BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

It's Not Capitalism That Causes Poverty, It's The Lack Of It

This article is more than 8 years old.

It is indeed true, in one specific sense, that we can say that capitalism causes poverty. It's also equally true that the statement "capitalism causes poverty" is entirely wrong given the way that it is generally meant. That general meaning being that the capitalist plutocrats (and a few lucky running dog lackeys like myself) get to scoop up the profits extorted from the brows of the workers, the bitter tears of their starving waiflings, and this is what makes poor people poor.

In this sense the statement is simply absurd. The poor in today's current world live as the human poor have done since the very invention of agricultures. That $1.90 a day which the World Bank uses as the definition of today's absolute poverty (and, as always, that is at today's U.S. retail prices--we are defining poverty as living in what you can buy in Walmart for less than two bucks per day per person, housing, clothing, healthcare, food, heating, everything, included) is the standard of living of the vast majority of humankind for almost all of the last ten millennia. A very few priests and aristocrats rose above it but not many in any generation.

This does not mean that we should ignore such poverty, nor not work to alleviate it. But it does mean that we've got to switch the question around: What was it that allowed some to leave that poverty behind and what is it allowing even more to do so? The answer being this odd mixture of capitalism and free markets that we have. Starting around and about 1750 in Britain, this is the only economic system ever which has appreciably and sustainably raised the standard of living of the average person. And if we acknowledge this then we can indeed start to say that capitalism causes poverty because the people who don't have it remain poor, while those oppressed by the capitalist plutocrats (and of course, their lackey dog runners such as myself) get rich, as have all of us in the currently rich countries.

All of which is a lead in to this same point being extremely well made by Ricardo Hausman:

Our research has uncovered that in the developing world, there are enormous differences in productivity within countries, across their different regions. For example, in the US, the richest state, which is probably Connecticut, is about twice as rich as the poorest state, which is either Mississippi or West Virginia. The difference is a factor of two. In Mexico, the difference between Chiapas and Nuevo León is a factor of nine. Similar differences exist between the Indian states of Bihar and Goa or between the cities of Patna and Bangalore. These differences in income are mainly differences in productivity. It’s not the result of what share of the pie goes to capital and what size of the pie goes to labor. It is differences in the sizes of the pie.

So there are these enormous differences in productivity that make the productive places rich and the unproductive places poor. The poor people are not being exploited. They’re being excluded from the higher productivity activities. It’s not that the capitalists are taking a very large share of what they produce. It’s just that they produce very little in the first place.

As Dierdrie McCloskey is wont to note, the only thing worse than being oppressed by a capitalist is not being oppressed by a capitalist (although that might originate with Joan Robinson if memory serves):

Many of those that worry about inequality blame capitalism for it. Even Pope Francis has been framing the issue in this way. Now, let’s define capitalism the way Karl Marx did. It is a mode of production where some people own the means of production and others work as wage laborers for them. But if this is the case, capitalism hires 8 out of each 9 workers in the USA, 2 out of 3 in Nuevo Leon, 1 out of 7 in Chiapas and 1 out of 19 in India. Places where more of the labor force works for capitalist firms are richer, because capitalist firms allow for much higher productivity.

Poor places are characterized by the absence of capitalist firms and by self-employment, employment: these are small peasants and farmers or owners of small shop. In these settings, there are no wages, there’s no employment relationship. There are no pensions. There is no unemployment insurance. The trappings of a capitalist labor market do not exist.

At which point what we must do if we wish to enrich that 10% of humanity which is still absolutely poor becomes obvious: We must go and exploit them as the ruthless, red in tooth and claw, capitalists and free marketeers that we are. Simply because it is the absence of capitalism and markets that allows poverty, their presence that defeats it.

Excellent, so, you buy the top hats and I'll provide the cigars for us to puff as we cackle with glee at exploiting people into prosperity.

Check out my website