Extreme poverty is declining

Between 12,000 years ago, when humanity discovers agriculture, and roughly 200 years ago, the majority of people in the world was either a farmer or farmer-laborer. As late as 1800, roughly 9 out of 10 people were still involved in agriculture, were still farmers, and were very poor. The other 10% were basically the nobility, the clergy, and the military; 90% of humanity either remained hunter-gatherers or were farmers or farmer-laborers.

With the industrial revolution, factories opened up all over the western world and people realized that they can make more money in the cities working in factories. They started leaving the rural areas for urban areas and started earning more money. Eventually, the agricultural population in the US, for example, declined from 90% in 1800 to 40% in 1900 to 2% today.

Today, only 2% of American workers work in agriculture, the rest of them work in other industries. This is a process through which Americans stopped being very poor and became very rich, and it is repeating all around the world. It is more industrialized and is becoming more service-oriented. Fewer and fewer people around the world are working in agriculture, even though our agricultural output is higher than ever before.

In 1830, 95% of the global population was in absolute poverty, granted that was a much smaller number of people, but by the year 2015, only 10% was. The change from 1990 to 2010 was 40% to approximately 10%.

There’s was a real acceleration in the decline in absolute poverty since 1990. Some believe this had to do with the collapse of the Soviet Union, which happened around that time—one of the major competitive systems whose advantages were touted in developing countries was no longer a major player. Shortly after that, China, which operated in a similar manner, started to liberalize economically as well.

The decline in socialism and communism as an alternative and widely accepted way to riches meant that developing countries changed their developing strategies beginning in the 1980s. They started opening up more— instead of seeing multinational corporations as parasites and enemies, they started welcoming them into their own countries. Instead of rejecting foreign direct investment, they opened up to it.

In around 1980 or so, when globalization was starting or when Ronald Reagan became the president of the US, 40% of the world was living in absolute poverty. That number declined to about 30% by the new millennium, and from the new millennium to today, or about 20 years, it declined further from 30% to less than 10%.

It was the fastest reduction in global poverty primarily because many poor and previously socialist countries had changed their understanding of economics and of ways to prosperity.

There is a difference between socialism, which, roughly speaking, is government ownership of the means of production, and social democracy, which is established in places like Denmark, Norway, Sweden, and to an extent, Canada. All of these countries are at the very top of the economic freedom of the world report published by the Fraser Institute in Canada. They have very flexible labor markets, meaning the ability of firing and hiring people is regulated so that people can move across industries and occupations more freely and businesses suffer less for failing, and they are open to foreign trade, more so than even the US which is supposed to be a paragon of capitalism, or are very free trade-oriented. However, if you look at their tax structure, they have very low corporate tax rates as opposed to the US which has one of the highest corporate tax rates in the world, meaning the productivity of the worker and of the corporation is taxed much less.

And so what the social democrats have discovered is, roughly speaking, the following: let’s try to have an open economy and generate economic growth by producing and be a welcoming environment for new businesses to open.

SOURCE: Dr. Marian Tupy via the Jordan Peterson Podcast