Author: Abu Ayesha
Capitalism (part 10)
Critics of Capitalism (Continued)
Although poverty and inequality are significant even in the wealthiest capitalist countries, their scale cannot be compared to the levels found in the vast majority of the world’s countries, which are both capitalist and poor.
The World Bank periodically estimates the number of people worldwide—and within individual countries—who live on less than $1 or $2 per day. For example, in the early 1990s, 90.8 percent of Nigeria’s population lived on $2 per day or less. In 1997, this figure stood at 68.2 percent in India. Globally, according to World Bank estimates at the time, out of a world population of six billion, 2.8 billion people (approximately 45 percent) lived on $2 or less per day, and 1.2 billion people (about 20 percent) survived on $1 or less per day. [1]
The World Bank also publishes figures that are presented as comparable to the U.S. poverty line. As previously noted, the poverty line in the United States in 2002 was $12.60 per day, whereas in poor countries it is set at slightly above one dollar per day. Using this measure, it has been claimed that global poverty has declined since the 1990s. However, this claim is open to serious challenge.
It is true that one dollar per day in poor countries may provide greater purchasing power than in the United States due to lower prices; clearly, such an amount is insufficient to sustain life in America. If general price levels in poor countries decrease while all other factors remain constant, the number of people living in poverty would statistically decline. The problem, however, is that when the World Bank refers to price levels in poor countries, it relies on aggregate price indices rather than the prices of goods actually purchased by extremely poor households. [2]
In general, the goods and services whose relative prices are lower—or whose prices have recently fallen—are not those consumed by poor families.
Journalist George Monbiot argues that the World Bank’s purchasing power estimates for poor countries are based on the ability to purchase all goods and services available within an economy. In addition to food, water, and shelter, items such as extracurricular education and various services are included in the index.
The difficulty is that when essential goods in poor countries are more expensive than in wealthy countries, service prices tend to decline due to an oversupply of labor. Yet the extremely poor rarely demand services such as healthcare. Two researchers from Columbia University have estimated that if methodological flaws in the World Bank’s calculations were corrected, the estimated number of people living below the poverty line would increase by 30 to 40 percent—undermining the claim that global poverty is decreasing.
Another important point regarding the World Bank’s poverty line is that the institution has played a significant role in expanding agricultural exports in poor countries. Many individuals classified as living below the World Bank’s poverty line reside in rural areas outside the monetary economy and may, in reality, enjoy living conditions better than what one dollar per day suggests. However, if World Bank policies displace them from these subsistence livelihoods and force migration to urban centers, their monetary income may increase while their actual living conditions deteriorate significantly. [3]
On a global scale, poverty is accompanied by a dramatic rise in income inequality. In China and India—the two most populous countries in the world and among the fastest-growing economies—inequality has been increasing rapidly. In China, a country once regarded as committed to equality of rights and opportunity, inequality has reached levels barely distinguishable from those of the United States, despite what may be the largest redistribution of income in history. In India, the majority of the gains from rapid economic growth accrue to the wealthiest 20 percent of society.
Approximately 350 million people in India live in poverty and deprivation. In Kolkata alone, around 250,000 children spend their nights sleeping on sidewalks.
Branko Milanović, a World Bank economist, has supervised one of the most comprehensive global income inequality measurement projects. Based on an extensive survey of households worldwide, he concluded that the richest 1 percent of the world’s population earns as much income as the poorest 57 percent combined. In 1993, the average income of the richest 5 percent was 114 times greater than that of the poorest 5 percent; in 1988, the ratio had been 78 to 1. The poorest 5 percent experienced a 25 percent decline in real income, while the income of the richest 20 percent grew at more than twice the rate of global income growth (12 percent). The increase in global inequality results both from rising inequality within countries and from widening disparities between countries. Rich countries grow richer, and poor countries grow poorer.
Critics of capitalism argue that in the twentieth century, capitalism entered a new stage—monopoly capitalism.[4]
Under monopoly capitalism, the concept of the free market—originally advocated by early theorists of capitalism such as Adam Smith—lost its foundational meaning. Competition, once the central mechanism of market economics and the law of supply and demand, was reduced to competition among monopolistic corporations and cartels.
Continues…
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References:
[1] Sargolzaei, Mohammad Reza. The Madness of Power and Illegitimate Authority: On Fascism, Totalitarianism, and Capitalism, p. 72. Tehran: Qatreh Publishing, 1398 AH (2019/2020).
[2] Kohnel, Reinhard. Fascism: Capitalist Society’s Escape from Crisis, p. 192. Translated by Manouchehr Fekri Ershad. Tehran: Toos Publishing, 1359 AH (1980/1981).
[3] Qadiri Asl, Baqer. History of Economic Thought: The Confrontation of Schools from Plato to Post-Keynesianism, p. 783. Tehran: University of Tehran Press, 1387 AH (2008/2009).
[4] Kohnel, Reinhard. Fascism: Capitalist Society’s Escape from Crisis, p. 654. Translated by Manouchehr Fekri Ershad. Tehran: Toos Publishing, 1359 AH (1980/1981).
