You cannot redistribute a nation out of poverty


There are two sure things we can say about global poverty.

The first is that poverty is being conquered and is now lower than it has ever been in human history. The second is that most people do not believe it.

A survey carried out by the Barna Group found that 84% of Americans were unaware that global poverty has been drastically reduced. Over two-thirds of them, 67%, said they believed poverty was increasing, not decreasing.

The World Bank noted:

“Over the past 40 years, life expectancy in developing countries has increased by 20 years – about as much as was achieved in all of human history prior to the middle of the 20th century. Over the past 30 years, adult illiteracy in the developing world was nearly halved to 25 percent from 47 percent. Over the past 20 years, the absolute number of people living on less than one dollar a day has for the first time begun to fall, even as the world's population has grown by 1.6 billion people. Over the last decade, economic growth in the developing world has outpaced that in the developed countries.”

The greatest progress has come in places such as China, India and Vietnam – all nations that liberalized their economies after years of socialist stagnation.

Consider the results of economic liberalization in Vietnam. Per capita income was US$100 in 1986 when the reforms were begun. Since the reforms, per capita income has increased 21 times over. Economic growth has continually been between 5.5% and 6.5% for the last 25 years in Vietnam. In the 90s, up to 50% of all people lived in extreme poverty, today it is 3%. The reason for the change, says the Bank: “Vietnam’s shift from a centrally planned to a market economy has transformed the country from one of the poorest in the world into a lower middle-income country. Vietnam now is one of the most dynamic emerging countries in East Asia region.”

The ruling Communist Party is not finished with economic liberalization either. In January, the party selected new leaders but the Deputy Foreign Minister, Le Hoai Trung, told the media, “We will continue with our economic reforms” because they “have brought about historic and significant results.” He said such further liberalization is “the wish of the public.” High on the agenda is further privatization of state-owned companies.

China’s premier, Li Keqiang started the year with assurances that the Communist regime would “stay on the course of reform and opening up.” He promised more market-oriented policies and a reduction of government influence in the economy.  He said that the economy still suffers from too much “government overreach.” These market-based reforms have all but eradicated urban poverty in China, in spite of the mass migration of workers to urban areas.  In 1990, 61% of the Chinese lived in extreme poverty, but this year the estimate is 4%. Because of the size of China, rates for world extreme poverty declined from 47% of the population in the developing world in 1990 to 14% today.

What these formerly socialistic nations found was that you cannot redistribute a nation out of poverty. Poverty can only be eradicated by increased productivity.

In comparison, South Africa has been timid in regards to real economic reform and economic growth has been equally timid, just 1.5% in 2014, according to the World Bank. They also project little to no growth in the South African economy this year and warn there are indicators that the economy could actually shrink. The World Bank notes that continued problems with state-owned Eskom is harming the economy. In Global Economic Prospects, the Bank indicates: “In South Africa the marked decline in electricity production also reflected inadequate investment in the power sector. Insufficient electricity supply constrained activity in the manufacturing sector, slowing the overall pace of GDP growth.”

South Africa would do well to take a page out of the playbook of the Communist governments in Vietnam and China and consider privatization of state-owned companies and deregulation of its markets.

James Peron is the president of the Moorfield Storey Institute, an independent think tank dedicated to equality of rights before the law, social tolerance and civil liberties

This article was first published in Business Day on 22 June 2016

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