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Harmful Economic Systems: the Major Barrier to Peoples' Welfare and Development

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(Updated November 16, 2003) The standard economic model of how things 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.

Many societies are run on this basic set of principals.  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:

The influence on development of poor nations is profound. The government/people in the government, in spite of lip service to the contrary, is/are not engaged in helping the people of the country, but rather in helping themselves. This has had and continues to have a disastrous effect on development and the incomes of poor people. The final section of this article discusses this more fully. This article exists to provide an analytical framework to understand the situation and events in many countries, which, considered separately, may be confusing.

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 for control of the government or territory, frequently with natural resources, by groups 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.

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 the unproductive allocation of resources is corruption. Corruption basically means that government officials get extra-official payments (frequently very large but also often very small) for duties that they are paid for and obliged to perform as their duties as government officials. See the most recent Transparency International annual report on corruption worldwide. Reprinted here are the Corruption rankings of the countries of the world (PDF file).

Pay for little or no work. 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. The following brief article and link to the full report describe the (mis)use of oil revenues in developing countries  .The African Oil Boom: Peril or Opportunity for Africa's Poor People?  Catholic Relief Services (November 8, 2003)

Crime and looting are examples of harmful economic activity in which poor people can participate. Crime, frequently a terrorist activity-- using terror to obtain income "your money or your life"-- happens everywhere.  Even legitimate governments such as in the United States typically deal only partially with crime. Many neighborhoods in the United States are subjugated to gangs that sell drugs, kill people, and maintain control of their activities through intimidation and murder.

Armed Conflict. Unfortunately there are many examples of armed conflict in the world today. Examined more closely this conflict is typically over control of the government or territory--often territory with natural resources. Thus this conflict is over who will establish a harmful economic system and subsequently over control over resources, including the power to tax, arrange oil leases, and so on.  In conflict, in addition to the struggle for control over resources, there is typically great harm done to ordinary people, such as murder,  amputation of limbs, rape, 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.) More

Keeping People Oppressed/Preventing Revolution

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.

A principal 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 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). 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. Sometimes legitimate regimes take power. The response of harmful economic regimes will be to try to maintain its sources of power, in preparation for a counter-revolution. Both Liberia and Serbia (and Iraq) are examples. More

[Topics Below Under Construction]

Avoiding overthrow

This 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. Put in another way, how is a structure of harm maintained?

Barriers to Entry

A major barrier to entry is limiting access to worthwhile employment.

African-American Names Penalized During Employment Process, Study Finds Richard Morin  Washington Post, August 3, 2003. (You will leave this site and be required to register [once] with the Post.)

The following story describes the lack of economic mobility in Brazil through one man's story.  "A study by the Brazilian Institute of Public Opinion and Statistics shows that Brazilians are nearly four times less likely to improve their economic standing from one generation to the next than Canadians or Swedes, a level comparable to South Africa.  Americans are somewhere in between. Immobility, academics agree, is a conspiracy of bad schools and bad homes, inadequate health care, a loan or patch of land that is too often out of reach.  So poor is the quality of Brazilian public elementary and high schools that, until rigid quota systems were implemented this year, nearly 90 percent of all admissions to competitive and lauded public universities were graduates of costly, superior private high schools. 

"Quite simply, said David Lam, an economics professor at the University of Michigan, "neither the state nor any of its public institutions work very well for the poor."

Poverty & the Lack of Economic Mobility in Brazil: One Family's Story John Jeter (Washington Post, November 13, 2003. You will leave this site and be required to register [once] with the Post.)

 

Impact on Development

The impact on development of harmful economic systems has been enormous. Try to think about some of the consequences of what has been described above. They include war, continued devastation over centuries, and control of the government and productive resources, that have left hundreds of millions confronting starvation, while those who "govern" and "own" live very well.  A recipe for disaster! And we should not blame the victims--poor people across the world.  Rather we should think about how we can help them.

War

War, basically caused by armed groups seeking to control the government, or territory or resources, has devastated vast regions of the world, and more importantly, vast numbers of the people of the world.

Where is there major armed conflict now? These countries include the Sudan, the Congo, Israel/Palestine, Iraq, Afghanistan, Sierra Leone, Liberia, Northern Uganda, and Colombia, Nepal, Kashmir (conflict between groups allied with Pakistan and India, as well as the countries themselves).

Where has there been major conflict in the past which is now somewhat abated but which has still greatly affected the society and its progress? Sri Lanka, Peru, El Salvador, Guatemala--to name a few.

Continued Devastation over Centuries

We do not want to think about this, perhaps, as the government and people of the United States, has participated in  this devastation over the past four centuries. It is hard to say what is "we," but after acknowledging this, we, the people of the United States and the preceding colonies drove the native Americans from almost all of the United States, and settled them in very inhospitable places, benefited from slavery including the transport of slaves, production  of crops such as cotton and other goods produced by slavery,  We tolerated in the North, and accepted with a vengeance in the South, the return of extreme discrimination after the Civil War, which ostensibly freed the slaves.  Did we benefit from all of this?  Well of course our minds are mired in the present--what difference does the past make?--so we are not only unable to answer the question, we are unable even to ask it in the regular operation of our society. However let us ask it here.  How have African Americans (or Native Americans) been harmed by the past 400 years of white European control/domination of North America? 

Africa

The people of Africa--Sub-Saharan Africa-- have been injured greatly by the operation of the world economic/political system. This can be divided into three parts, slavery, "classical" imperialism, and the modern world.

Slavery. How many slaves were taken from Africa? What kind of social system--in Africa and in the world--permitted them to be taken? (Under what circumstances would you give your daughter or son up to slavery  And if the answer is never--what circumstances would make your answer irrelevant?)

Slavery and the accompanying social system imposed on Africa began in the 1600s and continued until the late 19th century and, to some real extent, even today.

Imperialism. In addition of course to slavery there was a dividing up of the whole continent by England, France, Belgium, Spain, Portugal and Germany.  Why should this be allowed! Well of course it was, due to superior arms and organization, not to mention control of the relevant international organizations which "sanctioned" such things. So the people of the continent spent 100 plus years benefiting these developed nations through such means as exporting resources--gold, diamonds, and  metals.

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