Notes on economics: about obscenities, poverty and inequality
(by Róbinson Rojas Sandford(January 1997))
About obscenities, poverty and inequality in a capitalist system
(compiled by Dr. Róbinson Rojas Sandford)
The most striking feature of modernization in less developed
societies has been "industrialization with inequality and
poverty". Even the cases of Taiwan and South Korea, often
utilized as exceptions to the rule, cannot escape that characteristic.
Rural societies adopting the capitalist mode of production to
"modernize" find that while rural poverty decreases in numbers and
percentages in the countryside, a newly created type of poverty
appears in the urban centers, where migrants from the rural areas
do not find jobs and add to the gigantic dimensions of shanty
towns and the informal economy.
By and large, a huge part of that new poverty is the outcome
of "efficient markets", "efficient system of production",
because maximization of profits and increased productivity
creates more unemployment and more inequality.
As the former US scretary for labour Robert Reich wrote in the
Financial Times on March 6, 1996, "what may be rational for
each individual corporation is irrational for society". (Robert
Reich, "A hand across the great divide").
UNDP's Human Development Report 1997 summarizes the dramatic
effects of a freer market system on a world scale writing that
"since 1960 global inequality has increased beyond anything ever
experienced."
"By 1991 the share of the richest 20% in the global economy had
grown to 85%, while the share of the poorest 20% had fallen from
2.3% to 1.4%. By 1994 the share of the richest had soared to 86%,
and the share of the poorest had shrunk to 1.1%. So, over the past
35 years the ratio of the incomes of the richest 20% to those of
the poorest 20% has increased from 30 to 1 in 1960 to 60 to 1 in
1991 and to 78 to 1 in 1994".
It illustrates the inmense gap between rich and poor pointing that
"since the publication of last year's Human Development Report, the
recorded number of billionaries in the world has increased from
358 to 447, with the value of their combined assets now exceeding
the combined incomes of the poorest 50% of the world's people, up
from 45% the year before."
"These are obscenities of excess in a world where 160 million
children are malnourished, 840 million people live without
secure sources of food and 1.2 billion lack access to safe
drinking water. These inequalities demand action".
Surely, the problem about taking "action" is that these "obscenities"
are the "efficient" outcome of a free-market system and not the
"excesses" of some individuals. Thus, if the free-market system
is going to be accepted at face value, we will have to get used
to see millions of human being being victimized by the "obscenities"
of a barbaric system of production (see R. Rojas, "Notes on economics:
assuming scarcity").
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TABLE 1.- INCOME PER PERSON (in 1987 US$)
DATA FOR THE WORLD POPULATION
Poorest 20% Middle 60% Richest 20%
Year 1960 236 980 7,069
Year 1993 187 731 14,629
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Change 1960-93 -21% -25% +107%
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Data processed by Dr. Robinson Rojas, using the
Human Development Report 1997 tables as sources.
------------------------------------------------------------
Table 1 illustrate the dynamics of a system that works for
for the richest fifth of the population while excludes the
rest.
POVERTY AND INEQUALITY IN THE RICH WORLD
In accordance with official figures, almost 95 million people are
poor in the rich countries, and among them, almost 30 million
are not expected to survive to age 40.
With data from UNESCO and OECD the following tables describe
the size of "obscenities" in the rich countries:
year 1994 Number of poor
(million) (for definitions, see Glossary
for Development)
Ireland 0.80
Spain 8.40
Netherlands 1.30
USA 37.10
UK 14.00
France 11.30
Belgium 0.80
Germany 11.70
Australia 1.44
Denmark 0.40
Canada 1.74
Sweden 0.45
Japan 5.00
Luxembourg 0.00
Finland 0.20
Norway 0.12
-----------------------------
Total 16 countries 94.75
Total OECD 100.18
Population OECD 992.00
-------------------------------------------------------
Population Secondary-school-age
not expected children no enrolled
to survive in school
to age 40 (%)
Country (%) 1990 millions 1993-95
Australia 3.5 0.63 18
Belgium 3.5 0.35 12
Canada 3.1 0.90 9
Finland 3.1 0.16 4
France 4.0 2.32 10
Germany 3.0 2.43 14
Ireland 2.9 0.12 16
Japan 2.2 2.75 4
Netherlands 2.5 0.38 14
New Zealand 4.3 0.17 5
Norway 2.7 0.11 8
Spain 3.0 1.20 10
Sweden 2.7 0.24 7
United Kingdom 2.6 1.50 16
USA 4.0 10.60 11
-------------------------------------------------------
TOTAL 23.86
The social effects of this poverty generated where the markets
are most efficient were summarized by the International Labour
Organization in its publication World of Work, No. 11, 1995:
"Unemployment and poverty are the two major causes of social
exclusion. But the cohesion of modern society is also threatened
by a series of factors resulting from evolution in various areas:
technical, socio-economic, cultural, ethical and religious."
"And the risks are not always the greatest in the poorest countries.
It is interesting to note, for example, that the United States,
which holds the eighth rank in the world according to the human
development index, is also the country which has the highest
concentration of indicators showing a weakening of the social
fabric: homicides, rape, divorce, drug-related crimes and the size
of the prison population".
Going further in the description, ILO explained that
DISADVANTAGE GAP WIDENS IN U.S.
Although the U.S. economy has rebounded from the recession and
unemployment rates are relatively low, jobs are precarious in
nature and the average income is falling. And the problem is far
worse for black and Hispanic minorities than it is for the white
majority.
This is a major assessment of a recent study, "The state of working
America, 1994-1995", issued by the Economic Policy Institute.
The study, along with federal data, reveals a widening gap in the
key economic barometers of poverty, unemployment, income growth,
wages and wealth accumulation.
-POVERTY. The upward swing continued in 1992 despite the economic
recovery, minorities and children being hit hardest.
The poverty rate for blacks has been at least three times that of
whites since 1979, reaching 33.3% in 1992. The Hispanic rate
climbed from 21.9% in 1973 to 29.3% in 1992. The white rate was
11.6% that year.
Child poverty has grown in all racial categories for over a
decade. By 1992, one out of five American children were poor.
For black children under six, the rate reached an alarming 53.5%.
Children in poverty for 1992: black, 46.6%; Hispanic, 39.9%, and
white, 16.9%.
-UNEMPLOYMENT. Unemployment among minority workers continues to be
more than double that of whites. The Bureau of Labour Statistics
puts the black jobless rate at 11.4%, the Hispanic at 9.4% and the
white at 5%. (late 1994)
The gap is even wider among teenagers (16 to 19 years), with black
youth registering 37.6% compared with 14.3% for whites.
-FAMILY INCOME. In the decade ending 1989, family income grew more
slowly than in any business cycle since World War II. White
families experienced a 0.5% annual growth rate in real income,
while black families -with a median income more than 40% lower
-had a growth rate of 0.4%. For the 1989-92 period every category
suffered income losses. Hispanic family income fell 3.5% per year,
more than twice the rate for whites, costing them $2,716. White
and black families lost roughly $1,800, which represents a much
larger proportional loss for blacks.
-WAGE INEQUALITY. Real hourly pay of most workers, including wages
and benefits, declined severely between 1979 and 1993. Black-white
wage disparity has widened greatly, despite a substantial closing
of the gap in educational achievement.
The wage gap widened by 50% in the 10 years up to 1989, when a
black worker earned 16.4% less than an equivalent white worker.
Median family income 1992: black, $21,794; Hispanic, $24,616;
white, $40,074.
NOTES ON THE OBSCENITIES OF THE FREE-MARKET SYSTEM
How does the Capitalist system deal with the problems of:
a) full employment;
b) output, and
c) equity?
Does the Capitalist system deliver a, b and c?
- The Capitalist system is about:
a) producing what can be sold
b) producing to make profits
c) maximising profits ( TextBook - if profits are
maximised, investment is maximised, if investment is
maximised, output is maximised. The latter is false).
d) Rewards - factors of production: capital(profits) and
labour (wages) in accordance with productivity.
e) Supplying what is demanded (TextBook - the
supply and demand model - in effect producing for those who
can afford to buy goods and services (at the right price).
The assumption of scarcity is the foundation for the theoretical
building. (See my notes on this)
Those who cannot become marginalised in society.
f) the Capitalist System works efficiently as long as:
- profits are maximised
- costs are minimised
- new technology is introduced that increases
productivity which means producing more with less
people.
The result is THE CREATION OF A TWO TIER SOCIETY :POLARISATION
If there is polarisation and maximisation of profits there should
be higher rates of unemployment over time. The capitalist system
is actually creating an increasing group of redundant people to the
the production process. The will never find jobs.
Furthermore the higher the rate of redundant population the lower
the wage rate in general (more people will be in competition for
employment, which in effect pushes the wage rate down).
SUMMARY
1) Polarisation - gap between the rich and poor becoming
larger;
2) Steady creation of a redundant population and higher rates
of unemployment;
3) Less people will produce more with less skills (this
produces psychological and cultural effects,---less skills
mean that because high levels of technology are used people
do not have to be intelligent. People only have to know what
button they have to press. The cultural and psychological
effects of this are that the average population is ignorant
and less intelligent, therefore incapable of understanding
what is going on around them, e.g., free market policies have
been catastrophic for a large portion of British population
but people do not believe this to be the case).
1 and 2 are creating dramatic social problems, most vividly seen
in inner city areas.
The following statistics give weight to this increasing
polarisation:
--------------------------------------------------
³ Average After Tax Income (Year) US $ ³
³ (1992 prices) ³
³ 1977 1992 ³
³ ³
³ Top 20% 63,546 79,475 ³
³ 20% 36,563 36,452 ³
³ 20% 27,788 25,705 ³
³ 20% 18,885 16,609 ³
³ Bottom 20% 8,795 7,555 ³
³ ³
³ ³
³ Source: U.S Bureau Of Statistics, In Fortune ³
³ International, June 29, 1992 ³
--------------------------------------------------
(The table above shows absolute/relative poverty)
Weekly Median Wage (Full-Time Workers) US $
(1992 prices)
1979 409.13
1989 398.88
1992 391.00
Source: as above
Between 1988 and 1992 unemployment in the USA rose from 2% to 7%.
Between 1977 and 1992 personal income dropped 6.1%
The Top 1% saw their income go up from $202,809 in 1977 to
$403,402 in 1992.
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³ Rate Of Unemployment (Average) %
³
³ 1960s 1970s 1980s 1990s
³
³ France 1.6 4.2 9.0 10.9
³ Germany 0.8 2.2 6.0 8.4
³ Japan 1.3 1.7 2.5 2.6
³ U.K 2.5 4.4 10.5 8.4
³ U.S.A 4.7 6.1 7.2 6.3
³
³ Source: OECD
³
³ Note: Japanese figures need to be
³ approached with caution
³
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AND THEN, THE MOST IMPORTANT OBSCENITY
International agencies like the World Bank, IMF, etc. are pushing
LDCs to adopt capitalist relations of production so they can
compete in the international market as "equals".
Looking at the levels of productivity (value added per worker)
the idea of "competing" becomes a bad joke. See table below.
-----------------------------------------------------------
GNP (Millions $) Workers V.A Per Worker
(1990)
U.S.A 5,465,100 126,424,000 43,228
Japan 2,920,310 63,840,000 45,774
Germany 1,272,959 29,889,000 42,590
France 1,000,866 24,567,000 40,740
Italy 871,955 24,075,000 36,210
U.K 834,166 28,436,000 29,335
All Ind Cts 14,417,355 351,198,000 41,052
LDCs 3,081,979 1,513,666,000 1,958
-95,320 for factor payments to abroad (interest,
rent and profit on capital (TNCs)).
[LDCs GDP = 3,177,299]
Source: Dr. Rojas calculations with data from the World Bank
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The result has been an increased flow of resources from poor
countries to rich countries, and a widening gap between the
gross domestic product of industrialized countries and
less developed countries. (See Statistics)
------------------------------------------------------------
DISTRIBUTION OF THE POPULATION OF THE MARKET ECONOMIES BY
ECONOMIC DEVELOPMENT
1960s 1970s 1980s
-----------------------------------------------------
Ind Countries
Pop in Millions 680 735 771
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Pop of Cts closing
the gap on Ind Cts
in GDP per capita 601 701 90
-----------------------------------------------------
Pop of Cts falling
further behind the
Ind Cts in GDP per cap 1030 1264 1740
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Pop of Cts suffering
a decline in GDP
Per Capita (abs Pov) 71 204 808
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Total 2382 2904 3409
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Source: RRojas Research Unit 1993
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It does look that inequality, poverty, unemployment and the
"obscenities" quoted by the Human Development Report 1997 are
the normal outcome of the efficiency of the system of
production known as "capitalist".
And it does group all sort of people in the category of 'poor'.
In accordance with 'Social Trends 1996' the following was
UNITED KINGDOMS's COMPOSITION OF THE POOR 1992/1993
Pensioner couple 1,370,000 persons
Single pensioner 1,550,000 "
Couple with children 5,210,000 "
Couple without children 1,600,000 "
Lone parent 2,330,000 "
Single without children 1,990,000 "
-------------------
TOTAL 14,050,000 "
ABOUT OBSCENITIES, POVERTY AND INEQUALITY IN A CAPITALIST SYSTEM
(from Forbes Magazine 1997, and Human Developmen Report 1998)
OBSCENITY NUMBER ONE: The ultra-rich
New estimates show that the world's 225 richest people have a
combined wealth of over $ 1,000,000,000,000, equal to the annual
income of the poorest 47% of the world's people (2,500,000,000).
The enormity of the wealth of the ultra-rich is a mind-boggling
contrast with low incomes in the developing world.
* The three richest people have assets that exceed the combined
Gross Domestic Product of the 48 least developed countries, with
a combined population of 585,000,000.
* The 15 richest have assets that exceed the total Gross Domestic
Product of Sub-Saharan Africa. The population in Sub-Saharan
Africa is 570,000,000 and its GDP (year 1995) was US$ 290 billion.
* The wealth of the 32 richest people exceeds the total Gross
Domestic Product of South Asia, with a combined population of
1,571 million and an aggregate GDP of US$ 439 billion (year 1995).
* The assets of the 84 richest exceeded the Gross Domestic Product
of China, the most populous country, with 1,200 million inhabitants
and a GDP of US$ 745 billion (year 1995).
Another striking contrast is the wealth of the 225 richest people
compared with what is needed to achieve universal access to basic
social services for all. It is estimated that the additional cost
of achieving and maintaining universal access to basic education
for all, basic health care for all, reproductive health care for
all women, adequate food for all and safe water and sanitation for
all is roughly US$ 40 billion a year. This is less than 4% of the
combined wealth of the richest 225 richest people in the world.
The country with the biggest share of the world's 225 richest people
is the United States, with 60 (combined wealth of US$ 311 billion),
followed by Germany, with 21 (US$ 111 billion), and Japan, with 14
(US$ 41 billion). Industrial countries have 147 of the richest 225
people ( US$ 645 billion combined), and developing countries 78
(US$ 370 billion). Africa has just two (US$ 3.7 billion), both
from South Africa.
The ultra-rich, by origin, 1997
Distribution Combined wealth Average wealth
of the 225 of the ultra- of the ultra-
richest rich rich
Region/country group people (US$ billions) (US$ billions)
________________________________________________________________________
United States 60 314 5.2
Germany 21 111 5.3
Japan 14 41 2.9
Other industrial countries 48 174 3.6
Eastern Europe and CIS 4 8 2.0
TOTAL INDUSTRIAL COUNTRIES 147 645 4.4
Asia 43 233 5.4
Latin America/Caribbean 22 55 2.5
Arab States 11 78 7.1
Sub-Saharan Africa 2 4 2.0
TOTAL DEVELOPING COUNTRIES 78 370 4.7
TOTAL WORLD 225 1,015 4.5
______________________________________________________________________
POOREST
47% OF THE WORLD 2,500,000,000 1,015 0.0000004
______________________________________________________________________
Average wealth of the 225 ultra-rich US$ 4,500,000,000
Average annual income of poorest 47% US$ 406
OBSCENITY NUMBER TWO : The priorities of the capitalist system
ANNUAL EXPENDITURE IN US$
Basic education for all 6 billion (*)
Cosmetics in the USA 8 billion
Water and sanitation for all 9 billion (*)
Ice cream in Europe 11 billion
Reproductive health for all women 12 billion (*)
Perfumes in Europe and the USA 12 billion
Basic health and nutrition 13 billion (*)
Pet foods in Europe and the USA 17 billion
Business entertainment in Japan 35 billion
Cigarettes in Europe 50 billion
Alcoholic drinks in Europe 105 billion
Narcotic drugs in the world 400 billion
Military spending in the world 780 billion
________________________________________________________________________
* Estimated additional annual cost to achieve universal access to
basic social services in all developing countries.
SOURCE: Euromonitor 1997; UNDP; UNICEF; UNFPA 1994; Worldwide
Research, Advisory and Business Intelligence Services 1997;
Human Development Report 1998.
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