The War on Economic Growth Is a War on the Poor

The new Global Justice Report by the World Inequality Lab in France—which calls for caps on economic growth in rich countries, top income-tax rates of 90 percent, and a World Sovereign Fund to redistribute wealth to the Global South—has reignited one of the oldest debates in economics: How do we actually lift people out of poverty?

The data have never left much question. The answer is economic growth. Nonetheless, many development economists have spent decades arguing that growth isn’t enough or as important as development aid. The French report is simply a radical expression of a popular view. So, it’s worth reviewing the evidence again.

Stated plainly, every country that has gotten richer overall has also reduced poverty. More importantly, no poor country has ever achieved decent living standards without first getting genuinely richer. Obviously, wealth and basic human well-being move together, but the relationship is so reliable that it’s more like a physical law than a social-science finding.

People in poverty have little access to food, clean water, decent shelter, basic medical care, and schooling. Adequate amounts do not exist in nature; they must be produced. As an economy grows, it produces more of these things. This enables more growth which, in turn, lifts the masses out of poverty.

Two centuries ago, roughly three-quarters of the world could not afford more than tiny living spaces, enough food to avoid malnutrition, and some minimum heating capacity. Since then, the share of people in this type of poverty has fallen dramatically. The reason is an explosion in production that began with the Industrial Revolution and has yet to stop.

Unfortunately, the belief that economic growth in poor countries benefits richer residents and bypasses the needy remains commonplace. A large body of economic literature shows that this is nonsense. For instance, the work of World Bank economists David Dollar and Aart Kraay and others find that when average incomes rise, the incomes of the poorest 20 percent of a population rise at essentially the same rate. In other words, growth is not systematically biased against the poor.

Further, even in the worst cases where growth skews toward elites, the impact on well-being in poor countries is too powerful to ignore. In a recent Substack post, development economist Lant Pritchett showed that elite-skewed growth in Ethiopia does four times more to improve basic human well-being—clean water, child survival, schooling—than uniform growth in Denmark. Denmark has already achieved those basics. Ethiopia has not.

As such, the most important question for poor countries is not who gains most from growth. It is whether growth happens at all. The countries that are home to most of the world’s remaining extreme poor—places like Madagascar, the Democratic Republic of the Congo (DRC), Mozambique, Malawi, and Burundi—have not grown for decades. Our World in Data’s Max Roser points out that Madagascar’s gross domestic product (GDP) per capita today is roughly the same as it was in 1950.

The reason isn’t a lack of development aid. These are among the world’s most aid-dependent economies. The DRC has received tens of billions of dollars in foreign aid over decades and $1.3 billion in 2024 from the U.S. alone. In past years, Mozambique received as much as half of its government budget from foreign aid. These countries have been the focus of development programs, nongovernmental organization activity, World Bank projects, bilateral donor attention, and charitable intervention for generations.

Countries don’t get stuck in extreme poverty because the world has ignored them. They get stuck because they do not produce. And they do not produce because the institutional conditions that make production possible—secure property rights, the rule of law, open markets, protection from predatory government—are largely absent. Countries ranking at or near the bottom of economic freedom indexes are also the poorest. Those that liberalize experience across-the-board income increases.

Economist Vincent Geloso’s research finds that economic freedom is one of the strongest predictors of who escapes persistent poverty and who stays trapped. Colin Doran and Thomas Stratmann have found much the same. The mechanism is straightforward: Property rights give people an incentive to produce. Lower regulatory barriers let businesses form and labor move toward opportunity. Freedom from predatory government encourages long-term investment. Remove these conditions and countries stagnate, no matter how much aid they get.

Growth is both necessary and sufficient. No country has escaped poverty without it. Every country that has achieved higher GDP per capita has also achieved high levels of basic human well-being. Targeted aid can be useful at the margin, but it’s no substitute. Although many supposed poverty fighters are blind to this reality, serious policy makers shouldn’t be.

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