Harmful economic systems: Obtaining income
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. This fundamental economic mechanism exists in “harmful” economic societies as well. Unfortunately, also existing, and why we describe these societies as harmful, a certain strata— usually the top— also exists to obtain goods through means which may be described as unproductive or extractive.
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 maintain, consolidate and increase sources of income that are (apparently) obtained in other ways. The first is most typical or at least most evident in developing countries.
Armed conflict--typically the fight by groups for control of the government or territory (frequently; possessing natural resources), deserves a separate discussion, because it has been throughout history the principal way in which harmful economic societies have been established and because of its importance in the world today.
North Korea is a "poster country" for a harmful economic system enabling an elite to live well while the majority live in abject poverty. Here's how lousy life is in North Korea Rick Newman US News and World Report April 12, 2012
Obtaining income through 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. 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 in charge of the government. People at lower levels of government can plunder resources 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.
Corruption. One name for a particular type of the unproductive allocation of resources is corruption. Corruption can occur in various ways.
Government officials can get extra-official payments (frequently very large but also often very small) for carrying out, or not carrying out duties that they are paid for and obliged to perform as their duties as government officials.
Nigerians ask why oil funds are missing Adam Nossiter New York Times March 10, 2014 Governor of Nigeria's central bank is fired after warning of billions in missing oil revenue Adam Nossiter New York Times February 20, 2014
Letter from Africa: The looting of Nigeria's pension funds BBC News June 28, 2013
China's prostitutes routinely extorted, abused by police, report says William Wan Washington Post May 13, 2013
Corruption feeds on Zimbabwe's poor IRIN News February 1, 2013
Pay for little or no work/inefficient delivery of services. Another concern is that government officials receive pay without delivering (often anything near) an adequate level of services. What they have done is support the current political system, not deliver government services.
Allocation of resources. The government frequently allocates resources, such as land and other natural resources such as oil, and and business opportunities, directly to itself and its supporters.
A very large part of this allocation/corruption is diversion of revenues from goods exported from or imported to the country.
The big ticket item is natural resource exports, including oil. One would think that discovering oil and being able to export it would enable governments in developing countries to provide sufficient resources for assisting poor people in that country to have education and health services and to provide productive employment. NOT! In fact what HN has described as harmful economic systems mean that very little---a token amount-- gets to poor people. (See resource curse Wikipedia especially the corruption section for further information.)
An excellent annual report on this issue is The Resource Governance Index, Access the 2013 report.
The Index measures the transparency and accountability in the oil, gas and mining sector of 58 countries worldwide and finds that the vast majority surveyed fail to meet satisfactory standards in how their natural resources are governed. In these countries, opacity, corruption and weak processes keep citizens from fully benefiting from their countries’ resource wealth. In 47 of the 58 Index countries, governments have yet to embrace openness and accountability. Together these 58 nations produce 85 percent of the world’s oil, 90 percent of diamonds and 80 percent of copper, generating trillions of dollars annually. Revenue Watch Institute
Inflation and currency devaluation Though neither inflation nor currency devaluation are necessary a sign of the government obtaining resources to promote its own interests, both can be. Large deficits (governments spending much more money than they take in typically lead to both inflation and devaluation, and is frequently due to government desire to control resources.
Use the government to maintain, consolidate and increase sources of income that are (apparently) obtained in other ways. This is more difficult to understand. Slavery would be an important and relatively clear example. The slave-owner is able to obtain an increased income from his slave's labor. This income is not income from the government. Nonetheless, a government--the United States before the Civil War, for example--is necessary to maintain a legal, administrative and police/military structure to permit and enforce slavery.
Oil money, and where it flows: The movie ‘Big Men’ looks at Ghanaian oil discovery Jeannette Catsoulis New York Times March 13, 2014
Egypt's military expands its power over the economy Abigail Hauslohner Washington Post March 16, 2014
Kofi Annan: Africa plundered by secret mining deals BBC News May 10, 2013 See Africa Progress Report 2013
Telecom scandal erupts in India: corruption and 'crony capitalism' appear to have cost the Indian government as much as US$40 billion in lost cell phone spectrum rights Jim Yardley and Heather Timmons New York Times December 13, 2010
Land ownership would be another key example. In many countries there is highly unequal distribution of land. This ownership is typically derived from a period of conquest where land ownership was based on military force or other aspects of power. Land ownership, in spite of the passage of many years, has continued in a highly unequal fashion, essentially due to the continuance of highly unequal access to sources of power and wealth.
Bolivan ranchers try to drive Tsimané Indians off their land Rafael Acuña Coaquira Inter Press Service April 20, 2013
Clashes over land seizures batter the police in Myanmar Thomas Fuller New York Times February 28, 2013 See Hunger Notes special report on trade and hunger
Indian investors are forcing Ethiopians off their land. Thousands of Ethiopians are being relocated or have already fled as their land is sold off to foreign investors without their consent. John Vidal The Guardian February 6, 2013 See report
Biofuel production pushes farming communities off land - report Chelsea Diana AlertNet February 28, 2013
Cameroon: Campaigners oppose industrial palm oil plantations IRIN News December 14, 2012 Curbing Tanzania's land-grabbing race Orton Kiishweko Inter Press Service December 19, 2012 See Hunger Notes special report Trade and Hunger
Forms of slavery--now without a strong basis in law--have continued to this day. In the present, a key term is "forced labor." An invaluable International Labor Organization report, Forced Labor describes the various types of forced labor. More than 12 million are trapped in forced labor worldwide. ) Certainly other aspects of society such as religion, prejudice, or 'scientific thinking' can reinforce the governmental role. For example, the Indian caste system is a system of stratification of human beings, with the Dalits or untouchables being the lowest caste, and this system has a strong religious component, as well as also being sustained by the people that benefit from the system (Wikipedia Dalit, Caste system in India).
Centuries after slavery was outlawed, 29.8 million people globally continue to be subjected to new and diverse forms of servitude, new index shows IRIN News October 18, 2013 See full report. See the section of Hunger Notes special report on Harmful economic systems on Impact on poor people
All harmful economic activity is not managed by the government or by groups that control or enjoy benefits from the government. There are also other groups that undertake harmful economic activity. This can result in conflict between these groups, typically with great harm to ordinary people living in the conflict zones. Examples would be Sudan, Somalia, the Democratic Republic of the Congo, and the states in Mexico that are contested between the Mexican government and drug organizatins.
Mexico targets gang that infiltrated the mining industry Paulina Villegas New York Times March 5, 2014
Armed conflict. Armed groups can fight with the government for control of territory, such as in Colombia, Pakistan, or the Democratic Republic of the Congo. Other countries can also be involved as in the Congo.
At least 6.8 million people were displaced last year, mainly by long-running conflicts, pushing the number of those forced to live away from home to 27 million - the highest since the mid-1990s IRIN News May 28, 2010
Even a government that to some degree supports ordinary citizens and their rights can be outmaneuvered by others, such as powerful government officials and landlords and others with economic power. Or governments can simply look the other way and acquiesce to wrongdoing.
A high level of "private enterprise" violence can lead to the desire for a more authoritarian government, a government that may restrict personal freedom, but also provides a more orderly society.