Is Capitalism Good for the Poor ?

1. Introduction Part 1: “What Is Poverty and Who Are the Poor? ” Is Capitalism Good for the Poor ?

2. Introduction: “What Is Poverty and Who Are the Poor? ” Is Capitalism Good for the Poor ?

3. People Living in “Extreme Poverty” World Bank 1,300,000,000 $1.25/day World Bank 2010

4. Economic Terminology • Income • Wealth • GDP (Gross Domestic Product) • Per capita GDP Why do we use GDP to measure poverty?

5. Economic Terminology • Absolute Poverty – measured against a designated minimum threshold of material well-being. The incomes of the poor fall below the minimum threshold. • Current standard = $1/day PPP • Relative Poverty - identified by comparing levels of material well-being experienced by different individuals or groups, rather than by comparing the level of well-being to a standard.

6. Poverty Can Be Measured by EitherOutput(GDP) orConsumption Consumption Measure of Number of Poor by World Region

7. Countries of the World; Low, Middle and High Income

8. The number of extreme poor hasdeclined by 500 millionsince 1981

9. Share of World Population in Poverty, 1820 – 1998 ($1/day) World BankDavid Dollar, Development Research Group, World Bank. “Capitalism, Globalization and Poverty.”  unpublished paper, written for The Foundation for Teaching Economics, March, 2003, p. 27

10. Number of People Living on Less Than $1 Per Day, 1820 - 1998 1980 World BankDavid Dollar, Development Research Group, World Bank. “Capitalism, Globalization and Poverty.”  unpublished paper, written for The Foundation for Teaching Economics, March, 2003, p. 27

12. World Bank 2009

13. ..\..\..\Videos\RealPlayer Downloads\Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Stats - BBC Four.flv

14. Introduction Part 2: “What Is Poverty and Who Are the Poor? ” Is Capitalism Good for the Poor ?

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16. Years of Life Expectancy at Birth Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute (2011); UNDP (2002) http://hdr.undp.org/statistics/data/indic/indic_1_1_1.html

17. Real Gross Domestic Product Per Capita (1990$ International PPP) Sources: Maddison (1998, 1999) Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003.

18. Real Gross Domestic Product Per Capita (2005$ International PPP) Sources: Maddison (1998, 1999) Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003. *University of Pennsylvania

19. Africa Continues to Lag Behind: 1/3 of the world’s “extremely poor” What does recent research tell us about why Africa continues to lag behind – and what we can do about it?

21. What does Capitalism have to do with Poverty?

23. Overall Economic Freedom Index and the Top 10 Source: The Fraser Institute.

24. Overall Economic Freedom Index and the Bottom Ten Source: The Fraser Institute.

25. Per Capita Income and Economic Freedom Quartile Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013

26. Growth in Developing Nations Per Capita and Economic Freedom Quartile % Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

27. Income Share of the Poorest 10% and Economic Freedom Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

28. Income of the Poorest 10% and Economic Freedom Most Free ……………. Least Free Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.

29. Economic Freedom and Political Rights(low scores indicate high level of rights) Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2011, available at http://www.freedomhouse.org/.

30. Economic Freedom and Civil RightsLow scores indicate high level of rights Most Free ……………. Least Free Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2011, available at http://www.freedomhouse.org/.

31. Economic Freedom and CorruptionHigh scores indicate low corruption Most Free ……………. Least Free Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index, 2012 available at http://www.transparency.org.

32. Economic Freedom and Life Satisfaction Most Free ……………. Least Free Sources: The Fraser Institute; Happy Planet Index 2012

33. Economic Growth improves the lives of the poor by making the pie bigger Bigger “slices” mean higher standards of living

34. Reduced Poverty Since 2000:Research on Growth vs. Safety Net ? • 4/5 growth / 1/5 redistribution (Dollar, Kraay, Kleineberg study) • context matters: averages hide wide range of variation • economic growth is not generally associated with increased income inequality: • the (overall) share of income going to the poorest 2 quintiles (40%) does not change significantly with growth • poor governance often increases income inequality for specific populations in specific locations • 4/5 of the improvements in the lives of the poorest 40% of the population over the past decade are attributable to economic growth; 1/5 is attributable to redistribution • Talking about “Is Capitalism Good for the Poor?” • distinguish between “poverty” v. “poor people” • distinguish between treating symptoms v. underlying causes

35. Reduced Poverty Since 2000:Research on Growth vs. Safety Net ? • 75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study) • context matters: averages hide wide range of variation safety net (redistribution) econ growth demographic comp.

36. Africa Continues to Lag Behind: 1/3 of the world’s “extremely poor” What does recent research tell us about why Africa continues to lag behind – and what we can do about it?

37. Classroom Activity – Lesson 1: “Defining Terms” Will the Real Capitalism Please Stand Up ?

38. “Capitalism” is identified by its characteristic institutions Institutions: the formal and informal “rules of the game” that shape incentives and outline expected and acceptable forms of behavior in social interaction. • Private Property Rights • Rule of law • Open, competitive markets • Entrepreneurship and innovation

39. ECONOMIC ANALYSIS clearly present – the component is present in the economy with few exceptions generally present – the component is present in the economy, but with many or significant exceptions generally absent – the component is only present in the economy in some limited forms clearly absent – the component is almost entirely excluded from the economy not enough information

40. UnitedStates • The judiciary functions independently and predictably although serious constitutional questions have arisen regarding the government mandated health insurance decision. • Corruption and cronyism is on the increase and is undermining the institutional integrity of the rule of law, resulting in an 86th percentile ranking in control of corruption and a corruption perception index of 7.1 (out of 10) by Transparency International and a decrease of 4 points in the heritage Foundation score to 71 from a previous 75 in 2010. • Property rights are guaranteed, although affected by increasing regulations, ranking the US 19th in the world, with a score of 85 out of 100 by the Heritage Fndn.

41. Specific Situation: Apple Patent Victory Aug. 25, 2012 SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to Apple Inc. in a high-stakes court battle against Samsung Electronics Co., awarding the Silicon Valley company $1.05 billion in damages and providing ammunition for more legal attacks on its mobile-device rivals. Jurors Friday found that Samsung infringed all but one of the seven patents at issue in the case—a patent covering the physical design of the iPad. They found all seven of Apple's patents valid—despite Samsung's attempts to have them thrown out. They also decided Apple didn't violate any of the five patents Samsung asserted in the case.

42. ECONOMIC ANALYSIS clearly present – the component is present in the economy with few exceptions generally present – the component is present in the economy, but with many or significant exceptions generally absent – the component is only present in the economy in some limited forms clearly absent – the component is almost entirely excluded from the economy not enough information Prices and products determined in markets clearly present clearly present Patents upheld Courts act and decisions are enforced clearly present Millions of companies operate in every sector clearly present

43. 2012 Country Scenario Updates

44. USA Capitalism is best thought of not as “a system,” but as a continuum of institutional combinations . . . . More capitalist Less capitalist

45. Capitalism is best thought of not as “a system,” but as a continuum of institutional combinations . . . . Canada USA More capitalist Less capitalist

46. USA Capitalism is best thought of not as “a system,” but as a continuum of institutional combinations . . . . Czech Republic Uganda Peru Indonesia Egypt More capitalist Less capitalist Some institutional forms confer benefits on the poor . . . and others do NOT.

47. Heritage: www.heritage.org/index/

48. freetheworld.com – Index of Economic Freedom

49. Ranking Criteria: • Size of government • Legal system & Property rts • Sound money • Freedom to trade internationally • Regulation

50. Process: Identify quantifiable data that can be used to rank countries. Consider how these measures connect to the institutions we ranked in the “Will the Real Capitalism?” activity: • 1. Size of Government • A. Government consumption • B. Transfers and subsidies • C. Government enterprises and investment • D. Top marginal tax rate • (i) Top marginal income tax rate • (ii) Top marginal income and payroll tax rate markets, entrepreneurship