The economic development model and globalization problem under capitalism

We do worry about the future of the common people or laborers, at home and abroad, billions and billions of them, some impoverished and barely subsisting, especially in the underdeveloped and poor countries around the world, and particularly in Africa.  The sub-Saharan Africa’s population is estimated by the United Nations to triple in the next half-century.  What are the prospects of all these people?

The economic development model under capitalism is questionable and possibly flawed.  The traditional playbook was to get on the industrialization and capitalism bandwagon and it would bring prosperity to a developing nation.  After all, that was how the U.S. and Western European countries got developed and rich.  They brought the rural masses to the factories where they would get a decent, regular and steady income to buy their houses, cars and all other consumer goods.  As long as they kept spending their money, the virtuous cycle would keep the economic growth going for everyone else.  What could be wrong with that?

Globalization and the computer technology revolution happen to have shredded some pages from that traditional playbook and the economists are not sure how to put it back together.  With global outsourcing, industrial and manufacturing jobs keep moving from one low cost country to the next lower cost one, at a faster rate than the countries can adapt.  The consequence is that the factory workers in each host country never have the opportunity to become more skilled to move on or transition to higher level jobs and/or to rack up higher wages to bring up their living standard.  Some economists describe this as the premature non-industrialization of the poor countries.  At the same time, with advances in computer technology, more and more manual, routine and low-skilled tasks in a factory or even in an office are automated and performed by robots.  As a result, not only do the same pool of poor and unskilled rural masses have to compete with each other, but also with their counterparts in other developing countries and with the robots.

In an ideal world, the gains in efficiency from globalization and technology will lower production costs, which can either be translated into a higher profit margin and/or a lower consumer price tag.  If the extra money is being injected back into the economy, through additional business investment, e.g. machinery purchase, increased hiring, etc.; or extra cash for consumers to spend; or extra public works investment from increased tax receipts; then it will spur economic growth to benefit everyone and create a virtuous cycle from the money multiplier effect.  That is supposed to be the proverbial rising tide lifting all boats.

However, in reality, especially in recent decades, the gains in efficiency have been skimmed off the top as corporate profits, which are then being hoarded, and/or used to buy back stocks to drive up the stock value, to give out dividends to stockholders, and to pay for executive bonuses as cash or stock options, etc.  All that extra money disproportionately ends up going to the rich, who derives more and more of their income from their capital investment.  The trend allows the unfettered accumulation and concentration of capital, mostly inherited and not earned, in the hands of a few, as illustrated in the 2013 bestselling book, Capital in the Twenty-First Century by Thomas Piketty.  As the rich accumulates their wealth instead of spending it, the pie has gotten smaller and smaller for everyone else.  That consequently creates a vicious cycle as less and less money goes back into the economic system for everyone else.  Income inequality reverses the tide by sucking all the water and hanging everyone else out to dry.

Unfortunately, we have seen this happen before and it seems like history is repeating itself.  With the industrial revolution comes industrial agriculture, which lowers food prices through government subsidies and productivity gains and it outcompetes and kicks small scale farmers out of the marketplace.  The rich people rejoice because they can now pay less for food, while it results in high unemployment in rural areas and in third-world countries.  They even export the surplus produce to the poor countries so that it does not make sense for them to even try to grow their own food, trapping them in a dependency spiral.

When the industrial revolution happens in the factories, the rich people rejoice because they can now afford and pay less for their cars, televisions, fridges, toasters, etc., while the poor have to move to the urban areas en masse and labor in their minimum wage factory jobs.  For a time, it may have helped some people rise to the middle class, until globalization accelerates the race to the bottom, particularly for wages, and technology starts to replace human workers. Now, more and more of the blue collars and the low level white collars are facing high unemployment and stranded in poverty.

While this neoliberal idea of ‘creative destruction’ to efficiently allocate resources to the best economic use is touted as a good thing, the people who have lost their livelihoods under such circumstances usually receive no recourse, no sympathy, no voice and no claim for justice.  They become a statistic, a grim reminder that in economic justice, we have not found a way yet to balance the equation.  Ultimately, our insistence on pursuing perpetual economic growth and higher living standard benefits the rich at the expense of the poor, without any compensatory mechanism to alleviate their increased suffering.

Where and how do all these unemployed and low-skilled masses get a decent, regular and steady income to keep growing the economy when they have no other means of gainful employment opportunities as of now?  The pundits will suggest that there are plenty new growth industries ushered in by our technology revolution, supposedly leading us all to a brighter and better future.  The only caveat is that all those new jobs require a highly educated, highly skilled and computer literate workforce which is in short supply right now.

Education and job training can prepare workers.  But without adequate public finances and investment, low skilled and uneducated workers will not advance and will inevitably stay poor or get left behind, generation after generation.  Even in a rich country like the U.S., we cannot retrain and help all our blue-collar workers, who have lost their jobs due to the shrinking manufacturing sector, to find new good-paying jobs.  The fact is that the policy wonks are just giving theoretical sound bites without knowing how to practically implement a successful job retraining program.

On top of that, if the U.S. cannot even increase our national high school graduation rate or raise our national standardized test scores, how can we expect the other poorer developing countries to achieve similar feats?  Common sense also tells us that not everyone is interested in and will be successful in technology-related jobs.  Even China, the current economic powerhouse, has problems finding jobs for all her college graduates.  The fact is that no one has a practical and permanent solution to the unemployment and underemployment of the underclass of the world.

Why can’t people who want to work find jobs?  Hungry people need food.  Homeless people need shelter.  Sick people need medicines.  Roads and bridges need to be maintained and fixed when broken.  Somehow, the free market economy does not consider these priorities, mainly because there is not enough profit to serve these markets.  Profit motives drive the economy.  Products and services only exist to serve those who can pay.  But this can all change if we replace the profit directive with a universal lifetime labor employment mandate.  If businesses exist to employ all people, then all the people’s physical needs can be taken care of and fulfilled, and the unemployment problem will be solved.  NATORZ must put people first and address their basic physical needs and livelihoods before anything else.

Let us imagine what if…