Crunched: is capitalism really ending poverty?
The FT's Federica Cocco and John Burn-Murdoch look at the measures for poverty and inequality and unpick the argument that capitalism is benefiting everyone
Filmed by Richard Topping and Petros Gioumpasis and edited by Richard Topping
So, what shall we spar about today?
Today we're going to be asking: Has capitalism made the world a better place? We're going to be looking at this debate between two groups of economists about global poverty reduction. So, has it happened? How fast has it happened, if it has? And can it be attributed to success of capitalism spreading around the world over the last 100 or so years?
What we're going to be looking at here is the percentage of people in the entire world who live in extreme poverty, going from 100 per cent to 0 per cent, and from the year 1820 to 2015. Now, what do we mean by extreme poverty? That's people living on less than $1.90 per day. Now, that figure in 1820 was around 90 per cent. So it started declining fairly slowly. But then in around, in the late 1800s, 1900s starts dropping more sharply. After the world wars it accelerates even more.
So we're now down at around 10 per cent. So this is the central claim made by Gates, Pinker and so on. Absolute poverty has come down during a period when capitalism was spreading around the world. A capitalist system has led to the almost eradication of extreme poverty. I sense some scepticism from you.
Well, as you expect, I'm going to take issue with this claim that living on $1.90 a day is a useful measure of people living in poverty. For example, in the UK virtually no one lives on that level. The average earnings are more like $100 per day. That's not to say that we have no one living in poverty or even extreme poverty in this country. That's impossible.
Yeah, and that's a point that has been made by some of the critics of this argument. So a couple of leftwing economists including, most prominently, Jason Hickel have critiqued this idea of using such a low poverty line.
So let's have a look at other poverty lines. This is $1.90 a day. So let's that we're here now, 1980. OK, so another one sets the poverty line at $3.20 a day, so 55 per cent, more or less, here. And it went down...
25 per cent.
So that's a quarter of the world population still living on $3.20. There's another one which is $10 a day, and that went from 65 per cent...
Down to about 55 per cent.
I mean, yes, things have improved.
But it's not as rosy a picture, maybe, as Roser, Pinker.
And $10 a day is still not a lot.
There's a famous line from a play that China, in this space of time in fact, went from famine to slim fast. Over a billion people, surely they are distorting somehow these numbers. Is this just China, basically?
OK, we're now going to have a look at a chart which takes the same metric and looks at how does global poverty reduction appear when you look at the entire world and then when you look at the world minus China. So 1981, so we're looking at that more recent period, through to 2015. The axis starts at 0 per cent of people in extreme poverty. And we'll go up to 100 per cent again to be consistent.
When we look at the entire world, China included, we start off at about 40 per cent there. And we've come down to about just under 10 per cent. If we look at the world not including China...
So this is the world average without China?
Without China. It was initially lower and is now at broadly the same point, so world minus China. So it's true that when you include China, a billion being lifted out of absolute poverty has had a big impact. But this isn't just China. The world has got better in terms of people being in extreme poverty over the last 35 years.
So if we look at the Gini coefficient. The Gini coefficient is a measure of inequality. If the world were perfectly equal, it would be at 0, and 1 is complete inequality. From 1850 to the years just before the recession or just as the recession started hitting, I'm going to look at inequality from 0.5 to 0.7.
And what happened is that inequality actually rose. This line alone shows you an inverse trend from what we were seeing.
But I think the process of capitalism which led to this increasing inequality is the same process that lifted more than a billion out of extreme poverty. And when you have huge economic growth in capitalism, most of those gains accrue to the people at the top. But if that system also raises everyone by a certain level, then that's still a good thing on net.
One way that we measure poverty is to look at the share of the population that lives below the average income. Now, even though I would say that's an improvement on the poverty line, $1.90 and so on. I think it's still faulty. And I'll show you why.
So in the UK we measure relative poverty by looking at the number of people who live at 60 per cent below the median income. So let's say the median income is £10,000, just picking a figure out of thin air. We're looking at the number of people that are earning 60 per cent of that, so £6,000.
So this is what's happened in the UK. We're looking at, before housing costs and after housing costs, number of children who live in poverty. We had a third of kids in this period of time. Now we have 28 per cent of children, a small improvement.
Before housing costs, it's a quarter of kids, in '95, '96. It went down to 17 per cent. In this period here, where there was a recession, there wasn't much change. So the government actually acknowledged this and said: well maybe this measure of poverty or relative poverty is wrong. It doesn't include whether these kids live in good housing, whether they live in crime-ridden areas, whether they're performing well in schools, all these things that go beside income and that affect our lives.
Now, the problem with this idea is that policymakers didn't like the fact that they wanted to de-link poverty from income. That would have been an issue at the international level because this is how everyone measures poverty. And so this was abandoned. However, one could argue that taking them into account is crucial to assessing whether people who live in extreme poverty are also having a bad quality of life.
So this is another argument that the sort of pro-capitalist lobby would make, or pro-capitalism lobby, which is that if life expectancy has gone up then that surely is a sign that the fundamental reason that humans exist is actually... we're getting that right.
So I'm going to do a chart here showing global average, from 1920 to 2015. And that has gone up for about 52 to now about 72. That seems to me, again, evidence that global quality of life, global life expectancy, global health, all of these things that this indicator captures have steadily increased over that period when capitalism has been spreading across the planet.
If we want to stick to the quantitative element of how many years we get to live, there's clearly a sign of improvement. But look at what happened in the US, for example, with life expectancy. So they went from 70 in the 1960s. So we're looking at it went up to 80 and then just sort of stalled. And this is despite the fact that health costs in the US went up. And it's one of the only countries where, actually, life expectancy seems to be declining. And one could argue, not necessarily me, but one could argue that it's rampant capitalism that is doing this to the country and its population.
Aggressive marketing of opioids, for example.
Exactly, that's one element that has clearly had an impact.
Again, over the long run there from '60 to 2015 in the US life expectancy has risen. But this recent stagnation and decline is certainly not a good sign. And the US is the poster child of capitalism. So evidently, I and capitalist advocates would have to accept that something there has gone wrong in the last 10 years. And we're certainly no longer seeing this clear relationship between capitalism, free markets, and improvements in quality and quantity of life.
My exhibit A in favour of the argument that capitalism has improved the world is saying that over 200 years, the percentage of people living in extreme absolute poverty has fallen from 90 per cent to 10 per cent. We then looked at the impact of using more reasonable poverty lines.
Yeah, and then we see that more than half of the population is still living in poverty globally.
So still had an improving trend, but it wasn't as quick, and it hasn't got as far as was initially claimed.
Then we looked at whether this was all China going from famine to slim fast.
And we found that it's true that China's rapid development has sort of inflated the extent to which it looks like poverty reduction has taken place. But, even if you take China out of the picture, the percentage of people living in absolute poverty worldwide has still decreased.
And then I said, well, if things are so rosy then how come inequality has gone up.
But the argument for those who say capitalism has made the world a better place would be that, yes, things have become more unequal. But the same system that produced that increasing inequality has also elevated people out of poverty. It's increased their incomes.
But money isn't insufficient, because if we look at example of child poverty in the UK, then we'll see that this measure doesn't explain at all what happened during the recession which had a drastic impact on UK society. And we should look at other metrics like health, educational attainment, quality of housing, and general quality of life.
And I said, that's a very good point. Let's look at something where money is totally to one side. And we just look at how long people live. Globally, there's been a steady and still increasing rise in life expectancy. However...
The US, the poster child of rampant capitalism, shows that there is not such progress in the last couple of years.
JOHN BURN-MURDOCH: Yeah, so I guess, with my capitalist hat and monocle on I would say we have seen improvements in life expectancy and poverty reduction during the area where capitalism has been expanding across the world. However, I would acknowledge that income-based measures of human development are very limited and also that if you look at the most capitalist countries in the world, say the likes of the US and the UK, increases in life expectancy have now actually stalled, and there's some evidence they may be falling. So even if, perhaps, the journey to capitalism helped countries, it seems we've hit diminishing returns or even now a fork in the road where capitalism is maybe not utopia.
And I would say that in conclusion, Pinker, Gates, so on haven't quite persuaded me yet.