Capitalism and the rise of world poverty

First published: October/November 1998

[NB this article refers to illustrative figures which we hope to include in due course.]

It is appropriate in the year of the 150th anniversary of the Communist Manifesto to draw up the economic balance sheet of capitalism in the twentieth century. In addition to the destruction of two World Wars and numerous regional wars, the record is that economic development of a small core of imperialist states occurred at the expense of the populations of the majority of market economies falling further and further behind. The only large economies to close the gap with the major imperialist states are those where capitalism was overthrown. Where capitalism was restored that progress was reversed. With capitalism entering a new period of global turmoil, translating into impoverishment, starvation and untold misery for hundreds of millions of people, Marx and Engels’ view that the working class is the only social force which can take humanity as a whole forward retains all of its force today.

Since the mid-1970s, inequality has risen to the highest levels in history. Impoverishment, starvation, avoidable disease and death have devastated whole continents and destroyed the lives of millions of people.

After the reintroduction of capitalism in 1989, the populations of Eastern Europe and the former USSR joined the ranks of those whose living standards were falling in absolute terms. Capitalism has now created the highest levels of poverty in human history. To investigate these phenomena we will use two sets of data, the historical data of economist Angus Maddison and the 1997 figures of the World Bank.

There are considerable methodological problems in making economic comparisons between different countries and over periods of time. The most reliable data in this area is based on studies that use Parity Purchasing Powers (PPPs), calculations that take into account the different price levels in different countries. One of the most extensive studies in these terms is by Angus Maddison who has calculated PPPs data for 43 countries from 1820 to 1989. This accounts for more than three quarters of the world’s population and may be considered a reliable guide to capital’s development over that period.

 

The imperialist development of capital

The most outstanding feature of the development over the period 1820—1989 is the increasing gap between the capitalist core economies and all the other areas of the globe (figure 1) [1].

As capital has penetrated new areas of the globe, the economies of the less developed nations have become subordinated to those of the more advanced capitalist nations. The economic benefits that resulted from the transition from the feudal mode of production to the capitalist mode have been disproportionately concentrated in the imperialist nations. This growth of inequality then continued as capital developed throughout the whole of the current century. The result has been that the majority of the world’s nations have been progressively impoverished relative to the increasing prosperity of the dominant imperialist nations. The continents of Africa, Latin America and Asia have increasingly fallen behind the capitalist core for most of the 170 years under consideration. Asia only started reducing the gap after 1950, and it should be noted that in this data Asia includes Japan and the South East Asian economies as well as China. This process has gone through distinct periods whose chief features can be observed by examining in detail the process that unfolded in the different areas.

Africa, Latin America and Asia

Africa has fallen furthest behind the capitalist core economies over the whole period. Average per capita GDP (GDP divided by population) in Africa was only 37.9 per cent of the capitalist core in 1820. It then progressively dropped through 23.2 per cent in 1870 to 18.3 per cent in 1890. It then slightly increased to 18.9 per cent by 1913 and to 21.7 per cent in 1950, before collapsing to 16.1 per cent in 1973 and further down to just 11.6 per cent in 1989.

Latin America has also fallen behind the capitalist core for most of the 170 years. The average per capita GDP of Latin America in 1820 was 50.4 per cent that of the capitalist core. In 1870 and in 1890 it was 45.6 per cent. In 1913 it was 44 per cent and rose to 45.3 per cent in 1950. Since then it has declined to 35.6 per cent in 1973 and further to 28.4 per cent by 1989.

Average per capita GDP in Asia declined in relation to the capitalist core until 1950, and then rose. In 1989 however Asia was still considerably further behind than it was in 1820. It was 50.4 per cent of the capitalist core in 1820, dropped to 34.3 per cent by 1870, then further declined to 29.8 per cent in 1890 to 23.2 per cent in 1913 and down to 15.2 per cent in 1950. It has then risen to 22.2 per cent by 1973 and up to 31.5 per cent in 1989.

The former USSR and China

Prior to the October revolution, the former USSR followed a similar pattern to Africa, Asia and Latin America – steadily falling behind the capitalist core economies. However, in the period following the overthrow of capital, it progressively closed that gap up until 1973. Per capita GDP of the USSR was 46 per cent of the capitalist core in 1870, fell to 38.8 per cent in 1890 and then down to 37.1 per cent in 1913. It subsequently reduced the gap to 55 per cent in 1950 and 57.5 per cent in 1973. The gap then slightly increased to 49 per cent in 1989, which meant it was still closer to the capitalist core nations than in the period from 1820 to 1913, prior to its revolution. The data on which these percentages are based is in figure 2.

After its socialist revolution, China experienced a similar process. Having fallen further and further behind it then started to catch up. Per capita GDP in China was 47.1 per cent of the capitalist core economies in 1820. It had declined to 28.9 per cent by 1870, to 24 per cent by 1890, 18.2 per cent by 1913 and 9.4 per cent by 1950. It subsequently grew to 10.1 per cent by 1973 and then dramatically rose up to 17.8 per cent by 1989.

Growth Rates 1820–89

Consideration of the rates of growth of per capita GDP sheds further light on how these processes have unfolded. Figure 3 summarises this data.

Since 1913 Africa has been forced relatively and, from 1973, absolutely, backwards. Between 1913 and 1950, Africa’s rate of growth of per capita GDP was only just below that of the capitalist core counties. It fell to half their rate between 1950 and 1973. From 1973 to 1989, GDP per capita has fallen absolutely in Africa.

Latin America’s per capita GDP grew at one third of the rate of the capitalist core between 1820 and 1870, rising to three quarters of their rate between 1870 and 1913. From 1913 to 1950 it grew slightly faster than the capitalist core, then fell back to just below three quarters of their rate from 1950 to 1973 and to less than a third of their rate between 1973 and 1989.

Asia, including Japan and China, had the lowest growth rates of per capita GDP until 1950 – the region’s growth was a ninth that of the capitalist core from 1820 to 1870. It rose to just under half their rate from 1870 to 1913, became negative from 1913 to 1950. From 1950 to 1973 Asia’s growth rate matched that of the capitalist core and was double its level from 1973 to 1989.

Taking China separately, per capita GDP growth was zero from 1820 to 1870, a quarter of the capitalist core between 1870 and 1913 and negative from 1913 to 1950. After capitalism was overthrown in the 1949 revolution per capita GDP grew more rapidly than the capitalist core from 1950 to 1973, rising to approximately three times the rate of growth of the capitalist core from 1973 to 1989.

Prosperity in the former USSR grew at just over half the level of the capitalist core in the period from 1870 to 1913. Then it achieved nearly double the growth rate of the capitalist core immediately after its revolution in the period 1913 to 1950. It achieved a growth rate slightly higher than the capitalist core in the period 1950 to 1973, then the rate fell behind from 1973 to 1989, but was still higher than that of Latin America and Africa and higher than its growth rate prior to its 1917 revolution.

The pattern of development

The pattern that emerges from this data is the following. In the first period, from 1820 to 1870, output per head in the capitalist core countries grew faster than the other areas. In the period from 1870 to 1913, with the rise of imperialism and division of the world between the major imperialist powers, the capitalist core countries advanced at the highest rate. Asia, Africa, Latin America and Russia, whilst being integrated into the capitalist economic system, declined relative to the capitalist core.

In the period following the First World War, relative decline continued – with the exception of the USSR, which following the 1917 revolution reversed its decline and saw its rate of growth in per capita GDP overtake the capitalist core.

In the period after the Second World War, all areas of the world experienced a boom. However, Africa and Latin America continued to fall behind the capitalist core. In this period the USSR grew faster than the capitalist core and Asia at a similar rate to the capitalist core. Average Asian growth was boosted by the high growth levels in Japan and in China following the 1949 revolution.

In the period 1973 to 1989, after the end of the post-war boom, growth rates of per capita GDP fell in all areas of the world except for Asia. China’s growth rate further increased as did those of the South East Asian economies. Growth rates declined in Africa and Latin America in this period, with per capita GDP in Africa declining in absolute terms from 1973 to 1989.

The period since 1989

After 1989, capitalism was reintroduced first into Eastern Europe and then the Soviet Union. To see what happened after 1989 we will use the World Bank’s figures.

The World Bank’s data shows that the increase in poverty in the decade from 1975 to 1985 was surpassed by further increases in the following ten years. The main features are summarised in figure 4.

This compares the growth of output per head of the advanced capitalist countries [2] with the other less developed market economies, including Eastern Europe and the former USSR [3]. The figures show that growth of per capita GDP slowed in the OECD, and collapsed in the other market economies between 1985 and 1995. In the OECD economies the rate of growth fell from 21.3 per cent in the ten years to 1985 to 17.6 per cent in the ten years to 1995.[4]

For all the other market economies, the collapse has been far more dramatic. Growth fell from 11.4 per cent in the decade to 1985 (that is approximately half the level of the OECD) to 2.6 per cent (one eighth of the OECD).

The former planned economies and China

Figure 5 shows the contrasting effects of the re-introduction of capitalism into the USSR and eastern Europe, compared to the results of the economic reform in China which has taken place within a framework of a planned economy with no largescale privatisation of industry (the figures are for growth over a ten year period to remove short term fluctuations).

The balance sheet is clear. The re-introduction of capitalism into the former planned economies of Eastern Europe and the USSR resulted in a collapse in living standards – ten year growth in per capita GDP declined nearly every year, dropping from 60 per cent in 1980 to a minus 40 per cent in 1995. Growth measured over the previous ten years came to a halt in 1989, since when there has been a process of ever increasing absolute impoverishment.

China, on the other hand has enjoyed an increasing ten year growth of per capita GDP over this period. It has risen from 50 per cent in 1980 up to 140 per cent in 1995.

Economies by Sector

As a result, over the past 20 years the world has become divided into two sectors: the areas catching up with the industrial countries and the areas falling further behind. The first group – China and, until summer 1998, the Asian market economies – have been catching up with the industrial countries. The second group – Africa, the Middle East and Latin America – have been falling further behind the industrialised countries.

The former USSR has switched from being in the sector catching up with the imperialist nations to the one falling behind. Africa and the Middle East have not only been falling further behind but have experienced absolute drops in per capita GDP for two decades. Figure 6 shows the percentage growth of per capita GDP over two decades 1975–85 and 1985–95 for all the market economies and for China. It divides the market economies into the industrial (the OECD less Mexico and Turkey), the developing economies (Latin America and the Caribbean, Africa, Middle East, Asia) and Eastern Europe and the former USSR.

In the sector where living standards have been catching up with the industrial nations, China, which remains a non-capitalist planned economy, has achieved the highest growth of per capita GDP. It rose by 92.9 per cent in the decade to 1985 (more than four times the growth of the industrial countries) to 129.5 per cent in the following decade (more than seven times the industrial economies) The Asian market economies increased their growth from 36.5 per cent in the decade to 1985 to 51.7 per cent in the following decade, moving from a situation where per capita GDP was growing at one and a half times that of the industrial economies during the first decade to two and a half times in the second decade.

Latin America and Africa

For Latin America and the Caribbean growth of per capita GDP collapsed from a level of 6.2 per cent (approximately a quarter of the level in the industrial economies) in the ten years to 1985 to 2.9 per cent (a seventh of the level in the industrial economies) in the decade 1985 to 1995.

For the Middle East and Africa per capita GDP has fallen for 20 years. In the former region per capita GDP fell by 16.8 per cent in the decade to 1985 and by 12.4 per cent in the following decade. In Africa per capita GDP fell by 12.8 per cent in the decade to 1985 and then further decreased with a fall of 4.2 per cent in the following decade.

Eastern Europe and the former USSR

The World Bank’s data allows a clear economic balance sheet to be drawn of the reintroduction of capitalism into eastern Europe and the former USSR. Per capita GDP grew by 30 per cent in the decade to 1985 under planned economies. This turned into an absolute collapse, with a negative growth of 38.6 per cent in the following decade. These economies have gone from a situation where they were increasing their per capita GDP at a rate 50 per cent above that achieved by the advanced industrial economies to the devastating collapse of the past decade. For all the distortions introduced into the planned economies by Stalinism, the figures show that those who argue that capitalism is more efficient than a planned economy are factually wrong.

Conclusion

Over 150 years capitalism has produced ever increasing inequality. The gap between the prosperity in the imperialist nations and all other areas of the globe has consistently widened. The only big countries which have succeeded in closing this gap are those where capitalism was overthrown – in Russia in 1917 and in China in 1949. Subsequently, and notwithstanding the distortions introduced by the bureaucracy, the planned economies closed the gap with the imperialist states. When capitalism was reintroduced into the former USSR and Eastern Europe, it threw these countries back on the economic level. The collapse in the former USSR has yet to reach the bottom. In China, on the other hand, which set out after 1978 to change the priorities of the planned economy to favour consumer goods and food and legalise small private businesses and the market in these sectors, without restoring capitalism, economic growth accelerated. The reformed Chinese planned economy has been the most successful economy in the world, in terms of economic growth and rising living standards, for 20 years. The Asian tigers which were the most dynamic capitalist economies for most of the last 30 years have now run into severe crises.

The past 150 years of capitalist development has demonstrated capital’s inability to take forward the majority of humanity in any uniform way. While a minority, in the imperialist nations, has benefited from rising prosperity, interrupted by two World Wars and the 1930s slump the majority of the world’s population has fallen further and further behind by any measure of economic growth, living standards and prosperity. At times, as in the current period, the imperialist offensive has reduced absolute living standards and bought starvation and death to large parts of humanity. On the other hand, where the working class has achieved political power and overturned capitalism, living standards have risen faster than in the imperialist nations. This is the factual economic balance sheet of the Communist Manifesto’s thesis that the proletariat is the only class that has a way forward for humanity today.

Footnotes

[1] The capitalist core countries defined by Maddison are: Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, United Kingdom, Australia, Canada and the United States. Explaining the Economic Performance of Nations, 1995 Edward Elgar.
[2] The OECD economies are; Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.
[3] The economies that were formerly planned and have been in transition to market economies are: Albania, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Macedonia FYR, Poland, Romania, Russian Federation, Slovak Republic, Slovenia, Turkmenistan, Ukraine, Uzbekistan, and Yugoslavia FR (Serbia/Montenegro).
[4] Figures are calculated from The World Banks ‘World Development Indicators 1997’. GDP per capita are based on GDP in 1987 constant US dollars.