Extreme poverty’s 200-year decline

The notion of business as a solution to poverty might seem ridiculous at first, even distasteful. Business is driven primarily by greed, it is often assumed, whereas nonprofit work is motivated by the desire to help people. The ethical superiority of helping the poor through charity seems obvious, right?

In Mad About Trade, Daniel Griswold uses World Bank figures to summarize the extraordinary progress that the world has made against poverty. For all of human history until 1800, the vast majority of the world’s population lived on a subsistence income. As gains from invention and global trade increased, the proportion of the world’s population living in dire poverty halved by 1950. Between 1980 and 2005, it halved again. Over the past two decades, the share of the world’s population living in extreme poverty (defined as living on less than $3/day) has continued to decline sharply, leading to something unprecedented: for the first time in human history, the percentage of the world’s extreme poor will soon be counted in the single digits.

Poverty Headcount Ratio at $3.00/Day (2021 PPP, % of Population) — World Bank

Source: Poverty and Inequality Platform — World Bank

This extraordinary progress has not been primarily driven by the nonprofit or charitable sectors. This global transformation is the result of enterprise, innovation, and markets channeling human creativity into wealth creation. In an interview for the PovertyCure series, Rev. Robert Sirico, co-founder and president emeritus of the Acton Institute, unpacks this insight in the video below.

Why does enterprise work?

But if we accept the idea that business and innovation help the poor, are we saying that greed is good? By no means. Entrepreneurs might be motivated by greed. More likely, though, they are driven by more sympathetic motivations—perhaps the passion to make a product better or provide a better life for themselves, their families, and their communities.

The assumption that businesspeople seek profit, and therefore are motivated primarily by money or even by money alone, betrays a fundamental misunderstanding of how markets and exchange work. If the market is functioning properly, an entrepreneur will become successful (and therefore materially prosperous) only by meeting the needs of his customers. In The Wealth of Nations, Adam Smith describes the way human beings trade with each other and thereby build wealth, not by appealing to a neighbor’s “benevolence,” but to his “self-interest.” Man must constantly seek for help from his neighbors, Smith writes, but:

“[It] is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self–love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self–love, and never talk to them of our own necessities but of their advantages.”

Drawing a hard line between what is “good for you” and what is “good for me”, as if every exchange were a kind of robbery, is to draw a false dichotomy. In seeking profit, the entrepreneur or business person must be, at some level, “other” oriented: to make money for himself, he must provide goods or services that others want or need. When each side of a transaction receives what he wants—something he did not have before—value is added for each side and wealth is created. Through such work, a business person can contribute to the common good as much (or more) as to their individual good.

Business people can and do cause harm. Human nature being what it is, people will always find new ways of exploiting each other, whether its in business or those sectors that enjoy better reputations for moral conduct, like the nonprofit sector or ministry. But the work of business can be more than a job or simply a money-making endeavor. In a very serious sense, it can also be a calling. Business enterprise and entrepreneurship has done an extraordinary amount of good for the poor, especially in the past few decades.

The role of government

The idea that government is the primary source of wealth is mistaken. The experience of communist economies in the 20th century shows that, while an overbearing state can sometimes accelerate industrial development, it does so at immense human and long-term economic cost.

At the same time, government does have a crucial enabling role in the process of wealth creation. Establishing consistent rule of law in which property is protected and contracts are enforced is a necessary condition for thriving businesses and the economic growth they bring. When government is riddled with corruption, imposes high taxes, or oppressively regulates, business enterprise is stifled and the creative potential of a nation’s citizens will remain untapped. In sum, governments promote wealth creation by protecting economic freedom, upholding justice, securing property rights, and enforcing contracts—including through impartial courts and sound, predictable rules. The state’s role is to support enterprise, not supplant it, so that business remains the primary engine of lifting people out of poverty.

Enterprise and development

Development economists increasingly focus on encouraging wealth-generating enterprise as the most sustainable method for countries to move from poverty to prosperity. Such efforts take a variety of forms including microfinance, angel investing in small-to-medium size enterprises, and efforts to reform government and lower trade barriers. Churches are also contributing by supporting microfinance efforts and fostering moral formation, catalyzing cultural transformation, and building social capital. In turn, this helps entrepreneurs in the developing world realize their full potential and create prosperity for themselves, their families, and their communities.