Transcript Slide 1

1. Place _____ dots on the 3 POOREST countries in the world.
2. Place ______ dots on the 2 countries that have experienced
the greatest DECREASE in poverty over the past 3 decades.
3. Place a ____ dot on the region of the world that has
experienced the greatest INCREASE in poverty over the last
3 decades.
4. Place a
“vote” on each of the surveys:
Survey 1: Since 1980, has the percentage (%) of the world’s
population living in extreme poverty INCREASED or
DECREASED?
Survey 2: Since 1980, has the number (#) of extremely poor
people in the world INCREASED or DECREASED?
More Than 1 Billion People Live in Extreme Poverty
World Bank
$1.25/day ppp
World Bank Definition
% of people in developing world
• 2010: 21%
• 1990: 43%
• 1981: 52%
# of people in developing world
• 2010: 1.22 billion
• 1990: 1.91 billion
• 1981: 1.94 billion
World Bank Poverty Overview, Apr. 2014
http://www.worldbank.org/en/topic/poverty/overview
Economic Terminology
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•
•
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Income
Wealth
GDP (Gross Domestic Product)
Per capita GDP
Why do we use GDP to measure
poverty?
Economic Terminology
• Absolute Poverty – measured against a designated
minimum threshold of material well-being. The
incomes of the poor fall below the minimum
threshold.
– Current standard = $1.25/day PPP
• Relative Poverty - identified by comparing levels of
material well-being experienced by different
individuals or groups, rather than by comparing the
level of well-being to a standard.
% of Population in Absolute Poverty
Poverty Can Be Measured by Either
Output (GDP) or Consumption
Consumption Measure of Number of Poor by World Region
Regions
20005
2008
332 million
284 million
6 million
2 million
Latin America and the
Caribbean
48 million
37 million
Middle East and North
Africa
11 million
9 million
South Asia
598 million
571 million
Sub-Saharan Africa
395 million
386 million
Total
1.39 billion
1.289 billion
East Asia and the Pacific
Eastern Europe and Central
Asia
Reduction
in number of poor, 2005-2008: 101 million
World Bank Poverty and Inequality http://www.worldbank.org/Data/Views/Reports/TableView.aspx (5/1/2012)
Countries of the World;
Low, Middle and High Income
http://kff.org/global-indicator/country-income-classification/#map (July, 2012)
The number of extreme poor has
declined by
700 million
& 33%
since 1981
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Minutes - The Joy of Stats - BBC Four.flv
Height Is a Proxy for Economic Well-Being
~1750
Years of Life Expectancy at Birth
Select Years
1950-55
1975-80
~30 (1800)
66
74
83
~36
(1799-1803)
69
73
82
India
25
(1901-11)
39
53
66
China
25-35
(1929-31)
41
65
75
38
48
58
46
60
70
Place
Middle
Ages
France
UK
20-30
Africa
World
20-30
Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute
(2011); UNDP (2002) http://hdr.undp.org/statistics/data/indic/indic_1_1_1.html
http://www.who.int/gho/mortality_burden_disease/life_tables/situation_trends_text/en/
http://data.worldbank.org/indicator/SP.DYN.LE00.IN
2012
Real Gross Domestic Product Per Capita
($ International PPP)
Area
1000
1500
1700
1820
1952
1995
Europe
$400
~$640
870
1,130
4,370
13,950
USA
600
1,260
10,650 23,380
India
530
530
610
1,570
540
3,200
China
450
600
600
600
Africa
400
400
400
400
World
420
550
600
670
1,220
2,270
Sources: Maddison (1998, 1999)
Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003
2012 data: Index Mundi: www.indexmundi.com.
5,190
Real Gross Domestic Product Per Capita
(2005$ International PPP)
1995
2001
2007
2010
Europe
$24,674
28,364
30,789 29,765
25,434
USA
33,903
39,602
41,260 40,650
49,000
India
1,452
1,832
2,685
3,240
3,700
China
1,849
2,868
5,239
6,810
8,500
Africa
1,498
1,589
1,914
2,022
NA
World
7,037
7,955
9,535
9,869
12,700
Sources: Maddison (1998, 1999)
Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003
2012 data: Index Mundi: www.indexmundi.com..
2012
The Good News and The Bad News
Number of People Living on < $1.25/day
(millions)
1981
1990
1999
2005
2008
East Asia
& Pacific
1,096
926
656
332
284
SubSaharan
Africa
205
290
376
395
386
Source: World Bank Poverty and Inequality Database
http://databank.worldbank.org/Data/Views/Reports/TableView.aspx (April 30, 2012)
Poverty as Measured by China’s Poverty Line
2011 new
poverty line
RBM 2300
($363 US)
http://www.indexmundi.com/g/g.aspx?c=ch&v=69
Poverty as Measured by India’s Poverty Line
rural poverty line:
816 rupees/mo. =
$13.57/mo. or $162.86/yr.
urban poverty line:
1000 rupees/mo. =
$16.63/mo. or $199.59/yr.
http://www.indexmundi.com/g/g.aspx?v=69&c=in&l=en
http://indiatoday.intoday.in/story/poverty-line-planning-commission-tendulkar-methodology-congress/1/296149.html
What does
Capitalism
have to do with
Poverty?
Measurement by Fraser Institute
Economic Freedom: 5 measurable indicators
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•
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•
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Size of government and taxation
Protection of private property & rule of law
Soundness of money
Trade regulation and tariffs
Regulation of business, labor & capital markets
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Background:
Economic Freedom Project
• 25 year project
• Transparency is a highly valued part of the project
• Based entirely on third party data from World Bank, International
Monetary Fund (IMF), Global Competitiveness Report, etc.
(based on both objective and survey data)
• We rank 141 countries representing 95% of the world’s
population according to the extent to which they permit their
citizens to be economically free
www.freetheworld.com – updated each fall
21
GDP Per Capita
(ppp), 2010
Per Capita Income and Economic
Freedom Quartile
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2013
Overall Economic Freedom Index and
the Top 10
Hong Kong
Singapore
New Zealand
Switzerland
Unit. Arab Em.
Mauritius
Finland
Bahrain
Canada
Australia
0
2
4
6
Score (out of 10)
Source: The Fraser Institute, 2013
8
10
Overall Economic Freedom Index
and the Bottom 10
Algeria
Congo, Dem. R.
Burundi
Central Afr. Rep.
Angola
Chad
Zimbabwe
Congo, Rep. Of
Myanmar
Venezuela
0
2
Source: The Fraser Institute., 2013
4
6
Score (out of 10)
8
10
Growth in Developing Nations Per Capita
and Economic Freedom Quartile
Growth GDP per capita
(average annual %), 19912011
%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income Share of the Poorest 10% and
Economic Freedom
Percentage share of
GDP
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income of the Poorest 10% and
Economic Freedom
Income of the Lowest
10%, 2011
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Life Expectancy at Birth and
Economic Freedom Quartiles
85
Years
75
65
55
45
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Life Satisfaction
of of 10
Economic Freedom and
Life Satisfaction
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Happy Planet Index 2012
EFW map
30
Economic Growth
improves the lives of the poor by
making the pie bigger
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Proposition:
A nation’s institutions determine its ability
to reduce poverty.
Institutions: the formal and informal “rules of
the game” that shape incentives and outline
expected and acceptable forms of behavior in
social interaction.
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Private Property Rights
Rule of law
Open, competitive markets
Entrepreneurship and innovation
Property Rights
Property Rights benefit the poor by making
owned capital secure and productive.
Lesson 2: “Property Rights and the Rule of Law”
Formal Legal Characteristics
• Definable:
• Enforceable:
• Transferable:
An Important Note
• The term “Property Right” is shorthand for
Human Rights.
– The right to freely use and transfer
possessions including yourself.
• People, Not Property.
– Recognition of people’s right of ownership to
themselves and their labor.
Defined but not Enforced
• A right that
is defined
but not
enforced is
useless.
Property Rights and Growth
• Property Right holders have an incentive
to preserve their property.
• Owners consider the future.
• Owners will improve a property.
– The value of improvements reside with the
owner.
Investment
• Secure property rights make investment
more likely.
• Property Rights allow people to obtain
debt.
– Use of past and future incomes.
– Collateralization is of greatest benefit to the
poor.
Property Rights and the Poor
• Property Rights are of the greatest benefit to the
poor.
– The rich can enforce rights over their
property. The poor cannot.
• The definition and enforcement of Property
Rights gives the poor the same rights enjoyed by
the rich.
• Secure property rights also contribute to
economic growth by enabling the poor to shift
effort from protective to productive activities.
Enforcing the Rules
• Rule of Force
– Anarchy
• Rule of Men
– Laws are enforced at the good will of the
enforcer.
• Rule of Law
– Both the governed and the governing are
ruled by the same laws.
Big Picture
• Rights to property promote economic growth by
encouraging preservation, improvement and investment
in owned resources.
• In societies without clearly defined property rights the
poor are disadvantaged because they lack the resources
to enforce their rights.
• To effectively stimulate economic growth property rights
must exist within a society characterized by stable and
predictable rules of law.
The Role of
Competition
Lesson 3: “Competition Opens Markets to the Poor”
To Compete or Not?
The question is not whether we
shall have competition, but what
forms it will take.
- Paul Heyne
• Competition will always occur.
– Scarcity
• We cannot fulfill all our wants at no cost.
Non-Market Competition
• What determines participation?
– Connections
– Wealth
• What determines production?
– No effective production signals.
– No effective incentives to innovate.
Market Competition
• Suppliers compete with Suppliers.
• Demanders compete with Demanders
• All are trying to Maximize Profits
– Profits draw a crowd
• Competition creates incentives to
increasing revenue and lowering
costs.
Revenue and Costs
• Demand curves slope downward
– for producers, there are three ways to
increase profits.
1. Sell more at lower prices.
2. Lower costs
3. Innovate new goods that can command a
premium.
Prices and Production
• Prices are determined by the interaction of the Supply and Demand
for a good.
S
Pe
S
Pe
P2e
D
Qe
D
Qe Q2e
• An Increase in the Supply of a good increases quantity traded and lowers
price
More Sellers
More Supplied at Lower Prices
Innovation = Lower Costs = Increased Supply
$$$$$
$$$
$
1
2
3
Graphing calculator
Communications
$$$$$
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$
1
2
3
Construction
Engineering
Opportunity
• The greatest impact on the poor comes
from the opportunities that competitive
markets provide.
– Employment – Increased output – increased
labor usage.
– Entrepreneurship – The poor can get in the
game – not restricted to approved classes.
Case Study – Opening
Markets in China
1977-78
• 250 million Chinese peasants with incomes below
the country’s official poverty line of approximately 70
cents (U.S.) per day.
• 600-700 million Chinese living on less than $1 per
day, the commonly used international poverty line.
• Most of the population were peasants, herded
together into communal farms. This system
produced very poor economic results with
widespread poverty and periodic famines.
• Economic reforms begin: limited property rights and
open markets
• Communes were broken up and families given
individual plots of land and families were allowed to
sell some of their output in farm markets.
• The right to enter the market with their produce
drastically changed the incentives facing Chinese
farmers.
• This institutional reform led to a dramatic surge in
grain production in China and fueled spectacular
poverty reduction.
The Big Picture
• Competition and Markets benefit the poor
by
– Providing more goods at lower prices.
– Increasing the quality and variety of goods
available.
– Providing opportunities for work.
– Stimulating entrepreneurial activities.
– Unleashing the talent and abilities that were
always there.
Conclusions & Caveats
Economic Growth Overcomes Poverty
Markets create wealth and foster economic growth
Institutions of Capitalism
Provide the Framework and Incentives for the
Creation of Wealth
•Property Rights
•Rule of law
•Competitive markets
•Entrepreneurship / Innovation
Ongoing Study . . .
Unequal Income Distribution
Income Mobility
Individualism of Property Rights
Barriers to the Institutions of Capitalism
The Mix of Institutions Matters
Importance of the Rule of Law
Capitalism and Markets
•Forge interdependence
•Promote other-regarding behavior
•Foster a civil society where anonymous
cooperation is the norm
•Benefit the poor in ways that are most
important to them, providing
Wealth, Dignity, and Mobility
New Research & Suggested Reading
•
TED Talk by Yale economist Keith Chen: language and economic behavior
–
https://www.youtube.com/watch?v=lw3YTbubyjI
• Paul Collier: Exodus (migration and development)
• Tim Harford: Adapt – Why Success Always Starts With Failure
• William Easterly: Tyranny of Experts (failure of foreign aid, lack of respect
for rights of the poor)
• David Dollar and Art Kray: “Growth is Still Good for the Poor,” August, 2013
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•
AfroBarometer – non-partisan, World Bank funded non-profit: “After a
Decade of Growth in Africa, Little Change in Poverty at the Grassroots,”
Oct. 2013 (growth insufficient in absence of other institutions)
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–
•
http://wwwwds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2013/08/13/000158349_20
130813100137/Rendered/PDF/WPS6568.pdf%20
http://www.afrobarometer.org/files/documents/policy_brief/ab_r5_policybriefno1.pdf
http://www.aljazeera.com/news/africa/2013/10/study-finds-growth-not-helping-africa-poor201310115130119155.html
“Counting and Multidimensional Poverty” 2011 Alkire & Foster study for
OPHI – Oxford Poverty *& Human Development Initiative (the missing
dimensions of poverty data)
–
http://www.ifpri.org/sites/default/files/publications/oc63ch03.pdf