The Divide: Global Inequality from Conquest to Free Markets

by Jason Hickel

Today, some 4.3 billion people – more than 60 per cent of the world’s population – live in debilitating poverty, struggling to survive on less than the equivalent of $5 per day.

The arc of history bends towards justice, Martin Luther King Jr once said. But it won’t bend on its own.

Why were AIDS patients dying? Over time, I learned that it had to do with the fact that pharmaceutical companies refused to allow Swaziland to import generic versions of patented life-saving medicines, keeping prices way out of reach. Why were farmers unable to make a living off the land? I discovered that it was related to the subsidised foods that were flooding in from the US and the EU, which undercut local agriculture. And why was the government unable to provide basic social services? Because it was buried under a pile of foreign debt and had been forced by Western banks to cut social spending in order to prioritise repayment.

And in early 2017, as the World Economic Forum met in Davos, Oxfam announced that the richest eight people had as much wealth as the poorest 3.6 billion.

If people begin to accept that, despite many decades of development, poverty has been getting worse rather than better, and the divide between rich and poor countries is growing rather than closing, then it will become clear to all that there is something fundamentally wrong with our economic system – that it is failing the majority of humanity and urgently needs to be changed.

What do these large outflows consist of? Well, some of it is payments on debt. Today, poor countries pay over $200 billion each year in interest alone to foreign creditors, much of it on old loans that have already been paid off many times over, and some of it on loans accumulated by greedy dictators.

There is a strong consensus among scholars that the $1.25 line is far too low, but it remains in official use because it is the only line that shows any progress against poverty – at least when you include China – and therefore is the only line that justifies the present economic order.

And it just so happens that the price of food has gone up dramatically since PPP was last revised in 2005, relative to the prices of everything else, which means that while most people are able to buy more with their dollars, poor people are actually able to buy less.

How much did Western states gain from this enormous quantity of free labour? It is estimated that the United States alone benefited from a total of 222,505,049 hours of forced labour between 1619 and the abolition of slavery in 1865. Valued at the US minimum wage, with a modest rate of interest, that is worth $97 trillion today. And that’s just the United States.

By the early part of the 20th century, this new order was complete, designed so that the core of the system – Europe and the United States – could siphon cheap raw materials from the periphery and then sell manufactured products back to them while protecting themselves from competition by erecting disproportionately high tariffs.

Capitalists seek to maximise their profits by increasing productivity and decreasing the costs of production. The easiest way to decrease the costs of production, of course, is to push down workers’ wages. But if this process is left unchecked, eventually wages get so low that workers cannot afford to buy the products they produce. Demand goes down, and the market becomes glutted with excess goods with no one to buy them. Goods quickly lose their value, businesses stop producing and the economy slows down. This is what happens when capitalism is left to its own devices: it generates such extreme inequality that the whole system simply seizes up.

CEO salaries grew by an average of 400 per cent during the 1990s while workers’ wages grew by less than 5 per cent and the US minimum wage decreased by more than 9 per cent.

The solution to mass poverty turns out to be remarkably simple. Poor people don’t need charity, they need fair wages for their work, labour unions to defend those wages and state regulation that prevents exploitation. They need decent public services – such as universal healthcare and education – and a progressive taxation system capable of funding them. They need fair access to land and a fair share of natural resource wealth. In other words, real development requires the redistribution of power, which then in most cases naturally precipitates a redistribution of resources.

There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt. John Adams

While privatisation creates wonderful new opportunities for investors, it quite often has disastrous consequences for the poor. When utilities are publicly owned, they generally have a mandate to provide service to the whole population. But for privately owned utilities the mandate is to make a profit, so they have no reason to serve those who cannot afford to pay.

Only free men can negotiate. Prisoners cannot enter into contracts. Nelson Mandela

Hamilton knew from studying the British experience that a country’s industries needed protection from foreign competition during the early stages of their development. So that’s what the Americans did. They quickly raised trade tariffs, and enacted a kind of import substitution policy – similar to that which they would later deny to Latin America. But they didn’t stop there: they also used cartels, subsidies and other forms of state support to build their industrial power, again following in the footsteps of the British.

the whole idea behind carbon credits is to allow polluters to avoid reducing their emissions by buying their way around the rules.

If we are going to have a global labour market, where companies can roam the planet in search of ever-cheaper workers, it stands to reason that we need a global system of labour standards as well. This is where a fourth intervention might lie: putting a stop to the global race to the bottom for cheap labour by guaranteeing a baseline level of human fairness.

As David Attenborough once so eloquently put it, ‘Anyone who thinks that you can have infinite growth on a finite planet is either a madman or an economist.’

Our present economic model of exponential GDP growth is no longer realistic, and we have to face up to this fact.

findings from the growing field of ‘happiness economics’, which tells us that happiness only increases with income up to a certain point – a point that rich countries have long since surpassed.

what makes us happier isn’t more income, but greater equality, good relationships and strong social guarantees.

We can trace it back to 1919, with the landmark US Supreme Court case Dodge v. Ford Motor Company. At the time, the Ford Motor Company had a sizeable capital surplus, and Henry Ford had decided to devote some of it to raising his workers’ wages, which were already considered to be quite high. The Dodge brothers, two of the company’s biggest shareholders, sued Ford for this move, claiming that Ford’s capital actually belonged to his shareholders, and that unnecessarily raising wages was effectively stealing from them. The court ruled in their favour, and a precedent was set. Business decisions would have to be made in the interests of shareholder returns first.

Limited needs mean limited profits. Companies needed a ‘fix’ for this obstacle – a way to surmount the limit of market saturation – and they found it in the new theories of advertising being developed at the time by Edward Bernays. Bernays, the nephew of psychoanalyst Sigmund Freud, taught retailers that they could get people to buy things they didn’t need by manipulating their emotions.

the average American now consumes twice as much as they did in the 1950s.

one easy solution to overconsumption would be to ban advertising – at least in public spaces, where people don’t have a choice about what they see. This may sound impossible, but São Paolo, a city of 20 million people, has already done it. The result? Happier people: people who feel more secure about themselves and more content with their lives, in addition to consuming less.

Henry Wallich, a former member of the US Federal Reserve Board, once put it like this: ‘Growth is a substitute for equality of income. So long as there is growth, there is hope, and that makes large income differentials tolerable.’