase / Tim Toppnik