Poverty the role of

Capitalism and the

State

SBG-048

Student: Hendrik-Jan Postma

Supervisor: Dr. Sidi Omar

Castellón, October 2014

Abstract: This paper facilitates an analysis of poverty. The paper approaches poverty from a

capitalist view and analysed the effects of it on society and how it is created by the current economic

system. Furthermore, the paper argues that the current economic system perpetuates poverty. Poverty

is further explored in the world and in particular on the African continent. The analysis in this paper

is based upon investigating politics, social sentiment, and research of various papers and journals that

already wrote on this topic elaborately. This paper includes personal opinions as well as statistics.

Possible solutions given in this paper are solely based upon the author’s opinion and peer-evaluation

with other people and readings or articles. The introduction of paper will outline the basic definition

of the problem and provide a narrative of the ongoing debate on poverty.

Keywords: Poverty, government, alienation

The history of the creation of poverty It is interesting to think that poverty was created instead of it being a phenomena that is the result of

an activity. Imposed poverty, undoubtedly hurts, degrades and drives people into desperation. In

many place, hunger and misery cry out to heaven. Indeed, few development concepts find their proof

in such a reality. Yet poverty is also a myth, a construct and the invention of a particular civilization

(Rahnema, 2010). In 1948 a report was published by the World Bank, the report concluded that

modern economies had more or less eradicated poverty, thus the correlation between gross national

product and poverty was made. From now on countries with less than $100, - income per capita were

per definition poor. For the first time in history entire countries and continents became labelled as

poor because of this report. With the introduction of GNP as measurement tool the approach to

poverty shifted from a multi-faceted problem into a single phenomenon that existed particularly in

pre-economized countries. So, the solutions was technological and economic development. But

probably the most important event with this introduction and impoverishment of entire countries was

the fact that it made people believe they were poor. By introducing a construct where the ‘lack’ of

certain objects are to be perceived as poor, people became to realize that indeed they were poor.

Remember that people can easily compare with the naked eye, or in other words how they perceive

others, and thus themselves. In the ‘western’ world the idea of poverty as in the lack of certain

‘materialities’ was already widely known and adopted by individuals. However, as mentioned before,

entire nations and continents were now to believe the same thing. Whereas without this notion they

might enjoy their life in their close community anywhere on this planet, but by decree of the World

Bank report all in the sudden their life-style was undervalued. Moreover, when enough people were

manipulated into sharing the new economic myth that poverty could now be finally conquered

through increased production, most traditional societies who previously resisted change or acceptance

of this form of poverty were now devalued and discredited. People could argue that with the

introduction of poverty as a standard for those who earn less than a certain amount, their perception

was shifted towards the ‘western’ understanding. However, the majority of civilization in ancient

history or beyond had poverty in terms of the ‘lack’ of something. Exceptions to the case are for

example the teachings of Gandhi, in which he argues that alienation and materialism go hand in hand

and that in fact living a life without ‘the need’ of materialities is actually richness. A very interesting

point of view in my personal opinion, but hard to understand in contemporary society. Anyhow, as

described most civilizations had the notion of poverty being the phenomena of the ‘lack’. Even though

with the introduction of GNP and other economic measurement tools and the process of the construct,

the fact remains that according to this model they are indeed ‘lacking’ something that would alleviate

them towards a higher standard of living. Meaning, doesn’t healthcare, education, and other public

services that provide basic needs cost money. I think, the answer in the current economic model is:

yes. And isn’t it true that good healthcare prolongs life, and education gives knowlegde and

understanding that help the progress of growth in any discipline you desire. Again, I think the answer

is, yes. This would mean that the introduction of the tools for measuring poverty are after all good

and indeed contribute to raising not only awareness but also real development in the sense of

extending life-time and increasing literacy rates. However, I also see that focusing solely on the

economic dynamics and thus, approaching it as a single phenomenon leaves out key questions. For

example by introducing the need for economic development, production is shifted from a family

providing model to a profit model in which the balance with nature is disturbed. Furthermore, the

entire setting of society in some country and thus also, family settings changed. People in Asia now

forced to work in the city due the lack of work in rural areas, whereas their children grow up with

their grandparents so their parents can work and earn money to pay for the children’s education. Yes,

education is important, and adequate medical healthcare is important, but is it more important than a

certain way of life. Perhaps more importantly does it all allow us to impose it on others for the sake

of helping them and improving their condition, even it includes destruction of community behavior,

family relations, and mindsets? I believe the right balance should have been introduced, and instead

of approaching it as a single phenomenon ‘economics’ other approaches should have been included

in this process. Nowadays, with the introduction of the Human Development Index and numerous

other measurements tools to determine the level of development give a broader view and perspective

on countries. However, especially governments and institutions still use GNP as a dominant indicator.

Poverty does not begin with misfortune – poverty is the basis of misfortune Eradicating or at least alleviating poverty is an urgent challenge. For many decades, various

institutions have tried to address this challenge. Local governments, developed country governments,

international organizations, such as the World Bank and the United Nations, aid foundations and non-

governmental organizations. So far, the discourse has been in the fields of public policy and

development economics (Karnani, 2011).

Usually when people talk about poverty, most people immediately think of homeless people and

beggars and or of anything phenomena related to poverty as ‘we’ know it in the modern urban

environment of the 21st century. The case of a shortage of money that threaten a person’s whole

existence is only part of a much more widespread and continuous struggle to live within purchasing

power. Homeless people in front of empty apartment buildings and beggars in front of full stores are

nothing but personifications that witness a valid principle of capitalist societies, the principle that

needs that cannot be paid for are not met. If, in the contemporary world everything that one needs to

survive and live; food, housing, means of production is property, and people can access their needs

only if they are willing and able to pay the price demanded by the seller, then the consequence is that

this society is not concerned with supplying its members with what they need. The enormous wealth

that is produced is not produced in order to satisfy the needs of the members of society, but only for

the purpose of using the ability to pay to exists in the society in order to transform manufactured

goods into money. For this reason, nothing is produced for needs that are not backed by the ability to

pay. For example, how much can be earned from the available sources of incomes is in an inverse

relation to the needs for which one works. Every new child, each case of illness, accident or divorce

does not lead to an adjustment of income to the new circumstance. How much one earns on a job

depends solely on the cost/benefit calculation of the owner the person works for. This example merely

illustrates the circumstance that create poverty in the ‘western world’ on a minimal scale, but the

basic premises is globally applied, unfortunately the ‘west’ is not the main victim of this phenomena,

some say; just the sole beneficiary. In order to understand poverty as a by-product of capitalism we

have to look into the reward system of enterprises. With the success of capital, the size of its profit

requirements grow. Employment and job security do not grow along with it. Rather, the contrary is

true: with the success of capital, the insecurity of those who have to live on wages grows (Easterling,

2003). Capitalist firms grow in competition with each other. They mutually content among

themselves for business success. In addition, they lower the price of the goods they produce, undercut

the competition, and so ensure that whatever exists in demand becomes their profit and not that of the

competition. In order to lower prices, the entrepreneurs increase the productivity of the labor they

buy. They constantly organize new machinery that makes work more productive, thus produces in

less time the same amount of products or produces more products in the same time as before. They

make the work cheaper for themselves by saving on paid work through increasing the productivity of

work. Again, here you see that productivity go above human resources. A CEO of a company would

argue that he increased profit of his firm by 10% because they installed new machinery and increased

efficiency in terms of production, the shareholders are very content and congratulate the CEO, while

at the same time numerous people are fired because their human labor could not keep up with the

interest of the firm. Increases in production are not in order cut down on toil. Rather, productivity

increases serve only to save on paid work for the entrepreneurs. Companies invest, fire people, and

have the reduced number of workers manufacture just as many product, or more, as the bigger staff

did before. Profit making in this sense is one of the reasons for poverty, and yesterday’s growth is the

reason for today’s unemployment, hence poverty. Unemployment as it were is the perverse reward

the system gives workers for always increasing the productivity of their work. The enormous number

of workers the extent of their poverty is almost an indicator of the productivity reached by work, the

human source of material wealth (Ruthless critisism , 2014). However, production/employment is

only one of many dynamics that keep the world unbalanced in the current economic system. When a

survival system breaks down, migration is incited. Employment in a global system that necessitates

wage labor is a survival system, and the lack of decent employment opportunities is a systemic flaw,

one way or another. Take for example NAFTA, the agreement between Canada, Mexico, and the US

which imposed many agricultural reforms of which the poorest are the victim especially in Mexico.

Then from my point of view the immigrant inflow, both legally and illegally in the USA is a result of

their own activity. A lot of people do not see to link all the facets in the world with the phenomena

poverty, but surely unemployment like migration is a direct effect of poverty and shows the structural

violence that is caused and rooted in global economic liberalization politics (Arnoy).

Interesting to think of the capitalist system as a moral and ethical system. If a person is asked to write

down virtues of life the list would probably include virtues of self-control, self-efficacy, regards,

respect, and kindness. I am convinced that every single human being on this planet would include

these in their list. But the list you make consciously is completely different than the list you have

unconsciously, namely framed into the capitalist system, which exploits human nature based on self-

preservation, greed and self-interest. The question is not whether they are adaptable or outweigh the

other, it is for the individual to decide whether or not he or she wants to be kneel for these

shortcomings and transform and evolve. Basically the effect of this form of exploitation is alienation

from humanity and human nature (cox, 1998).

Artificial poverty I have outlined the system that creates poverty in a sense. However, the ‘west often sees poverty as

not being able to buy certain goods or service, in other continents on this planet poverty means

hunger, malnutrition, poor health, illiteracy etc. In the following chapter I will try to illustrate the

comparison between the capitalist system in the ‘west’ as premises for poverty all over the world.

The global need of land and its resources like water, plants, timber or minerals is continually

increasing. This leads governments and private investors to look for cheap resource-rich land close

to infrastructure. The land is often taken from farmers who are the traditional users (Porter, 2013).

This phenomenon is called ‘land grabbing ‘and contributes to poverty and social conflicts. Land

grabbing happens on all continents, but 60 percent of it takes place in Africa. Host governments tend

to welcome investors hoping to benefit from the sale of land. They offer fertile land with easy access

to water and infrastructures. The contrast rarely include conditions protecting the interest of local

communities or the country itself. Extractive industries are part of this phenomenon. Concessions

are smaller but extraction activities cause ecological catastrophes in the surrounding area. The need

and increase in the coming decades is estimated at 80 percent (Lopes, 2013).

Many people argue that the ‘West’ needs 3th world countries in order to sustain their hegemony and

economic growth, and basically their entire way of living. The largest manufacturing countries:

China, Germany, Canada, USA, India, South Korea, Taiwan, Brazil, and Japan depend on natural

resources from domestic trade or international trade (Deloitte, 2013). It is not surprising to see that

the top importers of natural resources are the same countries that are the largest manufacturers (Ruta,

2012). The African continent is the continent that make the world go round, as one of the largest

exporters of natural resources (CNN, 2013). As described in the previous section production cycle is

about efficiency and cost reduction to maximize profit. Unstable and corrupt governments make easy

negotiators for foreign investors. The total foreign investment in Africa is around 80 billion USD

(Stevis, 2014) annually, note that for example the total aid to the African continent is around 150

USD (OECD, 2013). As mentioned before the need for production and thus the need for resources is

ever growing. With instability and low-prices, most of time controlled by the same firms that are

responsible for the investments in the country the manufacturing prices will be low, whereas the sales

price is high and thus, again maximization of profit.

However, this does not necessarily mean that large corporations need instability and corruptible

governments to expand their business in. However it does show a correlation as it does with

production with human resources and labor, namely: prioritization. The countries in Africa allowing

this investment are not the ones who benefit from this economic activity. Ultimately it should be the

nation state and thus the people in the country who should benefit from this activity in ways of

employment and public services. As employment might be the case the duality in this approach is

notable as business seek prioritize efficiency over human interest. My personal view is that global

poverty is imposed and I do not mean by evil ‘multi-national corporations’. Even though corporation

exploit unethically and immoral in many ways and are using the system to expand their business, this

includes destruction of natural resources, local communities, and the natural environment. The core

of the problem lies, when it comes to many African countries in the governmental structures and their

rulers, or politicians. Many systems are in place that keep the people in the country poor and only

enrich those who are relatives or have good connections to people in the government (Moyo, 2009).

Throughout the continent, farmers are told to sell their produce to a central marketing board often run

by the politicians or their families. Farmers would get paid at rates below the market price. The board

would resell at full market value, keeping the difference for themselves. As a consequence many

produce just enough for themselves or try to enter the black-markets. Same goes for ‘land-reforms’,

and many other forms of economic activity that is based upon corruption and enrichment of the few

(Peron, 2011). At the same time governments would send aid to the countries to help them, because

officially they are poor, at least according to the models they apply. So, it seems that the problems

are caused by the lack of capacity of the governments to develop their country. Africa is one of the

richest if not the richest continent on this planet, the continent could become a world leader in

production and economic activity, and this would greatly improve the standard of living of people.

So, the main question is how are stable governments formed that look at the interest of the nation

instead of self-enrichment. Probably the answer lies in nationalism or civil unity. However, with tribal

interest and disputes between groups in the country, the system in which they are now does not seem

to end, until inner-peace between people is reached, hence national unity. However, before this is

achieved inner-peace of the individual is necessary. Remember that those people were not born to be

poor, nor did they earn their own poverty through choices they made. Poverty was imposed on them

by the governments that rule them.

Reflection on the course At the start of this course, I honestly expected something completely different. Even though the course

syllabus was clear, the direction in which the class was going during the course was different than

what I expect initially. Let me clarify, perhaps it is my personal lack of knowledge or my academic

background that told me that development is about economics, and economics only in a sense of

developing other countries. However, during the class I came to realize that development, and in

particular the definition of development has so many different angles, and applications. The discourse

of development changed my opinion on development. Initially I believed that economic development

was the sole solution to the problems in impoverished countries. With an academic background in

International Business and Management I was taught that the solution to poverty was economic and

technological development. As described in my paper, I see things differently now. Many people

believe that the ‘West’ has a moral duty to develop the rest of the world, for they are ‘Developed’.

However, the lack of capability in underdeveloped countries does not necessarily mean that it is our

duty. From my perspective, at least now, the power and capacity has to come from within. The

problem basically is that many people approach development from a government level or

organizational level. Fact of the matter is that development starts and I believe should start inside an

individual on a personal level. Perhaps, that is the whole problem, trying to achieve major change on

high level, whereas approaching it on an individual level and achieve multiple minor success into

bigger successes. The mindset of people has to change, they have to be willing and able to participate

in development on an individual, local or community level for it is all a social construct. Moreover,

there has to access to development and all dynamics involved. Aid programs and governments

therefore should invest in the access that’s is needed. This does not leave out the role of the

government and other organization but it merely shows the necessity of personal involvement and

personal capabilities to change.

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