Peter Gregory, Institute of Public Affairs, Melbourne
It is erroneous for the UN to claim that the Millennium Development Goals (MDGs) has been “the most successful anti-poverty movement in history”. The extraordinary reduction in the number of people living in extreme poverty over the last 25 years has been caused by market-led economic growth. We must re-cast foreign aid and charity to reflect this reality.
Between 1990 and 2015 the number of people living in poverty fell from 1.9 billion to 836 million. This drastic improvement is something we should all be ecstatic about. But the UN is incorrect in judging the MDGs as contributing significantly to this extraordinary achievement in its final report into the 15-year goals released a fortnight ago.
According to The Economist, in the first decade of this century, developing countries increased their GDP by 6% per year on average – 1.5 points more than between 1960 and 1990. Since 2000 annual growth in household consumption in developing countries grew by 4.3% per year on average – it grew by only 0.9% annually in the preceding decade.
These gains largely occurred because of market liberalisation which boosted trade between and within countries. In their Economic Freedom of the World report for 2014 the Cato Institute in the US found that global economic freedom has increased significantly since 1980 based on security of property rights, freedom to trade internationally, the rule of law, regulation and other factors. They also found almost without exception, that countries that were more economically free were more prosperous.
An obvious example is China. Throughout the late 70s and early 80s China instituted free market reforms such as opening itself up to trade with the outside world, removing the barriers to private enterprise and allowing agricultural markets to emerge.
These reforms meant that 680 million people have been lifted out of poverty since 1980. Indeed, China accounts for three quarters of the people moving out of poverty over the last three decades. It’s worth noting China has never shown any interest in the MDGs.
But China is not the only one. Growth in other developing countries has lifted 280 million people out of poverty since 2000 according to former World Bank economist Martin Ravallion.
There is a lesson in this for foreign aid and charity. If free markets are lifting so many hundreds of millions of people out of poverty, foreign aid must re-cast its role as enabling poor people to participate in markets.
One way to do this is by enhancing individuals’ economic rights. A prime example are property rights. Hernando de Soto estimates that $US 10 trillion of assets owned by poor people aren’t protected by formal property rights therefore restricting grassroots entrepreneurship. Ensuring that women have the same property and inheritance rights as men would drive economic empowerment and equality for women.
Another crucial economic right is the right to engage in free trade. Bjorn Lomborg estimates that removing the despicable trade barriers that prevent developing nation producers from selling their wares in developed and developing markets would make each person in the developing world on average $US 1000 richer per year by 2030 and lift 160 million people out of extreme poverty.
Furthermore, enhancing economic rights by fighting endemic corruption that cripples entrepreneurship is extremely impactful. As is ending the obtrusive industry policies that are rife in the developing world and crowd out entrepreneurship such as the Pakistani government’s price-setting practices in the country’s wheat sector.
The other way foreign aid can help poor people take part in transformative free markets in a sustainable way is to identify and facilitate the development of markets that are beneficial for the most deprived. For example, the Human Capital Project in Cambodia utilises a unique financing mechanism called personal equity finance which enables impoverished students to pay for university without the risk of a standard bank loan.
Proponents of this type of free market poverty alleviation scheme is what development economist William Easterly calls ‘searchers’ – people who develop market-based local solutions for local problems.
That’s not to say there is no room in global foreign aid for targeted government social programs. Brazil’s Bolsa Familia and Mexico’s Oportunidades are successful conditional cash-transfer schemes that have put a dent in poverty. Furthermore, foreign aid is also helpful during natural disasters.
But the UN must realise that the most successful anti-poverty movement in history is called ‘the free market’ and it’s something that thankfully, most people in the world now participate in every day.
People, not governments, will end poverty Peter Gregory
The Missing Foundation of Development: Individual Rights Peter Gregory
Marianna Georgallis, Policy & Advocacy Coordinator at the European Youth Forum
One month ago, all eyes turned to the Greek drama playing out in Europe. It has been a month of fraught negotiations, a shock referendum and a European Union and its leaders put under the spotlight, with European values of solidarity and unity questioned and, some might say, threatened. The focus has been largely on numbers – on the billions needed to avoid a Grexit, on the daily €60 cash withdrawal limit currently in place. But the ultimate reason for the past weeks of drama has not been figures – it has been people. The Greek government’s actions, right or wrong, are attempting to reverse the trend of years of wage cuts, welfare cuts, growing poverty, inequality and dire levels of unemployment. Undercutting all talk of currencies, of bailouts and banks has been the grave social impact of the economic and financial crisis and Europe’s response to it.
The statistics are there and are by now well known. The OECD Employment Outlook 2015, published earlier this month, highlights what has been mentioned in countless political speeches over the past years: Europe is suffering a social crisis. Unemployment rates give the first indication of this: Whereas unemployment has fallen below 6% in the United States and is under 4% in Japan and Korea, in the euro area the unemployment rate remains above 11%. It is clear that Europe is still lagging behind the rest of the world when it comes to employment.
These statistics are higher and more shocking when it comes to young people specifically. The share of young people neither employed nor in education or training, the so-called NEETs, has reached a staggering 40 million across OECD countries – with 27 million of these NEETs totally off the radar – a disappeared mass of young people, registered nowhere.
The enduring effects of this are a serious cause for concern. More than one in three jobseekers in the OECD has been out of work for 12 months or more. Long-term unemployment has serious consequences, ranging from deterioration of skills, lack of confidence which can lead to mental health issues and an impact on the economy through inactivity and costs of welfare provision such as unemployment benefits. However, the new finding of this year’s Employment Outlook is that a person’s long-term career prospects are largely determined in the first ten years of their working life. Long-term spells of unemployment can have an influence well into one’s career in terms of earnings – meaning that upward earnings mobility can be reduced having been long-term unemployed as a young person. This in turn raises income inequality and thus impacts economic growth through, amongst others, perpetuating under-investment and lower aggregate output.
However, it’s not just about having a job. The European Youth Forum has been calling for an end to the ‘any-job-will-do’ approach which has persisted since the onset of the crisis, with no real attempt from European policy-makers to address this. The Outlook shows that youth, alongside low-skilled and informal workers, typically hold the poorest quality jobs. The disproportionate increase of young people on temporary contracts over recent years is not a case of voluntary temporary employment – it is clearly a situation of forced, precarious work. Unpaid internships are a clear example of this – you would be hard pushed to find a young person, fresh out of their studies, willing and happy to work for free for 6 months – yet the 5 million interns in Europe, almost half of whom are unpaid, show that this is unfortunately the current reality.
Quality employment is a right, enshrined in several universal legal frameworks. Unfortunately this has been ignored by too many governments and EU leaders; focusing on job quality is perceived as a drag on job creation. The Employment Outlook disproves this, however, showing that the best performing OECD countries in terms of employment rates are also the ones that have the highest level of job quality. This is why the clear message of the Outlook is that governments must take action to foster stronger employment growth, implementing direct measures to improve workers’ access to productive and rewarding quality jobs.
The European Youth Forum views the new Investment Plan for Europe as an opportunity to do this. If the focus is on investment in quality job creation, particularly in emerging sectors with great potential such as the green economy and ICT, there is hope yet that the social crisis, experienced in Greece but also across the board, can begin to be reversed. Governments need to fulfil their duty of ensuring that all young people are able to access their social and economic rights, in order to achieve independence and autonomy, and thus contribute to a healthy economy and an inclusive society in Europe and the world.
Employment Outlook editor Paul Swaim writes about this year’s edition here