Economic system failing the poor

Professor Geof Davies of Australian National University recently published a book titled

" Economia" ( ABC Books). The book is of nearly 500 pages that cover much more than economics. The author has come to a conclusion that the prevailing unbridled capitalistic economic system that dominated the world after the collapse of Communism in 1990 has been working against poor people.

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Nobel Laureate Professor Amartya Sen holds almost similar view when he states : " We live in a world incomparably richer than ever before... But ours is also a world of extraordinary deprivation and staggering inequality. An astonishing number of children are ill-nourished and illiterate as well as ill-cared for and needlessly ill... There is a need for change, a strong case for a far reaching re-examination of the institutional structure of the international world."

The fall of communism in Russia and in Eastern Europe has demonstrated that capitalism has come to stay as the norm for the world's market-economy. Most of the industrialised countries heavily promote unrestrained markets and exploitation of natural resources and the net result is that it rewards selfishness and greed of individuals, while at the same time it increases disparity between rich and poor. The ardent capitalist advocate former British Prime Minister Margaret Thatcher went extreme in her views in supporting capitalism and once said that she did not believe in a society but only in individuals.

Theorists surmise that Hongkong and Taiwan's economic success even led Chinese Communist leadership towards market capitalism. Some of its roads in the cities have their lighting festooned by advertising of foreign goods, like Pepsi or Volkswagen. The country is a huge production and consumption for many foreign brand-name corporations. And in recent months Chinese leaders amended their Constitution by recognising the ownership of private property. Membership of Communist Party is not barred to private and rich entrepreneurs.

Effects of capitalism
Although it is possible to feed, clothe, educate, house and provide a satisfying life for all of the 6.3 billion people in the world with the existing world's wealth, the current vaunted economic system fails to provide for the most basic needs of poor people. Many economists argue that the capitalist economic system has widened the disparity between the rich and the poor. For instance, 1.2 billion people live on less than a dollar a day while 200 riches persons doubled their income to US$ 1,000 billion in last four years.

The industrialised world presently spends US$300 billion a year on subsidies and tariff protection for their farmers and US$ 1,000 billion a year on military expenditure. Only 5 per cent of global military expenditure would be enough to halve the proportion of people who live on less than US$ 1 a day, halve the proportion of people who are hungry and achieve universal primary education by 2015.

Under the free market policy, primary producers in developing countries get a fraction of sale price. For instance, an UNCTAD study found that share of cotton growers is about 6.4 percent of the final retail price of a ready-made garment. Furthermore, export marketing is controlled by transnational corporations and a study found that 85 percent of cocoa beans, 75 percent of bananas, 90 percent of tobacco leaves, 85 percent of tea, 90 percent of coffee are marketed by transnational corporations. There is a tendency among the corporations to lower price of raw materials and raise price of their manufactured products. These are some of the hidden impact of capitalism on poor primary growers in developing countries.

It is admitted that capitalism and free market economy lead to economic growth but at a great cost. The richer a country is, the bigger are the industries and the more natural resources it commands, the more pollution it generates. In the environmental area, the core technologies of the industrial age combined with a profligate use of natural resources threaten the viability of life on this planet. Advocates of capitalism suggest that given the strong desire for economic growth ( not necessarily economic and social development) depletion of natural resources is justifiable and that unsustainable productive activities are economically rational.

Environmental Science Professor Dexter Dunphy was of the view that human beings could not continue to increase consumption of resources at these rates. He further said :

" We are exceeding the limits of the world's ecology to supply human demands and generating wastes and pollution at rates faster than the environment can safely absorb them."

Finally, a world of increasing poverty and inequality can also be a world of increasing instability and safety. Terrorism takes advantage of desperate people to follow desperate course set for them by fanatics. It seems logical that a sense of exclusion and marginalisation can give rise to resistance. Some 2,600 people tragically died in the September 11attacks in New York. But some 26,000 poor people also died on the same day, around the world from starvation, unclear water and preventable diseases.

Does economic growth lead to development?
Furthermore, economic growth does not necessarily lead to development. The problem of developing countries is not just economic growth but development. Development means dynamism; dynamism implies freedom, the freedom to create. Development means economic growth plus combating poverty, ignorance and disease. Development involves social, cultural and economic betterment for poor people both in quantitative and qualitative terms.

Development can be measured by asking three simple questions, such as: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality among citizens? If all three of these have declined from high levels, then one can conclude that development took place for the country concerned.

Developing countries have, however, adopted as models the industrialised countries that eradicated these evils. Developing countries overlook poverty, suffering and injustice that accompany the early economic advances. Placing too much confidence in the "trickle-down effect" of economic growth, they take little direct action to raise the income and productivity of the poor or to promote a fairer distribution of national income. Furthermore insufficient attention is paid to the cultural dimensions of development and to cultural enrichment through mass participation. Uncritical imitation of Western models advocated by IMF/World Bank often leads to a failure to benefit to poorest of the poor, predominantly women and disadvantaged section of community.

Prof Dunphy's arguments are pragmatic rather than ideological. He contends that the existing global economic system is an expression of the spiritually impoverished materialism that has been allowed to dominate in day-to-day life. According to the author, each society and each community can and should strive for an economic system that will support its own social structure with equitable distribution of national income and express its values and culture.

Why change is not taking place?
The current market capitalism arguably creates human misery on a vast scale and threatens values of humanity. It creates frustration, desperation and rage among the poor people. If so, why the system was not ditched years ago? The author argues that it serves the interest of the already rich and powerful. The author appears to be right that the system urgently needs to be modified in bringing equity to poor people. To support his view, on 3rd October, 2004, the World Bank's President James Wolfensohn scolded world leaders, faulting them for failing to make good on commitments to the poor and of holding regular Bank meetings that yield little more than praise and blame.

The author documents a range of ways in which various groups around the world have already began to challenge and indeed replace the unconstrained market with a concern for quality of life and the integrity of world's environment. The author is very critical of the international monetary system and the role of commercial banks in making capital available to the community. The way the banking system is run is forcing people into debt. But it does not need to be that way and the author presents a range of options in which it could be different.

Conclusion
Author's arguments are refreshing and compelling. They cannot be ignored, although many conservative economists may contest his presentation. This issue is too important to be left wayside and let the robust debate begin to restructure the economic system with a human face that will benefit society.

Barrister Harun ur Rashid is a former Bangladesh Ambassador to the UN, Geneva.