Growth Is Earned, Not Given

A hearty thank you to Bill Gates for pointing out the infrequently-acknowledged obvious: human welfare has dramatically improved in the last fifty years. In his 2014 Annual Letter, Gates points out improvements in several of the countries that he and his wife have visited. Places that used to be slums lacking basic necessities are now world-class cities

with thriving middle classes. He also discusses revealing statistics, such as the 50 percent drop in the global poverty rate since 1990.

Through economic growth, human well-being has improved even more than Gates acknowledges. People are much better educated, with an average of over 7.5 years of schooling per person now versus just over 4.5 years in the 1980s. Individuals’ ability to communicate has improved, with nearly 78 cell phone subscriptions per 100 people today versus close to zero in the 1980s. Humans are much less violent than in the past: deaths from genocides have plummeted since the 1950s. People are more environmentally friendly, as carbon dioxide emissions per person have dropped nearly 20 percent since 1990. 

It is helpful that Gates is drawing attention to human progress. However, he errs in interpretation. Gates mistakenly believes foreign aid helped lead to the economic growth that resulted in this large scale human progress. In a video he explains the shift in human welfare, saying,

Gates reports that he and his wife see “people living longer, getting healthier, and escaping poverty, partly because of services that aid helped develop and deliver.” Here, he is discussing the massive improvements in human well-being mentioned above. He goes on to argue that aid “saves and improves lives very effectively,” thus laying the groundwork for “long-term economic progress.”

One should not deny that foreign aid, whether private or public, can achieve limited ends. Bill Gates performed an admirable service by giving children vaccines. However, foreign aid does not create economic growth. Some countries that receive aid develop (such as Botswana) and some countries that receive aid do not (such as the Democratic Republic of Congo). Many countries that did not receive aid have developed as well. (This last group includes several of the most developed countries, including the United States.)

Policies consistent with economic freedom, such as the rule of law and property rights, provide the foundation for economic growth and widespread human progress. Countries with more economic freedom tend to experience faster growth as citizens become empowered to improve their own lives. 

Figure 1: As Zimbabwe’s economic freedom dropped, so did its GDP per capita.

Figure 2: As India and China liberalized, their GDP per capita levels rose.

Economic growth means people are more likely to have access to improved water, live longer, earn higher incomes, and receive adequate nourishment, among many other improvements in quality-of-life indicators. This growth benefits all segments of the population: among individuals in the lowest income quintiles, citizens in the most economically free countries have higher standards of living than those living in less free countries. Economic freedom, not foreign aid, has led to substantial improvements in human well-being.

Humanity has made impressive progress in the era of globalization. This reality is rarely acknowledged, and yet is perhaps the greatest achievement of our time. Progress is unlikely to continue without acknowledgement and encouragement of the types of policies that allow it to occur. 

The next time a philanthropist worth several billion dollars tells you outside aid lifts masses out of poverty, stop him right there. Tell him it had little to do with charity, which is admirable but not powerful enough to create growth. Tell him it was the formerly poor themselves who worked alongside more free economic policies to end their own impoverishment.

Stephanie Rugolo is the editor of The Rugolo Report and holds an M.A. from the Maxwell School of Syracuse University.