SEATTLE, Washington — Capitalism is a political and economic system that focuses on the private production of goods and services through various means. Key facets of capitalism include minimal government or state intervention, an emphasis on the corporations as opposed to the individual and a uniform pricing system. Here is some information about the effects of capitalism on impoverished nations.
Sociologists like Adam Smith and Karl Marx pioneered the idea of capitalism, but its modern-day implementation is different from what they predicted. As an economic system, one of the effects of capitalism is that it breeds competition between countries and perpetuates poverty among developing nations due to the individual interests of private corporations rather than the needs of their workers. As such, these organizations tend to prioritize maintaining wealth, so they only pay those who have employment with them or those who have high wealth. This leads to certain nations having higher rates of poverty and joblessness, which negatively impacts their economy, environment and population. In addition, the current capitalist standard for most countries involves skirting around environmental regulations, drastically underpaying workers and confining them to unfair working conditions.
About 10% of the world’s population lived on less than $2 a day as of 2015, and as of 2019, over half of the world’s poor lived in just five countries: India, Nigeria, the Democratic Republic of Congo, Ethiopia and Bangladesh. The countries that have the highest rates of poverty have low economic growth, and a majority of the population is uneducated or in the agriculture sector. Many of these workers become trapped in a vicious cycle that forces them to work in these conditions for little pay just to survive, with no way of living beyond what they are making, thus remaining in poverty.
Corporations involved in capitalist activities employ what some know as “dirty industries” in developing countries in order to sell their product. Dirty industries consist of steel, coal and oil production, and they have drastic ramifications on the environment, which is why people know them as dirty industries. Corporations exploit countries with these industries for-profit and move their facilities to that country, where they do not have the same regulations. If a country is unprofitable in the eyes of the corporation, then it does not reap the same economic benefits. In countries like Mexico and India, private corporations do not employ a high number of workers, which in turn leads to higher rates of poverty among the population.
How Capitalism Perpetuates Inequality
Furthermore, multinational corporations take part in a “race to the bottom” technique, which further perpetuates inequality among developing nations. Certain countries “enter into a competition of sorts to create the best possible situation for a multinational company. These nations may offer lower wages than another nation competing for the investment, tax breaks, and exemptions to environmental laws,” said John Shandra, professor of sociology at Stony Brook University, in an interview with The Borgen Project. “What is happening is low- and middle-income nations are undercutting one another and at the same time creating more poverty in their country.” Shandra often teaches his students about capitalism and its far-reaching impact. His lessons illustrate the political and economic motivations some nations have in order to make a profit, often at the expense of poor or underdeveloped nations.
Many of the countries currently experiencing poverty have one thing in common: they are vulnerable. Whether it is politically or economically, a correlation exists between high poverty rates and countries either at war or in a political crisis. Additionally, countries with stringent regulations don’t reap the benefits of capitalism as much as free-market economies do. According to the World Bank, countries with ongoing conflicts remain stuck in poverty, while those who have managed to escape poverty have seen a sharp decrease in poverty rates overall.
Solutions to Global Poverty
However, despite capitalism’s implications on impoverished nations, changes have occurred in the past several decades to facilitate economic growth and stability on some level. Many scholars agree that investing in long-term solutions like infrastructure and education can alleviate the negative effects of capitalism. Furthermore, switching to environmental practices can decrease the need for dirty industries, which means that people don’t have to live in polluted areas or work with hazardous materials. “It will take a whole host of efforts to raise people out of poverty in low- and middle-income nations,” says Shandra, who firmly believes that investing in education for women and girls would be beneficial in the long run, since education leads to empowerment, and will generate “the economic growth that low- and middle-income nations are always looking for.”
On a wider scale, addressing labor practices and working conditions can also contribute to poverty reduction efforts. Poverty becomes prevalent when “companies don’t have to pay taxes to governments in low- and middle-income nations, which means there is less money to invest in social services like health and education,” says Shandra. While the negative externalities that come with capitalism are unavoidable, mitigating the effects of those externalities is essential in global poverty reduction. With expectations determining that the number of those in poverty will increase as a result of the COVID-19 pandemic, economic stimulation by wealthy countries is necessary to maintaining the decline of global poverty.
Legal Assistance to Pollution Victims
Several global efforts have emerged to combat the negative effects of air pollution as a result of these dirty industries. In China, an NGO called the Center for Legal Assistance to Pollution Victims is working with citizens to file lawsuits against polluters. As a result of its ongoing efforts, the Chinese government amended its Environmental Protection Law to allow NGOs to file lawsuits in order to stop pollution. The number of lawsuits increased between 2015 and 2017 to a total of 112. Furthermore, many NGOs such as this one are participating in workshops to help them take legal action against companies who violate environmental pollution laws. These environmental concerns have pushed the World Health Organization (WHO) to start spreading awareness about the harmful impacts of air pollution on communities.
– Xenia Gonikberg