“But what about the poor right now in the rest of the world? Have you no pity?” Suppose you are an indignant member of the clerisy speaking in this way. You are an alert reader of the popular books and journals that focus on, and view with alarm, the distribution of income instead of the condition of the working class. You will have heard that “capitalist” globalization and neoliberalism have been bad for the world’s poor, especially in the past few decades, on account of the evil ideas of economists such as Milton Friedman.1
Consider, though, the evidence to the contrary—that globalization and neoliberalism and Milton Friedman have in fact been good for the poor, in unprecedented fashion. There is still, admittedly, that bottom billion in Haiti and Burundi, out of the world population of seven billion, to which must be added many poor people even in rich and middling countries. We must find effective ways to help them lift themselves up. In our desire to help the poor, we bleeding-heart libertarians stand in solidarity with our social-democratic friends—if not usually agreeing with them on exactly which policies have actually helped the poor.
The contrast implied by the adverbs “exactly” and “actually,” though, is with well-intentioned but erroneous policies that make us feel helpful even when they in fact damage the people we intend to help. Such faux policies include stoutly supporting “rational” central planning of the economy, or stoutly demanding more bureaucratic regulation when any disaster whatsoever occurs, or stoutly supporting trade unions that discriminate against blacks and women and immigrants and effective school teachers, or stoutly opposing Walmart selling groceries at low prices in poor neighborhoods that now lack grocery stores entirely. A bottom billion out of seven is a scandal. Let’s fix it. But let’s actually help the billion, not merely indulge our indignation and our conviction of ethical superiority by supporting policies that in fact make them worse off.
And know this. Forty years ago, before the recent liberalization of foreign trade and the dying out of central-planning socialism and the lessening of corrupt regulation, the situation was much worse than a bottom billion out of seven. In those unhappy days before the word “globalization” became common and before the word “neoliberalism” was known and before the wretched Washington Consensus and before the horrible Friedman got his Nobel Prize in economics, the world faced a bottom four billion out of a total human population of merely five, with no prospects.2 The well-intentioned policies of job protection and import substitution and state ownership of the means of production had kept the poor very poor indeed.
Almost nowhere in the world, 1800 to the present, and contrary to pessimistic theories such as Malthusianism or Marxism or radical environmentalism, did real income per person decline for long, the rare exceptions being places with one-party socialism on the model of Kwame Nkrumah in Ghana and Nicolae Ceaușescu in Romania, or thuggish tyrants on the model of Robert Mugabe in Zimbabwe and Alexander Lukashenko of Belarus, or entirely uncontrolled robbers on the model of Somalia. In most places it is not true that “the rich get richer and the poor get poorer,” amusingly cynical though it is to repeat the old proverb of a zero-sum society.
Since 1976, that is, most of the poorest people in the world have been getting better off almost every year. From 1981 to 2008 the share of the world’s population living at the level of Afganistan, a horrible $2 a day (expressed as always, if roughly, in present-day U.S. prices allowing for the cost of living), fell from 70 percent to 42 percent.3 The share of the world’s population living on an appalling $1.25 a day, as in Liberia (the experiment in sending African-Americans with longer American lineages than most European-origin Americans “back to Africa”), fell from 53 percent to 22 percent. It fell, in other words, by more than half. From 2005 to 2008 even sub-Saharan Africa, for the first time since its independence from the colonial powers half a century earlier, shared on average in the betterment.
Not all of the recent uplifting, that is, can be accounted for by neoliberalization’s top two success stories, China and India. Yet China’s success since 1978 (from $1 a day, not alleviated by the ideal of a communist society advocated by Mao) and India’s since 1991 (from a similar level, not alleviated by the ideal of swadeshi, or self-suffiency, advocated by Mahatma Gandhi and Nehru and the later Gandhis) do constitute a powerful anti–antiglobalization and anti-anti-Friedman argument. In 2013, for example, the new premier of China, Li Keqiang, no political liberal, hinted that if a new eleven-square-mile free-trade zone in Shanghai, one of twelve in prospect, worked as well as we Friedmanites think it will, the idea would be extended to the other places.4
If the four countries other than India and China among the BRIICS—Brazil, Russia, Indonesia, and South Africa, the BRIS—would adopt the Friedmanite ideas applied with such enthusiasm in India and China, they too would experience India’s and China’s transformative rates of growth in real per-person income, ranging annually from 5 to 12 percent. Such rates easily quadruple real income per person in a generation or so. (The doubling Rule of 72, implies a quadrupling Rule of 144, which is 2 times 72: something growing at, say, 6 percent per year will quadruple—which is to say, double twice—in 144/6 = 24 years, or one generation.) The quadrupling of any original per-person income in a generation or so would seem to justify the word “transformative.” Yet Brazil, Russia, Indonesia, and South Africa have stuck with pre-Friedman ideas such as Argentinian self-sufficiency and 1960s British unionism and 1980s German labor laws and a misunderstanding of Korea’s “export-led” growth.
The literature of the “middle-income trap,” which speaks in particular of Brazil and South Africa, presupposes a mercantilist notion that growth depends on exports, which are alleged to have a harder time growing when wages rise.5 The theory is defective, since the absolute “advantage” of low wages is irrelevant to the pattern of trade. The mercantist policies adopted by Brazil and South Africa to encourage this or that export depend, in other words, on denying comparative advantage. And anyway the literature on the middle income trap focuses on externals when what matters mainly to the income of the poor is domestic productivity. Therefore countries such as South Africa with trade-denying laws, such as those that obstruct entry to new business and overregulate old business, drag along at growth rates of less than 3 percent per year per person—at which rate a mere doubling takes a quarter of a century and a transformative quadrupling fifty years. Slow growth yields envy, as the economist Benjamin Friedman has argued, and envy yields populism, which in turn yields slow growth.6 In 2014 Venezuela ranked 182nd out of 189 countries in the world in the ease of doing business, Brazil 120th.7 That’s the real “middle-income trap.”
Here are the data on the transformative, quadrupling rates of growth of China and India, and the nontransformative rates of the rest. Note the italicized years to quadruple:
[Table 2 from the book goes here; it is not included in the source file.]
Observe that among the BRIICS India is second only to China in per-person real growth. And observe that its best years were 2002–2012 (though 2012 itself was not so good). The best Indian years were not, as is sometimes claimed, the 1990s, before Congress Party liberalization had made all the progress it was going to make. In the early 2010s, unhappily, the Congress Party started once again to talk of populism and first-act equality and reregulation—for which it was punished in the elections of 2014 that brought the pro-growth Narendra Modi to power. But the decade just before the Party’s apostasy from Milton Friedman was good for the poor and, yes, the rich of India. Anyway, at such rates, if sustained, as they show every sign of doing (the IMF predicted early in 2015 that annual growth there would be over 7 percent), Indian real income per person would quadruple in one long generation or two short ones. By 2020 or so, a majority of voters in India will be middle class, at any rate by the modest definition of “middle class” in a still very poor country.
The recent economic history of India and China suggests that liberalization—and not natural resources or foreign trade or government planning—causes the beneficent quadrupling. Only nine countries out of the world’s 180 or so, a mere 2 percent of world population, match the Chinese and Indian record of real growth per capita of over 4 percent per year sustained over the three quinquennia up to 2010—Vietnam, for example, which adopted in 1986 a policy of “Doi Moi” (Renovation) to achieve a “socialist-oriented market economy,” and Georgia, which between 2006 and 2014 jumped from 98th to 8th in the World Bank’s “Ease of Doing Business” index, liberalization in spades redoubled and vulnerable.8 (Vietnam in 2014 was in this respect mired at Georgia’s old ranking of 99th.) Contrast the records of Brazil and South Africa, which have clung to subsidies and regulation and protectionism. The United States and the rest of the OECD world are already at the frontier of betterment and could be expected as I have said to grow only at moderate rates. Yet the U.S. rate during the 1990s exceeded some of the subdued rates of the BRIS. The BRIS account for 9 percent of the world’s population, yet none of them, recently (2004–2013), has equalled the world’s rate of growth of real GDP per capita, which was 4.8 percent—a very healthy level (a quadrupling in thirty years) that continued, notably, right through the Great Recession.9
The Great Enrichment is spreading to the world. True, in the nineteenth century places such as India and China experienced relative to the West a “Great Divergence,” stagnating while the West shot ahead.10 Until 1500, and in many ways until 1700, as the historian of technology Joseph Needham showed, China was the most technologically advanced country in the world, contrary to the old Eurocentric notion that the West has always been unusually ingenious.11 Until 1700, and in some respects until 1850, most of the best technology, such as the blast furnace, was Chinese (and, in this particular case of large-scale production of iron, West African). Anesthesia is among the few dozen most important European betterments of the nineteenth century (Mokyr notes that it would not register as a rise in GDP, an instance of understatement of the Great Enrichment). Yet the Chinese were doing operations with anesthesia by drug and acupuncture two thousand years earlier.12 Hundreds of years before the West the Chinese invented and used locks on canals to float up and down hills, and the canals themselves were until the nineteenth century four times longer than any in Europe.
Then after 1700 and especially after 1800 the West caught up to Chinese best practice, streaking ahead in betterment, and the Great Divergence commenced. The Divergence during the nineteenth century is probably explained partly by the comparative slowness with which betterments in northwestern Europe piled up at first, and then in many places by traditionalist or imperialist or populist objections to trade tests. The economists Diego Comin and Martí Mestieri show that the speed of first adoption of technologies has risen over the past two centuries, the lag from invention to poor-country adoption falling from about 120 years for spinning machinery and steamships to 13 years for cellphones and 7 years for the Internet.13 Yet they also find that the time to spread in a country after first adoption has increased—perhaps from the increased autonomy of poor countries, with attendant pressures of populism to protect older techniques.
At a 7 percent rate of growth in per-person income—a rate available if people in now wretchedly poor countries will adopt liberty and dignity, such as the economic liberty to open a new convenience store or the social dignity accorded engineers who invent a new digital camera—the Divergence could be over in a couple of generations. Such a prospect is not hypothetical. It has happened again and again. Hong Kong’s real income per head, which in 1948 was equal to that on the miserable mainland of China, now exceeds that of the United States. Routine supply, too, such as running a dry-cleaning shop with diligence or drilling for oil with intelligence, is best supported by allowing and encouraging ordinary people under law to make economic decisions for themselves, and by honoring the self-and-other-enriching outcomes of their decisions. As the Czech novelist and playwright Ivan Klíma put it, “America’s wealth . . . is chiefly the result of the creative activity of free citizens. Americans are not to blame for Third World poverty, which is mostly due to . . . the demoralizing lack of freedom that most of the people there endure.”14 Give them economic liberty and social dignity and they will succeed—and often have in fact succeeded—as well as the Americans have.
A Great Convergence, in other words, is upon us.15 The world’s real income has accelerated, rising faster and faster, albeit with a sickening slowdown during the antibourgeois disorders of Europe and the world (1914–1950, with an extended engagement in some place down to 1989)—the disorders of nationalism, socialism, and, God help us, national socialism. The economic historian Leandro Pardos de la Escosura has chronicled the late nineteenth-century and late twentieth-century rises in economic liberty. The fall in his figures during the grim three and a half decades after 1914 is stunning.16 By contrast, the three decades after World War II, wrote Angus Maddison, “were a golden age of unparalleled prosperity,” and not only in the West.17 World real domestic product per person measured conventionally (without, that is, allowing properly for somewhat hard-to-measure betterments in the quality of goods) rose at nearly 3 percent a year, which implies a doubling of the material welfare of ordinary people every twenty-four years—that is, in a single generation. The later, less vigorous growth of 1973–1998, Maddison pointed out, was nonetheless higher than any earlier period except the unparaelled prosperity of the postwar boom. Now the world’s growth rate of per-capita real income at purchasing-power parity, despite the Great Recession, I have noted, is 4.8 percent per year. However it is calculated it is notably faster than the golden age after 1945.
Nor are the world’s poor paying for the growth. The economists Xavier Sala-i-Martin and Maxim Pinkovsky report on the basis of detailed study of the individual distribution of income that “world poverty is falling.” They measure it person-by-person as against nation-by-nation. (The two methods, though, come to much the same conclusion.) “Between 1970 and 2006, the global poverty rate [defined in absolute, not relative, terms] has been cut by nearly three quarters. The percentage of the world population living on less than $1 a day (in purchasing-power-parity-adjusted 2000 U.S. dollars) went from 26.8% in 1970 to 5.4% in 2006.”18 The Great Recession slowed growth among the rich countries, but not much among the vigorously growing the poor countries.
We are converging on an enrichment of the poor.
The text above is an excerpt from Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, the third volume of Deirdre McCloskey’s trilogy on the ethical and historical origins of modern prosperity.
Notes
Klein 2007. For another view from the left, this time based on facts, see Mirowski 2013 and Mirowski and Plehwe, eds. 2009.
Collier 2007.
World Bank, “Remarkable Decline in Global Poverty, But Major Challenges Remain,” April 17, 2013. I join you in being puzzled by the divergence between such figures and the one-out-of-seven estimate by Collier. I think it is because Collier was speaking of the distribution by country instead of by individual. But the statistical methods strongly converge. Extreme poverty, however you measure it, has fallen dramatically during the era of “neoliberalism.”
“China Experiments with Free Trade Zone,” Chicago Tribune, October 1, 2013, sect. 2, p. 6. That such news was buried on the last page of the business section shows how routine the liberalization of China and India has become. Even Cuba promises a free port: “Former Exit Port for a Wave of Cubans Hopes to Attract Global Shipping,” New York Times, January 27, 2014.
McCloskey 2006a.
Friedman 2005.
World Bank, “Economy Ratings,” http://www.doingbusiness.org/rankings.
Doingbusiness.org.
“GNI per capita, PPP (current international $),” http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD/countries?display=graph.
Pomeranz 2000.
Needham 1954–2008..
Gwei-djen and Needham 1980, p. 231; Mokyr 2008, p. 257.
Comin and Mestieri 2013, table 1.
Klíma 2002, p. 52.
Mahbubani 2013.
Prados de la Escosura 2014, figure 4.
Maddison 2007, p. 303.
Sala-i-Martin and Pinovsky 2010; Sala-i-Martin 2002, 2006.
Since 1776, there has been a 3,000% explosion in the average real income per person in the world.
Nothing earlier came remotely close.
It was caused not by the usual suspects of investment or exploitation, but by liberty inspiring a flowering of human creativity—in the arts and sciences, and in the economy.
Though Brazilians and many other Latin Americans are uneasily aware that their economies lag some, and sometimes a lot, the Great Enrichment is nonetheless evident everywhere from the Border to Tierra del Fuego, from Santiago in Chile to Recife in Brazil.
The Latin Lag can be overcome. Brazil, like much of Latin America, needs essential liberalism to do it.
Check out my new book, Liberdade: 100 Conversation Starters on Liberalism, Latin America, and Brazil
