Sunday, February 10, 2008 - The Progress & Freedom Foundation Blog

Capitalism IS creative

It's always frustrating to hear calls at the Davos World Economic Forum for "new," "kinder," or more "creative" forms of capitalism. What they usually mean is more bureaucacy, less profit, more "coordination," and thus in the end less actual creativity and kindness. Standard fare for global development bureaucrats. But it's especially disconcerting when the call comes from an icon of creative capitalism himself. Capitalism serves only the rich, he says. We need to mold, shape, and remake capitalism instead to serve the poor.

Utter nonsense, says the excellent development economist William Easterly.

The number of poor people who can't afford food for their children is a lot smaller than it used to be -- thanks to capitalism. Capitalism didn't create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history.

The parts of the world that are still poor are suffering from too little capitalism.

The poor are always the largest untapped market. Capitalists have every incentive to serve large new sets of customers. But more deeply, Davos poverty economists see the poor as consumers who just can't afford things. Capitalism, though, is a system of supply-side production. There aren't "producers" on one side of the equation and "consumers" on the other. No, we are all producers. Each producer exchanges goods and services -- the fruit his labor -- with other producers. Capitalism allows the poor to produce, create, build income and wealth, and thus consume. Massively growing consumption and technological sophistication in newly capitalist nations like China helps proves the point.

Entrepreneurial capitalism doesn't need to be reformed. We just need more of it.

posted by Bret Swanson @ 5:35 PM | Capitalism