Has Capitalism Come at the Expense of the Poor?
Perhaps the most amazing fact in all of economic history is the unprecedented rise in wealth per person that has taken place in the last two centuries, following the Industrial Revolution. But it remains a widespread belief that these fruits of capitalism have only benefited the rich at the expense of the poor.
This perspective is made crystal clear in the 2024 international bestselling book Slow Down: The Degrowth Manifesto. “Under capitalism, we have consistently sought to raise the GDP in the belief that economic growth brings prosperity to everyone. But this prosperity has yet to arrive for the average person,” writes University of Tokyo philosopher Kohei Saito. He further argues, “The world undergoes ‘structural reforms’ over and over to foster growth, and yet the results are always the same: gaps widen between the rich and the poor, and the rates of both poverty and austerity increase.”
Saito is correct to associate capitalism with the economic growth rate, but wrong in his claims about the ineffectiveness of capitalism in improving living standards. As the feature-image chart suggests, while the economy has grown exponentially over the last two centuries, poverty has exponentially decreased. Extreme poverty has declined to less than 10 percent of the human population for the first time ever. Never in history prior to 1820 had the global extreme poverty rate been less than 80 percent. While the more moderately poor segments of the population have not improved their income as rapidly as the extreme poor, they too have shared significantly in the world’s recent centuries of exponential growth.
Poverty’s unprecedented decline has contributed to unprecedented improvements in human flourishing along nearly every measurable dimension, including life expectancy, literacy, nutrition, education, safety from natural disasters, access to electricity, and countless others. Individuals and societies that have more wealth can generally afford to invest more in food, medical care, education, infrastructure, technological innovations, scientific research, and most of the other things that measurably facilitate human flourishing.
Saito asks, “In a world in which capitalism has progressed as far as it has, isn’t it strange that so many living even in Global North countries continue to languish in poverty, their lives only getting harder as time goes on?” As we have seen, this question can only result from extreme ignorance of how truly grim much of economic history has been. Likewise, Saito’s proposal of “degrowth communism” to improve human living standards seems to stem from a fundamental reversal of the difference between communism and capitalism.
By generating economic abundance, the capitalist system allows for an ever-increasing number of people from all economic classes to raise their living standards. Capital investment results in the creation of more businesses, goods and services, and technological advancements. This increased supply of opportunities for material flourishing reduces the barriers to entry into market consumption and production because there are simply more goods, services, jobs, and investment opportunities to go around.
In contrast, rather than rewarding productive investments and increasing the size of the economic pie, all other economic systems come down to one form or another of political conflict between economic interests to see who manages to consume a larger share of the dwindling supply of wealth. That is why only in the last few hundred years have we seen both the rise of capitalism and the exponential rise of per capita economic growth for the first time in human history.
Under socialism, communism, fascism, corporatism, feudalism, or any other system that diverges from the free-market protection of individual private property rights, you are less incentivized to produce economic value. This is for two reasons, which are two sides of the same coin. First, much of what you produce in such systems will be taken from you and given to someone else without your consent. And second, such systems enable a new profitable but socially deleterious use for your limited resources, namely influencing the political system of redistributive policy to favor your special interest at the expense of others.
Free-market capitalism is unique because it alone is the system that, by protecting private property, maximally rewards the production of economic value. This is why capitalism is the only system that has actually proven to reduce global poverty at a massive scale.
This piece originally was published by the Foundation for Economic Education.