Economic imbalance

The North-South problem. Change will come. Peacefully?







The industrial revolution was associated with and accompanied by political and cultural dominance of western Europe, and especially Britain, over the rest of the world. This is sometimes referred to as Imperialism or Hegemony.

Britain and other European countries, and later, the United States and Japan, acquired colonies by having irresistible military technology. The economic effect tended to be the creation of an economic valve which allowed manufactured goods to be exported from the developed countries and raw materials to be imported from the colonies but did not allow a reverse flow.

India, for example, was expected to export raw cotton and receive manufactured cotton goods from Britain. But the indigenous cotton cloth industry was allowed to atrophy. Statistics show that Indian industry actually declined during the 18th and 19th centuries.

Although formal colonialism has mostly ended, the economic imbalance created then has intensified as the industrial world has increased its rate of technological change.

Most of the former colonized countries now have huge debts to banks and governments in industrial countries which they can never hope to repay. The interest on these debts exceeds the value of exports and reduces the standard of living of people in these countries. This means many starve and health services are inadequate.

The result is a net flow of capital from the poorer countries to richer countries. Tariff laws and other trade restrictions continue to prevent the even spread of industry in every region. Economic development can only occur by the reinvestment of profits; but the poorest countries are making no profits to invest. (There is the also the phenomenon of Mafia, corruption and feudalism which skim off any profits and prevent investment).

A similar imbalance exists within the so-called richer countries. The difference between rich and poor in Britain and the United States has increased in recent years. This may get worse as industrial jobs migrate to the newly industrializing countries.

Some present ideologies prevent measures being taken to reduce inequality. These include the doctrine that "helping people makes them dependent" , expressed in the United States by the pseudo-Philosopher Ayn Rand. This is often used as an excuse to do nothing, but the real motivation is a fear by the moneyed of losing their wealth - radical selfishness. The same policies caused the mass deaths of the famine in Ireland in the 1840s.

The economic depression only now (2008) being felt in the industrialized countries has been felt in some of the rest of the world since the 1970s. Will the rich now be engulfed by the effects of their policies?

Will Hutton on why Billionaires aren't a good thing.

This article suggests that imbalance within western countries is not an accident but the result of a political policy initiated during the presidency of Ronald Reagan for the wealthy and corporations to pay less tax, and ordinary people to pay more.

Larry Elliott - The gods that failed

The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future

Guardian extracts from the book - proposals to change policy to curb the super-rich.


Richard Wilkinson

The Spirit Level: Why More Equal Societies Almost Always Do Better

The Spirit Level



Possible Solutions

The reader must help to find a solution.

Can it be done by "trickle down"? Probably not. But in that case some other strategy is necessary.

What about a world Income Tax? The European Union already has some funding for its poorer members paid for by the richer countries. If the United Nations came to represent people rather than governments, and was seen as the organ of a worldwide community, income redistribution and development might begin to occur.

Another example is a tax on financial transactions. The "Tobin tax" would be set at fractions of a penny but would tend to be a brake on the huge sums of money deployed by the financial "industry".

No doubt many people in the richer countries would try to prevent any redistribution occurring, as they already oppose similar schemes in their own countries.

Some political thinkers believe a happy society under good government should avoid great differences of wealth in order to produce social harmony, including street safety and lack of crime. In ancient Athens the difference between the richest citizen and the poorest was said to be two and a half times (but this ignores slaves who were more numerous than the poorer citizens). In modern America the difference is 200 times. In the world as a whole the difference is much greater.

Some Muslims point out that the practice of Islamic Banking, which outlaws the charging of pure interest, would have the effect of preventing people growing rich through compound interest (without work). But it is not clear whether this could be applied to a modern economy. (An Islamic Bank takes shares in an enterprise and is paid by the profits of the enterprise, thus receives less in bad times - it is the equivalent of a Mutual Fund (Unit Trust); a conventional bank demands the same in bad times as in good - or even, when interest rates are high, more in bad times.)

Investors rather than lenders have an interest in the conduct of the business. The joint stock company raising its money from share issues may be healthier than financiers who borrow from banks or by issuing Junk Bonds (or even ordinary bonds). Even better might be the company where employees own an important share of the capital. (John Lewis is a company owned by an employee trust, so that profits go to the employee-members - Partners - rather than shareholders or banks). Another successful company of this kind is the Mondragon network, originating in the Basque Country of Spain. (see Cooperatives)

The Islamic principle of Zakat, an annual tax of 2.5% of individual wealth to be distributed to the poor, may also be a useful model (but the rich in western countries always resist wealth taxes).

The Judeo-Christian tradition, to which western politicians sometimes pay lip service, also had limitations on interest payments and, in the case of the biblical Jews, the periodic wiping out of debts to the poor. In the present state of international and corporate indebtedness these principles may seem more sensible than the conventional arrangements.

There is also the Christian principle of tithing - paying one tenth of income to charity, church or the poor.

Some of the poor, of course, have put matters in their own hands by manufacturing and selling addictive substances such as cocaine and heroin which tend to cause the social collapse of the industrial countries and a large flow of funds. (see Drugs)

There is a strong possibility that the poor will not wait for assistance which never comes but will move into the rich countries. Thus immigration from the "South" is already occurring. Immigration laws, it can be confidently assumed, will not prevent them. Nor even neo-fascist violence. It is therefore in the interest of the richer peoples to bring about greater equality, as it is not possible to maintain permanently islands of great wealth in a sea of misery - the present situation.

The Club of Rome's report "First Global Revolution" castigates the "International Mismanagement of the World Economy" mainly from dogmatic policies, which have lacked vision and imagination, and especially an appreciation of the horrors of what is going on.

Some economists propose a world wide investment in new energy systems to combat the environmental crisis as the equivalent of Roosevelt's New Deal on a global scale. However, in the world as a whole western countries have abandoned the policy of helping the poorer countries but instead enforce Structural Adjustment Programs through the IMF (cut social services such as health and education, repay debts at all costs) so that third world countries actually pay more to the west than they receive. These policies are now (2011) being applied in Greece and Italy, accompanied by demonstrations and riots in the streets.

If free trade equalizes world poverty (as the North American Free Trade Area seems likely to) there will be an incentive to rethink the nature of the human economy.

The policy of western governments always seems to be "economic recovery" or economic growth. However, perhaps the world as a whole cannot afford the present western levels of consumption, and certainly not if they were extended to everyone.

Satellite television brings images of western wealth to the poor. Things will change. Peacefully?

Update 2010
A lot of the above was written before the rise of China and India. In some ways these actually developing countries have imitated the older industrialised countries. India, for example, in some respects resembles Britain in the early 19th century with exploitation of its workers and the large divergence between the rich and the poorest.

China, also has adopted some of the aspects of the early 19th century. Moreover, its reaching out to African and other less developed countries seems to recreate the earlier European extraction of minerals, with little regard for the interests of those who happened to be living above these minerals.

The rapid industrialisation of India and China accelerates the climate problem and also the other features of the "problematique".

The year 2011 seems to be interesting for various kinds of popular protest. Thus we have the Arab Spring where previously docile populations have risen against the grotesque dictators in such countries as Tunisia, Egypt, Syria and Libya. At the same time the excesses of the groups who control and benefit from western economies (the City of London, Wall Street - investment banks and "hedge funds" - and those in other countries) have provoked demonstrations in the United States and Britain, and in many European countries. These have labelled themselves "Occupy Wall Street" (and local names). So far, their aims seem rather unfocussed. They would do well to insist on more worker-owned businesses, and legislative control of the banks, of the type enacted in the 1930s (but abandoned when the Friedmanites took power under Reagan and Thatcher in the 1970s). The Joint Stock Company may well be the cause of much of the problem, as it derives from the East India Company, with its lack of ethics. (See British Empire for books).

This article surveys the tendency towards oligarchy in the modern world. Perhaps it is a bit weak on remedies.

Joseph Stiglitz - Globalisation and its discontents

Globalization and Its Discontents

Die Schatten der Globalisierung.

Joseph Stiglitz

The Price of Inequality: The Avoidable Causes and Invisible Costs of Inequality

The Bottom Billion

The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done About it

Tony Judt - Ill fares the land

Ill Fares The Land: A Treatise on Our Present Discontents

Ill Fares the Land

Last revised 27/07/12


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