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Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Free markets have helped cut global poverty

Poverty has reduced due to growth and not redistribution

The breach of the Berlin Wall in 1989, followed by the implosion of the Soviet Union in 1991 had undermined the credibility of socialist planning in many developing countries, which rushed to open up their economies. P.V. Narasimha Rao and Manmohan Singh effectively junked 40 years of dirigisme after the economic crisis of 1991. A year later, Deng Xiaoping went on his historic tour of the southern provinces in China to give new life to economic reform in that country, which was under attack from conservatives after the student protests that led to the massacre at Tiananmen Square a few years earlier.

It is now fashionable to sneer at the monumental shift in economic policy in those years, dismissing it as neo-liberalism, an evil system that condemns millions to poverty. Is that true? No. For all the warts, the two decades since the dawn of the new era of globalization have helped improve the lives of the poor, even as huge challenges persist. The latest report from the UN on the Millennium Development Goals (MDGs) shows that in the cold logic of numbers: these 20 years have seen the most significant victories against absolute poverty in all of recorded human history, with 700 million fewer people living below the global poverty line of $1.25 a day.

The MDGs are eight development targets that world leaders set for themselves in 2000; they seek to improve the lives of people compared with 1990. The proportion of people living in poverty across the world has halved since 1990, five years ahead of the target year of 2015. Much of the progress has been because of the spectacular economic performance of China, which cut its poverty rate from 60% in 1990 to 12% in 2010. South Asia is yet to meet its target of halving the poverty rate, but it seems to be on course to do so. Sub-Saharan Africa is the only major region that is far behind its poverty reduction targets: the number of people living in dire poverty actually rose from 290 million in 1990 to 414 million in 2010.

There have been other advances as well. Over 2 billion more people have access to clean drinking water compared with 1990. There have also been immense gains in areas such as schooling and child mortality, though there is still a chance that the world will miss the 2015 targets by a whisker as far as these two parameters are concerned. Nearly two billion people gained access to a latrine, flush toilet or other improved modes of sanitation in the two decades after 1990, yet an additional one billion need access to modern sanitation by 2015 if the MDG sanitation target is to be met.

There are still immense challenges ahead. A billion people will still be below the international poverty line in 2015. One in every eight human beings on the planet still goes hungry to bed. Gender discrimination persists. Maternal mortality needs to improve. Too many children are still out of school. Malnutrition is a persistent challenge. Environmental degradation is perhaps the flip side of the fast economic growth that the world has seen since 1990.

The enormity of the challenges should not, however, take away from the main achievement: extreme poverty is rapidly declining. A host of social indicators have improved in tandem with higher average incomes. Much of the persistent problems are linked to inadequate incomes, which means the world economy needs to stay in expansion mode. The two exceptions are perhaps gender issues (which are linked to social attitudes) and environmental pressures (which are linked to the pressure on resources).

What the world has seen over the past two decades of open economies has no parallel in human history: a massive reduction in mass poverty as well as significant advances in social indicators. This has come about through income growth rather than redistribution. It has been a case of “pull up" rather than “trickle down". There is no doubt that there are huge challenges ahead, but it is churlish to deny that there is surely some link between the reduction in global poverty and the type of economic policies that have been pursued since 1990.

Has globalization helped improve the lives of the poor? Tell us at views@livemint.com

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