(Note to reader: This is a reworking of an interesting post on reddit by user noamsky. At first I was just going to repost, but decided to fix errors, improve the wording and also introduced more established economic arguments and terms, to make it read more like an essay. For more reading on the topic, I would suggest you start with the links provided, as they give more substantial data and evidence to back these claims. However, I do necessarily agree with what is argued. This is merely a exercise to practice my subbing skills.)
We often hear, and are often told that free commerce is the undeniable only means to achieve prosperity for all.
I however reject this claim, for Capitalism as it stands has two major problems – Wealth Condensation and Economic Inequalities.
The problem of wealth condensation occurs when you have a finite amount of resources and they’re all privately owned. The most wealthy of those agents begin to benefit from some natural advantages that arise out of this disproportionate allocation of wealth. At its most basic, we might argue this to be some form of “economies of scale”. Some of you who have studied economics or business in the past, may have some inkling as to what this term means. A very broad definition states that those with greater means of production, can benefit from reduced cost with increased levels of output.
How does this concept tie in with wealth condensation? Those with this larger portion of wealth have much more freedom than those without; that includes freedom to make money. Simply put, the losers and winners in a free market are decided largely by circumstance. When everything has a monetary value, those with more income are automatically able to access greater range of opportunities than those with no accrued wealth. Since having a large income or vast reserves of wealth increases opportunities to compound this wealth, the process is a type of positive feedback loop, or a condensation of wealth at the very top of the hierarchy. Hence, wealth continues to concentrate into fewer hands, whilst income inequalities are exacerbated in the process. This too can be considered a positive feedback loop. As wealth disparities accrue, the working class becomes increasingly desperate, ever more at the mercy of the modern day rich elite and their accompanying class of bourgeois. This is because their very survival depends on the oft touted trickle down of wealth from the very top of this pyramid.
As we have economies of scale for a business or institution, the concept also applies to the individual agent. For instance, suppose you have enough money to make a deposit on a house, and thereby procure a mortgage. This reduces your monthly expenses, and you begin to receive some of your mortgage payments as equity in your home. However, if one is unable to produce this initial down payment, the only other available option is to rent a property. The renter incurs a greater loss than the owner. This is due to the opportunity cost of the equity lost aggregated with the increased cost of rent compared to mortgage. Such persons are at the mercy of the landlord.
We can apply this same analogy to many real life situations for a majority of people in this world. If you have a high income or similarly, inherited wealth, you would be more inclined to pay for your child’s education. This is so that they can better devote their energies to study. Hence, there is greater chance these children will perform well in school, and land a well paying, respectable job. This is supported by evidence. For instance, recent studies have shown providing direct income support to poor families can dramatically increase academic performance.
However, if there is a lack of financial assistance and one comes from a poor household, parents would be inclined to tell the student to work as opposed to go to school. They may also ask the child themselves to help with financing their own education, or they may be forced to take out substantial loans. If they choose the latter, they must toil even harder on completion to repay the borrowed sum, with interest of course. However, what we have seen recently is many graduates are being forced into low skilled labour, such as serving tables at restaurants. This is because there is nothing more productive for society that they could be doing. This all pertains to the issue at hand – the only manner in which anything gets done under capitalism, is if someone up the hierarchy stands to benefit.
The women that manufactured the clothes you are most probably wearing right now lives and works as a modern day slave. Trapped in low wages, poor working conditions and gruelling hours, prospects for a better life are slim at best. In many places, such workers are paid far less than $50 a month. The $20 billion industry only raised salaries after 1,100 people died in a collapse of a factory building earlier this year. This is the natural coercion of market forces at work – such persons are no longer slaves by name, only in horrific action. For many centuries the oppressed blacks and creole fought the colonies of France, England and US for their freedom. They inevitably succeeded with the Haitian revolution of Toussaint Louverture, and the subsequent abolishment of the Atlantic slave trade. However, it seems as if these imperialist empires were ultimately victorious in the war against liberty and equality. For once the English realised they could pay a free Indian a penny to do the work of a colonist slave, a new kind of economic slavery was born. Whilst in 2012 Gross World Product per capita was approximately $12,400, it is estimated that 1.3 billion people globally still live on less than $1 a day. This is not freedom. This is nothing but exploitation rooted in prior exploitation, and justified by those who grossly profit from such systematic abuse.
A great majority of us in this world are forced to sell our time, energies, and services for barely enough to scrape by. Whilst the person who employs these labourers, consumes the majority of the real output produced by them. This isn’t like a consensual relationship between two equal partners. Low skilled workers are often forced into such occupations, and now increasingly also young persons in the developed world. If you want to use a parallel, it’s like being forced into prostitution.
Saying all this however, it is possible for people to escape this poverty trap. Or at least, it appears that many have become self made bourgeois themselves. How can one climb up this hierarchy if born into poverty?
They may work for wages to earn capital for investment. However, even through this process someone up the hierarchy has greatly profited from the workers efforts. It is fundamentally impossible for one labourer to move up in the economic food chain without further enriching a very wealthy individual already ahead of him. Now suppose the worker acquires the appropriate investment, and now attempts to become a entrepreneur. He may be inclined to abuse his workers in a similar manner as he was himself exploited, and profit in a similar vain as his former owner. However, further up the food chain, others benefit from his enterprise. Such as for instance, manufacturers or suppliers, or even the government of his nation in the form of tax revenue or political donations.
They might also choose to take out a loan from a financial institution such as a bank to begin their enterprise, who also benefits from the interest paid on this loan. Whether you succeed or fail at your business endeavours, you are by virtue expected to pay the bank more money than you were given. Hence, the agent cannot create wealth for themselves without necessarily paying a portion of it up the ladder. Thus, social mobility for a few of the many poor entails further enrichment of the few wealthy. This means a smaller proportion remaining for the rest of the impoverished. The growth of inequality is absolutely inevitable. This issue can become so compounded, it forces intervention, or as we have seen throughout history, even up to the present day, violent and bloody revolution. It is theorized that the most dramatic and deciding factor of an uprising is hunger.
Returning to our previous example, pertaining to the landlord and the tenant – what happens when you mix the necessity of property ownership into this problem? What does a man do who is born into this society with nothing? He needs access to land in order to provide for himself. He must do this so he can grow either grow food or other products (producing raw goods), building or making things to sell (manufacturing), or having a space to perform some artisan trade or task (services). However, what happens when that land has already had ownership claimed for many generations? How does the worker acquire this land when it is disproportionately owned by the wealthy?
Hence, the poor in this world face a momentous struggle in becoming wealthy. Increasingly the young in both developing and developed countries are poor, having had the means to acquiring wealth taken from them by the established older generations. For the assets of this country and the world in its entirety, are firmly in the hands of these persons, whom acquired their prosperity and then kicked out the ladder from beneath them. They began privatizing everything, and launched crusades of propaganda and disinformation to justify these measures.
For instance, the US asserts free markets are necessary to growth. However. the countries GDP stood at almost $16 trillion in 2012. It has the amassed the most wealth out of all the nations in this world, and so can by and large influence market forces as it see’s fit. Hence, any free trade will likely result in the US coming out on top. That’s how the coercive power of money works. If you have a lot and other people don’t, but they desperately need it to survive, grow, and thrive, then they are going to be in a position where they are willing to work for much less. This is simply because they lack other options. Once again, this is not a consensual agreement.
Returning to this idea of economies of scale and efficiency of production. The issue is largely one of advantages in production – or a lack of advantage. For a nation like the US only stands to benefit from trade, whilst emerging economies can do nothing but be exploited, in a similar manner to the individual worker. With the huge improvements in ferrying and transportation, the modern day bourgeois can cheaply pay to transport goods across the world, and continue this systematic abuse of the worlds poor. They are able to perpetually profit by forcing these proletariat to compete the for work, often at slave wages. This willingness then deflates the value of their efforts, whilst the real value of their labour remains the same. The disparity between this nominal value, and the real value is in turn exploited and consumed by the wealthy elite.
It is this use of economic exploitation that inevitably traps entire nations in poverty. Workers in places like Cambodia or Bangladesh can protest their low income and ask better for better working conditions, as they have and continue to do so, But then said workers are harassed by the state for doing so. International behemoths like Nike run sweatshops where they make huge markups on products produced. When factories collapse and hundreds die, they simply wash their hands of the blood implying it is the moral obligation of factory owners to care for workers safety. They say this as if the supply chain isn’t one in the same, a continuous process that Nike grossly benefits from. The factory owner, who may have been a worker themselves at some point, is caught in the middle in this particular example. Major corporations and banks, posting staggering profits, are the ones who ultimately have all of the slack in this distorted system of distribution. That’s the only node in the chain where anybody has true freedom to do as they choose, and live sinfully wealthy lives, whilst stomping their boots in the faces of the slaves that made them so rich. They do all of this whilst boldly declaring that they are improving the quality of those slave’s lives, because the slave voluntarily chooses to enter the employment and work for whatever impossibly small rate market forces have decided upon.
Hence, the cycle of poverty continues, and economic inequalities are exacerbated. Only time will tell what will happen to the wealthy elite and those trapped in poverty. Only we can break this cycle of oppression. How this can be done however, is still a hotly debated topic. Perhaps something for another blog post, although there are some idea’s that seem promising. For instance, Meghnad Desai, a member of the UK’s House of Lords and a Professor of Economics at the London School of Economics, stated in an article last week that:
With global aid totalling roughly $130 billon, each of the 1.3 billion people living in extreme poverty (less than $1 per day) worldwide would receive $100 in cash [with direct aid].
Some countries have already experimented with such programs, and India is preparing to begin providing cash transfers to its 300 million poor citizens. In other words, a global cash-transfer scheme could be very effective, and would be feasible if donor countries pooled their aid budgets.
So perhaps direct transfers of cash to the poorest in the world, can help mitigate the effects of increasing income and wealth disparities. How and if we could do this however, remains to be seen. This idea remains somewhat unpopular with the majority of nations and the general public.