by Michael Roberts
Noah Smith is a regular economics blogger of the mainstream Keynesian persuasion and writes regularly for Bloomberg now. A recent piece by him was headlined “free markets improved more lives than anything ever”.
And he delivered the now usual argument that capitalism has actually
been a great success in delivering better lives for billions compared to
any previous mode of production and social organisation and, as far as
he can see, it will remain the ‘market leader’ for human beings.
Smith is keen to refute the ‘mixed economy’, anti free trade ideas
that have been sneaking into mainstream economics since the Great
Recession, namely that ‘neo-liberalism’ and free markets are bad for
living standards. Instead, a little dose of protectionism on trade (Rodrik) and state intervention and regulation (Kwak) helps capitalism to work better.
But no, says Smith. Neoliberalism works better. He cites China’s growth phenomenon as his main example! In China, “the
shift from a rigid command-and-control economy to one that blended
state and market approaches — and the liberalization of trade — was
undoubtedly a neoliberal reform. Though Deng’s changes were mostly done
in an ad-hoc, common sense manner, he did invite famed neoliberal economist Milton Friedman to give him advice.”
He then adds India to this argument: “A decade after China began
its experiment, India followed suit. In 1991, after a sharp recession,
Prime Minister Narasimha Rao and Finance Minister Manmohan Singh
scrapped a cumbersome system of business licensing, eased curbs on
foreign investment, ended many state-sanctioned monopolies, lowered
tariffs and did a bunch of other neoliberal things.”
Boy, does this take the biscuit. China’s economy is an example of
successful neoliberal economic policy!? In several posts I have shown
that China is not a free market economy by any stretch of the evidence
and may not even be described as capitalist. It is state-owned and
controlled with investment and production state-directed, with profit
secondary to growth as the objective. Indeed, the IMF data on the size
of public investment and stock globally put China in a different league
compared to any other economy in the world.
As for India, the state sector also remains significant, something
which continually upsets the World Bank and neoliberal economists. The
policy measures of the 1990s can hardly be used as the explanation of
the pick-up in economic growth in India. During the 1990s, productivity
growth in all the major ‘emerging economies’ picked up – only to fall
back again after the Great Recession. Globalisation and foreign capital
were drivers then everywhere.
Anyway it is not really true that Indian government policy is ‘neo-liberal’ – on the contrary. In
contrast, the clear shock switch to neoliberal capitalism by Russia’s
post-Soviet governments and its oligarchs was a total disaster (Smith
calls it a ‘mixed success’!). Growth, living standards and life expectancy collapsed. Indeed,
the conclusion that might be drawn is not that ‘neo-liberal reforms’
have driven the relative economic success of China and India in the last
30 years but their resistance to such policies.
The other main argument presented by Smith for the success of
capitalism is the supposed decline in global poverty since Marx wrote
Capital 150 years ago. “All of the evidence above suggests that the
population living in extreme poverty has fallen very substantially in
the last 200 years across the world. As we have noted, on aggregate, the global population in extreme poverty went from 80% in 1820 to 10% in the latest estimates.”
Now Marx was the first to note the tremendous boost to production
that the capitalist mode of production delivered compared to previous
modes. But as I have shown in previous posts, there is another side to
capitalism’s early years: the immiseration of the working class. And that is a different reality from Smith’s claims.
Back in 2013, the World Bank released a report that there were 1.2bn
people living on less than $1.25 a day, one-third of whom were
children. The World Bank raised its official poverty line to $1.90 a day
and Smith refers to sources based on this threshold. This merely
adjusted the old $1.25 figure for changes in the purchasing power of the
US dollar. But it meant that global poverty was reduced by 100m people
overnight.
And, as Jason Hickel points out, this
$1.90 is ridiculously low. A minimum threshold would be $5 a day that
the US Department of Agriculture calculated was the very minimum necessary
to buy sufficient food. And that’s not taking account of other
requirements for survival, such as shelter and clothing. Hickel shows
that in India, children living at $1.90 a day still have a 60% chance of
being malnourished. In Niger, infants living at $1.90 have a mortality
rate three times higher the global average.
In a 2006 paper, Peter Edward of Newcastle University used an “ethical poverty line”
that calculates that, in order to achieve normal human life expectancy
of just over 70 years, people need roughly 2.7 to 3.9 times the existing
poverty line. In the past, that was $5 a day. Using the World Bank’s
new calculations, it’s about $7.40 a day. That delivers a figure of
about 4.2 billion people living below that level today; or up 1 billion over the past 35 years.
Some argue that the reason there are more people in poverty is because there are more people!
The world’s population has risen in the last 25 years. You need to
look at the proportion of the world population in poverty and, at a
$1.90 cut-off, the proportion under the line has dropped from 35% to 11%
between 1990 and 2013. So Smith is right after all. But this is
disingenuous, to say the least.
The absolute number of people in poverty, even at the ridiculously low threshold level of $1.25 a day, has still increased,
even if not as much as the total population in the last 25 years. And
even then, all this optimistic expert evidence is really based on the
dramatic improvement in average incomes in China (and to a lesser extent
in India).
Smith says that “the reduction of global poverty has been
substantial even when we do not take into account the poverty reduction
in China. In 1981, almost one third (29%) of the non-Chinese world
population was living in extreme poverty. By 2013, this share had fallen
to 12%.“
However Peter Edward found that there were 1.139bn people getting
less than $1 a day in 1993 and this fell to 1.093bn in 2001, a reduction
of 85m. But China’s reduction over that period was 108m (no change in
India), so all the reduction in the poverty numbers was
due to China. Exclude China and total poverty was unchanged in most
regions, while rising significantly in sub-Saharan Africa. And,
according to the World Bank, in 2010, the “average” poor person in a
low-income country lived on 78 cents a day in 2010, compared to 74 cents
a day in 1981, hardly any change. But this improvement was all in
China and India. In India, the average income of the poor rose to 96
cents in 2010, compared to 84 cents in 1981, while China’s average
poor’s income rose to 95 cents, compared to 67 cents.
Moreover, poverty levels should not be confused with inequality of incomes or wealth. On the latter, the evidence of rising inequality of wealth globally is well recorded . The latest annual report by Credit Suisse
on global personal wealth found that top 1% of personal wealth holders
globally now have over 50% of the world’s wealth – up from 45% ten years
ago. Actually, the majority of people in the major advanced capitalist
economies will be in the top 10% of wealth holders because billions of
people have no wealth at all!
Credit Suisse found that global wealth rose 6.4% over the past year –
the fastest since 2012 – thanks to rising share markets and house
prices. But the weakest growth was in Africa, the poorest region, where
household wealth rose just 0.9%. Taking in into account population
changes, wealth per adult fell by 1.9% in Africa. The fastest growth was
in North America, where it rose 8.8% per adult.
And on current trends, inequality will rise further. The outlook for
the millionaire segment looks much better than for the bottom of the
wealth pyramid (less than $10,000). The former is expected to rise by
22%, from 36 million millionaires today to 44 million in 2022, while the
group occupying the lowest tier of the pyramid is expected to shrink by
only 4%. In the US, the
three richest people in the US – Bill Gates, Jeff Bezos and Warren
Buffett – own as much wealth as the bottom half of the US population, or
160 million people.
As for incomes, if you take China out of the figures, global
inequality, however you measure it, has been rising in the last 30
years. The global inequality ‘elephant’ presented
by Branco Milanovic found that the 60m or so people who constitute the
world’s top 1% of income ‘earners’ have seen their incomes rise by 60%
since 1988. About half of these are the richest 12% of Americans. The
rest of the top 1% is made up by the top 3-6% of Britons, Japanese,
French and German, and the top 1% of several other countries, including
Russia, Brazil and South Africa. These people include the world
capitalist class – the owners and controllers of the capitalist system
and the strategists and policy makers of imperialism.
But Milanovic also found that those who have gained income even more
in the last 20 years are the ones in the ‘global middle’. These people
are not capitalists. These are mainly people in India and China,
formerly peasants or rural workers have migrated to the cities to work
in the sweat shops and factories of globalisation: their real incomes
have jumped from a very low base, even if their conditions and rights
have not. The biggest losers are the very poorest (mainly in African
rural farmers) who have gained nothing in 20 years.
The empirical evidence supports Marx’s view that, under capitalism,
poverty (as defined) and inequality of income and wealth have not really
improved under capitalism, neoliberal or otherwise. Any improvement in
poverty levels globally, however measured, is mainly explained by in
state-controlled China and any improvement in the quality and length of
life comes from the application of science and knowledge through state
spending on education, on sewage, clean water, disease prevention and
protection, hospitals and better child development. These are things
that do not come from capitalism but from the common weal.
So Marx’s prediction 150 years ago that capitalism would lead to
greater concentration and centralisation of wealth, in particular, the
means of production and finance, has been borne out. Contrary to the
optimism and apologia of mainstream economists like Smith, poverty for
billions around the world remains the norm, with little sign of
improvement, while inequality within the major capitalist economies
increases as capital is accumulated and concentrated in ever smaller
groups.
If you have opinions about the subject matter of posts on this blog please share them. Do you have a story about how the system affects you at work school or home, or just in general? This is a place to share it.
1 comment:
I recommend the Pew Research paper on global poverty, it's a little different than Michael Robert's report, but essentially the same: http://www.pewglobal.org/2015/07/08/a-global-middle-class-is-more-promise-than-reality/
The last graph shows the distribution of the world's population vis a vis income, about half of humankind lives with an income of less than $5 a day, and maybe 67% live at less than $7 a day, and 71% live at less than $10 a day.
Roberts reports the World Bank threshold for poverty is around $7 plus change a day. And that would mean about two thirds of humanity. So what is the global average per capita income? I guess global annual income is about $81 trillion, and that's an intelligent guess, it is 5 times the U.S. annual income of $16.2 trillion. And that is also $11,250 a year per person, or almost $31 a day per person. So our average global per person income is six times greater than what most humans live on --- $30 is the average and half live on less than $5. This to me is a smoking gun, the demonstration that capitalism fails to provide for the humans who are forced to participate in the system.
Michael Roberts is an amazing scholar, simply amazing.
Here's what we could do -- the World Bank could print about $3 trillion a year and distribute it to the neediest countries, creating the public health infrastructure, the educational infrastructure, and etc., in places that most needed it. $3 trillion is just 1% of total global wealth as given by the Credit Suisse World Wealth Report. And then rich nation could start taxing wealth seriously. We tax property taxes, $488 billion a year in the U.S., and that goes to local and state governments. If we taxed financial assets we could raise $1.1 trillion at the same rate as the property tax. It should become normal to tax financial assets, and that is because those assets are simply hoarded and are essential wasted, unused, contributing nothing for the most part, just a mountain of greed. Now I'll go to M. Robert's blog page and insert this comment. Thanks. My blog, http://benL8.blogspot.com, Economics Without Greed
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