State, market and education: the recipe for bringing all humans out of poverty

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All hands went up when a few weeks ago I asked a group of tribal people in the Indian state of Madhya Pradesh if they had benefited from Prime Minister Modi's policy of direct support to farmers through the use of digital bank accounts.

Many could also proudly show me the toilets and homes they built with government support. The money comes in tranches on digital accounts - a third at the beginning, a second amount along the way, and a final payment when they can document that the house is finished using GPS and confirmation from village leaders. Middlemen can no longer eat off the load. A house builder proudly showed off the result of his own work and the help of the local mason.

Tribal people in Madhya Pradesh are among India's most marginalized populations, a poor subgroup in one of India's poorest states. People are still poor, but there is optimism in the air.

Nowhere else on the planet are more people brought out of poverty these days than in India. 7% growth helps. Hundreds of millions are uplifted and India may be on the verge of eradicating extreme poverty.

This doesn't mean the Indian poor can buy electric cars, cabins in the mountains, or expensive watches. But if in the past you lived on 2.5 dollars a day and can now make 5, you can eat a little meat a few times a week, send your children to school, and afford a mobile phone. Maybe a little luxury can be within reach. A sari? Some cosmetics? Brazil's president Lula, who is most certainly the world leader with the most personal experience of poverty, understood this well: “Poor people love luxury”, he said. “Only intellectuals hate luxury.”

What India is now doing is following a path others have walked before.  It started in the United Kingdom and continued in the rest of Europe, the US, Japan, Korea, and most recently, China. China rightly celebrates the fact that 1.4 billion people have been brought out of poverty. No nation has moved so many people into the middle class at such a speed as China.

The only way to prosperity

Sometimes I hear UN experts and others telling me that there are many ways out of poverty. Maybe, but that belongs to the future. In recorded history, the one and only way to prosperity is called responsible capitalism, or state capitalism if you will. Slavery, feudalism, statism, or small-scale rural development never worked.

Before modernity, before capitalism, nearly all humans were poor. Up to 1870, 70% of all humans lived short, diseaseful, uneducated lives in abject poverty. As late as 80 years ago, when the two giants China and India liberated themselves, life expectancy was around 30, less than 20% could read and half the population died before adulthood. Life expectancy in China is now 78, it just passed the US. In India, it will soon reach 70.

Before modern industry and science, there was simply no available policy to create universal affluence. Even if the greatest and most sophisticated leaders of the past like Emperor August of Rome or Tang Taizong of China had wanted to bring their people out of poverty, they did not have the policy tools nor the resources to do it. True, small elites consumed a lot more than the people, but resources were never even close to enough to uplift the majority.

There is a universal success recipe for bringing large populations out of poverty: a strong development-oriented state, a vibrant market with innovative business, and a resolute focus on education.

The East Asian miracle economies

All the East Asian miracle economies, such as Japan, Korea, China, and Vietnam, have strong states with leaders who wish to uplift the people. As long as they believed in statism as China did before 1978 and India before 1992, they failed and kept people in poverty. Only private business could bring the masses to prosperity. Japan created Toyota and Mitsubishi, Korea spawned Samsung and Hyundai, and Chinese businesses are now dominating any number of global value chains.

And all East Asian nations put education first. Fast-developing Vietnam now has better results for their 15 years old than Europe or North America.

A major obstacle to the universal success of development is the defunct global development system. It focuses on aid, not trade, business, and political leadership. In no African nation is aid as much as 5% of the economy. 98.5% of education in developing countries is financed by the taxpayers of that state or by families of the students. Still, I have attended a number of UN forums where we speak as if aid and the UN is what brings development, rather than good domestic policies and growing business.

With India closing in on eradicating extreme poverty, poverty is more and more an African reality. It was not always so. 50 years ago, Asia was the continent focused on in any discussion on poverty. Now nearly all Asian nations have moved to the middle income bracket.

How can Africa follow in the footsteps of the Asian tigers?

Firstly, functioning states are critical. Governments must set the vision, regulate markets, make laws, attract investments, and distribute revenue to the poorest. To put it simply — without a state, development is horribly difficult. There is no easy way to establish development-oriented states. However, foreign powers need to support African states or leaders. The main issue is not the governing system, democratic or more authoritarian. The real issue is strong states with development-focused leaders. Rwanda is hardly Africa's most democratic state, but it may be the least corrupt and the fastest growing thanks to President Kagame’s enlightened leadership. Neither Europe, nor Japan, Korea, or China was democratic during their most critical years of development. Why do we demand that from much poorer African nations?

Second: Markets. Africa suffers from small markets and a lack of trade. While both India and China have one market of 1.4 billion people each, Africa has a population of 1.2 billion people separated into 54 different nations with largely small markets. There is very little intra-African trade, a number of trade restrictions, and far too little of larger trade blocks. In China, you can produce in Guangdong and sell in Heilongjiang while in India, you can produce in Tamil Nadu and sell in Kashmir, both thousands of kilometers away. In Africa, it’s hard to produce in Togo and sell in neighboring Benin or Côte d’Ivoire, both close by. Africa needs to move towards trade promotion and create a climate that stimulates private investments. Aid should be used as a risk alleviation tool for more and better private investment, not as a stand-alone device.

Environment and climate create a huge opportunity for Africa to go green and produce wealth, all the same. Solar energy is now the cheapest energy that has ever existed on the planet. Wind energy is nearly as cheap. New green markets can be captured by developing nations. Ola, the Indian Uber, is producing electric scooters and soon electric batteries and cars. They believe they can win the competition and I love their wonderful, offensive slogan: “Tesla for the West, Ola for the Rest”.

Finally, education. The development industry tends to focus on the outer symbols of education, like school buildings, not on the inner core. It’s the wrong approach. Vietnam allocates maybe 10% of what we Europeans spend on our students but still gets better results. Digital education and high tech give Africa new ways to improve education.

Let's reach everyone!

Moving towards the middle of the 21st century, the good news is that poverty is drastically reduced. Extreme poverty has been halved globally in just the last two decades. But the last remaining poor may be harder to reach. Nearly all are African, most are living in rural areas and many are living in the poorest and most vulnerable parts of the continent, the Sahel. The Sahel combines very dry natural conditions, with the world's highest population growth, weak states, little business, few jobs, and a good portion of extremist jihadist ideology. A difficult and potentially dangerous mix. The global community should come together and work with the local governments on a strategy for combating poverty in the Sahel.

Vietnam has shown how you can turn around the poor, rural hinterlands. When I visited Vietnam right after the war, rural poverty was everywhere, bordering on hunger. Vietnam was the world’s largest rice importer. Now Vietnam is the world's second-largest rice exporter and second-largest coffee producer. The recipe? It’s not rocket science — just private ownership of the land, rural roads, small loans for farmers, and the government’s advisory service.

For the first time in human history, we have the resources, policies, and capabilities to bring every human out of poverty. Asia has shown how it can be done. The happiness it brings was very visible among the tribals I met in central India. I wish all humans could experience the same.

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