At its core, capitalism is only way to end poverty

First Published: 2007-12-20

Reprinted with the kind permission of the Globalisation Institute.

In the past 50 years, global business has been the superhero of the world’s poor, lifting hundreds of millions out of poverty. China was once the deathbed of the world, seeing 70m people murdered under Mao and most of the rest living in abysmal and worsening conditions; now it enjoys double-digit growth. From India to Vietnam, historically unprecedented progress is occurring thanks to the spread of capitalism in a process which will one day be remembered as the greatest episode of poverty alleviation in human history.

But groups such as Christian Aid and War on Want ignore these facts. Instead, they have banded together with other pressure groups and vested interests – including trades unions – to demonise business. Out of the ashes of the Make Poverty History campaign, they have established the Corporate Responsibility Coalition (Core) to lobby for tough laws to dictate how overseas subsidiaries of British businesses should operate. They are using the passage through Parliament of the Company Law Reform Bill to beat up business with calls for draconian regulation. If successful, they could potentially strangle the ability of British companies to create jobs and prosperity abroad. No wonder Hilary Benn, the Secretary of State for International Development, has criticised their anti-business rhetoric, saying: “This is not in the interests of poor people.”

At the heart of their thinking is a belief that capitalism is a conspiracy by The Rich. They claim that it forces down wages; obliterates labour standards; trashes the environment; and sucks dry each developing country dry one by one by throwing all their workers on scrapheap. It may be coherent ideology; but it is a purely delusional picture.

For a start, it is simply not true that Western countries predominantly choose to invest where wages and standards are lowest. In fact, during the 1990s, 81% of US foreign direct investment went to western Europe, Canada and Japan. These economies have high wages, but they compete with highly skilled, productive labour forces and excellent infrastructure. While African poverty is often blamed on multinational companies, the real problem isn’t the presence of multinationals: it’s the lack of them. Companies don’t like to invest where they fear their assets are going to be appropriated, where there is political instability or where the legal system isn’t properly functioning.

The widespread belief that capitalism creates a race to the bottom in environmental standards is equally wrong. As Swedish economist Johann Norberg has pointed out, countries that are more globalised have higher environmental standards because they are richer and can afford them. Whereas Britain’s cities were once smog-filled, air quality in London today is the cleanest since records began in 1585. On most measures, the environment is getting better, not worse, and we will solve the problem of global warming through the application of technology in the first half of the 21st century. But it is important that developing countries make their own choices about environmental regulation, rather than seeing it imposed from on high. After all, regulations come with a cost.

It also isn’t true that the rich get richer at the expense of the poor. The anti-globalisers believe the myth that there is a fixed quantity of wealth in the world, and that if Western capitalists make money, it must be at the expense of developing countries or the environment. But as economist Paul Ormerod has shown, in the second half of the 20th century, contrary to the pronouncements of the anti-globalisers, world inequality actually declined thanks to the work of global business in Asia.

Yet Core ignores all this and wants to create various “directors’ duties”, forcing developing country subsidiaries of British companies to follow UK standards on labour and environmental laws – standards the rich may be able to afford but which would be damaging to the poorest. Because such measures would open British business to all sorts of litigation, already abysmal confidence in Africa would decline further. Shamefully, some trades unions have signed on to the Core agenda, knowing full well that regulation overseas means fewer jobs for foreigners and more jobs for their members. They dress it up in sanctimonious pronouncements about helping the destitute but it’s really about kicking down the ladder to stop them competing with British workers.

The best way to achieve social, environmental and economic goals is to let developing countries choose their own paths. If Core wants to do something constructive, it should drop its anti-business obsession. That approach is stuck in the past. Core should instead come forward with constructive suggestions to create an environment in the poorest countries where business – and hence wealth creation and poverty reduction – can flourish and an agenda to promote inward investment. But today’s left-wing western campaigners obviously find it easier to launch facile attacks on business rather than actually doing something useful to tackle the dire poverty that still mars so much of the developing world.

Alex Singleton is Director-General of the Globalisation Institute. This article originally appeared in The Business newspaper on 18 June 2006.

The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.

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