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Notes on economics: about obscenities, poverty and inequality
(by Róbinson Rojas Sandford(January 1997))
About obscenities, poverty and inequality in a capitalist system
  (compiled by Dr. Róbinson Rojas Sandford)

The most striking feature of modernization in less developed
societies has been "industrialization with inequality and
poverty". Even the cases of Taiwan and South Korea, often
utilized as exceptions to the rule, cannot escape that characteristic.
Rural societies adopting the capitalist mode of production to
"modernize" find that while rural poverty decreases in numbers and
percentages in the countryside, a newly created type of poverty
appears in the urban centers, where migrants from the rural areas
do not find jobs and add to the gigantic dimensions of shanty
towns and the informal economy.

By and large, a huge part of that new poverty is the outcome
of "efficient markets", "efficient system of production",
because maximization of profits and increased productivity
creates more unemployment and more inequality.

As the former US scretary for labour Robert Reich wrote in the
Financial Times on March 6, 1996, "what may be rational for
each individual corporation is irrational for society". (Robert
Reich, "A hand across the great divide").

UNDP's Human Development Report 1997 summarizes the dramatic 
effects of a freer market system on a world scale writing that 
"since 1960 global inequality has increased beyond anything ever

"By 1991 the share of the richest 20% in the global economy had
grown to 85%, while the share of the poorest 20% had fallen from
2.3% to 1.4%. By 1994 the share of the richest had soared to 86%,
and the share of the poorest had shrunk to 1.1%. So, over the past
35 years the ratio of the incomes of the richest 20% to those of
the poorest 20% has increased from 30 to 1 in 1960 to 60 to 1 in
1991 and to 78 to 1 in 1994".

It illustrates the inmense gap between rich and poor pointing that
"since the publication of last year's Human Development Report, the
recorded number of billionaries in the world has increased from
358 to 447, with the value of their combined assets now exceeding
the combined incomes of the poorest 50% of the world's people, up
from 45% the year before."

"These are obscenities of excess in a world where 160 million
children are malnourished, 840 million people live without
secure sources of food and 1.2 billion lack access to safe
drinking water. These inequalities demand action".

Surely, the problem about taking "action" is that these "obscenities"
are the "efficient" outcome of a free-market system and not the
"excesses" of some individuals. Thus, if the free-market system
is going to be accepted at face value, we will have to get used
to see millions of human being being victimized by the "obscenities"
of a barbaric system of production (see R. Rojas, "Notes on economics:
assuming scarcity").


                Poorest 20%     Middle 60%       Richest 20%
Year 1960          236            980               7,069
Year 1993          187            731              14,629
Change 1960-93     -21%          -25%              +107%
Data processed by Dr. Robinson Rojas, using the 
Human Development Report 1997 tables as sources.

Table 1 illustrate the dynamics of a system that works for
for the richest fifth of the population while excludes the


In accordance with official figures, almost 95 million people are
poor in the rich countries, and among them, almost 30 million
are not expected to survive to age 40.

With data from UNESCO and OECD the following tables describe
the size of "obscenities" in the rich countries:

   year 1994      Number of poor
                     (million)   (for definitions, see Glossary
                                  for Development)
Ireland                 0.80
Spain                   8.40
Netherlands             1.30
USA                    37.10
UK                     14.00
France                 11.30
Belgium                 0.80
Germany                11.70
Australia               1.44
Denmark                 0.40
Canada                  1.74
Sweden                  0.45
Japan                   5.00
Luxembourg              0.00
Finland                 0.20
Norway                  0.12
Total 16 countries     94.75
Total OECD            100.18
Population OECD       992.00
                 Population              Secondary-school-age
                not expected             children no enrolled
                  to survive             in school
                  to age 40                   (%)
Country           (%) 1990    millions   1993-95

Australia            3.5        0.63            18
Belgium              3.5        0.35            12
Canada               3.1        0.90             9
Finland              3.1        0.16             4
France               4.0        2.32            10
Germany              3.0        2.43            14
Ireland              2.9        0.12            16
Japan                2.2        2.75             4
Netherlands          2.5        0.38            14
New Zealand          4.3        0.17             5
Norway               2.7        0.11             8
Spain                3.0        1.20            10
Sweden               2.7        0.24             7
United Kingdom       2.6        1.50            16
USA                  4.0       10.60            11
TOTAL                          23.86

The social effects of this poverty generated where the markets
are most efficient were summarized by the International Labour
Organization in its publication World of Work, No. 11, 1995:

"Unemployment and poverty are the two major causes of social
exclusion. But the cohesion of modern society is also threatened
by a series of factors resulting from evolution in various areas:
technical, socio-economic, cultural, ethical and religious."
"And the risks are not always the greatest in the poorest countries.
It is interesting to note, for example, that the United States,
which holds the eighth rank in the world according to the human
development index, is also the country which has the highest
concentration of indicators showing a weakening of the social
fabric: homicides, rape, divorce, drug-related crimes and the size
of the prison population".

Going further in the description, ILO explained that 


Although the U.S. economy has rebounded from the recession and
unemployment rates are relatively low, jobs are precarious in
nature and the average income is falling. And the problem is far
worse for black and Hispanic minorities than it is for the white

This is a major assessment of a recent study, "The state of working
America, 1994-1995", issued by the Economic Policy Institute.

The study, along with federal data, reveals a widening gap in the
key economic barometers of poverty, unemployment, income growth,
wages and wealth accumulation.

-POVERTY. The upward swing continued in 1992 despite the economic
recovery, minorities and children being hit hardest.
The poverty rate for blacks has been at least three times that of
whites since 1979, reaching 33.3% in 1992. The Hispanic rate
climbed from 21.9% in 1973 to 29.3% in 1992. The white rate was
11.6% that year.
Child poverty has grown in all racial categories for over a
decade. By 1992, one out of five American children were poor.
For black children under six, the rate reached an alarming 53.5%.
Children in poverty for 1992: black, 46.6%; Hispanic, 39.9%, and
white, 16.9%.

-UNEMPLOYMENT. Unemployment among minority workers continues to be
more than double that of whites. The Bureau of Labour Statistics
puts the black jobless rate at 11.4%, the Hispanic at 9.4% and the
white at 5%. (late 1994)
The gap is even wider among teenagers (16 to 19 years), with black
youth registering 37.6% compared with 14.3% for whites.

-FAMILY INCOME. In the decade ending 1989, family income grew more
slowly than in any business cycle since World War II. White
families experienced a 0.5% annual growth rate in real income,
while black families -with a median income more than 40% lower
-had a growth rate of 0.4%. For the 1989-92 period every category
suffered income losses. Hispanic family income fell 3.5% per year,
more than twice the rate for whites, costing them $2,716. White
and black families lost roughly $1,800, which represents a much
larger proportional loss for blacks.

-WAGE INEQUALITY. Real hourly pay of most workers, including wages
and benefits, declined severely between 1979 and 1993. Black-white
wage disparity has widened greatly, despite a substantial closing
of the gap in educational achievement.
The wage gap widened by 50% in the 10 years up to 1989, when a
black worker earned 16.4% less than an equivalent white worker.
Median family income 1992: black, $21,794; Hispanic, $24,616;
white, $40,074.


How does the Capitalist system deal with the problems of:
a) full employment;
b) output, and
c) equity?

Does the Capitalist system deliver a, b and c?

- The Capitalist system is about:
a) producing what can be sold
b) producing to make profits
c) maximising profits ( TextBook  - if profits are   
   maximised, investment is maximised, if investment is        
   maximised, output is maximised. The latter is false).
d) Rewards - factors of production: capital(profits) and       
   labour (wages) in accordance with productivity.
e) Supplying what is demanded (TextBook  - the      
   supply and demand model - in effect producing for those who 
   can afford to buy goods and services (at the right price).
   The assumption of scarcity is the foundation for the theoretical
   building.  (See my notes on this)
   Those who cannot become marginalised in society.
f) the Capitalist System works efficiently as long as:
         -  profits are maximised
         -  costs are minimised
         -  new technology is introduced that increases        
            productivity which means producing more with less  

If there is polarisation and maximisation of profits there should
be higher rates of unemployment over time. The capitalist system
is actually creating an increasing group of redundant people to the
the production process. The will never find jobs.

Furthermore the higher the rate of redundant population the lower
the wage rate in general (more people will be in competition for
employment, which in effect pushes the wage rate down).


1) Polarisation -  gap between the rich and poor becoming      
2) Steady creation of a redundant population and higher rates  
   of unemployment;  
3) Less people will produce more with less skills (this        
   produces psychological and cultural effects,---less skills  
   mean that because high levels of technology are used people 
   do not have to be intelligent. People only have to know what 
   button they have to press. The cultural and psychological   
   effects of this are that the average population is ignorant 
   and less intelligent, therefore incapable of understanding  
   what is going on around them, e.g., free market policies have 
   been catastrophic for a large portion of British population
   but people do not believe this to be the case).

1 and 2 are creating dramatic social problems, most vividly seen
in inner city areas.

The following statistics give weight to this increasing

 ³       Average After Tax Income (Year) US $     ³
 ³                   (1992 prices)                ³
 ³                     1977            1992       ³
 ³                                                ³
 ³     Top    20%      63,546          79,475     ³
 ³            20%      36,563          36,452     ³
 ³            20%      27,788          25,705     ³
 ³            20%      18,885          16,609     ³
 ³   Bottom   20%       8,795           7,555     ³
 ³                                                ³
 ³                                                ³
 ³  Source: U.S Bureau Of Statistics, In Fortune  ³            
 ³          International, June 29, 1992          ³

(The table above shows absolute/relative poverty)

          Weekly Median Wage (Full-Time Workers) US $
          (1992 prices)
      1979       409.13
      1989       398.88
      1992       391.00
         Source: as above

Between 1988 and 1992 unemployment in the USA rose from 2% to 7%.
Between 1977 and 1992 personal income dropped 6.1%
The Top 1% saw their income go up from $202,809 in 1977 to
                                       $403,402 in 1992.

 ³       Rate Of Unemployment (Average) %        
 ³                  1960s     1970s      1980s   1990s
 ³     France       1.6       4.2        9.0     10.9
 ³     Germany      0.8       2.2        6.0      8.4
 ³     Japan        1.3       1.7        2.5      2.6
 ³     U.K          2.5       4.4       10.5      8.4
 ³     U.S.A        4.7       6.1        7.2      6.3
 ³        Source: OECD                           
 ³        Note: Japanese figures need to be      
 ³              approached with caution          


International agencies like the World Bank, IMF, etc. are pushing
LDCs to adopt capitalist relations of production so they can
compete in the international market as "equals".
Looking at the levels of productivity (value added per worker)
the idea of "competing" becomes a bad joke. See table below.

           GNP (Millions $)    Workers     V.A Per Worker
U.S.A         5,465,100      126,424,000      43,228    
Japan         2,920,310       63,840,000      45,774
Germany       1,272,959       29,889,000      42,590
France        1,000,866       24,567,000      40,740
Italy           871,955       24,075,000      36,210
U.K             834,166       28,436,000      29,335

All Ind Cts  14,417,355      351,198,000      41,052
LDCs          3,081,979    1,513,666,000       1,958
                -95,320    for factor payments to abroad (interest, 
                                rent and profit on capital (TNCs)). 
[LDCs GDP  =  3,177,299]
Source: Dr. Rojas calculations with data from the World Bank

The result has been an increased flow of resources from poor
countries to rich countries, and a widening gap between the
gross domestic product of industrialized countries and
less developed countries. (See Statistics)


                       1960s        1970s      1980s    
Ind Countries            
Pop in Millions          680          735        771
Pop of Cts closing        
the gap on Ind Cts
in GDP per capita        601          701         90
Pop of Cts falling
further behind the      
Ind Cts in GDP per cap  1030         1264       1740
Pop of Cts suffering         
a decline in GDP 
Per Capita (abs Pov)      71          204        808
Total                   2382         2904       3409
   Source: RRojas Research Unit 1993

It does look that inequality, poverty, unemployment and the
"obscenities" quoted by the Human Development Report 1997 are
the normal outcome of the efficiency of the system of
production known as "capitalist".

And it does group all sort of people in the category of 'poor'.
In accordance with 'Social Trends 1996' the following was


Pensioner couple        1,370,000  persons
Single pensioner        1,550,000     "
Couple with children    5,210,000     "
Couple without children 1,600,000     "
Lone parent             2,330,000     "
Single without children 1,990,000     "
TOTAL                  14,050,000     "

(from Forbes Magazine 1997, and Human Developmen Report 1998)


New estimates show that the world's 225 richest people have a
combined wealth of over $ 1,000,000,000,000, equal to the annual
income of the poorest 47% of the world's people (2,500,000,000).

The enormity of the wealth of the ultra-rich is a mind-boggling
contrast with low incomes in the developing world.

* The three richest people have assets that exceed the combined
  Gross Domestic Product of the 48 least developed countries, with
  a combined population of 585,000,000.

* The 15 richest have assets that exceed the total Gross Domestic
  Product of Sub-Saharan Africa. The population in Sub-Saharan
  Africa is 570,000,000 and its GDP (year 1995) was US$ 290 billion.

* The wealth of the 32 richest people exceeds the total Gross
  Domestic Product of South Asia, with a combined population of
  1,571 million and an aggregate GDP of US$ 439 billion (year 1995).

* The assets of the 84 richest exceeded the Gross Domestic Product
  of China, the most populous country, with 1,200 million inhabitants
  and a GDP of US$ 745 billion (year 1995).

 Another striking contrast is the wealth of the 225 richest people
 compared with what is needed to achieve universal access to basic
 social services for all. It is estimated that the additional cost
 of achieving and maintaining universal access to basic education
 for all, basic health care for all, reproductive health care for
 all women, adequate food for all and safe water and sanitation for
 all is roughly US$ 40 billion a year. This is less than 4% of the
 combined wealth of the richest 225 richest people in the world.

The country with the biggest share of the world's 225 richest people
is the United States, with 60 (combined wealth of US$ 311 billion),
followed by Germany, with 21 (US$ 111 billion), and Japan, with 14
(US$ 41 billion). Industrial countries have 147 of the richest 225
people ( US$ 645 billion combined), and developing countries 78
(US$ 370 billion). Africa has just two (US$ 3.7 billion), both
from South Africa.

The ultra-rich, by origin, 1997
                          Distribution  Combined wealth   Average wealth
                          of the 225    of the ultra-     of the ultra-
                          richest       rich              rich
Region/country group      people        (US$ billions)    (US$ billions)

United States                60            314               5.2
Germany                      21            111               5.3
Japan                        14             41               2.9
Other industrial countries   48            174               3.6
Eastern Europe and CIS        4              8               2.0
 TOTAL INDUSTRIAL COUNTRIES 147            645               4.4

Asia                         43            233               5.4
Latin America/Caribbean      22             55               2.5
Arab States                  11             78               7.1
Sub-Saharan Africa            2              4               2.0
 TOTAL DEVELOPING COUNTRIES  78            370               4.7
TOTAL WORLD                 225          1,015               4.5

47% OF THE WORLD  2,500,000,000          1,015               0.0000004
 Average wealth of the 225 ultra-rich     US$ 4,500,000,000
 Average annual income of poorest 47%     US$           406

OBSCENITY NUMBER TWO: The priorities of the capitalist system

                       ANNUAL EXPENDITURE IN US$

Basic education for all                 6 billion (*)
Cosmetics in the USA                    8 billion

Water and sanitation for all            9 billion (*)
Ice cream in Europe                    11 billion

Reproductive health for all women      12 billion (*)
Perfumes in Europe and the USA         12 billion

Basic health and nutrition             13 billion (*)
Pet foods in Europe and the USA        17 billion

Business entertainment in Japan        35 billion
Cigarettes in Europe                   50 billion
Alcoholic drinks in Europe            105 billion
Narcotic drugs in the world           400 billion
Military spending in the world        780 billion
* Estimated additional annual cost to achieve universal access to
  basic social services in all developing countries.
SOURCE: Euromonitor 1997; UNDP; UNICEF; UNFPA 1994; Worldwide
        Research, Advisory and Business Intelligence Services 1997;
        Human Development Report 1998.