Capitalism has failed the poor because it considers interests of only people with money, to the exclusion of everyone else.
“Human entrepreneurship” is the magic wand that creates prosperity. We lead a rather safe and comfortable life today because of scientific, technological and medical advances of past few centuries. Today we have much better social infrastructure and human development than some decades ago – and certainly far better than 100 years ago. It all testifies to the superb potentials of human capabilities and ingenuity. This is the reason why the UNDP declares that “People are the true wealth of a nation.”
[World would have been a far better place if nations defined “development” by keeping people at the focus and developed economies around them. Today, economy and technologies occupy the spot light and people are just the tools to achieve it! As a result, people are no longer the true wealth of nations; material possessions and technological advancements are.]
People and their capabilities are nurtured by socio-economic conditions which vary from society to society. As a result, many parts of the world are seeing unprecedented prosperity and wealth creation while others have seriously lagged behind. There are socio-political and cultural reasons why many parts of the world failed to taste the fruits of development. But that is beside the point.
Leaving aside the natural differences among societies and people, the most worrisome problem is the extremely high levels of inequality within most countries. This inequality is so striking that increasing number of people wonder if market driven economy has failed the poor – many blame the capitalistic economic model for persistence of poverty. Over 2.5 billion people (of the total 7.2 billion global population) live within less than $2-a-day income and about 1 billion survive below $1.25-a-day. Poverty related issues are still behind most major problems around the world.
The US offers a great example of inequality created by an “almost free” market economy. According to a recent report, about 49 percent Americans are receiving benefits from at least one government program and nearly 150 million citizens (of the 315 million total population) are considered to be either “poor” or “low income.” There are many other grim facts on poverty in the US – which by all means is a symbol of free-market capitalism for the whole world particularly since 1980s. The government welfare programs serve to redistribute income from the top to the bottom via the tax system. This is the only mechanism that serves to reduce inequality to some extent.
Trend of Growing Accumulation of Wealth in Few Hands
Since fall of the communist bloc in 1990 wealth has been increasingly concentrating with fewer people and global elites are becoming increasingly richer. Yet the vast majority of people around the world remain excluded from this prosperity. For instance, while stocks and corporate profits soar to new heights, wages as a percentage of gross domestic product (GDP) have stagnated.
Oxfam International’s briefing paper of Jan 20, 2014 (title: Working for the Few) highlighted the fact that the wealth of the 1% richest people in the world amounts to $110 trillion – it’s 65 times the total wealth of the bottom half. The wealth of the richest 1% increased from 44% in 2009 to 48% in 2014 while the worst-off 80% at the bottom currently own just 5.5%. If the trend continues the richest 1% would own more than 50% of the world’s wealth by 2016. In short, currently the total global wealth is almost evenly divided: around one half is with the richest 1% and the remaining half is shared by the rest 99%. Amazing, isn’t it?
Note further: 70% people live in countries where economic inequality has increased in the last 30 years; the richest 1% increased their share of income in 24 out of 26 countries between 1980 and 2012.
The financial crises of 2008-09 failed to bring any fundamental change in the working of the financial world that would change the trend. In the US 95 percent of post-crisis recovery between 2009 and 2012 was captured by the wealthiest 1%, while the bottom 90% became poorer.
To give an indication of the scale of wealth concentration: In 2013 only 85 richest people had wealth equal to the combined wealth of the poorest 50%! Currently, only 80 richest people have as much wealth as the combined total of 50% of the poorest humanity. Between 2009 and 2014, these richest 80 doubled their wealth in cash terms. The combined wealth of Europe’s 10 richest people (€217bn) exceeds the total cost of stimulus (€200bn) measures across the European Union (EU) between 2008 and 2010. Furthermore, post-recovery austerity policies made life of poor harder, while making the rich even richer. Austerity has also adversely impacted life of the middle classes. The rich elite use their money for lobbying policymakers and funding election campaigns to further their interests. This further excludes the poor from the policy making circle.
Such massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. It destabilizes societies; people no more move forward together, they are increasingly separated by economic and political power, leading to increased social tensions and the risk of societal breakdown.
Moreover, it also dampens economic growth. It is, however, not inevitable and can and must be curtailed.
Yet, experience shows that capitalism is the only model that works, despite its imperfections – most notably, its exploitative character and tendency to favour the rich.
Too Narrow Focus of Capitalism – Profit Maximization For The Few
The current brand of popular “shareholder capitalism” revolves around a single theme: maximizing profits for the shareholders. It is designed to serve the interests of a very small fraction of people, investors – people with the capital. As a result, interests of all other stakeholders – employees, society and environment – become secondary and subordinate. In fact, there is a built-in conflict of interest; employees must be paid the least and all other expenses minimized so that owners’ share is maximized.
People believe that this concentrates wealth and prosperity in too few hands and creates an elite class that turns politically powerful. Then they use power to further their business interests. This sets in a vicious cycle of money and power feeding each other. Needless to say, this also undermines free and fair play of democratic norms which in the extreme case destabilize the society.
Governments run welfare programs for the poor and needy from the collected taxes which partly redistribute wealth from the rich to the poor. However, what is not passed on to the poor is the influence and power enjoyed by the elite class. As a result, people at the lower end survive but can’t change their fortune. This is also precisely what is wrong with the charity – it keeps the poor where they are, in poverty!
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