Harvard’s professor of economic development Ricardo Haussmann and others explain that, differences in income are mainly differences in productivity. It is the differences in productivity that make productive places rich and unproductive places poor. Common characteristics of poor countries are: the absence of capitalist firms, and conditions where self-employment predominates.
Efficient capitalist production systems require access to many inputs. But the most critical input is economic freedom. That is, environments where entrepreneurs can take risks and innovate free from asphyxiating government controls and interventions.
Scholars of human behavior have also noticed that commercial activities play an important role in the development of civil behavior. Command economy countries, such as Cuba, experience a sharp decline in civil behavior. Simply put, government bureaucrats or commissars are not likely to be as polite or helpful as someone who earns a living selling his skills.
People in poor countries are not being exploited by greedy capitalists. They are being excluded from activities of higher productivity by their collectivist political systems.
Consider the case of Cuba, where the only 205 economic pursuits permitted by the government are occupations such as umbrella repairs, and refilling disposable cigarette lighters. Even these activities require specific government permission; a reminder that permission is not freedom. And for good measure, General Castro has decreed that no one will be allowed to get rich.
The fact, unacknowledged by collectivists, is that, thanks to free market activities, nearly one billion people were taken out of poverty in the 20 year period from 1990 to 2010. As a share of the total population, the number of poor in developing countries fell from 43% to 21%.
The most effective poverty reduction measures we can undertake are to liberalize markets and economic activities so that the poor can get richer. This is the opposite of what collectivism prescribes.
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