Global poverty can be overcome

Here's some figures that you won't believe if you read only the headlines about global poverty. More wealth has been created in the past six decades than in all previous history, and it's reduced poverty. The number of people living on less than $1 a day dropped from 40 per cent in 1981 to 18 per cent in 2004.

In the same period, the number of people living on less than $2 a day has dropped from 67 per cent to 48 per cent. Too many people still live in poverty, half a billion on $1 a day, and 2.6 billion on less than $2 a day. The evidence is clear, open economies, open trade, open societies - those that cherish the rule of law, property rights, labour rights and democracy - do better. Closed economies are always run by the most unpleasant and oppressive leaders. If they don't let people decide their economic rights, they are most likely to suppress their human and political rights. No two democracies have ever gone to war and there's never been a famine in a democracy with a free press.

'Sustainable development'

Every now and again a serious report emerges that nails the issues and its ideas are put centre stage, and success is when they become cliches. A report generated by German leader Willy Brandt, invented the words, "North/South", and put the idea of 1 per cent aid as an obligation of rich countries to poor countries on every nation's agenda. Norwegian Bro Bundland's report on the environment put the phrase, "sustainable development", into popular usage. Now every political manifesto feels obliged to put the word "sustainable" before every policy statement.

I'm the least distinguished member of a UN Commission on the Legal Empowerment of the Poor, chaired by former Secretary of State, Madeleine Albright, and Peruvian Economist Hernando DeSoto, and includes outstanding individuals; a former US Treasury Secretary, and a US Supreme Court Justice, a former president of Tanzania and Ireland, a Nobel Prize winner from Iran, and former finance ministers from Egypt and Afghanistan. We had our final meeting recently, the Commission's report will be profound and may change the thinking on how we alleviate poverty.

Poverty is a man-made thing so we can fix it. What's the common denominator in success and failure? Open economies always do better. Trade and competition drive up better results and are powerful weapons to drive out corruption, as well as allocate resources more efficiently. Private ownership, spread through society, works. The tragedy of large scale privatisation in countries such as Russia was the brutal insider wealth grabs. A free market without solid, trusted institutions, property rights, independent courts, a professional public service and democracy is not a free market but a black market.

Firm, predictable civil institutions create a vital factor to promote success. Trust. Trust in the courts, in contracts, is a serious issue. People are driven underground when they don't trust their institutions, which is why 40 per cent of the economies of developing countries is in the informal economy. Why register a company if it costs so much? This relegates local businesses to the back streets.

Secure property rights boosts investment. Evidence abounds that when trust emerges, investment increases. When China established de facto securitisation of property and liberalised agriculture, productivity jumped some 42 per cent between 1978 and 1984. Its more open economy has lifted hundreds of millions out of extreme poverty.

This Commission is focusing on the legal rights of the poor. Over 7 in 10 children in the poorest countries have no birth certificate or legal identity. The Universal Declaration of Human Rights proclaims that everyone has the right to recognition everywhere before the law. Without secure, property rights, poverty will endure, corruption remain endemic, and investment wither.

Informal capital in Peru is estimated to be worth $74 billion, Egypt $248 billion, Tanzania $29 billion, Albania $16 billion, and Mexico $310 billion.

Eighty per cent of all real estate in Latin America is held outside the law. The poor and indigenous people are not without assets; in Egypt the assets of the poor are 50 times greater than all foreign investment ever recorded. But in Egypt it can take 500 days, 29 visits and 29 agencies, compliance with 315 laws, and costs 27 times the monthly minimum wage just to establish a bakery. In New Delhi, there's an estimated 500,000 bicycle rickshaws driven but only 99,000 licences allowed for legal drivers. Same story for street hawkers who are kept in limbo and pay up to a third of their incomes to stay in business. Licensing and restrictions create opportunities for the bureaucrats to take bribes and steal. In the Philippines, 65 per cent of homes are unregistered, in Tanzania 90 per cent. This explains why millions build their homes and business illegally.

Bringing people out of the shadows formalises what they already own and safeguards them from predatory politicians, bureaucrats and local mafia. It widens the tax base which in turn makes people want to hold their politicians accountable for expenditures not favours.

Access to justice, getting your case heard is important, even when appropriate law is enacted. India has only 11 judges for every million people, and some civil cases can take 20 years to reach court. Around a million cases are pending in Kenya, the average judge in the Philippines has a backlog of nearly 1,500 cases.

We can establish property and collective rights which will encourage people into the formal economy where they are protected by the courts, can borrow formally against their assets and live better.

This is not rocket science, the pattern is clear. Those countries that are doing better are those that are adopting these principles of good governance.

Mike Moore is a former prime minister of New Zealand and former Director-General of the World Trade Organisation.