A year or so into the pandemic, the world is a poorer place filled with poorer people than was the case before COVID-19 appeared. Part of this was the inevitable result of people voluntarily pulling in their horns to avoid infection, but much of it resulted from government-imposed lockdown orders as public health experts engaged in a panic-stricken effort to stop the virus's spread through the force of law. There's no way around the fact that the last year is going to leave a mark, but we can regain lost ground, and prosperity, by once again unleashing free markets to do their good work.
"A new Pew Research Center analysis finds that the global middle class encompassed 54 million fewer people in 2020 than the number projected prior to the onset of the pandemic," the organization announced last week. "Meanwhile, the number of poor is estimated to have been 131 million higher because of the recession."
The World Bank agrees in its latest Global Economic Prospects report, which estimates that the world's economy shrank by 4.3 percent in 2020. "COVID-19 caused a global recession whose depth was surpassed only by the two World Wars and the Great Depression over the past century and a half," the report notes. "The pandemic has caused a severe loss of life, is tipping millions into extreme poverty, and is expected to inflict lasting scars that push activity and income well below their pre-pandemic trend for a prolonged period."
This makes for grim, but unsurprising reading for Americans who have been thrown out of work and seen tens of thousands of businesses close over the past year. Fortunately, there's a known antidote for such grimness: capitalism has reduced poverty in the past and it's capable of doing so again if people are unleashed to build prosperity through free exchange.
"The speed of poverty alleviation in the last 25 years has been historically unprecedented," Alexander Hammond of Britain's Institute of Economic Affairs wrote in 2017. "Not only is the proportion of people in poverty at a record low, but, in spite of adding 2 billion to the planet's population, the overall number of people living in extreme poverty has fallen too."
"In order to help the poorest, consider the impact free-market capitalism has had in the last 200 years in alleviating extreme poverty," he added. "The Industrial Revolution turned the once-impoverished western countries into abundant societies."
Hammond based his observation on pre-pandemic World Bank figures showing "the global poverty rate, defined as the share of world's population living below the [international poverty line], has dropped from 35.9 percent in 1990 to 10 percent in 2015."
This explosion of prosperity occurred in countries that, to a significant extent, embraced property rights, deregulation, and free markets that unleashed people to put food on the table. Largely without planning and direction, people made the world healthier, wealthier, and happier. Ironically, though, these advances came as advocates of state control gained new strength, improbably blaming supposedly rampant capitalism for whatever ills they perceived among populations rapidly rescuing themselves from privation.
"Just at the moment that both the left and the right give up on global capitalism, it is celebrating its largest accomplishment," mused Swedish historian Johan Norberg, author of Progress: Ten Reasons to Look Forward to the Future (2016).
This second-guessing of the power of free markets and voluntary exchange threatens the liberty which gave so much of the world prosperity, and which has the potential to reinvigorate economies suffering from the effects of a pandemic and interventionist public health measures.
"[T]he world's poorest countries are not characterized by naive trust in capitalism, but by utter distrust, which leads to heavy government intervention and regulation of business," points out Ricardo Hausmann, a minister of planning in Venezuela in the 1990s, before that country's current socialist regime dragged it back into poverty. "Under such conditions, capitalism does not thrive and economies remain poor."
That means the best path forward as the world emerges from the pandemic is to dump the flirtations of recent years with authoritarian economic notions, whether that's outright state ownership of the means of production or government bullying of nominally private enterprises to make them do what politicians want. It also means stripping officials of supposedly temporary public health powers that allow them to disrupt people's lives, interfere in voluntary arrangements, and kill prosperity.
Letting capitalism rebuild the world's wealth also means continuing the work of getting government out of the way in general. Pre-pandemic, entrepreneurs told the National Federation of Independent Business's 2016 Small Business Problems and Priorities survey that they placed "unreasonable government regulations" as their second concern, after the cost of health insurance (itself made more expensive by regulations). Regulatory concerns continue to rank in the top ten in the 2020 survey, with tax concerns taking four other slots and "uncertainty over government actions" yet another.
The same concerns apply around the world as Hausmann emphasized and as noted by the World Bank.
"A renewed boost to underlying growth is needed, a boost that could be provided by reforms to governance and business climates," acknowledges the Global Economic Prospects Report. Such reforms "encourage private sector investment and innovation by establishing secure and enforceable property rights, minimizing expropriation risk, creating a stable and confidence-inspiring policy environment, lowering the costs of doing business, and encouraging participation in the formal sector where productivity tends to be higher." For developing economies in particular, the report specifies the importance of "strengthening institutions, reducing corruption, dismantling regulatory barriers to doing business and entrepreneurship."
In the U.S., there are some positive signs. Even as businesses died over the past year, the country saw a surge in entrepreneurial startups. Those numbers dropped a bit recently, but new business applications remain well above pre-pandemic levels, according to Census data. People may have had their paychecks ripped from their grasps, but many went down fighting, and their efforts may be a lifeline to the future.
But that lifeline will fail if the authoritarian trend continues. Capitalism can only make us prosperous in a world that allows the freedom to enjoy its benefits.