Capitalism and the World Economy

The prevalent view of the world's economic situation is that capitalism is the solution to poverty and world hunger. While some still believe wealth trickles down from the rich to the poor, the evidence is overwhelmingly different. The current global economic system is slanted in favor of the first world, with the poor in the developing world being the most adversely affected. This article will present four possible alternative economic structures to make the world more equitable, before discussing how feasible the implementation of these solutions would be.

The current political and economic structure relies on two major banks which loan out money to developing countries worldwide: the International Monetary Fund (IMF) and the World Bank. However, a country must have credit approval from both before either one will grant a loan. This effectively gives the World Bank and the IMF the ability to set economic policies in the developing world by denying countries funds unless they comply with their demands.

Unfortunately, the developed world does not have to abide by the same laws, resulting in economic disparities. For example, the regulations imposed by the IMF and the World Bank requires third-world countries to open their produce markets to the rest of the world and cut or eliminate subsidies to their own farmers. This results in making produce imported from developed countries cheaper than local produce, since the developed countries still subsidize their own farmers. This inequality of regulations fulfills the first-world countries' economic dreams: a market for their expensive manufactured goods while forcing the extraction and exportation of cheap, raw resources. This keeps the third-world countries trapped in a state of increasing poverty as they spend more on imports than they can balance with exports. Since this is economically beneficial for developed countries, there is no incentive for them to change this system.

While the first world appropriately bemoans unemployment, they have no motivation to improve it in the developing world. In fact, the opposite is true: high rates of unemployment overseas gives big international corporations, mostly from the developed world, the freedom to offer unfair wages and poor working conditions as there are always people looking for work. This increases profits at the expense of the health and nutrition of the average worker in the developing world, who cannot afford to quit. Most often, it is women and children who bear the brunt of poverty and malnourishment. Unfortunately, this has lasting side effects, as malnourished women give birth to malnourished children who usually continue to be malnourished throughout development. In the end, they can suffer from motor and mental problems, having an IQ 15 points lower than expected. According to a study done in Holland, these effects, especially on malnourished women, last for three generations.

Many people assume the existing economic situation is the only available option for a global economy. More accurately, the current world order is an excellent way for developed countries to continually drain resources from the third world. Therefore, one alternative to the modern world economic system is to create a single, global, unified body charged with the governance of the economy and the regulation of businesses as a whole. While such a unified body does exist, in its current form it gives first-world countries the majority of the power while allowing developing countries little voice, since voting power is assigned based on economic wealth.

Assuming a fair global system of governance and regulation could be set up, four simple actions could increase equality. First, a graduated, worldwide system of taxes needs to be imposed. This idea was previously rejected under the theory that this would hamper investment. However, time has shown that the rich can be too rich, resulting in rampant speculation and economic downturns like the housing crisis of the late 2000s. Since there are obvious negative effects, it is only logical to tax superlative wealth.

Second, the money received from taxation of the rich should be invested into welfare systems. While not suggesting every unemployed person be given a handout, there are approximately a billion hungry people in the world today. If their situation is not improved, the physical problems associated with malnutrition will only be magnified as the generations pass, potentially resulting in hereditary poverty.

Third, working conditions need to be regulated, especially within factories located in developing countries. Currently, companies can choose where they manufacture their goods, and therefore come under very little scrutiny since workers and developing countries badly need the income. However, this lack of accountability has resulted in gross exploitation. To correct this, international regulation could force these companies to create better working conditions for their workers.

Fourth, a globally recognized wage scale would, in and of itself, increase equality by giving everyone the same pay for the same work, regardless of gender, education, or race. Under the current system intellectual work is valued more and paid better than manual labor. However, the new system should pay higher wages based on the risk or unpleasantness associated with the job. Jobs which require extra training should be paid for by companies, ensuring people would only go back to school with a guaranteed job rather than the rampant education speculation that is currently present.

The implementation of the first and the second suggestion are intertwined, and also the hardest to actualize, because both require a unified economic regulation system, while the third and fourth do not require it. For better or worse, cooperation requires participants to voluntarily relinquish freedoms, and a global economic regulation system would require the cooperation of governments worldwide. Only the most egregious of circumstances can cause this to occur, because no government, and especially not first-world governments, would agree to renounce economic control for equality for all. So, while a redistribution of wealth on a global scale is needed, it is improbable.

With regard to the second suggestion alone, it should be noted that the world currently grows enough food to feed everyone fourteen times over. Unfortunately, the distribution of this food is skewed: Americans suffer from obesity while thousands of people starve to death daily. While using the excess wealth of the rich to feed the poor is idyllic, a more realistic approach to hunger requires addressing it from a number of different angles, such as decreasing our use of grains for agrofuel, increasing our use of green energy, and reducing our consumption of meat.

The third suggestion, regulating working conditions across countries, is difficult because it also requires international cooperation. However, unlike the first and second suggestions, this collaboration only requires developing countries to work together, resulting in less net cooperation required. Additionally, it benefits all those who cooperate as the developing countries would gain higher human development index ratings and have a healthier workforce. Therefore, this option is more feasible than the first two. Nevertheless, while undoubtedly better in the long run, in the short term requiring factories to improve working conditions would risk the corporations taking the revenue and jobs back to their home countries. Even so, if developing countries unite and gradually increase their standards the big companies might complain, but would have little choice in the end.

Globally regulated wages, while a delightful idea, are also unlikely, because first-world countries would need to lower their salaries to pay third-world workers more. However, if the developing countries paid both men and women equally, this action in itself would improve the malnutrition caused by the current set of inequalities. Studies show that women have different spending habits than men, being significantly more likely to spend money on food, education, and healthcare rather than personal goods like alcohol and tobacco. Therefore, if this simple act could be realized, the poor would be more likely to break free of their circumstances.

As a subset of the fourth suggestion, another option is to regulate the price of goods. Currently, multinational corporations use their power to maintain poor working conditions and low pay in developing countries, while also using their monopolies to price goods as high as the average customer can pay. This creates another inequality where some people can only afford to buy what they need; due to the inflated prices on what they do buy, they have nothing left over for emergencies or small luxuries. However, if both wages and prices are regulated externally, the system could ensure the average person could live comfortably, rather than the ever growing set of inequalities. Such external regulation will be difficult to achieve, but there is a more practical approach: individual governments encouraging competition. Currently, the belief is that big companies indicate thriving sectors while too much competition makes markets smaller, indicating lost revenue. However, it would be more accurate to say revenue is redistributed, not lost. For example, if food was cheaper, people would spend more on education, housing, or other valuable commodities. As such, the money would still be spent, but the lives on the other side could do more than live paycheck to paycheck.

The current world economy channels wealth and resources from the poor to the already rich. Restructuring our world to create a system of global regulation where every voice is equivalent and the system is impartial is a daunting task, but one that needs to happen. Unfortunately, the rich currently control the system, and only a very large upset could convince the people in power to relinquish it. Even so, if developing countries could cooperate with each other, together they would be force to be reckoned with on the international level. Until one of these two changes happens the state of the global economy is unlikely to evolve, despite the best efforts of many people.