Capitalism and World Inequality

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Table of Contents

Introduction
Background Information
Production of Resources
Argument against capitalism
Putting the record straight
Equal Distribution
The Western World
Conclusion
Works Cited

Introduction

The concept of capitalism has been in existence since time immemorial. While on one hand there are those who are ardent supporters of the concept, there are others who feel that this concept has not been of any benefit to the world. Some people argue that capitalism is only a tool for the rich and well established countries which they use to propagate their selfish motives at the expense of poor or third world countries.

Johan Noberg argues that, “the world’s inequality is due to capitalism. Not to capitalism having made certain groups poor, but to its making its practitioners wealthy.” This paper takes a critical look at this quote and attempts to demystify it in order to establish the correct position as far as capitalism is concerned.

Background Information

It has been said that close to the total number of resources that are available world over are consumed by only a small percentage of its population. To be precise, more than 80 percent of the world’s resources are under the control and strict management of about 20 percent of the entire population of the world. The other 80 percent of the population have to share the 20% and since it is hardly enough, they have to fight for it and it is survival for the fittest.

That is without a doubt a great form of inequality. The big question however is, what causes this great discrepancy and discordance? Are the developing countries or the peripheral countries poor because the developed countries are rich? Would that be a valid argument? Does it mean that if the 1^st world countries were less rich then the poor countries would be doing better? It is obviously a misconception when we assume that those countries that are rich are the cause of poverty that the third world countries experience.

Production of Resources

Noberg notes that most of the countries that are doing well economically, for example the United States of America were colonies and that they had a lot of catching up to do after they gained independence. Surprisingly, some of the countries that are least developed, for instance, Liberia and Afghanistan were not colonized and have had control of their resources from the word go (Noberg 154-155).

The main reason however why only about 20 percent of the world’s population has control of close to 80 percent of the world’s resources is because the same countries are in charge of production of these massive resources. Therefore, the problem that needs to be addressed is the fact that many people in the world are generally poor, and not because there are other people who are rich.

Argument against capitalism

Those who advance arguments against capitalism are of the opinion that looking at the per capita GDP of some of the rich countries and in comparison to the per capita of poor countries, the former is said to be 30 times higher (Peet 94). It is because of this observation that critics argue that this inequality is caused by capitalism.

While they may be right in making such a conclusion, they are definitely mistaken in regard to the reasons they give. Most of the countries that have prospered economically have taken the path of capitalism while those that have resulted in communism while impeding production, trade and ownership have always experienced economic hardships.

There are natural factor that may be considered to have played a role in determining the prosperity of some countries. Factors such as climate, natural calamities among others have undermined the economic development of some countries. Countries that have more than half of the land being a desert or countries that continually experience natural calamities such as earthquakes and floods have been affected in terms of economic development.

This not withstanding, the kind of economic strategies that countries have taken happen to be the great determinants of how well their economy has been thriving; the main issue therefore is whether a country is liberal or controlling in terms of management of resources. Liberal countries have managed to gain a stable ground and are now very prosperous while those that are controlling tend to lag behind in terms of development and economic growth.

Studies conducted have shown that the GDP of countries that are liberal is way higher, close to two times higher, than the GDP of those countries that have remained less liberal and more controlling. Looking at this situation, then it is clear that the discrepancy that exists could be reduced if the developing countries would agree into becoming more liberal thereby accessing open markets and free economy.

Some countries in the periphery that have since discovered the need to embrace liberty have experienced exponential growth and this has seen them grow not only faster than other third world countries but a lot faster than some of the 1^st word countries.

Putting the record straight

Taking into consideration the above discussion, then there is need to revisit the quote by Johan Noberg, “the world’s inequality is due to capitalism. Not to capitalism having made certain groups poor, but to its making its practitioners wealthy.” In simplified language, Noberg is simply arguing that the inequality in terms of distribution of resources in the world has been caused not directly by capitalism but because capitalism in itself is unevenly distributed.

When we consider the aspects of investment and trade, we realize that they tend to flow evenly only in the economies that are more liberal and open to the rest of the world. This shows that economic development is not usually achieved in isolation (Kegley and Shannon 23). For a country to grow and develop in terms of the economy, it must get support and investment both within (domestic) and also from outside (foreign).

Therefore, a country that does not create conducive environment for foreign investors to come invest will always have an economic go slow in terms of growth. An economy that is considered closed to the rest of the world is one that is attempting to flourish in isolation. The result of such a move is that since there is no external intervention, there is no much investment from the outside world and the result is that the economy of such a country becomes stunted in its growth (Harvey 345).

Between the years 1988 and 1998, an estimated quarter of all the total direct investments from the international community were channeled to the developing economies. Since the 80s the amount of direct investments from affluent countries to the developing ones has been increasing. However, it is not all developing countries that have been developing from these direct investments. Instead, it is only those that have made it possible for foreign investments to come into their country that have become more liberal.

Those countries that have since decided to become more liberal have not only experienced tremendous growth in their economy but have almost outdone or at least managed to catch up with those that are considered affluent (Soros 88). It has therefore become more apparent that for the countries that want to catch up in terms of economic growth thereby becoming more liberal and open to the rest of the world is the best way to go about it.

Chairman of the Panel of Imminent Persons, Koffi Anaan, when still holding the office of the Secretary General to the United Nations was quoted to have said that the world is unequal and in view of this, the main losers are not so much those who have had a fair share of exposure to globalization, but more so, those who have been left out of the globalization concept.

When critics argue that capitalism is by large to blame for the uneven distribution of resources and therefore inequality in economic development, then such can be said to be contradicting (Hutton and Giddens 123).

The argument by critics is that many well established corporations and companies only want to invest in countries that are well established and stable as far as the economy is concerned. Critics further argue that when corporation go to poor countries and decide to set base, it is only because they will get low cost of production due to cheap labour and therefore do so at the expense of the labour force in that country leading to economic stagnation and redundancy.

Going back to the sentiments made by the former UN Secretary General, it becomes apparent that those countries which would rather not participate in globalization stand back, they tend to marginalize themselves and they are not marginalized as critics would want the rest of the world to believe.

Practical examples will go along way in this discussion to demonstrate that there has always been a misconception regarding capitalism. Economic studies that have been conducted over time have taken side to side comparisons of countries that have embraced openness and free economy as opposed to those who have kept off (Ross and Kent 231). Countries such as South Korea, Taiwan and West Germany have been seen to be better off economically due to the liberal nature than their counterparts such as China and North Korea (Biel 55).

When a country embraces economic freedom, there is always a notable growth with the per capita GDP increasing. As a result, the standards of living are improved and the life of the society in general improves. Even critics cannot deny the fact that capitalism is pathway to prosperity.

This therefore means those who are yet to embrace the concept of liberalism need to lobby for liberalization of trade so that the poor countries can benefit as well. It may not be easy to make critics see the merits or advantages of liberalism. They are adamant in believing that there is any good that can come out of a concept which they verily believe is the cause of the gap in economic development that exists between the core and the periphery countries.

Equal Distribution

Although the concept of capitalism cannot be blamed for the inequality that exists in the world today, developed countries have been accused of protectionism, an aspect that has continued to affect the poor countries. For instance, the United States of America as well as the European Union is known for offering subsidies to the textile and agricultural sectors.

As a result, these sectors in the third world countries are deprived a competitive advantage since the product from the EU and American markets are way cheaper that people opt for them instead of the products from the developing countries. It therefore becomes very hard for the economies of such countries to thrive and especially when the sectors affected are the backbone of the economy of such countries.

The Western World

The western world where the core countries or the first w3orld countries are concentrated have for a long time appeared seemingly concerned in the plight of the third world countries and even appeared as though they are interested in helping these countries come out of the woods (Centeno and Joseph 45)..

However, economic analysts a lot of lip service considering that these some countries are partly to blame for the slow and almost non existent economic growth in third world countries. As already mentioned, the subsidies given by the core countries for some of the products in the agricultural and textile industry has been one of the greatest pitfalls for the third world countries.

This is because, they are not able to compete in a market that has products which are already subsides and the end result is that these sectors end up collapsing. If the western countries are indeed committed in helping third world countries revive their economies and actually boost their economic growth, they would not offer such subsidies being fully aware of their impacts.

Other than the subsidies, it has been noted that all the imports that western countries make from third countries are subjected to more than 30 percent above what is considered average duty (Frieden 23). Paying attention to these observations, it becomes clear, that there is a deliberate and absolute attempt by the western world to ensure that third world countries have no way of catching in terms of economic development and stability. We are not saying that is wrong for the western world to sell to us that which we are not able to produce.

Our bone of contention is when we make something and they on the other hand make something similar and sell it at a considerably lower price than we are selling thereby out rightly pushing us out of business. The commitment by 1^st world countries must be more than just lip service and empty promises. Instead, measures which are tangible in nature must be seen to be out in place so as to aid the third world countries become equality economically stable.

However, having set the record straight, we must revisit the issue of capitalism being the cause of poverty and as already mentioned, this is a big misconception. Third world countries nee to be encouraged to open their markets so tat foreign investment can come into their country and this will be their first step in ensuring that they gain economic growth.

Economic analysts argue that while it is true that there is great inequality especially between the developed and the developing world, it is a big mistake to blame this discrepancy to capitalism. The discrepancies and inequalities that exist between first world countries and third world countries can be attributed to other factors such as the ones discussed above including the trade barriers that first world countries impose making it difficult for third world countries to trade freely.

Conclusion

The reason why the issue of inequality has remained controversial even when it is so apparent that it exists is because of some unanswered questions. To begin with, some analysts pose the question that, what is used to measure inequality? Just because a country has certain resources and another does not have does not make the former to be more equal than the latter. The other question that is frequently asked is, what is wrong in one country attaining economic stability before the other, after all, we all cannot get there at the same time?

Those are very critical questions in addressing the issue of inequality and whether capitalism has any role to play in the inequality. It has been argued that those countries that classified as poor do not necessarily experience poverty. This is because poverty as a concept is relative in the sense that instead of considering what one a country does not have analysis look at what a country does not have in relation to others.

Even critics who are totally against the concept of capitalism do concur with the fact that the world in general is not where it was a couple of decades back. They also agree that the changes that have occurred over time have not happened miraculously but it is all thanks to capitalism.

It is unfortunate however that capitalism has only worked for those countries that have embraced it. On the other hand, those countries that have decided to shun the concept of capitalism and globalization in general can only have themselves to blame. This is because by failing to embrace capitalism, they have in essence alienated themselves and the result of this has been lack of economic development, economic stagnation and redundancy in economic growth.

With capitalism come freedom and liberty. The concept of open markets and free trade has come as a result of capitalism. Whether to embrace the concept is a choice that individual countries are supposed to make.

If they feel that they do not want to be part of the global network, then it only means that they have alienated themselves. No country can grown isolation, neither is there any economy that can stabilize on its own. Foreign investment is one of the core pillars of ay economy, be it through exports, tourism or any other kind of investment.

Therefore, when countries close up avenues for foreign investment to come in, then such a country cannot expect to prosper much in terms of economic development. In view of the above discussion, one may say that the inequality that exists in the world today and especially between the core and the periphery countries is not as a result of capitalism per se but other factors including failure by poor countries to embrace the concept that is capitalism.

It is important that poor countries are made to see the benefits of capitalism because it is only then they will accept top embrace the concept and in so doing will catch up with the affluent countries if not become more stable economically than these countries.

Works Cited

Biel, Robert. Global Capitalism: Its Dynamics and the Impact on the Prospects of Poor Countries. California: Zed Books, 2000.

Centeno, Miguel and Joseph, Cohen. Global Capitalism: a Sociological Perspective. California: Polity, 2010.

Frieden, Jeffry. Global Capitalism: Its Fall and Rise in the Twentieth Century. Mexico: W.W. Norton. 2007.

Harvey, David. Spaces of Global Capitalism. New Jersey: Verso, 2006.

Hutton, Will and Anthony Giddens. Global Capitalism. California: New Press, 2001.

Kegley, Charles and Shannon Blanton. World Politics: Trend and Transformation. New York: Cengage Learning, 2009.

Noberg, Johan. In Defense of Global Capitalism. New York: Cato Institute, 2003.

Peet, Richard. Global Capitalism: Theories of Societal Development. New York: Taylor and Francis, 1991.

Ross, Robert and Kent Trachte. Global Capitalism: the New Leviathan. London: Suny Press, 1990.

Soros, George. The Crisis of Global Capitalism: Open Society Endangered. New York: Public Affairs, 1998.

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