The fall of the Berlin Wall and the end of global extreme poverty

Today it is 25 years ago the Berlin Wall came down. It has become the symbol of the end of communism and is surely something which should be celebrated.

The end of communism and the end of the Cold War sparked what has become one of the best periods in human history. As communism ended globalization or rather global capitalism took off. While communism stated goal was to eradicate poverty it never succeed in anything else than oppressing billions of people.

On the other hand globalisation has turned out to be a fantastic anti-poverty program as the always brilliant Doug Irwin explains in a new Wall Street Journal oped:

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.

…The reduction in world poverty has attracted little attention because it runs against the narrative pushed by those hostile to capitalism…Yet thanks to growth in the developing world, world-wide income inequality—measured across countries and individual people—is falling, not rising, as Branko Milanovic of City University of New York and other researchers have shown.

…Some 260 years ago, (Adam) Smith noted that: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.” Very few countries fulfill these simple requirements, but the number has been growing. The result is a dramatic improvement in human well-being around the world, an outcome that is cause for celebration.

Today we celebrate the end of communism, but we also celebrate globalization, capitalism and the near eradication of extreme poverty over the past 25 years.

HT Steve Ambler

PS To me the beginning of the end of communism is not the fall of the Berlin Wall, but rather the so-called roundtable negotiations between the Polish communist government and the Solidarność movement and the first (quasi) free elections in Poland in 1989. This of course does not makes today’s celebrations less important.