If ever there was a golden age in the long and troubled history of mankind it is now:

So, the reality remains that, despite all this progress, a third of the world’s population continues to live in unacceptable poverty. The question is what can be done to remedy this situation?

I should like to suggest that governments should implement the approach that has worked so well throughout so much of the world since World War II.

There is an absolute correlation between countries that promote economic freedom – including all the above-mentioned factors – and positive economic and social outcomes.

We must counter the growing tendency – following the 2008 global financial crisis – to downplay the role of free markets in the generation of wealth and the alleviation of poverty.

Free markets – and not governments – create wealth. They can nevertheless be driven recklessly as was undoubtedly the case before 2008.

Governments must enforce financial traffic rules and ensure that the free market vehicle is driven responsibly. However, before 2008 some governments were actively encouraging reckless financiers to break the speed limit by guaranteeing worthless sub-prime bonds. After the inevitable crash, they failed to allow irresponsible banks to go out of business.

Big government is not the solution to economic growth, wealth creation and the eradication of poverty:

Hong Kong is one of the best examples of the benefits of economic freedom and limited government. It also points to the best route to the generation of wealth, sustained economic growth and the eradication of poverty.

In 1960 Hong Kong had about the same per capita income as South Africa. Today, its per capita income is US$49 000  – almost five times higher than South Africa’s and US$12 000 higher than Britain’s.

Hong Kong has been successful because it has the freest economy in the world. It has a strong system of law, maximum personal tax of only 17%, low corruption, free trade and government expenditure of only 19.2% of GDP.  And yet, despite its small government, Hong Kong has the 15th highest Human Development Index in the world – which indicates a very high level of wellbeing, health and education among the population.

The downside is high inequality. Hong Kong has a high GINI index of 53 and one-fifth of its population live in relative poverty. However, in Hong Kong poverty is defined as half of the median income – or US$50, per day. This is 40 times higher than the international extreme poverty standard – and higher than the per capita incomes of countries like Russia, Brazil and Chile.

In the rest of China Deng Xiaoping’s introduction of greater economic freedom has, during the past 30 years, led to the most spectacular enrichment of the largest number of people in the shortest period in history. More than 300 million people – more than the entire US population – have migrated from rural poverty to relative urban affluence in this period.

The basic formula for combating of poverty is clear: it includes free markets, the rule of law, and sound governance.

Mankind has, indeed, made spectacular progress during the past 30 years. We should address the fact that a third of the human population still lives in unacceptable poverty by encouraging governments to implement tried-and-tested policies based on economic and political freedom.

Issued by the FW de Klerk Foundation Cape Town
8 September 2014

Photo credit: Foter / Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)