Summary: This article challenges the claim that extreme poverty can be ended by transferring wealth to the world’s poorest people. It argues that such a scheme would be ineffective and possibly harmful to long-term economic development. It presents evidence that prosperity comes from sustained economic growth, not well-intentioned redistribution.
Humanity can end extreme poverty “basically immediately,” within six months to a year, to be more precise. Or so Jeffrey Sachs, director of the Center for Sustainable Development at Columbia University, recently claimed while speaking at the Vatican.
He suggested a way to achieve destitution’s abolition: a massive wealth transfer that would furnish $1,000 a year to each of the world’s poorest billion people. The money would come exclusively from the world’s wealthiest three thousand people, which is around the approximate number of billionaires in the world.
No one doubts the moral urgency of eradicating extreme poverty, but are wealth transfers the solution?
Let us put aside the logistical difficulty of implementing such a large-scale transfer scheme across countries and the political feasibility of getting every country in the world to agree to the policy in the first place. (And it would need to be every country, or many billionaires would simply migrate to the holdout countries promising to shield them from the new tax.)
If, somehow, the entire world agreed to try out Sachs’ proposal and carried out the transfers successfully, would poverty actually end?
While the scale of what Sachs suggests might be unprecedented, cash transfer welfare programs are nothing new, and there is a lot of data to help us evaluate their effectiveness. These well-meaning programs fail to tackle the underlying condition of poverty. In many cases, they actually make it less likely for the intended beneficiaries to improve their economic condition in a long-term, sustainable way.
To date, no country has ever risen out of poverty thanks purely to foreign aid. Just look at Haiti, home to over 10,000 aid organizations, more than any other country. There, the steady stream of charity has hurt local industries and worsened the country’s economy.
Charity can be a helpful stopgap measure in a crisis, and charitable efforts, when voluntary, are praiseworthy. But given the limits of charity, mandating such an unparalleled redistribution of wealth as Sachs wants would likely serve only as a distraction, or worse, in the quest to end poverty.
What, then, does cure poverty? The richest countries of today were once as poor as the poorest areas of Asia and Africa are now. How did we get from a world with an average lifespan of just 24 years and near-universal destitution to one where the average lifespan is over 70 years and the average global income is over $15,000?
The world’s greatest economic success stories, from the United States to Switzerland and South Korea, tend to follow a common script. That script goes something like this: let people industrialize, trade, and profit. People will naturally use those profits to seek out education for themselves and their children. Education develops human capital, and the resulting high-skilled workers innovate, creating businesses that shift the country from an industrial economy to an advanced service economy. And there you have it: the path from poverty to post-industrial prosperity.
In welcome news, the time it takes to make that economic journey seems to be getting shorter. South Korea, Taiwan, and Singapore went from slums and sweatshops to ritzy post-industrial metropolises in less than two generations. That same process took a century in the United States.
Why haven’t all countries taken that path? It can only be followed under certain conditions. Fortunately, the requirements are simple: relative peace and stability, the rule of law and assurance of property protection, and the freedom to do business and engage in international exchange without unduly burdensome regulations and mountains of paperwork.
Speaking at the same conference as Sachs, Helen Alford, a nun and vice rector of Rome’s Pontifical University of St. Thomas, said, “We need economic wealth as a foundation for life.”
She is right: without wealth, people are doomed to a short, hungry, and painful earthly existence. With so many human lives in the balance, combating global poverty is far too serious a matter to stake on policies that simply “feel good” without creating lasting improvement.
Advocacy, however well-intended, of unfeasible or ineffective solutions, does less good than support for the proven policies and institutions that have brought global poverty to lows beyond our ancestors’ wildest dreams. There is no quick fix, and we won’t end extreme poverty “immediately,” but if we heed history’s lessons we can continue in the right direction.
This article was originally published in The Hill
