is capitalism good for the poor gary wolfram william simon professor of economics and public policy...
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Is Capitalism Good for the Is Capitalism Good for the PoorPoorGary WolframWilliam Simon Professor of Economics and Public PolicyHillsdale College
What is Capitalism?What is Capitalism?
System based on:1.Private Property Rights2.Voluntary Exchange3.Limited Government4.Rule of Law
Key Characteristics of Key Characteristics of CapitalismCapitalism1. Voluntary Exchange2. All Parties Benefit3. Must Please Others To Get
Wealthy4. Incentive to Innovate
Most Efficient SystemMost Efficient SystemVoluntary ExchangePay Opportunity Cost for
Resources◦Value of Next Best Alternative
Produce Something Consumers Value More◦Profit or Out of Business
Profit Measure of Efficiency
Central Planning Not Good Central Planning Not Good for Poorfor PoorIncentive Problem
◦ProfitInformation Problem
◦Prices
Why Poor BenefitWhy Poor BenefitIncentive to Make Things for Poor
◦Industrial Revolution◦Cell Phone
Incentive to Make Them More Productive◦Add Physical Capital◦Add Education◦Outsourcing is really moving capital
to poor
Does It Work?Does It Work?• Dharavi-Mumbai India• 1.4 billion people live on less than $1.25
per day• 27% all children in developing countries
underweight or stunted primarily South Asia and Sub-Saharan Africa
• 1980 one out of every 10 poor lived in Sub-Saharan Africa—2000 one of every 3
• Life expectancy in Sub-Saharan Africa fell from 50 to 46 form 1990 to 2002
• Number of poor increased from 41% to 46% -- 164 million to 314 million
Poverty in CapitalismPoverty in Capitalism• 40% own home—3 bedroom with one
and one-half baths, garage, porch or patio
• 80% have air conditioning• Two-thirds have more than 2 rooms per
person• More living space than average
individual in Paris, London, Vienna, Athens
• 78% VCR or DVD Player • 97% Color Television• 89% Microwave Oven
China and East Asia China and East Asia • 1978 China Started Special Economic Zones• 1980-2001 more than 400 million people
escaped poverty• GDP per capita increased 5 times• Those less than 70 cents per day fell 64% of
population to 17%• 1980 East Asia poorest region in world now
leading in economic growth and poverty reduction
• China Growth Rate GDP 13.0% 2007, 9.0% 2008, 8.7% 2009
• India began market process early 1990s• India Growth Rate GDP 9.0% 2007, 7.4%
2008, 6.5% 2009
History LessonHistory Lesson• During 1000 years monarchy
mankind average income rose about 50%. Since 1820 rose by more than 1000%
• In last 100 years created more wealth, increased life expectancy more, and reduced poverty more than in prior 100,000 years
• 2004 expenditures of lowest 1/5 U.S. household equaled median household expenditure 1972
Most Free and Least FreeMost Free and Least Free2010 Index of Economic 2010 Index of Economic FreedomFreedomMost Free
◦ Hong Kong◦ Singapore◦ Australia◦ New Zealand◦ Ireland◦ Switzerland◦ Canada◦ United States◦ Denmark◦ Chile◦ United Kingdom
Least Free◦ Iran◦ Republic of Congo◦ Solomon Islands◦ Turkmenistan◦ Democratic Republic
of Congo◦ Libya◦ Venezuela◦ Burma (Myanmar)◦ Eritrea◦ Cuba◦ Zimbabwe◦ North Korea
Cross Section EvidenceCross Section Evidence