The Key to Ending Poverty

Despite the hype and celebrity show-offs about the need to increase economic aid to poor countries, the reality is that no amount of charity can truly eliminate the underlying reason for poverty: the lack of economic growth. Economists are not popular souls and targeted charity can deliver benefits but it does not take a PHD to understand that no country can provide its citizens a decent life mainly by relying on the subsidy of others. A recent study on the subject sponsored by the World Bank (“The Growth Report: Strategies for Sustained Growth and Inclusive Development”) looked at 13 countries that since 1950 have grown at an average rate of 7+% a year for 25 years or longer. The report notes that, although the causes of growth varied significantly between countries, they all seem to share 5 characteristics: 1) full exploitation of the world economy (importing bright ideas and technology; producing exports that others want); 2) macroeconomic stability; 3) high rates of saving and investment; 4) letting the market allocate resources; and 5) committed, credible, capable governments. The table above shows a few countries that are growing fast with India and Vietnam on their way close to joining this select group. The bottom line is that good economy policy and especially embracing free markets and free trade can bring millions of people out of poverty more than any amount of feel-good charity.