Loose talk on poverty and inequality

Loose talk on poverty and inequality

Perhaps the biggest success of the past two decades has been huge progress in reducing poverty. In the early 1990s, more than two billion people were living below the line defined by the World Bank as extreme poverty. Today, that number has dropped below one billion, writes Prince Michael of Liechtenstein.

This means fewer people go hungry and more have access to clean water. School enrollments, especially of girls, have jumped. Medical treatment is becoming widely available and life expectancy is increasing in large parts of the developing world.

There is no mystery about how this was achieved. Economic and technological development, fueled by entrepreneurship and trade, has been the driver. An important supporting role has been played by education.

Now all of a sudden, this globalizing force, which has brought progress across all continents, saved the lives of millions and lifted a billion out of poverty, is being attacked as a source of injustice. Inequality has become the buzzword of populist politicians, economists and professional pessimists whose stock in trade is compassion.

What hypocrisy! Is it better to stir up envy than to encourage success? Individuals and businesses are responsible for the innovation, tax revenue and job creation that give millions the hope of escaping hunger and poverty. More redistribution and state controls, as proposed by the high priests of equality, will not curb poverty or hunger in any sustainable way. What this populist ideology can do is halt an extremely positive trend – one that also strengthens freedom and social stability.

During this year’s debate at the World Economic Forum in Davos, inequality was an omnipresent theme. In particular, Oxfam’s claim that 62 billionaires control more wealth than the poorest 50 per cent of the world population (3.6 billion people) was widely repeated. The comparison is populist and misleading. Even if we give its methodology (dependent on highly variable market and non-market valuations) the benefit of the doubt, we have to consider the source and function of this wealth – the innovation, job creation and multiplier effect for suppliers and business partners, just for starters.

It is embarrassing the people who consider themselves world leaders would stoop to such simplistic rhetoric.

Wherever we look, inequality has become the new bogeyman. We are told that growing inequality must be reversed by more government, more regulation, more redistribution and more controls. Of course, history tells us that this is precisely the wrong answer.

A second irony is that the growing concentration of wealth, especially in the United States, is largely the result of government intervention. “Regulatory capture” allows some influential interest groups to enrich themselves. Inequality also stems from the U.S. policy of easy money. Quantitative easing, whose aim is to stimulate short-term consumption, has resulted in a gigantic asset bubble ­– blowing up the valuation of assets held by large financial investors while making it harder for the middle class to save.

Amid all this misleading talk, it was refreshing to hear the opinion of Swiss Federal President Johann Schneider-Ammann. At his opening speech in Davos, Mr. Schneider-Ammann – an engineer and former entrepreneur – offered common sense and practical business experience instead of half-baked theories. His message was: regulate less, innovate and trade more. That is the only way to improve the lot of the world’s poor.

Related statements:

Secular stagnation must not be accepted

Need for greater global competition

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