Steps to creating a prosperous society

CalgaryBeacon.com – Business, Opinion
Posted on 16 January 2011.    by Mark Milke, Troy Media

Around 1,000 years ago one-third of all babies died before their first birthday, while those who made it past that marker could expect to live only 24 years, with hunger and disease as their constant companion. Today, the average person lives to 66 and in vastly improved health.

Such progress, uneven as it still is depending on one’s locale, came despite how world population rose 22-fold. That’s because, in the past millennium, per-person income increased by a factor of 13 and the world economy grew nearly 300-fold.

Tremendous benefits to income growth

In other words, growth in real income outpaced even explosive population growth. That had tremendous knock-off benefits. For example, extra wealth made it possible to pay people to spend their life in a lab studying how to advance medical technology. That’s of no small benefit to improved and lengthened lives.

Such facts are courtesy of a 2001 book from the late Angus Maddison, a Dutch scholar on economic growth and development who wrote a magnum opus for the OECD that looked at wealth creation dating back to 1000 AD. Maddison’s findings, updated annually at the University of Groningen, help us understand which societies prospered and why.

Maddison found much of the world economy’s advance took place after 1820, though not exclusively. The Dutch prospered early in part because they “created a modern nation state which protected property rights of merchants and entrepreneurs, promoted secular education and promoted religious tolerance.”

Britain had faster growth in per capita income in the 17th century when compared with other European countries. Credit an improvement in banking, fiscal institutions and in agriculture, among other factors.

Scholars such as Maddison and others who study human progress find that open trade, entrepreneurs, secure property rights, toleration, moderate taxation and limited and predictable government go a long way to helping everyone prosper in a variety of ways. Such ingredients also provide the revenues necessary for governments to carry out essential functions.

But you’d never know such factors matter from reading Linda McQuaig and Neil Brooks’ recent column, where they took issue with my characterization of their new book as a rhetorical call to envy instead of a sensible tract on poverty reduction. They argue the gap between the super-wealthy and the rest of us causes higher infant mortality, more crime and other maladies. They assert higher tax rates from the 1950s didn’t harm U.S. economic growth then or European countries now.

And they argue, apparently without reading my work on corporate welfare which criticizes taxpayer subsidies to business, that I defend privilege. (No, I defend competition as it creates wealth and also helps spread such wealth around.)

On the 1950s, when economies start from a low base, of course their growth rates will be higher than today’s. It doesn’t mean tax levels and types don’t matter.

As for their inequality obsession, McQuaig and Brooks toss around many U.S. statistics. Let’s turn to relevant Canadian ones from economist Chris Sarlo at the University of Nipissing who precisely defines poverty and inequality.

In 2009, Sarlo looked at two of the best measurements: adult equivalent incomes and average equivalent consumption. (The former takes into account households of different sizes; the latter reveals how people may have government income or under-reported income.) Sarlo found inequality has barely budged in 35 years.

Canada has one of the highest levels of intergenerational mobility in the developed world. It is consistent with Scandinavian nations and trumps even Sweden. And Statistics Canada studies show that most of us who started with low incomes don’t stay poor.

The McQuaig and Brooks inequality assertion simplistically links the obvious fact that some earn much more than others to a cause of multiple social problems. That’s a classic correlation-causation mistake.

Ludicrous association

According to their logic, if prices stayed the same and the richest Canadians saw their income triple while the rest of us saw ours only double, social problems and pathologies would increase. It’s a ludicrous association. It simplifies complex reasons for poverty, crime and sickness, matters that ought to be soberly addressed.

Thoughtful redistributionists such as John F. Kennedy and the former NDP government in Saskatchewan saw the private sector’s value. It’s why, before each government left office, they reduced taxes. That’s a critical factor for prosperity promotion, depending on pre-existing tax levels. They understood flourishing economies help combat poverty through creating opportunity. They are the mainstream political practitioners of what Maddison observed worked in the past 1,000 years, but especially during the past two centuries.

Mark Milke is the director of the Fraser Institute’s Alberta office. mark. milke@fraserinstitute.org

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