Industrialization and Free Trade Are the Way out of Poverty
Progressive politicians repeatedly tell us that capitalism is a system rooted in the wealthy’s exploitation of the poor. To convey this in an emotionally resonant way, they employ images of “sweatshops” in the developing world. While some people labor away in factories, often in terrible conditions, the owners of Walmart and Nike rake in profits, enjoying their luxurious penthouses in Manhattan. Many find this compelling.
Trade and International Markets
However, trade and the intervention of multinational corporations into developing economies have been important instruments in the alleviation of poverty worldwide. A 2010 study, for example, demonstrated that multinational corporations tend to use scarce resources with higher levels of efficiency than more local competitors. Moreover, they train their workers the effectively, raising worker productivity in the process. These benefit are imported by these companies into the developing world. Although wages paid in the developing world are not by any means attractive to the average “First World” citizen, multinationals do often pay their workers above local national averages, and certainly more than state-run companies do.
In Vietnam, Nike pays its workers salaries twice the national average, and three times those in state-run factories, which might truly be called sweatshops. Openness to free trade and the arrival of global business have been an important source of economic growth—hence the dramatic rise of living standards since the Industrial Revolution, by every available metric.
A famous study conducted in 1995 by Jeffrey Sachs and Andrew Warner found that all global poverty can be essentially attributed to three policies: socialism, expropriation and autarky (the attempted redistribution of wealth, the seizure of private property and, importantly, hostility toward free trade). The study specifically emphasized natural resources’ lack of importance to economic growth (compare, for example, the living standards of oil-rich Venezuela and resource-scarce South Korea). To get rich quickly—and quicker than it already is—the developing world must remove its barriers to imports. Prices will drop, productivity will increase thanks to the availability of better equipment, wages will rise, and, consequently, poverty will drop.
The places most open to free trade have become some of the richest, such as Hong Kong, whose exports account for 177 percent of its GDP, whereas those most hostile to it, such as much of Africa, remain impoverished and with low growth. While trade allows companies to set up factories in the developing world—the photos of which are used by the Left to feed the anticapitalist sentiment—these “sweatshops” alleviate poverty in the end, and in doing so, reduce child labor and improve working conditions.
The greatest decline in chi
Article from Mises Wire