Pope Francis has offered a sharp critique and challenge to market capitalism and its proponents, focusing on materialist consumerism and rising inequality within nations. While the pope’s comments are excellent cause for reflection, they should not obscure the reality that innovative free enterprise is the greatest wealth generator ever discovered and the economic system most supportive of human freedom and flourishing.
In a new research note, JP Morgan Chase economist James Glassman doesn’t mention Pope Francis by name, but clearly — at least to me — had his comments in mind as he addressed the record of market economies:
Those concerned about global poverty have more to be thankful today than to complain about. The commonly-heard complaints that today’s economic systems fail to address the plight of the poor ignore several fundamental facts.
Poverty is not a modern phenomenon. Second, the developed economies are still recovering from deep recessions and in time will reach their full potential. That is, of course, why central bank policies remain so stimulative. Those hurt by the recession will be restored as the developed economies continue to recover. And third, despite the cyclical problems of the developed economies, the average global living standard is at a record high—the highest known in the records compiled by economists and still climbing, thanks to the support from the developed economies.
In other words, market-oriented economic systems are doing more to cure global poverty than any other effort in the past. …
Unflattering opinions about market-oriented economies see in the successes of some a system that rewards the survival of the fittest with benefits that only trickle down to others, glossing over the interdependence of economic actors that is fundamental to modern economic systems. Technological innovation often is portrayed as a destroyer of jobs rather than a creator of new economic frontiers. The benefits that come in the form of new jobs and industries and higher living standards are usually too difficult to visualize.
Technological innovation enables economies to do more with less. It’s the “less” that negative views about technology tend to fixate on. Yet, policy actions and new opportunities created by innovation create jobs for the displaced and it is the “more” that at the end of the day lifts a nation’s living standard. And because the distribution of income has widened in the last several decades, many assume this is an inevitable feature of free-market economies that calls for intervention from time to time.
For sure, times are challenging for many, owing to the trauma associated with our latest business cycle that thankfully is gradually passing, the rapid pace of technological change that has displaced many jobs, as it has for almost three centuries, and new competition from abroad as others attempt to replicate what the developed economies have done.
Nonetheless, in most cases, our hardships don’t compare with those our predecessors faced even in the past century, recalling the stories of those who lived through the Great Depression or were uprooted by the chaos of war and social upheaval in Europe and Asia in the first half of the 20th century.
We are fortunate. So are those who live and work in Western Europe, Canada, Japan, Taiwan, Israel, New Zealand, Australia, South Korea, parts of the oil-rich Middle East. Nonetheless, we account for only one billion of the world’s seven billion, or less than 15 percent of the world’s population.
Now others have a chance, because their governments have embarked on aggressive development agenda and are able to move forward quickly by opening their borders to the international business community and stabilize their currencies to those in the developed economies. China and India, in particular, are an example that is indirectly benefiting their neighbors and inspiring others.
The widening distribution of income in the US and other developed economies is attracting considerable attention. It would be unsettling, and destabilizing, if the global “economic pie” were static and one group were benefiting at the expense of others. Instead, what likely is driving the distribution of income is the wealth of opportunity that is associated with an expanding global “economic pie” and that because it is occurring at an eye-popping pace has uneven benefits. The global community has much to be thankful for and modern market-oriented economies deserve considerable credit for the battle against global poverty.
And this note about the chart at the top: “Estimates of World GDP, 1 Million BC – Present,” J. Bradford De Long, Department of Economics, University of California at Berkeley, 1998. JPMorgan Chase & Co., 2000 to the present.”