Capitalism, due to its nature, results in improved profit margins. The major driving factor is profit making controlled by individuals with specific interests, which has led to the diversification of the economy, providing more opportunities for new entrants and encouraging innovation through competition. By making more profit, they can invest further and employ more people who are then empowered to cross the poverty lines and pull others with them. Is global capitalism the key to eradicating poverty? Poverty can be defined as lack of access to basic human needs; food, shelter, clothing, education, and medication. Poverty is a state of powerlessness where one has no freedom and lacks representation, mobility is limited due to reduced energy levels from lack of food or balanced nutrition, and the factors affecting the distribution of wealth will always be against them as they lack representation to influence favor on their interests.
Poverty is lacking in the skills to rectify the situation, a lack of or limited education to equip one with the ability to manipulate their environment to improve their status, or misinformed ideas, beliefs, and concepts are influencing a lifestyle that is detrimental to growth. Poverty can be attributed to various factors, the major one being limited access to the currency of trade, with extremely poor people defined as those living on less than $1 a day. Factors Fueling PovertyEconomic growth is not uniform across all; it varies among countries and social class influenced by the distribution and access to resources. Leading global economies in the recent past including European and American powers realized their dominance at the expense of the poor and weak, and maintain this culture with tariffs four times higher against developing countries than the tariffs which they have against other wealthy countries.
Through colonization, the productive generations were taken into slavery to create wealth and develop structures and industries where those that were left behind are the elderly weak and dependent minors. Also, the colonizers exploited natural resources from their colonies, making it difficult to produce for themselves even when they receive political liberation but not economical (Khan et. Al, 2019). Other political influences arise in the form of wars and minority leadership. Marginalized areas and communities discourage trade through tension and insecurity. As a result, there is little in excess of disposable incomes for the acquisition of basic needs.Usually, the acquisition of wealth is a gradual development through investment and practice.
Natural environmental factors influence the location and movement of people influencing the maturity of the wealth amassing process. Climate change specifically increased temperatures, and minimal precipitation has collectively reduced the amount of agricultural land, which has been the primary source of income for the majority of the poverty prone areas. Employment offers a great opportunity in reversing the effects of poverty. With more disposable income, individuals are empowered to provide essential needs for other members of the community by directly meeting the costs or through investment, employing others, and consequently resulting in overall wealth growth.The state of a country or region in terms of their production and consumption of goods and services and the supply of money defines their economy. A good economy is characterized by the ability to produce enough to meet the consumption and have a surplus which could either be plowed back into production or used to fund supporting infrastructure and tertiary needs.
The economy of a state is greatly influenced by the form of governance, which defines the trade environment through tariffs, trade negotiations, political stability, minimal wages, and borrowing. Two major governance systems are evident; communism and capitalism. Communism refers to a system of organization where all property and resources are owned by the community where every member contributes and receives according to their ability and needs, while capitalism is characterized by a system in which the country’s trade and industries are controlled through private ownership for profit. Communism tends to reward all and is not directly proportional to work put in, while capitalism tends to reward individuals according to input, thus motivating competition and thus innovation, which are great economic drivers. CapitalismState-owned enterprises have their benefits in that they have access to greater resources allowing them to venture into capital intensive ventures for the benefit of the general public through social security.
The risks are insured by government grants and ingestions, which protects the enterprises from the effects of losses keeping them in operation. Motivation in these areas is thus limited and is more likely to lead to corruption and mismanagement where stringent measures are not affected. By allowing private ownership, the operation of the enterprise is highly dependent on its performance in the competitive market, rewarding individuals for their work input (Sobel, 2018). Better management of resources is realized as scrutiny is enhanced. The competition also drives motivation towards innovation, leading to the discovery and development of newer technologies and solutions.Economic Consequences of CapitalismOhmae (1995) identifies 4 I’s that have contributed to the decreasing role of national governments in the economy; investment not constrained by governments, global industrial orientation, information technology allowing operations on a global scale, and individual consumers who are not restricted to products of their national associations. These have seen an increase in private development motivated by great rewards, which are to be shared within limited participants in its operations.
Also, internal activities have limited government intervention allowing them to operate under their discretion to meet their interests ultimately resulting in the production of a variety of good and services creating more opportunities for other players to participate and compete. Finally, their access to global markets and capital makes it possible to take advantage of resources at their source without having to transport them to production sites and then redistribute to intended markets, and only have to worry about the much easier latter without having to transport resources and labor. Technological access and global physical presence increase exposure is contributing to improved profits, and consequently, more income.Benefits of competition and innovation felt in investments in medicine and technology, improving the quality of life of individuals progressing life expectancy while reducing infant mortality. Also, the dependents are provided with quality education to equip them with the necessary skills to compete in the industry, contributing to the growth of the economy.
How These Consequences Affect PovertyGlobal capitalism has the potential of increasing incomes on a massive scale. However, the benefits will only be limited to a few very wealthy individuals, an increased middle class comprised of skilled labor, and disadvantaged low skilled individuals and domestic companies. The general rule of profit-making is the reduced cost of production and increased sales. Organizations and enterprises tend to reduce cost by cutting down on wages, which usually accounts for the majority of their spending. Reducing the wage gap is mostly achieved through retrenchment, firing, and automation, generally reducing the number of people they can absorb into employment. Global presence of privately owned companies provide employment opportunities but are limited in capacity and depending on the policies and trade agreements by the participating governments, might have a bias on the nationalities of the employees.Major industries of the past decade have been driven by manufacturing. However, their carbon footprint has resulted in climatic changes, and the trend has started to shift towards the service industry (Noah, 2019).
The service industry, due to its nature meets some obstacles in exporting service providers and thus currently remains an internal driver for economic growth. These mean that poverty levels are only fractionally reduced and in some cases, magnified through exploitation by industries trying to maximize profits through reduced wages and salaries.ConclusionState involvement in the factors affecting economic growth cannot be overlooked or eliminated as they play an essential role in the protection of laborers and the competitive environment creating some form of orderliness which results in a conducive trading environment crucial for economic growth. Also, governments regulate the degree of foreign ownership, protecting income, leaving the state for internal circulation. Neither growth nor globalization is sufficient for the eradication of poverty, as it most of the times deteriorates poverty levels. A more reasonable solution would be to distribute productive assets, political favor towards the underrepresented, public services, and income to the poor and low-income groups to empower them to actively participate in the dynamics of trade contributing to the economy. When individuals are empowered to produce, they can trade for goods and services meeting their needs and amassing wealth, thus reducing poverty by dealing with its effects.
Global capitalism reduces poverty, but only to a certain extent and incorporated by other factors, majorly government involvement. It is the degree by which the governments are involved that will dictate whether the benefits of capitalism will trickle down to reduce the prevalence of poverty.
- Khan, R., Morrissey, O., & Mosley, P. (2019).
- Two Africas? Why Africa’s ‘growth miracle’has barely reduced poverty. Unpublished paper). Universities of Nottingham and Sheffield.Noah Smith. (2018). Saving the Planet Doesn’t Mean Killing Economic Growth. Retrieved June 8, 2019, from https://www.bloomberg.com/opinion/articles/2018-09-19/saving-the-planet-doesn-t-mean-killing-economic-growthOhmae, K. (1995).
- The of The Nation State; London: Harper CollinsSobel, R.S. and Hall, J.C., 2018. The Sources of Economic Growth. Promoting Prosperity in Mississippi, p.15.