How do we deal with poverty? Local MP says ‘free market’ shows the way

Lindsay Advocate Publisher Roderick Benns recently interviewed local MP Jamie Schmale on how we should be dealing with poverty in Kawartha Lakes.

Benns: What’s the best way to fight poverty in our communities? And if the answer is good jobs, why have we never, ever, under any government of any political stripe been able to fight poverty effectively?

Schmale: As inferred in your question, the answer to eliminating poverty has confounded governments, NGOs and academics for far too long. Assuming that we are far from a Utopian society where wealth and asset acquisition is no longer a driving force in the world, we must look at what factors contribute to reducing poverty and not be afraid to try new measures that can further the laudable goal to eliminate poverty.

As you allude to in your question, good jobs are only part of the answer.

Most studies agree that economic growth which generates job opportunities and a strong demand for labour is the main contributing factor in lifting people out of poverty. However, this statement on its own oversimplifies the issue and requires qualification.

First, let’s look at what economic growth does to reduce the incidence of poverty.

One study, looking at 58 countries, found a positive correlation between annual GDP growth and the income of those in poverty.  Where there was a 10 per cent increase in GDP, there was a corresponding 10 per cent increase in wages.

In developing countries this correlation can be even higher; estimates from cross-country studies found that a 10 percent increase in a country’s average income will reduce the poverty rate by between 20 and 30 per cent.

Since the early 1990s, global employment has risen by over 400 million with China and India leading the way.

China alone has lifted over 450 million people out of poverty over the past four decades. Evidence shows that rapid economic growth between 1985 and 2001 was crucial to this enormous reduction in poverty.

India has seen significant falls in poverty since the early 1980s, which has been strongly correlated to India’s impressive economic growth.

Economic growth provides opportunities that allow for social mobility and ultimately lead to a reduction in poverty. However, if economic growth were enough to end poverty, two-thirds of the people of India wouldn’t still be living on $2 a day or less.

The extent to which growth reduces poverty depends on the degree to which the poor participate in the growth process and share in its rewards.

Of course Canada is in a different position than China and India were in the 90s but the principle remains the same.

In the Canadian context, it’s not a coincidence that Canada’s substantial growth since the 1980s has been accompanied by a reduction in poverty by a third, from 13 per cent in 1985 to a little over 9 per cent in 2015. The experience in Canada demonstrates that on average, a $10,000 increase in per capita GDP entails a 1.7-percentage-point decrease in the persistence of low-income.

Statistics Canada reports that 48.7 per cent of working-aged people in households where no one works live below the poverty line. Only 2.8 per cent of people who work full-time year-round are poor. And 55 per cent of children in households where no one works live in poverty compared to 1.9 per cent for kids whose parents both work full-time year-round. These statistics indicate that full-time employment has a positive relationship with reducing the incidence of poverty.

I believe that a significant part of the solution to poverty lies in the free market, where government’s role is to encourage economic growth and support Canadians with the right tools, skills, and business opportunities to fully participate and to lift themselves out of poverty.

Benns: Should we change the tax code in a way that benefits lower income people and the middle class? How do you see this?

Schmale: Full participation in economic growth is a key factor in reducing the incidence of poverty.

Thus we should not focus on income inequality but on wealth creating policies like reducing taxes for all Canadians, reducing red tape and freeing up the labour market, encouraging entrepreneurism for lower and middle income Canadians and ensuring there are no hindrances to the free movement of goods and services. Low inflation, free trade, and low business taxes also have a positive correlation to how much employment is created by growth.

As I have said many times before, the more money people have to spend on their priorities and less in the hands of government, the better off people will be.

Benns: If the basic income pilot shows great results in the next three years, in terms of measuring health outcomes, well-being, employment and skills upgrades, and more, would you advocate for it to your caucus or leader, as an MP who would have seen it firsthand at a community level? 

Schmale: Yes, if the basic income pilot demonstrates “great results” and is the missing factor that solves poverty once and for all, I would hope everyone would advocate for it.