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Capitalism and Poverty

Wednesday, 12 October 2011 04:26 By Richard D Wolff, MR Zine | News Analysis
Capitalism and Poverty

Ashley Kelleher, a waitress at the International House of Pancakes in Reading, Pennsylvania, supports her family on the $900 a month she earns. According to new Census bureau data, Reading has the largest share of residents living in poverty in the country. (Photo: Jessica Kourkounis / The New York Times)

The US Census Bureau recently reported what most Americans already knew.  Poverty is deepening.  The gap between rich and poor is growing.  Slippage soon into the ranks of the poor now confronts tens of millions of Americans who long thought of themselves as securely "middle class."

The reality is worse than the Census Bureau reports.  Consider that the Bureau's poverty line in 2010 for a family of four was $22,314. 

Families of four making more than that were not counted as poor.  That poverty line works out to $15 per day per person for everything: food, clothing, housing, medical care, transportation, education, and so on.  If you have more than $15 per day per person in your household to pay for everything each person needs, the Bureau does not count you as part of this country's poverty problem.

So the real number of US citizens living in poverty -- more reasonably defined -- is much larger today than the 46.2 million reported by the Census Bureau.  It is thus much higher than the 15.1 per cent of our people the Bureau sees as poor.  Conservatively estimated, about one in four Americans already lives in real poverty.

Another one in four is or should be worried about joining them soon.  Long-lasting and high unemployment now drains away income from families and friends of the unemployed who have used up savings as well as unemployment insurance.  As city, state, and local governments cut services and supports, people will have to divert money to offset part of those cuts.  When Medicare and if Social Security benefits are cut, millions will be spending more to help elderly parents.  Finally, poverty looms for those with jobs as (1) wages are cut or fail to keep up with rising prices, and (2) benefits -- especially pensions and medical insurance -- are reduced.

Deepening poverty has multiple causes, but the capitalist economic system is major among them.  First, capitalism's periodic crises always increase poverty, and the current crisis is no exception.  More precisely, how capitalist corporations operate, in or out of crisis, regularly reproduces poverty.  At the top of every corporation, its major shareholders (15-20 or fewer) own controlling blocs of shares.  They select a board of directors -- usually 15-20 individuals -- who run the corporation.  These two tiny groups make all the key decisions: what, how, and where to produce and what to do with the profits.

Poverty is one result of this capitalist type of enterprise organization.  For example, corporate decisions generally aim to lower the number of workers or their wages or both.  They automate, export (outsource) jobs, and replace higher-paid workers by recruiting domestic and foreign substitutes willing to work for less.  These normal corporate actions generate rising poverty as the other side of rising profits.  When poverty and its miseries "remain always with us," workers tend to accept what employers dish out to avoid losing jobs and falling into poverty.

Another major corporate goal is to control politics.  Wherever all citizens can vote, workers' interests might prevail over those of directors and shareholders in elections.  To prevent that, corporations devote portions of their revenues to finance politicians, parties, mass media, and "think tanks."  Their goal is to "shape public opinion" and control what government does.  They do not want Washington's crisis-driven budget deficits and national debts to be overcome by big tax increases on corporations and the rich.  Instead public discussion and politicians' actions are kept focused chiefly on cutting social programs for the majority.

Corporate goals include providing high and rising salaries, stock options, and bonuses to top executives and rising dividends and share prices to shareholders.  The less paid to the workers who actually produce what corporations sell, the more corporate revenue goes to satisfy directors, top managers, and major shareholders.

Corporations also raise profits regularly by increasing prices and/or cutting production costs (often by compromising output quality).  Higher priced and poorer-quality goods are sold mostly to working people.  This too pushes them toward poverty just like lower wages and benefits and government service cuts.

Over the years, government interventions like Social Security, Medicare, minimum wage laws, regulations, etc. never sufficed to eradicate poverty.  They often helped the poor, but they never ended poverty.  The same applies to charities aiding the poor.  Poverty always remained.  Now capitalism's crisis worsens it again.  Something more than government interventions or charity is required to end poverty.

One solution: production would have to be organized differently, in a non-capitalist way.  Instead of enterprise decisions being made by directors and major shareholders, the workers themselves could collectively and democratically make them.  Let's call this Democracy at Work (DAW), since it entails the majority making the key enterprise decisions about what, how, and where to produce and what to do with the profits.

If the workers made those decisions, here are some likely results.  Primary goals would no longer be to reduce their own numbers or their wages.  If technological changes or reduced demand for their outputs required fewer workers, they would likely maintain the wages of workers and retrain them for other jobs meeting growing demands.  Workers would not be fired and thereby pushed into poverty.

Second, workers making democratic decisions would not likely allow today's huge differences between average wages and top managers' salaries, bonuses, etc.  By eliminating concentrated income and accumulated wealth at the top, resources would be freed finally to end poverty at the bottom.  A DAW system could produce and secure the vast "middle class" that this country pretended but never yet really had.  Workers disposing of their enterprises' profits would no longer distribute a portion to politicians and parties to protect a rich minority against the envy and resentments of the majority.  By establishing a far more egalitarian income distribution, a DAW system could also transform a political system now corrupted by the money of corporations and the rich.

Third, a DAW system would be less likely to raise prices or reduce output quality.  When workers are both decision-makers at work as well as consumers of their enterprises' outputs, they would more likely pass and sustain laws to outlaw the price gouging and quality deterioration common in capitalism.

A serious commitment to end poverty and its costly social effects requires us to face that capitalism has always reproduced widespread poverty as the other side of profits for a relative few.  No wonder such a system has provoked Occupy Wall Street and so many of its signature slogans and demands.

Richard D Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.


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Capitalism and Poverty

Wednesday, 12 October 2011 04:26 By Richard D Wolff, MR Zine | News Analysis
Capitalism and Poverty

Ashley Kelleher, a waitress at the International House of Pancakes in Reading, Pennsylvania, supports her family on the $900 a month she earns. According to new Census bureau data, Reading has the largest share of residents living in poverty in the country. (Photo: Jessica Kourkounis / The New York Times)

The US Census Bureau recently reported what most Americans already knew.  Poverty is deepening.  The gap between rich and poor is growing.  Slippage soon into the ranks of the poor now confronts tens of millions of Americans who long thought of themselves as securely "middle class."

The reality is worse than the Census Bureau reports.  Consider that the Bureau's poverty line in 2010 for a family of four was $22,314. 

Families of four making more than that were not counted as poor.  That poverty line works out to $15 per day per person for everything: food, clothing, housing, medical care, transportation, education, and so on.  If you have more than $15 per day per person in your household to pay for everything each person needs, the Bureau does not count you as part of this country's poverty problem.

So the real number of US citizens living in poverty -- more reasonably defined -- is much larger today than the 46.2 million reported by the Census Bureau.  It is thus much higher than the 15.1 per cent of our people the Bureau sees as poor.  Conservatively estimated, about one in four Americans already lives in real poverty.

Another one in four is or should be worried about joining them soon.  Long-lasting and high unemployment now drains away income from families and friends of the unemployed who have used up savings as well as unemployment insurance.  As city, state, and local governments cut services and supports, people will have to divert money to offset part of those cuts.  When Medicare and if Social Security benefits are cut, millions will be spending more to help elderly parents.  Finally, poverty looms for those with jobs as (1) wages are cut or fail to keep up with rising prices, and (2) benefits -- especially pensions and medical insurance -- are reduced.

Deepening poverty has multiple causes, but the capitalist economic system is major among them.  First, capitalism's periodic crises always increase poverty, and the current crisis is no exception.  More precisely, how capitalist corporations operate, in or out of crisis, regularly reproduces poverty.  At the top of every corporation, its major shareholders (15-20 or fewer) own controlling blocs of shares.  They select a board of directors -- usually 15-20 individuals -- who run the corporation.  These two tiny groups make all the key decisions: what, how, and where to produce and what to do with the profits.

Poverty is one result of this capitalist type of enterprise organization.  For example, corporate decisions generally aim to lower the number of workers or their wages or both.  They automate, export (outsource) jobs, and replace higher-paid workers by recruiting domestic and foreign substitutes willing to work for less.  These normal corporate actions generate rising poverty as the other side of rising profits.  When poverty and its miseries "remain always with us," workers tend to accept what employers dish out to avoid losing jobs and falling into poverty.

Another major corporate goal is to control politics.  Wherever all citizens can vote, workers' interests might prevail over those of directors and shareholders in elections.  To prevent that, corporations devote portions of their revenues to finance politicians, parties, mass media, and "think tanks."  Their goal is to "shape public opinion" and control what government does.  They do not want Washington's crisis-driven budget deficits and national debts to be overcome by big tax increases on corporations and the rich.  Instead public discussion and politicians' actions are kept focused chiefly on cutting social programs for the majority.

Corporate goals include providing high and rising salaries, stock options, and bonuses to top executives and rising dividends and share prices to shareholders.  The less paid to the workers who actually produce what corporations sell, the more corporate revenue goes to satisfy directors, top managers, and major shareholders.

Corporations also raise profits regularly by increasing prices and/or cutting production costs (often by compromising output quality).  Higher priced and poorer-quality goods are sold mostly to working people.  This too pushes them toward poverty just like lower wages and benefits and government service cuts.

Over the years, government interventions like Social Security, Medicare, minimum wage laws, regulations, etc. never sufficed to eradicate poverty.  They often helped the poor, but they never ended poverty.  The same applies to charities aiding the poor.  Poverty always remained.  Now capitalism's crisis worsens it again.  Something more than government interventions or charity is required to end poverty.

One solution: production would have to be organized differently, in a non-capitalist way.  Instead of enterprise decisions being made by directors and major shareholders, the workers themselves could collectively and democratically make them.  Let's call this Democracy at Work (DAW), since it entails the majority making the key enterprise decisions about what, how, and where to produce and what to do with the profits.

If the workers made those decisions, here are some likely results.  Primary goals would no longer be to reduce their own numbers or their wages.  If technological changes or reduced demand for their outputs required fewer workers, they would likely maintain the wages of workers and retrain them for other jobs meeting growing demands.  Workers would not be fired and thereby pushed into poverty.

Second, workers making democratic decisions would not likely allow today's huge differences between average wages and top managers' salaries, bonuses, etc.  By eliminating concentrated income and accumulated wealth at the top, resources would be freed finally to end poverty at the bottom.  A DAW system could produce and secure the vast "middle class" that this country pretended but never yet really had.  Workers disposing of their enterprises' profits would no longer distribute a portion to politicians and parties to protect a rich minority against the envy and resentments of the majority.  By establishing a far more egalitarian income distribution, a DAW system could also transform a political system now corrupted by the money of corporations and the rich.

Third, a DAW system would be less likely to raise prices or reduce output quality.  When workers are both decision-makers at work as well as consumers of their enterprises' outputs, they would more likely pass and sustain laws to outlaw the price gouging and quality deterioration common in capitalism.

A serious commitment to end poverty and its costly social effects requires us to face that capitalism has always reproduced widespread poverty as the other side of profits for a relative few.  No wonder such a system has provoked Occupy Wall Street and so many of its signature slogans and demands.

Richard D Wolff

Richard D. Wolff is Professor of Economics Emeritus, University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a Visiting Professor of Economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.


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