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 % of people in developing world 2010: 21% 1990: 43% 1981: 52% $1.25/day ppp World Bank Definition # of people in developing world 2010: 1.22 billion 1990: 1.91 billion 1981: 1.94 billion World Bank Poverty Overview, Apr

Economic Terminology 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

Consumption Measure of Number of Poor by World Region Poverty Can Be Measured by Either Output (GDP) or Consumption Regions East Asia and the Pacific 332 million284 million Eastern Europe and Central Asia 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 million571 million Sub-Saharan Africa 395 million386 million Total 1.39 billion1.289 billion Reduction in number of poor, : 101 million World Bank Poverty and Inequality (5/1/2012 )

Countries of the World; Low, Middle and High Income (July, 2012)

The number of extreme poor has declined by 700 million & 33% since 1981

..\..\..\Videos\RealPlayer Downloads\Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv..\..\..\Videos\RealPlayer Downloads\Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv

Height Is a Proxy for Economic Well-Being

~1750

Years of Life Expectancy at Birth Place Middle Ages Select Years France~30 (1800) UK20-30~36 ( ) India25 ( ) China25-35 ( ) Africa World Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute (2011); UNDP (2002)

Real Gross Domestic Product Per Capita ($ International PPP) Area Europe$400~$ ,1304,37013,950 USA6001,26010,65023,380 India ,570 China ,200 Africa400 1,220 World ,2705,190 Sources: Maddison (1998, 1999) Development Centre Studies The World Economy: Historical Statistics, Maddison, data: Index Mundi:

Real Gross Domestic Product Per Capita (2005$ International PPP) Europe$24,67428,36430,78929,76525,434 USA 33,90339,60241,26040,65049,000 India 1,452 1,832 2,685 3,2403,700 China 1,849 2,868 5,239 6,8108,500 Africa 1,498 1,589 1,914 2,022 NA World 7,037 7,955 9,535 9,86912,700 Sources: Maddison (1998, 1999) Development Centre Studies The World Economy: Historical Statistics, Maddison, data: Index Mundi:

Number of People Living on < $1.25/day (millions) East Asia & Pacific 1, Sub- Saharan Africa Source: World Bank Poverty and Inequality Database (April 30, 2012) The Good News and The Bad News

Poverty as Measured by China’s Poverty Line new poverty line RBM 2300 ($363 US)

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.

What does Capitalism have to do with Poverty?

20 Measurement by Fraser Institute Economic Freedom: 5 measurable indicators 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

21 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 – updated each fall

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

Overall Economic Freedom Index and the Top 10 Source: The Fraser Institute, 2013

Overall Economic Freedom Index and the Bottom 10 Source: The Fraser Institute., 2013

Growth in Developing Nations Per Capita and Economic Freedom Quartile. Sources: The Fraser Institute; The World Bank, World Development Indicators, Most Free ……………. Least Free %

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

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

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

Economic Freedom and Life Satisfaction Sources: The Fraser Institute; Happy Planet Index 2012 Most Free ……………. Least Free

30 EFW map

Economic Growth improves the lives of the poor by making the pie bigger

C:\Users\Public\Desktop\Gap minder Desktop.lnk

Institutions: the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction. Private Property Rights Rule of law Open, competitive markets Entrepreneurship and innovation Proposition: A nation’s institutions determine its ability to reduce poverty.

Lesson 2: “Property Rights and the Rule of Law” Property Rights Property Rights benefit the poor by making owned capital secure and productive.

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.

Lesson 3: “Competition Opens Markets to the Poor” The Role of Competition

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. D S PePe QeQe D S PePe QeQe P2eP2e Q2eQ2e An Increase in the Supply of a good increases quantity traded and lowers price

More SellersMore Supplied at Lower Prices

Innovation = Lower Costs = Increased Supply $$$$$ $$$ $ 23 1

$$$$$ $$$ $ 23 1 Graphing calculator Communications

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 million Chinese peasants with incomes below the country’s official poverty line of approximately 70 cents (U.S.) per day 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

Provide the Framework and Incentives for the Creation of Wealth Property Rights Rule of law Competitive markets Entrepreneurship / Innovation Institutions of Capitalism

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 – 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 – wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2013/08/13/ _ /Rendered/PDF/WPS6568.pdf%20http://www- wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2013/08/13/ _ /Rendered/PDF/WPS6568.pdf%20 AfroBarometer – non-partisan, World Bank funded non-profit: “After a Decade of Growth in Africa, Little Change in Poverty at the Grassroots,” Oct (growth insufficient in absence of other institutions) – – htmlhttp:// html “Counting and Multidimensional Poverty” 2011 Alkire & Foster study for OPHI – Oxford Poverty *& Human Development Initiative (the missing dimensions of poverty data) –