Have you heard the news? The number of people living in abject poverty—defined as living on less than $1.25 per day—has been halved since 1990. How did that happen? Prof. Stephen Davies explains that extreme poverty has been on the decline in part because two of the world’s most populous countries, China and India, have embarked on a path of economic liberalization and development over the past two to three decades. As more countries have embraced free trade and market-friendly policies, we have seen encouraging news of poverty reductions and greater access to clean drinking water. If such policies continue, Prof. Davies says, it’s not out of the question for extreme poverty to be eradicated in the foreseeable future. These gains are likely to be lost, however, if we make poor economic decisions that take us back toward protectionism and economic controls. With good economic policies and free markets, we can help many of the poorest people in the world.

They say that good news doesn’t sell; maybe that’s why we’ve not been paying much attention to what I think is the most important news story of the last 20 years. This is the reduction in half of the proportion of the world's population that are living in absolute poverty. In 1990, the United Nations set very ambitious Millennium Development Goals. The biggest of these was to reduce the proportion of the world's population living in extreme poverty, which they defined as living on less than $1.25 a day, by half by the year 2015. That target has actually been met. Not only that, but it’s been met five years early, in 2010. In addition, another very ambitious target, that the number of people without access to clean drinking water should be halved, has also been met, again five years early. So why has this happened?



Well the immediate reason is due to changes in two of the world's largest and most populous countries, India and China. In India, in 1990, 51 percent of the population lived in absolute poverty. By 2015, the proportion will have fallen to 22 percent. The figures for China are even more dramatic. In 1981, 65 percent of China's population lived in absolute poverty. By 2007, this had fallen to a mere 4 percent. The reason is very clear. It’s because—starting in the 1980s in China, then in the early 1990s in India, since 2000 in many other parts of the world—there’s been a huge move in the direction of free trade and market-friendly policies.



Countries have integrated into the world economy. They have opened up and moved in the direction of free trade. They’ve done away with government controls on entrepreneurs, on commerce and business. They have moved in the direction of free markets and private property and away from state planning and economic controls. And the result has been this enormous economic revolution, this massive reduction in the number of people living in utter abject poverty around the world.



Now there are still significant challenges ahead of us. Although we have reduced the number of people living on less than a $1.25 a day, there are still too many of them. Also the numbers of people living on $2 to $4 a day have been declining, but not as rapidly as in the case of the people living on a $1.25 or less. So these are the challenges ahead of us: to eliminate those kinds of poverty as well. However, the good news is that we know what to do. We know what policies it is that we need to follow in order to bring this about. We need to stick with the policies we’ve been following over the last 20 years of free trade, freeing up economies, and allowing markets to do their work. What we must avoid at any cost is to allow governments to move us back in the direction of protectionism and economic controls. If we can avoid that and stick with what we’ve been doing, we can confidently look forward to something that would have seemed inconceivable 20 years ago: the actual abolition of serious world poverty.