Why are some countries rich/poor? How can we reduce poverty?

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Presentation transcript:

Why are some countries rich/poor? How can we reduce poverty? What role does/can Capitalism play?

Joke of the Evening

Why are some countries rich/poor? How can we reduce poverty? What role does/can Capitalism play?

Hypotheses for the Week Human prosperity and social cooperation develop spontaneously in societies that protect private property rights and encourage voluntary trade. Developing an economic way of thinking empowers people to understand and explain the world in which we live.

Economic Reasoning Proposition #5 ERP-5: Understanding based on knowledge and evidence imparts value to opinions. Opinions matter and are of equal value at the ballot box. But the value of an opinion is determined by the knowledge and evidence on which it is based. Statements of opinion should initiate the quest for economic understanding, not end it.

Why are some countries rich and others poor? Low, Middle, & High Income Nations Economic reasoning tools developed this week will help us to answer this and other questions about world poverty Why are some countries rich and others poor?

2013: Just over 700 Million People Live in “Extreme Poverty” ~World Bank World Bank Update October 2015: The number of people living in extreme poverty around the world is likely to fall to under 10 percent of the global population in 2015, according to World Bank projections… giving fresh evidence that a quarter-century-long sustained reduction in poverty is moving the world closer to the historic goal of ending poverty by 2030. The Bank uses an updated international poverty line of US $1.90 a day, which incorporates new information on differences in the cost of living across countries (the PPP exchange rates). The new line preserves the real purchasing power of the previous line (of $1.25 a day in 2005 prices) in the world’s poorest countries. Using this new line (as well as new country-level data on living standards), the World Bank projects that global poverty will have fallen from 902 million people or 12.8 per cent of the global population in 2012 to 702 million people, or 9.6 per cent of the global population, this year. . World Bank October, 2015 http://www.worldbank.org/en/news/press-release/2015/10/04/world-bank-forecasts-global-poverty-to-fall-below-10-for-first-time-major-hurdles-remain-in-goal-to-end-poverty-by-2030

Source: World Bank Poverty Data www.worldbank.org China led the way by reducing its poor population by 475 million people. While in 1990, 37% of the world's poor were found in China by 2005 the number had declined to 15%. Source: World Bank Poverty Data www.worldbank.org

China led the way by reducing its poor population by 475 million people. While in 1990, 37% of the world's poor were found in China by 2005 the number had declined to 15%.

Poverty Fact We have seen significant decreases in the number of people living in extreme poverty. What factors contributed to this decline?

Real Gross Domestic Product Per Capita (1990 $) Area 1000 1500 1700 1820 1900 1952 2003 2008 Western Europe   $427 $772 $997 $1,202 $2,892 $4,963 $19,912 21,672 USA 527 1,257 4,091 10,316 29,037 31,178 India 550 533 599 629 2,160 2,975 China 450 600 545 537 4,609 6,725 Africa 425 414 421 420 601 928 1,549 1,780 World 566 615 667 1,262 2,260 6,477 7,614 Sources: Development Centre Studies The World Economy: Historical Statistics, Maddison 2003. World Population, GDP and Per Capita GDP, 1-2003 AD, Maddison, 2007, http://www.ggdc.net/maddison/ and http://www.ggdc.net/MADDISON/oriindex.htm for 2008 data

Extreme Poverty = below $1. 25 per day Extreme Poverty = below $1.25 per day. Poverty is falling everywhere… including Sub-Saharan Africa The poor in China are one of the greatest beneficiaries from economic growth.

Even the poor benefit when a nation experiences economic growth – and even in countries with communist governments.

The Secret to Economic Growth: Productivity The output produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time.

Institutions Shape Incentives Nobel Prize in Economics 1993 Douglass North Nobel Prize in Economics 1993 Make this point very clear! Use the analogy of this program and classroom setting or their own classroom at school. Capitalism “A particular set of institutions governing the production and exchange of goods and services.”

Institutional Variation practice varies along continuum Less Open More Open Institutional Variation Explain how institutions and capitalism can be measured on a continuum rather than in absolutes.

Measurement: Fraser Institute Economic Freedom: Size of government and taxation Protection of private property and the rule of law Soundness of money Trade regulation and tariffs Regulation of business, labor and capital markets 34

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) They rank 144 countries representing 95% of the world’s population according to the extent to which they permit their citizens to be economically free 35

World Average Economic Freedom Over Time Source: The Fraser Institute, 2012

Per Capita Income and Economic Freedom Quartiles Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013

Growth Per Capita and Economic Freedom Quartiles % Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

Income Share of the Poorest 10% and Economic Freedom Quartiles Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

Income of the Poorest 10% and Economic Freedom Quartiles Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2012.

Consider the “slice of pie” Source: World Development Indicators, 2011. Table 1.1, “Size of Economy” and Table 2.7, “Distribution of Income or Consumption” http://siteresources.worldbank.org/DATASTATISTICS/Resources/wdi_ebook.pdf (2009 data) Source: World Development Indicators, 2011.

Poverty by Economic Freedom Quartiles

Life Expectancy at Birth and Economic Freedom Quartiles Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

Quality of Health Care by Economic Freedom Quartiles, 2009 Based on the question: “How would you assess the quality of healthcare provided for ordinary citizens in your country? 1 = Very poor, 7 = Excellent, among the best” (Executive Opinion Survey).

Literacy by Economic Freedom Quartiles (% of population) Male Female Most Free ……………. Least Free Sources: The Fraser Institute; World Development Indicators 2013

Educational Quality by Economic Freedom Quartiles, 2009 Based on the question: “How well does the educational system in your country meet the needs of a competitive economy? 1 = Not well at all; 7 = Very well” (Executive Opinion Survey).

Most Free ……………. Least Free Economic Freedom and Political Rights Low scores indicate high level of rights Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2013, available at http://www.freedomhouse.org/.

Most Free ……………. Least Free Economic Freedom and Civil Rights Low scores indicate high level of rights Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2013, available at http://www.freedomhouse.org/. 49

Economic Freedom and Corruption High scores indicate low corruption Most Free ……………. Least Free Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2012 available at http://www.transparency.org.

Overall Economic Freedom Index and the Bottom 10 Source: The Fraser Institute, 2012

Overall Economic Freedom Index and the Bottom Ten Source: The Fraser Institute

The Two Dollar Challenge What is Challenge Week? Live on two dollars a day and follow other RULES for a week, and record your experiences for others to read. Fundraise for economic development as you abstain from purchasing goods. Why Participate Begin to understand firsthand the hardship that half the world's population endures. Nurture a new respect for impoverished persons. Participants have many reactions throughout Challenge Week as demonstrated in these blog entries from past years. Students face additional, unexpected obstacles and struggle with the emotional discomforts of "playing poverty." http://www.twodollarchallenge.org/

The Big Picture Until the 1750’s extreme poverty was the standard for all of human history. Since 1750 economic growth has lifted large sections of humanity to levels of wealth unheard of previously. The engine of economic growth is reducing poverty rates worldwide. Capitalism consists of institutions that help promote economic growth.

Hans Rosling 200 Countries 200 Years, 4 minutes http://www.youtube.com/watch?v=jbkSRLYSojo Or use Hans Rosling & The Magic Washing Machine http://www.youtube.com/watch?v=BZoKfap4g4w