Does Capitalism Perpetuate or Prevent Extreme Poverty?
It depends on whom you ask and what data they reference to answer the question.
When I launched this “In Between the Lines” series two weeks ago, I underestimated how frustrating it would be to focus on the complexities that make incremental changes so challenging. Sitting face-to-face with the realization that self-interest is a stronger motivator than compassion is discouraging. Realizing that it is much easier to complain than it is to take action is frustrating. I am still, despite everything, holding onto hope for the future. Why? Because I hope that my writing and reflecting on these ideas encourage more people to look beyond eye-catching headlines and think critically about the factors that influence our lives.
In this article, I am going to clarify terms, spend time exploring what people love and loathe about capitalism, and share reasons to maintain hope and take action regardless of the debate.
Let’s start by defining a few key terms. First on the list: capitalism. Merriam-Webster dictionary defines capitalism as, “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” Capital itself is wealth — i.e. money and goods — that produces more wealth. Free enterprise (aka free market) is an economy where markets interact and determine prices, products, and services rather than the government.
All economic systems are essentially a way to help people cooperate and use what they have to produce, purchase, or exchange for what they want. In a capitalist system, market forces decide who gets what and how much of it. It’s a system of self-interested people coordinating their self-interested activity. Self-interest, in this context, isn’t necessarily negative. It’s simply an incentive for behavior.
All economic systems are essentially a means to help people cooperate and use what they have to produce, purchase, or exchange for what they want.
Now, what does all of this have to do with extreme poverty? A lot! Mainly because opinions about the proper way to organize an economy have major implications. In particular, they have a strong influence on why different solutions to poverty develop and how their results get interpreted.
Strong supporters of capitalism typically argue that economic freedom is the key to eradicating poverty because it leads to mutually beneficial exchange. The founder of The Heritage Foundation, Edwin J. Feulner, argued just that in a 2019 article titled, Eradicate Poverty? We Already Know How. The foundation itself created an Index of Economic Freedom to explore this idea. The index is an annual guide that analyzes economic conditions around the globe. Its core finding? “The freer the country, the more prosperous it is.” In Feulner’s writing, he shares that free enterprise is key to helping the poor and that government intervention was hurting more than helping to combat economic inequality.
“The freer the country, the more prosperous it is.”
The Heritage Foundation is not alone in its stalwart support of capitalism. In 2016, Marcelo Guadiana, a writer for The Borgen Project, published an article sharing Four Ways Capitalism Has Helped Alleviate Poverty. The main points it discussed were:
1) Extreme poverty has almost disappeared in industrialized countries
- In particular,1 billion people have been lifted out of extreme poverty from the 1990s until now. (A/N: If you’ve read, or are reading, Uplift and Empower this statistic is not unfamiliar.)
2) Third world countries are moving out of poverty.
- For example, Guadiana states that “Thirty years ago, 50 percent of the people in the poorer nations of the world lived in extreme poverty. In contrast, in 2012, 21 percent of people in the poorer nations of the world lived in extreme poverty.”
3) More aid can reach third world countries.
- As globalization has increased, aid has increased and more development projects have been supported.
4) Standard of living has gone up; more leisure time.
- Living standards have increased since the agricultural and industrial revolutions. Now, people have more time for leisure and learning.
The article credits free-market capitalism for helping to combat severe poverty and uses countries like China and India as examples. As both countries moved away from central government and toward capitalism, economic conditions improved. Essentially, excessive government regulation and restrictions are blamed for the persistence of poverty.
In the mind of a capitalist, capitalism is one of the greatest weapons against low standards of living and extreme poverty ever created. The quote below from a Forbes article written in 2015 by Tim Worstall is a helpful insight into this mindset. In his writing, Worstall — a former fellow at the Adam Smith Institute in London — argues it’s not capitalism that causes poverty, it’s the lack of it. He cites the differences in productivity levels between high and low-income countries as proof.
“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.” — Tim Worstall
These ideas are not without their critics. As I mentioned earlier, it’s important to start with defining key terms. Merriam-Webster dictionary defines socialism as, “a system or condition of society in which the means of production are owned and controlled by the state.” However, this definition has shifted and changed over time. Now, democratic socialism is more commonly referenced. In this context, democratically elected officials guide extensive state regulation with limited state ownership. It is a combination of capitalism’s wealth creation and socialism’s safety nets.
If you ask a supporter of socialism about the influence capitalism has had on extreme poverty, you will hear an entirely different story. Even the goalposts used to measure progress are different. To understand the contrasting mindset, I looked to the Socialist Appeal — the British section of the International Marxist Tendency. A 2018 article from the news source titled World Poverty: Capitalism’s Crime Against Humanity argues that while relying on data is useful, predominately relying on it doesn’t always tell the full story. This idea is especially true when the organizations and individuals creating the goalposts and reports have a vested interest in displaying progress — for the sake of inspiring a spirit of optimism and generosity from donors and for the sake of keeping their jobs.
The article also draws attention to the fact that using a threshold like the international poverty line (IPL) doesn’t always paint an accurate picture of life in poverty. Pakistan’s efforts to eradicate poverty are an example:
“According to the World Bank, Pakistan’s efforts to reduce poverty (aided by over $5bn in World Bank loans) have been very successful, with its poverty rate falling from 15.9 percent of the population to 6.1 percent between 1996 and 2013. The World Poverty Clock, extrapolating from the World Bank’s data, has even been so bold as to declare the level of extreme poverty in Pakistan “below 3 percent”. But according to Pakistan’s own National Nutrition Survey of 2011, a third of all Pakistani children are underweight, nearly 44 percent have stunted growth and half of them are anemic. Most discouraging of all, the level of child and maternity hunger in Pakistan has hardly changed over the last two decades according to a study published in The Lancet in 2013. Nor has the situation much improved since then. According to the Global Hunger Index 2016, 22 percent of the population is “undernourished” and 8.1 percent of children die before the age of five due to malnourishment.”
In Uplift and Empower, I often reference the common statistic that a person living on less than $2 a day is living in extreme poverty. However, in addition to the fluctuation of this threshold based on the income level of the countries (which I reference in my footnotes), there is also an additional difference: that poverty line is only a median of the lowest national poverty lines in the world. There are clear faults to using that threshold.
Rather than using this popular metric, some socialists use a threshold that paints a less cheery picture of global progress toward poverty eradication: the ethical poverty line.
As a Newcastle University researcher, Dr. Peter Edward, states in his article, The Ethical Poverty Line: A Moral Definition of Absolute Poverty, “[the international poverty line (IPL) for short] is not derived from any consideration of well-being or basic needs.” Essentially, the IPL is an “unreasonably low” reference point to use as a measure of poverty.
Dr. Edward proposes an ethical poverty line (EPL) based on well-being measures, public health, and life expectancy. As of 2006, compared to the World Bank’s then $1-a-day threshold, “the Minimum EPL more than doubles the number of people considered to be in poverty to 2.5 billion, or 40% of the world’s population, while the Global EPL lifts this to 3 billion, or 50% of the world’s population,” which makes progress a lot more bleak than staunch capitalists would like to believe. Raising the extreme poverty threshold to the EPL would mean even more work needs to be done to eradicate poverty; for example, raising taxes on consumption. Based on the amount of push back that tax increases typically receive, for many, the true cost of eradicating — or at the very least substantially decreasing — global poverty would be too high to handle.
In short, when considering counter-arguments to the idea that capitalism is reducing global poverty, at least in the context of an international socialist organization like the Socialist Appeal, the answer is simple: “The overall result [of capitalism] is not the lifting of humanity from the depths of poverty but rather the forcible maintenance of the overwhelming majority of the world’s population in a state of slavery — too poor to escape from exploitation but not poor enough to starve.”
“The overall result [of capitalism] is not the lifting of humanity from the depths of poverty but rather the forcible maintenance of the overwhelming majority of the world’s population in a state of slavery — too poor to escape from exploitation but not poor enough to starve.”
From this perspective, capitalism is not a suitable solution to eliminating poverty because worker exploitation is the basis of capitalist profit.
This debate highlights how different interpretations and thresholds for the same problem lead to vastly different solutions. On the one hand, spreading capitalist ideals as wide and far as possible. On the other hand, breaking down the capitalist system entirely. Where do we go from here?
Well, we need to balance between discussing meaningful systemic change, changing the systems, and envisioning a brighter future. There is room in social movements for all of those things.
It is a privilege to critique society behind a laptop screen after spending hours reading classic texts. It is a privilege to talk about social issues without directly facing the inequalities we discuss. While we have our conferences, meetings, and phone calls in the comfort of our homes, individuals are living in extreme poverty, working to make ends meet and praying that they will make it another day. Their annual income is likely less than the cost of the laptop or mobile device that you are using to read this article.
We need to take action now in our current system while we simultaneously discuss how to create new systems that benefit the majority. Those who are in power and own the large concentrations of wealth aren’t going anywhere anytime soon. In the meantime, any substantive changes will require capital, cooperation, and compromise. Without it, we’re grasping at straws while either directly or indirectly seeking financial support through businesses — or governments — run or influenced by those in power.
We need to take action now in our current system while we simultaneously discuss how to create new systems that benefit the majority. Those who are in power and own the large concentrations of wealth aren’t going anywhere anytime soon. In the meantime, any substantive changes will require capital, cooperation, and compromise. Without it, we’re grasping at straws while either directly or indirectly seeking financial support through businesses — or governments — run or influenced by those in power.
Educating yourself empowers you, but how can you make a difference with the knowledge you gain? I started with writing my book, Uplift and Empower, and launching a scholarship fund to support high school seniors in my hometown. I had a lot to learn and a lot to write. I’m still learning daily, but I knew that as a starting point, I could at least support students like me.
You can start with volunteering your time at a local organization or mentoring a low-income student in your community. You know better than I ever could where and how you can make an impact in your hometown.
There is no perfect way to eradicate poverty, but something is better than nothing.
How can you start?
- Think local. What areas in your hometown could use your support?
- Break down your problem. What resources, knowledge, and skills can contribute to solutions? Can you outsource for elements beyond your skillset?
- Pick your area(s) of focus. Based on your interactions with people in need, what problems should be solved first?
From there, you can begin to expand as you learn more. The “How Can You Help?” page on UpliftandEmpower.com breaks down the key contributing factors to life in poverty (beyond money) and ways that you can engage in alleviating poverty where you live.
It is easier to be a keyboard warrior than it is to step out onto the battlefield of social change. I don’t know about you, but I’d rather be on the frontline.
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This article series, In Between The Lines, is an exploration of some of the topics and ideas I didn’t cover in my first book, Uplift and Empower: A Guide To Understanding Extreme Poverty and Poverty Alleviation.
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Uplift and Empower was published on August 15, here is the link to buy it: https://www.amazon.com/dp/1641379243/! (The book is also available for sale at BN.com, Kobo, Walmart, and other distributors worldwide. Check UpliftandEmpower.com for more options.)
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