Quite frequently, while sitting in a modern, fully equipped and lavishly furnished home, first world residents encounter some very heartrending stories. These include the stories of mass migration, of constant suffering, and of death due to famine, war and scarce supplies of basic human needs. Why is the world divided into first world and third world? Why is the third world doomed? Why it is paying for the misdeeds of some selfish money hoarders? Is the world financial system just? Or is it a system of never ending corrupt monopoly? It is very grieving to see the current global financial crisis. This crisis gives a clear picture of humanity moving towards its own destruction. This picture is laden with images of war, hatred, selfishness, division, suffering, and death. The causes of these catastrophes are numerous and surprisingly, quite obvious. Most of them, such as inequality, racial injustice, corruption, egotism etc., are simply identified by looking at the facts and statistics.
The wide imbalance in distribution of power can be used as first example. It is this imbalance that has led to the first world/third world dichotomy. In the long run, this dichotomy allows for a constant suppression of rights of poor at the hands of the rich. In other words, the rich get richer and poor get poorer. This has, indeed, been the case through the modern world history. The nature, the earth human beings live on, the solar system and the whole universe operate under a delicate balance. Imbalance is unnatural; therefore it cannot prevail in the long run. Global capitalism is falling because it creates imbalance in distribution of power. The downfall of the global economy is a point to ponder for every human. The imbalance has progressed so far that it has started to show its effects in the first world as well. This sequence of events is prophesying a bleak future for the human race. This horrifying prospect may become a reality if human beings are oblivious of their faults and shortcomings. It is the high time that a new financial system be established that ensures a constant and uniform flow of the capital, focuses on earning profit from the circulation of money, and guarantees just and equal distribution of power.
The definition of Global Capitalism, given by Robert Hessen, in the Concise Encyclopedia of Economics, is:
"Capitalism, a term of disparagement coined by socialists in the mid-nineteenth century, is a misnomer for ‘economic individualism’…Economic individualism’s basic premise is that the pursuit of self-interest and the right to own private property are morally defensible and legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject to certain restrictions, individuals (alone or with others) are free to decide where to invest, what to produce or sell, and what prices to charge. (“Capitalism”)"
The term capital is defined by Stephen Moore in Concise Encyclopedia of Economics as,“the produced goods used to produce future goods” (“Capital”). In light of these definitions, it is apparent that the system encourages the expansion of already progressing businesses, but does little for the improvement of new ones. It is easier for the already prosperous individuals/companies/nations to expand because of the improved resources and opportunities. They expand and later take the control of the small businesses. The ones holding authority make decisions for the rest. Most people are not in control of their own means of survival. They are dependent on their employers, and are therefore, forced to obey the employers’ wishes. In terms of inter-country interactions, the larger and more powerful countries enjoy the upper hand. They can levy sanctions and regulate imports and exports of the smaller, less influential countries, which seriously harms the economy of countries in question.
Capitalism emerged as the major economic system after the failure of socialism. Capitalism dates back to the seventeenth century when it emerged as Industrial capitalism which later gave rise to Industrial Revolution. In mid nineteenth century two countries, Britain and France, emerged as powerful competitors in quest for global capitalist autonomy. Both of these countries had relatively advanced pre modern industry. Douglas Dowd, a distinguished American economist and historian, reports in Capitalism and Its Economics: A Critical History that Britain stayed ahead of France, possibly because the infrastructure of France allowed for greater misuse of power than British system did (19). Once the British established their monopoly in industry, they expanded in other areas as well. In mid nineteenth century the most disastrous effect of this hunger for power was the colonization of various parts of Asia and Africa. British colonialism was so damaging that most of the countries affected by it are still unable to rise from their poverty. Noam Chomsky quotes Pundit Jawahar Lal Nehru, the first Prime Minister of the Independent India, in his book The Prosperous Few and The Restless Many, as “If you trace British influence and control in each region of India, and then compare that with poverty in the region, they correlate. The longer the British have been in a region, the poorer it is” (56). The case of French colonialism is the same, which will be discussed in detail in a later paragraph.
In mid nineteenth century, capitalism had taken over the industry of the two super powers of that time, Britain and France. The first effect of this was the “enclosure movement”. The BBC British Social and Economic history page defines enclosure movement as “Enclosure meant consolidating all the villagers' scattered pieces of land (held in strips) into separate farms each owned by one farmer, who could then divide his land into fields enclosed by fences, hedges or ditches as he pleased” (“Enclosure”). Many farmers were forced off of their lands. The movement resulted in migration of farmers to the towns and cities. Dowd refers to this as the end of “the bold peasantry (53).” He also elaborates by writing that “A very prominent result of enclosures was the comodification of both land and labor. It transformed small farms into big singly owned properties. The actual meaning of comodification was that every property was on sale. There was no protection provided by law. This resulted in farmers becoming powerless, and were able to survive only through’ welfare” (Dowd 54).
This was just the first effect in a series of events that followed. The Industrial Revolution consisted of development of cotton, metallurgy, mining and most importantly transportation. The development of transportation, as Dowd says in his book, was the primary step towards the globalization of the world economy (150). But even during the development of transportation industry, the authorities subjugated the rights of labor class, in terms of low wages and poor working conditions (Dowd 151). The British took this idea of some human beings being superior to others to India and Africa. In a BBC NEWS South Asian discussion forum called “BBC NEWS Talking Points”, it is stated that “India was the jewel in Britain's imperial crown and by plundering its rich resources Britain went from piracy to power, eventually holding sway over vast tracts of the globe” (“Was”). The same source explains how British rule in the subcontinent is laden with examples of slave labor, inequality in distribution of rights and religious discrimination. The natives were considered second class citizens by the British. Three independent states, Bangladesh, Pakistan and India emerged when Britain left India at the end of the Second World War and all three have been unable to rise from poverty to date. Bangladesh is one of the 50 poorest countries of the world with 45% people living below the poverty line 46% people living on $1 a day and 81% on $2 a day. In Pakistan 24% of the people live below poverty line with 23% living on $1 a day and 61% living on $2 a day. 25% of the population of India is living below the poverty line, with 41% living on $1 a day and 75% living on $2 a day (“Population”).
British rule in Africa follows the same pattern of degradation and demoralization, which resulted in natives losing confidence and self esteem, and therefore compromising the productivity and development. Barbara Bush, the former First Lady of the United States, sheds light on the brutalities of the ‘white man’ and racial injustice in Africa in Imperialism, Race, and Resistance: Africa and Britain, 1919-1945. She elaborates that the British rule in West Africa developed segregation ideology in the natives and struggle for freedom was compromised by the ‘imperialism, racism and white settler rule (Bush 131).” Robin H. Palmer and Neil Parsons criticize the colonial rule in Africa in The Roots of Rural Poverty in Central and Southern Africa. Palmer and Parsons develop Bush’s point of view by narrating that segregation or racism was one of the major causes of economic irrationality in Africa (399).They say that colonialism created poverty in central Africa by destroying the self sufficient farmers and forcing them to migrate and get employed in modern industry, mining and capitalist agriculture (Palmer et al. 398). The seeds of internal war and hatred, which were planted by the superpowers for their personal benefits, have grown over the period of time. Most of the African countries have been unable to overcome their internal chaos and conflict, and therefore, they have always been poor, a legacy given to them by the colonizers.
French rule in the Caribbean had the same disastrous effects on the smaller countries of that region. In a recent article in Chicago Maroon, Toussiant Losier, explains some causes for the unending poverty of Haiti. He says that in 1825 France (a major industrial power), attacked Haiti. The French ships docked at the Haitian coasts and declared that the Kingship of France will recognize Haiti’s freedom on one condition; the Haiti Government should pay 150 million Franc to the French Kingship and reduce the tariff to half on the French goods. Seeing no way out, the poor government accepted this price for their freedom. For almost hundred and eighty years now, Haiti has been borrowing money from French banks from time to time, and using 80% of its GNP in paying back the loan with interest which is increasing with time (Losier). Using statistics once again, today 80% of the population of Haiti lives below poverty line. Of these 55% live on $1 a day and 73% on $2 a day (“Population”). It is the interest on the loan that made things worse for Haiti. Haiti may have been able to pay off the loans if the French did not charge any interest on it. Even if it had been unable to pay back the whole amount, at least, the total loan amount would have been reduced after 200 years. It is clear that this loan and the intrest on it have made a major contribution towards the poverty of Haiti.
The power of Britain and France was broken by the Second World War. Sometime after the war, the United States of America emerged as the most powerful country. As written in A People And A Nation: A History of the United States, Since 1865:
American emerged from World War II fully confident that theirs was the greatest country in the world. It was certainly the most powerful country in the world. At war’s end, only United States had the capital and economic resources to spur international recovery; only the United States was more prosperous and more secure than the war once began. (Norton et al. 793)
Instead of learning from the past mistakes and playing its role as a leader, sadly, the United States is repeating the history written by British in terms of war and terror, abuse of human rights and misuse of power. Examples include the cases such as U.S. occupation of Afghanistan and Iraq, funding the Israeli occupation of Palestine, imposing unnecessary sanctions on third world countries etc.Jennifer Liberto, a senior writer for CNNmoney.com, addresses the crippling effects of U.S. sanctions on Iran in her article “Treasury’s Quiet War.” She quotes Glenn Simpson, a senior fellow in corruption and transnational crime at the International Assessment and Strategy Center who says, "They're (treasury) really responsible for crippling the Iranian economy” (Liberto). She writes that the treasury is imposing an economic war on Iran, and it is the U.S. treasury which is preventing the big banks from doing business with Iran (Liberto). In long run, the isolation of Iran from the world banks will expand the civil unrest and the tragedies faced by the country. This inner conflict, along with economic crisis will result in the country becoming poorer. The U.S. occupation of Afghanistan is sometimes referred to as being helpful to the public
It has been said before that the United States was the only country in the whole world that benefitted from the Second World War in terms of gaining power and authority. But how have the wars on Afghanistan, Iraq and sanctions on Iran been useful to the United States? The answer is simple. The Middle East is rich in oil, which is used as the primary source of energy all over the world. The motif of attack on Iraq and sanctions on Iran is oil. Although, U.S. spent a lot of money on the war on Iraq, it was beneficial to the owners of the big oil companies in U.S., and after all it is those big companies on which the politicians thrive and which fund the election campaigns (the debate.org). The profits gained by the big capitalists from Iraq invasion were huge. The debate.org states this as, “Oil company profits have already increased by fifty percent this year because of the war, and the invasion hasn't even started yet!” (“Proof”)
History has been repeating itself over and over again. It has always been observed that the current system of Global Capitalism allows the rich or the people who hold authority to control their workers. In a system where benefits of other fellow humans are kept in mind, the control by the state (market, in this case) can result in just and equal distribution of both resources and power. But in a system driven by greed for money and hunger for power, the authorities usually pay their workers less than the value of their labor. Capitalism is failing in our world because humans get carried away by the hunger for money and lust for power. The authorities are not fair with the subordinates. Throughout the history, humans have proved themselves to be selfish and careless. If a corporation makes a good profit, the rich heads of the corporations take profits, thereby making them even more powerful. This results in a greater control over the working class. In the same way, the rich countries enjoy authority over the poor. Rich countries have more money and they can subdue the poor countries due to this excess money. This results in a greater control of rich countries over the poor countries. As Nancy Birdsall, Dani Rodrik, and Arvind Subramanian pointed out in their article “How to Help Poor Countries” published in Foreign affairs that instead of giving aid to the poor countries rich countries should levy sanctions and let the poor countries enjoy more control over their economic policy (152).
The supporters of Capitalism, argue that poor remain poor because their productive capacity is too low or the population is too much. Johan Norberg, a Swedish historian and economist, states in In Defense of Global Capitalism that the poorness of the poor cannot be blamed on the rich. One specific example is given here:
The main reason for 20% consuming 80% of the resources is that they produce 80% of the resources. The 80% consume only 20% because they produce only 20% of the resources. In this latter problem we ought to tackle the inadequate productive capacity of the poor countries of the world, instead of waxing indignant over the affluent world producing so much. (153)
This is true, but why do poor countries have low production? Can the rich be hindering their progress? Jeffery David Sachs, an economist and the director of Earth institute at Columbia University, identifies various causes of unending poverty in The End of Poverty. He says that poverty itself is a hindrance towards earning a better life. He also relates that corrupt government, geographical instability, geopolitics and fiscal traps as possible causes of never ending poverty (Sachs 51-74). Another thing that must be added to this is the loans, interest and the price these exact on the poor. When a country’s government loses loan money as a result of poor decision making the poor are the most adversely affected. The prices of food, housing and water immediately go up. This leads to hunger, protests and civil unrest. Such countries may never overcome their internal chaos, and progress is compromised. Dokun Oyeshola writes about the symbiotic relationship between poverty and development in an article Published in African Journal of Traditional, Complementary and Alternative Medicines:
In the African countries there is a symbiotic relation between development and poverty. Poverty does not seem to adequately challenge the Africans to embark on the road to industrialization and progress. Poverty is in Africa and without development; citizens may not be able to compete with others because of lack of necessary capital, the technical-know-how and expertise. Symbiotically, without development poverty may not be eradicated. (Oyeshola)
The third world countries, unable to generate enough GDP, take loans from other countries or international banks. These loans are given at a certain interest rate. In other words, the poor are made to pay more than they actually borrowed only because they had nowhere else to turn to. An in depth view of IMF, the International Monetary Fund, shows how these loans also prevent poor nations from progressing. The IMF is the place a desperate third world country turns to when it is unable to pay the bank loans. Susan George, a well know political scientist and a writer on social justice, elaborates the effects of IMF policies on Third world in her essay “IMF Policies Perpetuate Third World Debt”. This essay was published in The Third World. George relates how IMF is making ordinary people pay for the mistakes (of taking unnecessary loans) made by the ‘elite’ (224). George explains that the fund does not recognize that poor countries have no control over certain factors affecting their balance of payment. These factors include international inflation, high interest rates and weak export prices. George says that the fund is mindlessly putting the same policies on everyone. She says, “IMF economists seem to believe that Latin America and Africa could be more like Taiwan and Korea if they would just put their minds to it. But where are Latin America and Africa to find enough capital to diversify, especially now that they have to pay back such huge earnings to pay back loans” (George 224). Unfortunately, the system under which the world’s economic giants operate, does not allow the flow of money to the poor. The poor never get a chance to employ it towards increasing their productivity. It is hoarded by rich capitalists, thereby, compromising its very purpose.
All countries, whether rich or poor are part of one system. Any imbalance in this system will affect all of its components. Today, one of the biggest problems faced by the world is the problem of terrorism. No one thinks he/she is safe anymore. Although terrorism can never be justified, but keeping human psychology in mind, one may ask, what caused some people to become ruthless extremists? Why do most of the terrorists belong to third world? The answer is clear, poverty gives rise to anger and anger incurs war. Economic expert, Geoffrey Gilbert, writes in World Poverty, “One can argue that whatever their personal backgrounds, extremists and terrorists are driven to violence by the poverty they see in their own societies, or by the outrage over the gulf they see between living standards in the affluent West and their own nations” (Gilbert 145). Young children in many third world countries are most easily manipulated by the terrorists, sometimes in the name of the religion and sometimes in the name of the country. These children, who may otherwise be a hope for a brighter future, are shown the dark and unending road on the path of hatred, from which they rarely come back. In this way, the poor country may lose the already scarce hope for a prosperous future. Sharmeen Obaid Chinoy, a graduate of Stanford University, portrayed this manipulation in her film Children of Terror. Talking to an American Journal about her film which focused on Afghan refugee children residing in Pakistan, Sharmeen said, “Terrorism intentionally creates insecurity and fear. It deliberately ruins the social fabric of a society by ignoring the common laws of humanity—then many of those with education or financial means flee, and those who remain try to live amid the violence and downward economic spiral (Chinoy). And what brings this terrorism into a society? Most probably the answer is inequality, injustice, selfishness and much more. How can a society torn into such conflicts focus on progress?
As terrorism worsens the already poor economy of a third world country, the food aid received from the rich countries is another factor adding cream to the pie. The foreign food aid greatly harms the poor countries’ economy. The food crisis in poor nations is increased by import of or donation of foreign food products. Sometimes, even during the profitable crop years, the rich countries dump excess crops into the poor countries in the name of donation. This donation is highly detrimental to the native farmers, whose crop is either wasted or its prices are reduced. James Bovard, a bestselling libertarian, explains the harmful effects of food aid in his article “Food Aid Is Harmful” which was published in The Third World. He notifies that the food for peace program P.L.(Public Law) 480, through which U.S. dumps its extra crops into the poor countries, has been very damaging to the Third World countries. He says that the foreign aid lowers the price, at which local farmers sell their crops, reduces the local agriculture thereby, increasing the food shortage (Bovard 128). Such programs maximally deteriorate a market already in peril. It not only devalues the local agricultural products, but also harms the future of local agriculture. For the third world countries that have primarily agricultural economy, this aid proves to be nothing less than a disaster. Year after year, farmers grow poorer because of the less profit; their crop growing ability is reduced due to inadequate financing which results in weakening of the agrarian infrastructure and an even greater reliance on the outside sources. A plausible solution to this problem would be to limit aid only for disasters and droughts (Bovard 128).
The current crisis is the result of poor decision making of the authorities. The authorities are rich most of the time. Although the rich capitalists are responsible for the current crisis, it is always the poor who suffer. The rich can bail out of any adverse situation. They do not have to worry about what happens next or how the deficit is paid off. The deficit is paid off by levying taxes, increasing prices of the basic commodities. Whom do these changes affect the most? The answer of course is the poor. The U.S. subprime mortgage crisis is often held responsible for bringing about the recession. Seeking Alpha, a collection of various economic blogs, states this fact by pointing out the scarce no. of public companies affected by current recession. One blog talking specifically about homebuilders says that since 2007 almost none of the public home builders have declared bankruptcy, in spite of the bad loans. While talking about one specific builder, Zelman brothers, the blogger writes:
By selling land at huge discounts to what it was once valued, big builders generated large losses for tax purposes. By applying those losses against profits during prior years, they have collected about $2.55 billion in tax refunds this year. (“Bailing Out”)
This is just one example of how the rich, instead of suffering from their faults make the poor suffer. The world of today is called a Global village. The economic trends in one country affect all the other countries. United States, without any doubt is one of the most influential countries in this regard. If a downturn of U.S. economy raises taxes and prices for the common goods, then this crunch affects the poor of a third world country even more.
These bail outs produce a greater load on the economy, worsening it more which most adversely affects the poor. It is impossible to ignore this fact. It is apparent that this crisis affects the poor the most and the bailing out of the rich seems rather unjust. Anup Shah, the independent owner of the website Global Issues, explains in his article, “Global Financial Crisis” how the crisis first emerged as the mortgage and lending market crisis in early 2007 or late 2006. This crisis resulted in the loss of bank money that had been applied towards mortgages. The rich owners of the banks declared bankruptcy and were bailed out. The poor small property owners were left to suffer the results of the crunch. On a larger scale a fall in the economy of the big countries adversely affected the small poor countries living in the shadow of the rich. The prices of the commodities of day to day needs rose much more in poor than in rich countries, thereby leaving the poor with a worse condition than ever before (“Global”). If the rich were responsible for bringing the crisis, then they should have been affected by it. One who commits the mistake faces punishment. But our world does not follow these rules. Here, in every case, the poor faces the adversity while the rich enjoys prosperity. The rich stepped aside by declaring bankruptcy, thereby, leaving poor to suffer who had played no role in bringing about the crisis. Unfortunately, this is how the Global Financial system works.
Past and present are marked with the examples of the shortcomings and injustice created by capitalism. Capitalism has now spread its roots so deep in our society that its eradication seems impossible. Nevertheless, it is possible to improve this system and prevent it from doing greater harm. This idea, of ‘enlightenment’ of Capitalism has been used by the Nobel Peace Prize winner, Muhammad Yunus. Yunus is the owner of the Grameen Bank in Bangladesh. His bank operates on a system called ‘social business.’ He calls it a non-loss, non-dividend business. Yet, profit making is the key part of this system. So far, Yunus, has helped the poor in thirty six countries of the world through Grameen. The bank challenges conventional banking that excludes the poor from receiving credit. Grameen gives microcredit to the poor so that it can be applied towards generating income. The borrowers are required to save some money in stocks that can be used later on as retirement money (Yunus 64). Yunus states in Creating a World Without Poverty, “This is why it was appropriate that Nobel Committee in 2006, chose to award Grameen Bank, not the Nobel Prize for Economics, but the Nobel prize for Peace. By lifting people out of poverty, microcredit is a long term force for peace. And Bangladesh is a vivid example of what it can do (Yunus 105). This bank has been operating without interest, has been giving borrower as much advantage as the lender and it is still making profit. If the Global financial system operates on a system like this, then there is a good chance that the gulf between the rich and poor will be reduced. Fair and equal distribution of resources will reduce the greed, and selfishness and all other negative effects associated with these emotions.
The system on which Grameen operates is very similar to the Islamic banking system. One very interesting trend seen throughout the current financial crisis is the relative success of the banks operating on the Islamic Financial system. These banks have managed to emerge unscathed out of the current crisis. Angelo Venardos, writes in Islamic Banking and Finance in South-East Asia : Its Development and Future, “The key feature, or principle, that distinguishes Islamic banks from any other kind of bank is the rejection of interest-based financial transactions” (20). Rodney Wilson, a professor at Durham University, explains in his paper, “Why Islamic Banking Is Successful?” that this banking involves risk sharing between the bank and the borrower unlike the conventional banking system where latter is always held responsible (1). The borrowers learn to live within their means because of this policy. This factor is very important in preventing thoughtless spending which leads to an even greater crisis. He further says that Islamic finance is derived from deposits rather than being funded by the whole sale markets (Wilson 2). He says, “When credit crunch came and borrowing from the wholesale markets was halted, Islamic banks were not affected.In contrast to conventional banks, no Islamic bank has failed and has needed government recapitalization which ultimately becomes a burden on hard pressed taxpayers” (Wilson 2). Islamic finance is now being welcomed in Western world. There are seven wholly Islamic banks working in London, and one is soon to open in France (Wilson 4). The idea here is to draw attention to the fact that there exists a system which is less flawed and is more tolerant to stress than Capitalism. May be, this system has the potential to bring us out of the current economic crisis.
Credit lending, or rather uncontrolled credit lending, as is very common today is seriously discouraged in the Islamic system. The underlying idea is the fact that credit is a means of borrowing from one’s future, thereby making the future insecure. Is this idea right or wrong? Did credit lending actually initiate the current crisis? Norman I. Silber, a Professor of Law at Hofstra Law School, and Jeff Sovern, a Professor of Law at St. John’s University, point out the various contributions of credit towards current crisis in the article “Uncontrolled lending to Consumers spawned crisis.” These reasons include faulty loans which invited default, borrowers borrowing more than they could repay, poor consumer protection laws, and poor consumer awareness (Silber et al.). If borrowers had known their limits in the first place, they would not have ended up in crisis. Capitalism gives independence to every business owner, even if the intentions with the business are bad. Credit is encouraged in capitalism. Credit is never good for the consumer since it is always focused on profiting the lender, even if it requires keeping the borrower unaware of the consequences.
The system of Global Capitalism has failed. The evidence to support this fact exceeds the evidence that opposes it. There is no point in turning away from the reality, because that will definitely worsen the situation. This system is failing because it has many pitfalls. These include unequal distribution of power, inactive capital, taking advantage of the helpless i.e. profit making based on high interest rates, and conventional credit lending which excludes the poor. Poverty is a menace. It leads to mayhem, conflict, antagonism and hostility. A system based on a constant circulation and equal distribution of money and opportunity can help eradicate poverty. The elimination of poverty is of absolute importance in improvement of the current crisis. Abolition of interest is the first step towards purifying the global economic system and ending poverty. In addition to this, the new system must also ensure a constant flow of capital, which is vital for boosting the economy. On a smaller scale, various steps can be taken to improve the situation. The consumers can limit their needs and say good bye to credit. Credit is just a means of borrowing from one’s own future, which definitely puts future at a greater risk. The use of credit is justified only when it is employed in the income generating purposes. An example of this would be microcredit scheme of the Grameen Bank. Capitalism leads its bearer on an unending path of greed and selfishness. A system that ensures wide and equal distribution of wealth, power and opportunities, is a system best suited to each and every human living on this planet. Such system is not only in accordance with the laws of nature, but also in accordance with the human values and temperament.
