Make Your Mark On the World:

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Make Your Mark On the World

• Place _____ dots on the 3 POOREST countries in
  the world.
• Place ______ dots on the 2 countries that have
  experienced the greatest DECREASE in poverty over
  the past 3 decades.
• Place a ____ dot on the region of the world that
  has experienced the greatest INCREASE in poverty
  over the last 3 decades.
• Place a vote on each of the surveys
• Survey 1 Since 1980, has the percentage () of
  the worlds population living in extreme poverty
  INCREASED or DECREASED?
• Survey 2 Since 1980, has the number () of
  extremely poor people in the world INCREASED or
  DECREASED?

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More Than 1 Billion People Live in Extreme
Poverty World Bank
1.25/day ppp World Bank Definition

• of people in developing world
• 2010 21
• 1990 43
• 1981 52

• of people in developing world
• 2010 1.22 billion
• 1990 1.91 billion
• 1981 1.94 billion

World Bank Poverty Overview, Apr.
2014 http//www.worldbank.org/en/topic/poverty/ove
rview
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Economic Terminology

• Income
• Wealth
• GDP (Gross Domestic Product)
• Per capita GDP
• Why do we use GDP to measure poverty?

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Economic Terminology

• Absolute Poverty measured against a designated
  minimum threshold of material well-being. The
  incomes of the poor fall below the minimum
  threshold.
• Current standard 1.25/day PPP
• Relative Poverty - identified by comparing levels
  of material well-being experienced by different
  individuals or groups, rather than by comparing
  the level of well-being to a standard.

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of Population in Absolute Poverty
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Poverty Can Be Measured by Either Output (GDP)
or Consumption
Consumption Measure of Number of Poor by World
Region
Regions 20005 20005 2008  
East Asia and the Pacific 332 million 332 million 284 million  
Eastern Europe and Central Asia 6 million 6 million 2 million  
Latin America and the Caribbean 48 million 48 million 37 million  
Middle East and North Africa 11 million 11 million 9 million  
South Asia 598 million 598 million 571 million  
Sub-Saharan Africa 395 million 395 million 386 million  
 
Total 1.39 billion 1.39 billion 1.289 billion  
Reduction Reduction in number of poor, 2005-2008 101 million in number of poor, 2005-2008 101 million  


World Bank Poverty and Inequality
http//www.worldbank.org/Data/Views/Reports/TableV
iew.aspx (5/1/2012)
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Countries of the World Low, Middle and High
Income
http//kff.org/global-indicator/country-income-cla
ssification/map (July, 2012)
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The number of extreme poor has declined by 700
million 33 since 1981
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• ..\..\..\Videos\RealPlayer Downloads\Hans
  Rosling's 200 Countries, 200 Years, 4 Minutes -
  The Joy of Stats - BBC Four.flv

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Height Is a Proxy for Economic Well-Being
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1750
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Years of Life Expectancy at Birth
Place Middle Ages Select Years 1950-55 1975-80 1975-80 2012
France 30 (1800) 66 74 74 83
UK 20-30 36 (1799-1803) 69 73 73 82
India 25 (1901-11) 39 53 66 66
China 25-35 (1929-31) 41 65 75 75
Africa 38 48 58 58
World 20-30 46 60 70 70
Sources Lee and Feng (1999) Peterson (1995)
Wrigley and Schofield (1981, 529) World
Resources Institute (2011) UNDP (2002)
http//hdr.undp.org/statistics/data/indic/indic_1_
1_1.html http//www.who.int/gho/mortality_burden_
disease/life_tables/situation_trends_text/en/ http
//data.worldbank.org/indicator/SP.DYN.LE00.IN
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Real Gross Domestic Product Per Capita (
International PPP)
Area 1000 1500 1700 1820 1952 1995
Europe 400 640 870 1,130 4,370 13,950
USA 600 1,260 10,650 23,380
India 530 530 610 1,570
China 450 600 600 600 540 3,200
Africa 400 400 400 400 1,220
World 420 550 600 670 2,270 5,190
Sources Maddison (1998, 1999) Development
Centre Studies The World Economy Historical
Statistics, Maddison, 2003 2012 data Index
Mundi www.indexmundi.com.
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Real Gross Domestic Product Per Capita (2005
International PPP)
1995 2001 2007 2010 2012
Europe 24,674 28,364 30,789 29,765 25,434
USA 33,903 39,602 41,260 40,650 49,000
India 1,452 1,832 2,685 3,240 3,700
China 1,849 2,868 5,239 6,810 8,500
Africa 1,498 1,589 1,914 2,022 NA
World 7,037 7,955 9,535 9,869 12,700
Sources Maddison (1998, 1999) Development
Centre Studies The World Economy Historical
Statistics, Maddison, 2003 2012 data Index
Mundi www.indexmundi.com..
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The Good News and The Bad News
Number of People Living on lt 1.25/day (millions) Number of People Living on lt 1.25/day (millions) Number of People Living on lt 1.25/day (millions) Number of People Living on lt 1.25/day (millions)
1981 1990 1999 2005 2008
East Asia Pacific 1,096 926 656 332 284
Sub-Saharan Africa 205 290 376 395 386
Source World Bank Poverty and Inequality
Databasehttp//databank.worldbank.org/Data/Views/
Reports/TableView.aspx (April 30, 2012)
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Poverty as Measured by Chinas Poverty Line
2011 new poverty line RBM 2300 (363 US)
http//www.indexmundi.com/g/g.aspx?cchv69
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Poverty as Measured by Indias Poverty Line
rural poverty line 816 rupees/mo. 13.57/mo.
or 162.86/yr.
urban poverty line 1000 rupees/mo. 16.63/mo.
or 199.59/yr.
http//www.indexmundi.com/g/g.aspx?v69cinlen
http//indiatoday.intoday.in/story/poverty-line-pl
anning-commission-tendulkar-methodology-congress/1
/296149.html
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What does Capitalism have to do with Poverty?
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Measurement by Fraser Institute

• Economic Freedom 5 measurable indicators
• Size of government and taxation
• Protection of private property rule of law
• Soundness of money
• Trade regulation and tariffs
• Regulation of business, labor capital markets

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Background Economic Freedom Project

• 25 year project
• Transparency is a highly valued part of the
  project
• Based entirely on third party data from World
  Bank, International Monetary Fund (IMF), Global
  Competitiveness Report, etc. (based on both
  objective and survey data)
• We rank 141 countries representing 95 of the
  worlds population according to the extent to
  which they permit their citizens to be
  economically free

www.freetheworld.com updated each fall
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Per Capita Income and Economic Freedom Quartile
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013
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Overall Economic Freedom Index and the Top 10
Source The Fraser Institute, 2013
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Overall Economic Freedom Index and the Bottom 10
Source The Fraser Institute., 2013
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Growth in Developing Nations Per Capita and
Economic Freedom Quartile

Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Income Share of the Poorest 10 and Economic
Freedom
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Income of the Poorest 10 and Economic Freedom
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Life Expectancy at Birth and Economic Freedom
Quartiles
Most Free . Least Free
Sources The Fraser Institute The World Bank,
World Development Indicators, 2013.
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Economic Freedom and Life Satisfaction
Most Free . Least Free
Sources The Fraser Institute Happy Planet Index
2012
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EFW map
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Economic Growth
improves the lives of the poor by making the pie
bigger
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Proposition A nations institutions determine
its ability to reduce poverty.
Institutions the formal and informal rules of
the game that shape incentives and outline
expected and acceptable forms of behavior in
social interaction.

• Private Property Rights
• Rule of law
• Open, competitive markets
• Entrepreneurship and innovation

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Property Rights
Property Rights benefit the poor by making owned
capital secure and productive.
Lesson 2 Property Rights and the Rule of Law
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Formal Legal Characteristics

• Definable
• Enforceable
• Transferable

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An Important Note

• The term Property Right is shorthand for Human
  Rights.
• The right to freely use and transfer possessions
  including yourself.
• People, Not Property.
• Recognition of peoples right of ownership to
  themselves and their labor.

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Defined but not Enforced

• A right that is defined but not enforced is
  useless.

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Property Rights and Growth

• Property Right holders have an incentive to
  preserve their property.
• Owners consider the future.
• Owners will improve a property.
• The value of improvements reside with the owner.

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Investment

• Secure property rights make investment more
  likely.
• Property Rights allow people to obtain debt.
• Use of past and future incomes.
• Collateralization is of greatest benefit to the
  poor.

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Property Rights and the Poor

• Property Rights are of the greatest benefit to
  the poor.
• The rich can enforce rights over their property.
  The poor cannot.
• The definition and enforcement of Property Rights
  gives the poor the same rights enjoyed by the
  rich.
• Secure property rights also contribute to
  economic growth by enabling the poor to shift
  effort from protective to productive activities.

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Enforcing the Rules

• Rule of Force
• Anarchy
• Rule of Men
• Laws are enforced at the good will of the
  enforcer.
• Rule of Law
• Both the governed and the governing are ruled by
  the same laws.

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Big Picture

• Rights to property promote economic growth by
  encouraging preservation, improvement and
  investment in owned resources.
• In societies without clearly defined property
  rights the poor are disadvantaged because they
  lack the resources to enforce their rights.
• To effectively stimulate economic growth property
  rights must exist within a society characterized
  by stable and predictable rules of law.

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The Role of Competition
Lesson 3 Competition Opens Markets to the Poor
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To Compete or Not?

• The question is not whether we
• shall have competition, but what
• forms it will take.
• Paul Heyne
• Competition will always occur.
• Scarcity
• We cannot fulfill all our wants at no cost.

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Non-Market Competition

• What determines participation?
• Connections
• Wealth
• What determines production?
• No effective production signals.
• No effective incentives to innovate.

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Market Competition

• Suppliers compete with Suppliers.
• Demanders compete with Demanders
• All are trying to Maximize Profits
• Profits draw a crowd
• Competition creates incentives to increasing
  revenue and lowering costs.

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Revenue and Costs

• Demand curves slope downward
• for producers, there are three ways to increase
  profits.
• Sell more at lower prices.
• Lower costs
• Innovate new goods that can command a premium.

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Prices and Production

• Prices are determined by the interaction of the
  Supply and Demand for a good.

S
S
Pe
Pe
P2e
D
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Qe
Qe
Q2e

• An Increase in the Supply of a good increases
  quantity traded and lowers price

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More Sellers
More Supplied at Lower Prices
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Innovation Lower Costs Increased Supply



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Construction
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Opportunity

• The greatest impact on the poor comes from the
  opportunities that competitive markets provide.
• Employment Increased output increased labor
  usage.
• Entrepreneurship The poor can get in the game
  not restricted to approved classes.

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Case Study Opening Markets in China

• 1977-78
• 250 million Chinese peasants with incomes below
  the countrys official poverty line of
  approximately 70 cents (U.S.) per day.
• 600-700 million Chinese living on less than 1
  per day, the commonly used international poverty
  line.
• Most of the population were peasants, herded
  together into communal farms. This system
  produced very poor economic results with
  widespread poverty and periodic famines.

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• Economic reforms begin limited property rights
  and open markets
• Communes were broken up and families given
  individual plots of land and families were
  allowed to sell some of their output in farm
  markets.
• The right to enter the market with their produce
  drastically changed the incentives facing Chinese
  farmers.
• This institutional reform led to a dramatic surge
  in grain production in China and fueled
  spectacular poverty reduction.

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The Big Picture

• Competition and Markets benefit the poor by
• Providing more goods at lower prices.
• Increasing the quality and variety of goods
  available.
• Providing opportunities for work.
• Stimulating entrepreneurial activities.
• Unleashing the talent and abilities that were
  always there.

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Conclusions Caveats
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Economic Growth Overcomes Poverty
Markets create wealth and foster economic growth
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Provide the Framework and Incentives for the
Creation of Wealth
Institutions of Capitalism

• Property Rights
• Rule of law
• Competitive markets
• Entrepreneurship / Innovation

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Ongoing Study . . .
Unequal Income Distribution Income
Mobility Individualism of Property
Rights Barriers to the Institutions of
Capitalism The Mix of Institutions
Matters Importance of the Rule of Law
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Capitalism and Markets

• Forge interdependence
• Promote other-regarding behavior
• Foster a civil society where anonymous
  cooperation is the norm
• Benefit the poor in ways that are most important
  to them, providing
• Wealth, Dignity, and Mobility

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New Research Suggested Reading

• TED Talk by Yale economist Keith Chen language
  and economic behavior
• https//www.youtube.com/watch?vlw3YTbubyjI
• Paul Collier Exodus (migration and development)
• Tim Harford Adapt Why Success Always Starts
  With Failure
• William Easterly Tyranny of Experts (failure of
  foreign aid, lack of respect for rights of the
  poor)
• David Dollar and Art Kray Growth is Still Good
  for the Poor, August, 2013
• http//www-wds.worldbank.org/external/default/WDSC
  ontentServer/IW3P/IB/2013/08/13/000158349_20130813
  100137/Rendered/PDF/WPS6568.pdf20
• AfroBarometer non-partisan, World Bank funded
  non-profit After a Decade of Growth in Africa,
  Little Change in Poverty at the Grassroots, Oct.
  2013 (growth insufficient in absence of other
  institutions)
• http//www.afrobarometer.org/files/documents/polic
  y_brief/ab_r5_policybriefno1.pdf
• http//www.aljazeera.com/news/africa/2013/10/study
  -finds-growth-not-helping-africa-poor-201310115130
  119155.html
• Counting and Multidimensional Poverty 2011
  Alkire Foster study for OPHI Oxford Poverty
  Human Development Initiative (the missing
  dimensions of poverty data)
• http//www.ifpri.org/sites/default/files/publicati
  ons/oc63ch03.pdf