Capitalism: The Best Anti-Poverty Program

The World Bank reported on Oct. 9 that the share of the world population living in extreme poverty had fallen to 15% in 2011 from 36% in 1990. Earlier this year, the International Labor Office reported that the number of workers in the world earning less than $1.25 a day has fallen to 375 million 2013 from 811 million in 1991.

Such stunning news seems to have escaped public notice, but it means something extraordinary: The past 25 years have witnessed the greatest reduction in global poverty in the history of the world.

To what should this be attributed? Official organizations noting the trend have tended to waffle, but let’s be blunt: The credit goes to the spread of capitalism. Over the past few decades, developing countries have embraced economic-policy reforms that have cleared the way for private enterprise.

China and India are leading examples. In 1978 China began allowing private agricultural plots, permitted private businesses, and ended the state monopoly on foreign trade. The result has been phenomenal economic growth, higher wages for workers—and a big decline in poverty. For the most part all the government had to do was get out of the way. State-owned enterprises are still a large part of China’s economy, but the much more dynamic and productive private sector has been the driving force for change.

In 1991 India started dismantling the “license raj”—the need for government approval to start a business, expand capacity or even purchase foreign goods like computers and spare parts. Such policies strangled the Indian economy for decades and kept millions in poverty. When the government stopped suffocating business, the Indian economy began to flourish, with faster growth, higher wages and reduced poverty.

Those who would castigate capitalism in favor of socialism should think carefully: We have a grand example before our very eyes of the effects of socialism. That example is the former U.S.S.R. That country was not able to produce the consumer goods needed by their people. Oh, they were great at building dams and moon rockets; but they were miserable at producing the things that people needed to live. And…they were very bad at providing jobs and motivating their people to go to work to earn a living. America should take the Russian economy as a warning to the U.S. Socialism is a dead end!

(This blog post was redacted from the Wall Street Journal November 2, 1914, the editorial page.)