Free Markets Help the Poor Better Than Aid Does
"Aid is just a stop-gap. Commerce and entrepreneurial capitalism take more people out of poverty than aid."
If that line came from me, some might say it was an ideological rant. Though I strongly agree with these words, they came from someone just a bit more glamorous than me. An Irishman people call "Bono."
The rockstar turned poverty-fighter, who funds a multitude of charities striving to alleviate hunger and poverty in stricken countries, was giving a speech at Georgetown University last November. "Rockstar preaching capitalism… Wow," said Bono, holding his head in his right palm. "Sometimes I hear myself and I can't believe it…" But commerce is real, he said.
So real, almost a billion people — three-quarters of them in China — got out of extreme poverty between 1990 and 2010. Most of the credit goes to capitalism and free trade — around two-thirds of poverty reduction within a country comes from growth, according to The Economist. The other third comes from greater equality.
These facts echo what Michael Fairbanks, co-founder of the SEVEN Fund, a philanthropic organization run by entrepreneurs and dedicated to promoting entrepreneurial solutions to global poverty, has been saying for years. "The Chinese have done more to eradicate poverty in Africa than all the foreign aid in history by doing business with Africans," said Mr. Fairbanks in a recent Free Market Series video produced in partnership with the Montreal Economic Institute.
In this entertaining and anecdote-filled interview, about gorillas, Machu Picchu and Bill Gates among other things, the man who counselled the President of Rwanda also says the West's relationship with the poor is based on condescension and charity. And that if we really wanted to help the poorest countries, we would find ways to transfer our capitalist advantages to them. Mr. Fairbanks emphasizes the importance of values and culture, and the belief in competitive markets.
When it comes to helping the poor get out of the poverty trap, one should not be trapped in preconceived ideas. It has been "a humbling thing for me," said Bono in a speech last year, to realize the importance of capitalism and entrepreneurialism in philanthropy, particularly as someone who "got into this as a righteous anger activist with all the clichés."
A humbling thing for him, but considering the stature and popularity of Bono, it's a blessing for millions of people wanting to grow themselves out of poverty. (And, let's be honest, a minute of a Bono speech will get more attention than a thousand research papers!)
International aid can play a role in helping the poor. But, as Mr. Fairbanks eloquently explains in this video, economic activity within a country can do more than well-intentioned projects with foreign money.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.