Back in 2007, I wrote a post on optimistic populism, or how free markets can be a force for good: by spurring efficiency and innovation, they increase the total amount of wealth in the world, making it possible to raise the standard of living for all people. I also noted the irony that libertarians, the fiercest defenders of the free market, so often misunderstand this. In their jeremiads against taxation, they’re implicitly buying into the view that wealth cannot be created and that the economy is a zero-sum game where the only way to help some people is to harm others.
Today, I want to talk some more about how markets can be harnessed as a power for good. But first, consider the scope of the problem:
According to the CIA Factbook, the world’s GDP was estimated at $69.5 trillion in 2008. If divided by the current world population of around 6.7 billion, that would yield a global per capita income of just over $10,300. This doesn’t seem like much, but it would actually be a vast improvement – the World Bank estimates that in 2001, 2.7 billion people lived on less than $2 a day. (This number has undoubtedly gone down somewhat with the rise of China and India, but is still substantial.)
Of course, achieving this level of income equality would require pooling all the world’s wealth and then redistributing it equally to every person – a proposal which is unlikely ever to be implemented, for a wide variety of reasons. But there’s a bright side to this as well: the fact that billions of people eke out a living on so little means that total income equalization is not necessary. Even a small degree of redistribution would be enough to produce a drastic improvement in the standard of living for the world’s poorest and most desperate.
“Redistribution” is a dirty word in the minds of libertarians and conservatives, who think of it solely as direct aid to developing nations funded by taxation. But that’s an incomplete definition. Any program, public or private, that results in money flowing from the world’s wealthy nations to the developing ones is a form of redistribution. Kiva is one example, a microfinance organization that makes loans to entrepreneurs and businesses in the developing world, which it funds with donations from citizens of wealthy nations.Wealth-creating free markets have enormous potential to improve the lives of the world’s poor. But billions of people who need those benefits most are unable to tap into them, because poverty is self-perpetuating. People in poor countries can’t access the credit and lack the infrastructure that are needed to create successful businesses. Meanwhile, most of the wealth that’s created in the industrialized world stays in that world, circulating among a small pool of rich stockholders and investors. The U.N.’s target for a meager 0.7% of GDP to be given as aid has been consistently missed by almost all rich nations. Private giving improves these numbers somewhat, but the amount that the rich nations give, compared to what we could give, is still pitifully small – and the wealth gap between rich and poor continues to widen.
To make real progress in ending poverty, we need a different vision of capitalism. We need businesses with a different mission: not to enrich the already wealthy, but to redistribute their profits in beneficial ways. I’m not talking about non-profit foundations that subsist on charity, but real businesses, making a profit by selling goods and services that people need, competing with each other for market share, just as we have now. These businesses would, however, make it a part of their charter to donate all or part of their profits to some worthy cause. Even pledging to donate as little as 10% or 20%, from a large corporation, could be a significant sum.
We already have exemplar companies, like Newman’s Own, which donates all profits to charitable causes. But rather than just a few companies out of many doing this, it should be the norm. Why doesn’t every business have a designated cause which they support? Why isn’t philanthropy part of the core mission of every company, rather than a side pursuit engaged in mainly for the favorable publicity?