Economic Crisis, Poverty and New Capitalism

Economic Crisis, Poverty and New Capitalism
[Analysis] A major challenge for a new president
Alfredo Ascanio (askain)
Published 2008-10-28 10:16 (KST)

Edited by John Boland
Editor's Note

The stereotyped images of poor people are frequently inconsistent with the facts. A concentration on the characteristics of the poor can, however, leave the inaccurate impression that these characteristics are the cause of poverty.

Most of the causes of poverty lie in the social and economic system as a whole - and not in the characteristics of the poor. Furthermore, an economy or a society with a dominant majority of non-poor persons and a minority of poor people has special characteristics - which are not perceived when one focuses only on the poor. Such economies in general, and the US economy in particular, exhibits a fundamental duality (dual labor market, dual welfare system, dual housing system, and others).

Such economies adjust to the needs and behavior of the non-poor majority - with subtle but harmful consequences for the poor.

It is common to define poverty as an insufficiency of means relative to needs, or as a condition of "moneylessness" and also powerlessness (in the sense of freedom and the ability to make choices). In short, "moneylessness" and economic vulnerability are forms of powerlessness.

Government data gives some idea of whom the poor are in the US and the average poverty lines. Records in 1972 indicate that only 9 percent of the white population was classed as poor, whereas almost 32 percent of the non-white population was.

Let us turn now to the dual economy. The US possesses not an underdeveloped economy but rather a dual economy.

The most salient characteristic of the dual economy is that it adjusts to and accommodates the state of development of the larger, dominant, non-poor element, to the absolute as well as the relative disadvantage of the poor. The abolition of poverty would require, in effect, removing the bottom "tail" of the income distribution.

The vicious circles of poverty are a special case of cycles of cumulative causation. Unemployment, health and nutrition problems, family disorganization, promiscuity, crime, violence. The causal chain is complex and has important implications for anti-poverty policy (preventative and curative policies). The term welfare system implies not merely programs to transfer money to the poor or to other groups within society. It includes all social devices for income protection and maintenance.

Poor people must live with a consumption technology, an educational system, and a price structure designed to serve the non-poor.

There is a dual labor market, dual welfare system, dual housing system, and dual health care system. This dual approach is harmful because the separate program for the poor has helped to foster a mutual hostility between the poor and non-poor. It is hard to believe that much progress can be made against poverty in America while this separation and hostility persist, according to A Dale Tussing - Professor of Economics at Syracuse University.

These days of housing crisis and financial crisis has provoked some into giving thought to the idea of looking for another type of capitalism. Perhaps a more humane capitalism requires changing the dual economy. However it will prove a major challenge to change an economic system rooted in the American psyche for many years - even since the arrival of English colonists. However, this problem will be significant for the new US President.

Anything that obscures the fundamental moral nature of the social problems is harmful. Any doctrine that eliminates or even obscures the function of choice of values and enlistment of desires and emotions in behalf of those chosen weakens personal responsibility for judgment and for action, according to John Dewey.

It is not the first time to confront a crisis is considering solutions. In the closing years of the 1960's, the Report of the Commission International Development presents a comprehensive analysis to achieve a full-scale treatment of that development in coming decades: The problems, the policies, the potential and impact. Partners in Development, stands as a turning point in the relations between rich and poor nations.

When Robert F. Kennedy announced his candidacy for the Presidency of the United States, he said: "I do not run for the presidency merely to oppose any man but to propose new policies. I run because I am convinced that this country is on a perilous course and because I have such strong feelings about what must be done, and I feel that I'm obliged to do all that I can.

I run to seek new policies - policies to end the bloodshed in Vietnam and in our cities, policies to close the gaps that now exist between black and white, between rich and poor, between young and old, in this country and around the rest of the world."

Robert F. Kennedy was brave enough to introduce his electorate to new issues: youth people, the slums and the community, the alliance for progress, Peace Corps volunteers, nuclear control, policy toward China, and the issue of Vietnam.

Although today the context is different some of these issues can be studied again, and perhaps adapted to new circumstances as elements of the issues raised by Kennedy still linger today. Today we can add the financial crisis and housing crisis in the US.

One solution to the problems of poverty, economic insecurity, poor distribution of welfare, hierarchical controls, must take into account the primary purpose of human beings. We desire and should display dignity, respect, love, affection, friendship and solidarity because if people lack these then the people cannot be free - according to Robert Dahl and Charles Lindblom of Yale University.

In America, well-planned and well-coordinated egalitarian reforms at the same time, from a national point of view, are the most profitable investment that can be made, even though their gestation period might be considerable.

Any attempt to create an integrated nation with extensive participation by the people assumes the need for more widespread educational reform. The more recent contribution by some economists, who has raised education as an important issue in development, was to give priority to investment in ourselves i.e. man itself.

There is a distinction between growth and development. It is maintained that GNP measures only growth of production, while development represents another and wider category. It is true that development must be conceived of as more than the increase in production because this concept has to do also with standard of living, institutions, attitudes, and policies.

The fact is that the GNP concept does not take into account distribution and the inter-relationship between production and distribution. Social reforms can have the character of "investments", leading not only to greater justice, but also to higher production. Such investments often require considerable time before maturing in the shape of returns. The reforms are absolutely necessary if the US is not going to face a grave threat to its stability as an orderly and progressive democracy.

The cost of these social reforms represent a "debt to the poor" in the United States, which must be amortized and, in the end, fully paid.

Finally, price formation in markets is biased and does not give the "right" signals to business concerns or to individual consumers. Consumption, production, technology, and resource allocation expand in directions and with a speed that result in depletion and pollution; thus looking for new sources of renewable energy (sun, wind) will be an additional consideration for a new US President looking to achieve a cleaner environment and combat global warming.

Alfredo Ascanio is a professor of economics at Simon Bolivar University in Caracas, Venezuela.

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