Global issues: harmful economic systems
The standard economic model of how economies work is that people produce and exchange goods. Governments exist to provide “government goods”— things that people cannot provide for themselves, such as national defense. Thus the standard economic view is that activities are essentially productive. While this view has made for a thriving profession of economics, it is not a correct view of reality. The principal difficulty is that there is economic activity that is unproductive and harmful (from the point of view of those being harmed), and that this is a key feature of the economic organization of societies. What follows is a brief analytical description of these societies and how it affects people’s welfare and development.
Many societies are run on this basic set of principles. Take and maintain control of the government. Use powers of the government to obtain income. Key elements of this process are described in five sections:
A sixth section discusses the impact of harmful economic systems on poor and hungry people and on development. A seventh section Reducing harm gives a too brief discussion of what people are doing to improve matters.
1. Production vs. harm. The basic idea and activity in productive societies is helping to produce goods—things that are useful to someone—food, light bulbs, cars—and then exchanging the income received for goods that are desirable to you.
The fundamental economic mechanism exists in “harmful” economic societies as well. But these goods (or the resources that produce them) can be reallocated through force, as well as law backed by force. Simply put you can produce goods, or take them away from others, which is why we describe these societies as harmful. The highest stratum—the ruling class—obtains goods through means which may be described as unproductive or extractive.
2. Conquest and conflict historical overview. Armed conflict, the fight by groups for control of the government or territory (frequently possessing natural resources), has been throughout history the principal way in which harmful economic societies have been established. Its importance continues today. The results of conflict have been the domination of the winning side over the losing and the establishment of a pattern of income and resource allocation favoring the winners.
Examples would be the Hittite empire (Wikipedia 2013), the Assyrian empire (Wikipedia 2013), the Roman empire (Wikipedia 2013), the Norman conquest of England (Wikipedia 2013), the conquest of the territory that became the United States by various European powers and then the government of the United States, the British empire (Wikipedia 2013) and the Japanese Greater East Asia Co-prosperity Sphere (Wikipedia 2013).
Control over labor power is also an important way of using power to obtain income, with serfdom (Wikipedia 2013), slavery (Wikipedia 2013), and debt bondage (Wikipedia 2013) as important examples. Forced labor (ILO 2013) is the general modern term. Also see Unfree labor (Wikipedia 2013). Caste systems (Wikipedia 2013) can also confine people in certain types of work, with the Dalits (Wikipedia 2013) in India being an example.
3. Basic overview. The central idea is that there are winners and losers. To have a simple model of history and harmful economic societies, we would say that conquest establishes control by a small group over a large group. Once the conquest is completed, much fewer ‘domination’ resources are needed, and, in addition to arms, other resources/methods of control are used, such as domination of the political and judicial system. Moreover, transfer of ownership of resources such as land, labor and natural resources takes place, and more subtle forms of control are employed. The small group can of course be the elite of another country which has happened frequently in the past, as the examples above illustrate.
Economists have developed some models that incorporate both production and conflict.1 When game theory is employed in models that incorporate both conflict and production those that obtain resources through conflict are known as the “winning coalition,” terminology that will also be used here.
4. Other structures of harm. Harm as a means of obtaining income can exist in other ways as well. These include theft, robbery, and larger scale organized crime (Wikipedia 2013), such as the Mafia (Wikipedia 2013) or drug cartels (Wikipedia 2013).
1. Basic statement. The principal ways in which income is obtained in a harmful economic system are twofold: 1) obtain it through the government, or 2) use the government to obtain and maintain sources of income that are (apparently) obtained in other ways. These are not substantially different, but may appear so at first.
2. Obtaining income from the government. There are a wide variety of means in which government officials and others obtain revenue from the government. The first thing to recognize is that people at the top of government, or those who have significant control over the government but who are not government officials—often entrepreneurs or corporations—can and do plunder resources coming into the government. Government revenue is often not devoted to productive services but siphoned off by those in control of the government. Such activity is typically referred to as corruption. A nation expects that its national resources will be used for the benefit of the nation. However, very large amounts of such revenue are often used to enrich those who control or have influence with the government. People at lower levels of government can obtain income too, by not providing services which they are paid to provide, by charging for services which they should provide, or by taking goods, such as medical supplies or automobiles/trucks, which should be used for government service. Avoidance of government taxes of all sorts is common.
3. Using the government to obtain resources. Privileged groups can often obtain access to natural resources. The allocation of natural resources such as oil and land and the income therefrom frequently go to international corporations, allies and supporters of high government officials, and government officials themselves. These structures of domination, control and income distribution have been going on for centuries and have resulted in highly unequal societies. For example, the Spanish conquest of Latin America resulted in a society where land and other natural resources and larger scale economic opportunities were in the hands of a few. This unequal distribution of land and income has persisted to this day.
For current examples see Ha
rmful economic systems in action.
1. Basic statement. In essence, there is part of the population that is living well because of their control of assets and people. (This in the economic model referred to above is the winning coalition and it will also be referred to here as the ruling class.) The people whose assets and income have been reallocated don’t like this and thus there is the threat of revolution—overturning the minority in benefit of the majority. This is prevented in a number of ways.
2. Preventing revolution is at bottom accomplished by force. Peasant rebellions, a frequent occurrence in history, illustrate both the discontent of the productive sector and the use of force in repressing it. One Chinese expert says that there were peasant rebellions almost every year in China, while a Russian expert says that in the period between 1801 and 1861 there were no less than 1,467 peasant risings in various parts of the Russian empire [Lenski, 1966, p. 274]. That even more did not take place may be explained in part by referring to the saying of Aristotle, “If you strike at a King, you had better kill him,” with its implicit threat of the dire consequences of failure. Certainly a very clear way of keeping people oppressed and unable to move to a situation that might be characterized as democratic, is terrorizing the subject population, including beatings, murder and torture. Especially important is killing leaders of the subject population(s) or otherwise keeping them from being a source of unrest (by such means as imprisonment, exile, or bribery). Controlling how people are able to communicate, including tracing what they say for possible reprisal, is also important.
3. Key groups. Nonetheless, force is not the complete story of how a winning coalition establishes and mantains control. For many countries in relatively recent times, groups who have been importantly represented in the sector that has political and economic control are capitalists, both national and foreign, landlords, the military, a group that we might refer to as “educated civilians” including government functionaries and politicians, foreign governments, and more rarely and more debatably, organized labor.
Why was the winning coalition that ended up in control of the state formed from members of at least some of these groups who are far from representing a majority of the population? The central part of the answer seems to be that these groups have power capabilities useful in capturing, controlling and operating the state apparatus (Anderson 1967). The military has control of the largest part of the armed force. Capitalists and landlords have resources and organization that they can use to obtain influence.
The educated civilians derive their power from a number of sources. They have the ability to run the “ship of state.” As lawyers and administrators they often perform crucial functions for capitalists and landowners as well. As politicians, they have special skills in putting and keeping a coalition together, and as writers and orators they can mobilize support for their coalition. This is not to say that these roles cannot be performed by others, such as landowners or the military, just that they are often performed by these educated civilians.
Organized labor, to the extent that it is in the winning coalition, seems to derive an important part of its power from its ability to disrupt the functioning of crucial sectors of the economy and from its potential as an armed force, factors which tend to put organized labor in opposition to the military. In addition, they, like landlords and capitalists, have economic and organizational strength, and where elections are a factor, some degree of voting power as well.
Foreign governments have both organization and control over financial resources that can be used in such diverse ways as financing the election of sympathetic nationals or providing a “carrot” incentive to hard-pressed governments through foreign aid. As suppliers of modern armaments, often on generous terms, the large foreign governments also have an influence through the military, which is no less important for being derivative. They control, or greatly influence, major international institutions such as the World Bank, the International Monetary Fund and the World Trade Organization, whose decisions affect developing countries. Finally, one or more developed country governments may use force against a developing country government.
4. Some strategies.
One favorite way of maintaining oppression is to stay in power for a long time, frequently by manipulating or subverting an ostensibly democratic legal framework. Election fraud/rigged elections is a principal way of staying in power.
A second way—certainly a very clear way—of keeping people oppressed and unable to move to a situation that might be characterized as democratic, is terrorizing the subject population, including beatings, murder and torture. Especially important is killing leaders of the subject population(s) or otherwise keeping them from being a source of unrest (by such means as imprisonment, exile, or bribery).
Controlling how people are able to communicate, including tracing what they say for possible reprisal, is also important.
In essence, there is part of the population that is living well because of their control of assets and people. The people whose assets and income have been reallocated don’t like this and thus there is the threat of revolution—overturning the minority in benefit of the majority. This is prevented in a number of ways. There are two powerful ways of changing a harmful economic system—through revolution, or through democracy. Both have been common in the past and today. Revolution has been frequently thwarted by successful opposition by the existing government and its allies or by a revolutionary movement evolving into an oppressive government. See the further discussion under Reducing harm below.
For current examples see Harmful economic systems in action.
1. Basic statement. Avoiding overthrow is very similar to preventing revolution. However, what is emphasized in this section is preventing overthrow by others who would maintain a structure of harm.
Two important issue areas are:
the struggle for control of the government
how is a structure of harm maintained?
2. The struggle for control of the government
Key ways in which the struggle for control of the government occurs is through armed conflict, coup d’etats and and other more or less violent, more or less legal, government reorganizations.
Armed Conflict. There are many examples of armed conflict in the world today. Examined more closely this conflict is typically over control of the government or specific territory—often territory with natural resources. Thus this conflict is over who will establish control over government/territory and subsequently over control over resources, including the power to tax, arrange oil leases, and so on. Examples would be conflict between the more-or-less established government and rebel or other groups, conflicts between governments, done surreptitiously or openly, and conflicts between governments, and conflict between government and organized crime.
In conflict, in addition to the struggle for control over resources or power, there is typically great harm done to ordinary people, such as murder, amputation of limbs, rape, and taking of family food and other resources. (This can be so bad that an end to conflict, even if it then means establishment of an organized system of oppression, is preferable to people.) Revolution against an unjust government (see section above) also causes conflict. It is often difficult to decide if armed conflict is a way to gain resources, or a reasonable reaction against injustice, or a reasonable reaction by government to what is viewed as dismemberment of its territory. This in a particular circumstance is usually debatable, however it is possible to form an opinion based on the evidence.
Coup d’etats, ‘“revolutions,” and other means There is a substantial amount of more or less violent, more or less legal, rearrangements of governments or attempts to do so. Coup d’etat is where one group, typically members of the government/winning coalition and also typically including at least a segment of the military, oust those at the top of the current power structure and replace those people with their own. (The overthrowing group does not want to refer to its seizure of power as a coup, and thus uses terms such as revolution.) (See Wikipedia 2013 and Luttwak 1968.) There is also quite a bit of “jockeying for power” which can involve such actions as removing a threatening member of the ruling coalition or changing the rules, such as rewriting the constitution so that the President is not limited in the number of terms he can stay in office. These actions, if unsuccessful, can result in a coup.
3. How is a structure of harm maintained?
Ways in which a structure of harm is maintained include the following.
A key use of the revenues of the winning coalition is to pay the members of the coalition suffficiently so that they will not be tempted to overthrow or reform the current coalition. The gradiation of rewards and status within the winning coalition helps keep costs of maintaining the winning coalition down, and provides ‘career paths’ for those in the winning coalition.
Installing loyal supporters in key areas is important for those at the top of the winning coalition.
Terror in its various forms, and controlling means of communication, can help those at the top of the winning coalition keep other coalition members in line, just as they are useful in preventing revolution.
Various things strengthen the cohesion of the ruling class. The ruling class can often be a racial or religious minority in society. This in itself provides cohesion. The threat of overthrow by the majority can serve to increase cohesion. There can also be the development of a ruling class ideology to strengthen cohesion (e.g. the divine right of kings), ideologies which often include the disparagement of those who the winning coalition needs to control.
For current examples see Harmful economic systems in action.
1. Basic statement. Restricting entry to the harmful sector is necessary, because an income differential exists between the productive sector and the exploitative sector. If free entry, the standard assumption made in economics, were allowed into the harmful sector, incomes in the two sectors would be equalized. Barriers to entry into the harmful sector include:
being of a different tribe, nationality or religion
racism, sexism, or other strong prejudice against a given group.
2. How barriers to entry work. The way barriers to entry work is to limit access to worthwhile employment, as well as other social advantages such as education and ability to marry outside of one’s class or group. Typically minorities/ordinary people have been disparaged in some way—for their supposed (lack of) intelligence, personal appearance or for some other reason. People can be marginalized because of their skin color, ethnic origin, income level or indications of same, such as names. For example in the US south before the 1960s, African Americans were not allowed to drink from the same water fountains as whites, shop in most stores, eat in the same restaurants, or live in the same neighborhoods. Their personal characteristics such as intelligence and appearance were disparaged. They were referred to in insulting ways. Basic justice was denied them. Schools were much worse. Such discrimination limits people’s opportunities and diminishes their sense of self-worth. There has been a reaction against this sort of disparagement and oppression in many ways in many countries, but it still persists.
For current examples see Harmful economic systems in action.
The influence on the welfare of poor people and the development of poor nations is profound.
1. Resources, both governmental and other resources, such as natural resources, are directed toward members of the ruling coalition, not to the benefit of all. For many governments, the government/people in the government and their allies, in spite of lip service to the contrary, are not principally engaged in helping the people of the country, but rather in helping themselves. This has, and continues to have, a disastrous effect on the incomes of poor people and development.
2. Conflict. There is a substantial amount of conflict in the world, most of it in developing countries. The 2012 Human Security Report says that there are 30 to 40 state-based armed conflicts per year on average; there were 23 non-state (neither side was a state) armed conflicts in 2009; and there were 19 cases of one-sided violence in 2009, the last year for which statistics were available (Human Security Report Project 2012). According to the latest estimate by the UN High Commissioner for Refugees, at the beginning of 2011, 43 million people were forced to flee their homes with 26 million displaced within their own country, 15-16 million refugees (displaced to another country) and 1 million asylum seekers. Conflict is the principal cause of this displacement.
3. There is a very unequal distribution of income and this has persisted over centuries It is important to remember that harmful economic systems have existed throughout history, and a key result has been very unequal distribution of income. There is a ‘dead hand of the past’ though perhaps most of us, including standard economists, recognize it only dimly. In the United States, for example, the Native Americans were almost totally pushed off their land, ending up with a few small, or if larger, hardscrabble, areas of land. Slavery oppressed African Americans from the beginning of European settlement in North America, and though ostensibly freed after the Civil War, severe oppression continued for 100 years or more. This in a country that many view as a model of democracy. In other areas of the world control of countries and resources by a minority has also resulted in serious income inequality. [Give Latin America example.] The result is that poor people have substantially less income. This lower level of income is not just missing out on a few luxuries. It is a major cause of malnutrition, which causes greater infant mortality, stunting and reduced cognitive ability. It is a major cause of poor health–many basic services such as clean water, waste disposal, and essential health services are not available at all. It is a major cause of poor education.
4. Barriers to entry also inhibit people’s incomes and life chances. It is not simply a matter of income as discussed in point 3. Caste, race, ethnic group, and gender can keep people from education, from jobs, from having the rights of citizens, and from social interaction with the “elite” including marriage and other forms of social inclusion. People cannot rise—they are kept in their “station in life.”
For some current examples see Harmful economic systems in action.
This section gives a too brief discussion of what people are doing to improve matters.
There has been a struggle for thousands of years by human beings in many different ways against the sort of subjugation described in this special report. To name just one very important example, the world’s religions have worked to establish a set of principles for human relationships that were very much against oppression, and though the religions were persecuted for doing so, they did manage to establish at the very least a set of guidelines for human behavior. In all countries of the world there has been a struggle against injustice, and attempts, which have met with increasing success, to establish the societal frameworks for a more just and equitable society. This is a long (and inspiring) story which we cannot recount here.
The current efforts in the world to reduce harm include reducing corruption, moving to more democratic governments with established rights and processes (by means such as reducing the influence of the military and improving the fairness of elections—and having them! and reducing police brutality), and, internationally, reducing the advantages which developed nations have assigned to themselves through their control of international institutions, such as United Nations, the World Bank, and the World Trade Organization. In recent years, there have been important efforts to have elections that express the will of the people and to implement policies that reflect an electoral mandate. Nations are evolving from power structures that have been based on some combination of military, economic and political control to ones that increasingly reflect the wishes of the (often very poor) people. This evolution has not been easy, and it is far from complete.
For current examples see Harmful economic systems in action.
Lane Vanderslice is the editor of Hunger Notes
1. Jack Hershleifer appears to have begun the consideration of conflict and other examples of harm in standard economics with his 1991 article “The Technology of Conflict as an Economic Activity.” This article recognized that there are two main approaches to obtaining income: production and conflict, and provides an introductory analysis of some key issues when conflict was possible. A second early, basic article was Stergios Skaperdas’ 1992 article “Cooperation, Conflict, and Power in the Absence of Property Rights.”
Anderson, Charles W. 1967. Politics and Economic Change in Latin America. New York: Van Nostrand Reinhold.
Bueno de Mesquita, Bruce and Alistar Smith. 2011. The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics New York: Public Affairs.
Hershleifer, Jack. 1991. “The Technology of Conflict as an Economic Activity.” American Economic Review 81: 2(130-134).
Human Security Report Project. 2012. Human Security Report 2012. Vancouver: Human Security Press. http://hsrgroup.org/docs/Publications/HSR2012/2012HumanSecurityReport-FullText-LowRes.pdf
International Labor Organization 2013. http://www.ilo.org/global/topics/forced-labour/lang–en/index.htm
Lenski, Gerhard E. 1966. Power and Privilege. New York: McGraw-Hill.
Luttwak, Edward. 1968. Coup d’Etat: A Practical Handbook. Greenwich, Conn.: Fawcett.
Skaperdas, Stergios. 1992. “Cooperation, Conflict, and Power in the Absence of Property Rights.” American Economic Review 81:4(720-734).
United Nations High Commissioner for Refugees. 2012. State of the World’s Refugees 2012. http://www.unhcr.org/publications/unhcr/sowr2012
Wikipedia. 2013. Assyria
_______. 2013. British Empire
_______. 2013. Caste
_______. 2013. Coup d’etat
_______. 2013. Crony capitalism
_______. 2013. Dalit
_______. 2013. Debt bondage
_______. 2013. Drug cartel
_______. 2013. Kleptocracy
_______. 2013. Mafia
_______. 2013. Greater East Asia Co-prosperity Sphere
_______. 2013. History of the Hittites
_______. 2013. Norman conquest of England
_______. 2013. Roman empire
_______. 2013. Serfdom
_______. 2013. Slavery
_______. 2013. Unfree labor