Does cap­i­tal­ism cause poverty?

Financial Mirror (Cyprus) - - FRONT PAGE -

But are the prob­lems that up­set Fran­cis the con­se­quence of what he called “un­bri­dled cap­i­tal­ism”? Or are they in­stead caused by cap­i­tal­ism’s sur­pris­ing fail­ure to do what was ex­pected of it? Should an agenda to ad­vance so­cial jus­tice be based on bridling cap­i­tal­ism or on elim­i­nat­ing the bar­ri­ers that thwart its ex­pan­sion?

The an­swer in Latin Amer­ica, Africa, the Mid­dle East, and Asia is ob­vi­ously the lat­ter. To see this, it is use­ful to re­call how Karl Marx imag­ined the fu­ture.

For Marx, the his­toric role of cap­i­tal­ism was to re­or­gan­ise pro­duc­tion. Gone would be the fam­ily farms, ar­ti­san yards, and the “na­tion of shop­keep­ers,” as Napoleon is al­leged to have scorn­fully re­ferred to Bri­tain. All these petty bour­geois ac­tiv­i­ties would be plowed over by the equiv­a­lent of to­day’s Zara, Toy­ota, Air­bus, or Wal­mart.

As a re­sult, the means of pro­duc­tion would no longer be owned by those do­ing the work, as on the fam­ily farm or in the crafts­man’s work­shop, but by “cap­i­tal.” Work­ers would pos­sess only their own la­bor, which they would be forced to ex­change for a mis­er­able wage. Nonethe­less, they would be more for­tu­nate than the “re­serve army of the un­em­ployed” – a pool of idle labour large enough to make oth­ers fear los­ing their job, but small enough not to waste the sur­plus value that could be ex­tracted by mak­ing them work.

With all pre­vi­ous so­cial classes trans­formed into the work­ing class, and all means of pro­duc­tion in the hands of an ever-dwin­dling group of own­ers of “cap­i­tal,” a pro­le­tar­ian revo­lu­tion would lead hu­man­ity to a world of per­fect jus­tice: “From each ac­cord­ing to his abil­ity, to each ac­cord­ing to his needs,” as Marx fa­mously put it.

Clearly, the poet and philoso­pher Paul Valéry was right: “The fu­ture, like ev­ery­thing else, is no longer what it used to be.” But we should not make fun of Marx’s well-known pre­dic­tion er­ror. Af­ter all, as the physi­cist Niels Bohr wryly noted, “Pre­dic­tion is dif­fi­cult, es­pe­cially about the fu­ture.” We now know that as the ink was dry­ing on the

wages in Europe and the United States were be­gin­ning a 160-year-long rise, mak­ing work­ers part of the mid­dle class, with cars, mort­gages, pen­sions, and petty bour­geois con­cerns. Politi­cians to­day prom­ise to cre­ate jobs – or more op­por­tu­ni­ties to be ex­ploited by cap­i­tal – not to take over the means of pro­duc­tion.

Cap­i­tal­ism could achieve this trans­for­ma­tion be­cause the re­or­gan­i­sa­tion of pro­duc­tion al­lowed for an un­prece­dented in­crease in pro­duc­tiv­ity. The di­vi­sion of la­bor within and across firms, which Adam Smith had al­ready en­vi­sioned in 1776 as the en­gine of growth, al­lowed for a di­vi­sion of knowhow among in­di­vid­u­als that per­mit­ted the whole to know more than the parts and form ever-grow­ing net­works of ex­change and col­lab­o­ra­tion.

A mod­ern cor­po­ra­tion has ex­perts in pro­duc­tion, de­sign, mar­ket­ing, sales, fi­nance, ac­count­ing, hu­man re­source man­age­ment, lo­gis­tics, taxes, con­tracts, and so on. Mod­ern pro­duc­tion is not just an ac­cu­mu­la­tion of build­ings and equip­ment owned by and op­er­ated me­chan­i­cally by fun­gi­ble work­ers. In­stead, it is a co­or­di­nated net­work of peo­ple that pos­sess dif­fer­ent types of In the de­vel­oped world, cap­i­tal­ism did trans­form al­most ev­ery­one into a wage la­borer, but it also lifted them out of poverty and made them more pros­per­ous than Marx could have imag­ined.

That was not the only thing Marx got wrong. More sur­pris­ingly, the cap­i­tal­ist re­or­gan­i­sa­tion of pro­duc­tion pe­tered out in the de­vel­op­ing world, leav­ing the vast ma­jor­ity of the labour force out­side its con­trol. The num­bers are as­tound­ing. While only one in nine peo­ple in the United States are self-em­ployed, the pro­por­tion in In­dia is 19 out of 20. Fewer than one-fifth of work­ers in Peru are em­ployed by the kind of pri­vate busi­nesses that Marx had in mind. In Mexico, about one in three are.

Even within coun­tries, mea­sures of well­be­ing are strongly re­lated to the pro­por­tion of the la­bor force em­ployed in cap­i­tal­ist pro­duc­tion. In Mexico’s state of Nuevo Leon, twothirds of work­ers are em­ployed by pri­vate in­cor­po­rated busi­nesses, while in Chi­a­pas only one in seven is. No won­der, then, that in­come is more than nine times higher in Nuevo León than in Chi­a­pas. In Colom­bia, in­come in Bo­gota is four times higher than in Maicao. Un­sur­pris­ingly, the share of cap­i­tal­ist em­ploy­ment is six times higher in Bo­gota.

In poverty-stricken Bo­livia, Fran­cis crit­i­cized “the men­tal­ity of profit at any price, with no con­cern for so­cial ex­clu­sion or the de­struc­tion of na­ture,” along with “a crude and naive trust in the good­ness of those wield­ing eco­nomic power and in the sacralised work­ings of the pre­vail­ing eco­nomic sys­tem.”

But this ex­pla­na­tion of cap­i­tal­ism’s fail­ure is wide of the mark. The world’s most prof­itable com­pa­nies are not ex­ploit­ing Bo­livia. They are sim­ply not there, be­cause they find the place un­prof­itable. The de­vel­op­ing world’s fun­da­men­tal prob­lem is that cap­i­tal­ism has not re­or­gan­ised pro­duc­tion and em­ploy­ment in the poor­est coun­tries and re­gions, leav­ing the bulk of the la­bor force out­side its scope of op­er­a­tion.

As Rafael Di Tella and Robert MacCul­loch have shown, the world’s poor­est coun­tries are not char­ac­terised by naive trust in cap­i­tal­ism, but by ut­ter dis­trust, which leads to heavy gov­ern­ment in­ter­ven­tion and reg­u­la­tion of busi­ness. Un­der such con­di­tions, cap­i­tal­ism does not thrive and economies re­main poor.

Fran­cis is right to fo­cus at­ten­tion on the plight of the world’s poor­est. Their mis­ery, how­ever, is not the con­se­quence of un­bri­dled cap­i­tal­ism, but of a cap­i­tal­ism that has been bri­dled in just the wrong way.

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