Deaton Says Private Sector Vital to Reducing Global Poverty

Wednesday, October 11, 2017

Nobel laureate Sir Angus Deaton talked about poverty and what role NGOs, governments and the private sector should play in order to alleviate it during an Oct. 5 event that was the culmination of WDI’s year-long celebration of its 25th anniversary.  

Deaton’s talk, held in the Robertson Auditorium at the University of Michigan’s Ross School of Business, reflected much of his study of the role global development aid may have had in exacerbating problems related to poverty rather than reducing them.

In 1980, Deaton noted, there were 2 billion people living in poverty. By 2012, that number was less than a billion.

“Nothing like this has ever happened in human history before,” he said.

Free, or at least freer, markets are a reason for this reduction in the number of people living in poverty. Likewise, globalization and technical change was vital as well.

“Without globalization, this enormous improvement in world poverty just would not have happened,” Deaton said.

Economists calculate that poverty could be eliminated if every adult in Europe and the U.S. donated about 30 cents a day. But people aren’t stepping up to help. Deaton said some posit that’s because people don’t want to or just don’t care. But he said his view and that of most economists is that “we do care, but we’re thinking about it wrongly.”

Deaton also said he believes the key that is holding poverty efforts back is politics and governance. He said if government is not working for the people, it won’t help raise them out of poverty.

People “need to help to the extent we can,” Deaton said. “But is aid effective?”

Deaton argues that aid is undermining the creation of institutions that are required for development. He said non-governmental organizations, or NGOs, are motivated by reducing poverty. But if the government is an extractive one, that is – taking money meant for aid for other purposes, “it’s very hard to see what NGOs can do about it.”

The private sector, however, has been a key to reducing global poverty, Deaton said. Another positive factor has been knowledge transfer, such as U.S. business schools that have exported entrepreneurship curriculum and training around the world.

The problem of development “is largely one of government failure and of extractive institutions,” Deaton said.

Businesses, he said, have a strong interest in making governments work better for the people.

After his remarks, WDI President Paul Clyde led a panel discussion about global poverty with Deaton, Renuka Gadde, vice president-Global Health at Becton Dickinson, David Lam, research professor at the U-M Institute for Social Research and Jan Svejnar, professor of Global Political Economy and director of the Center on Global Economic Governance at Columbia University.

Before Deaton spoke, U-M President Mark Schlissel recognized WDI’s anniversary and Bill Davidson’s vision back in 1992.

“He recognized that the private sector had to play a part in helping countries transition their economies to the free market,” he said.

Schlissel said he regrets never meeting Davidson but has heard “many wonderful things about him.” He said if Davidson were in attendance today, he would “tell him how proud we are that he made all of this possible.”

In introducing Schlissel, Ross School of Business Dean Scott DeRue said WDI’s and U-M’s vision are closely aligned. In addition to making U-M a thought and education leader, De Rue said Schlissel wants “the university to serve society and really engage with society in meaningful ways to elevate our impact in the state of Michigan, the United States and across the world.”

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