How wealth creates poverty

DA February 16, 2007

HD Mystery: How Wealth Creates Poverty in the World


CM How is it that as corporate investments and foreign aid and
international loans to poor countries have increased dramatically
throughout the world over the last half century, so has poverty?

AU By {Michael Parenti}

There is a "mystery" we must explain: How is it that as corporate
investments and foreign aid and international loans to poor countries
have increased dramatically throughout the world over the last half
century, so has poverty? The number of people living in poverty is
growing at a faster rate than the world’s population. What do we make
of this?

Over the last half century, U.S. industries and banks (and other
western corporations) have invested heavily in those poorer regions of
Asia, Africa, and Latin America known as the "Third World." The
transnationals are attracted by the rich natural resources, the high
return that comes from low-paid labor, and the nearly complete absence
of taxes, environmental regulations, worker benefits, and occupational
safety costs.

The U.S. government has subsidized this flight of capital by granting
corporations tax concessions on their overseas investments, and even
paying some of their relocation expenses—much to the outrage of
labor unions here at home who see their jobs evaporating.

The transnationals push out local businesses in the Third World and
preempt their markets. American agribusiness cartels, heavily
subsidized by U.S. taxpayers, dump surplus products in other countries
at below cost and undersell local farmers. As Christopher Cook
describes it in his Diet for a Dead Planet, they expropriate the best
land in these countries for cash-crop exports, usually monoculture
crops requiring large amounts of pesticides, leaving less and less
acreage for the hundreds of varieties of organically grown foods that
feed the local populations.

By displacing local populations from their lands and robbing them of
their self-sufficiency, corporations create overcrowded labor markets
of desperate people who are forced into shanty towns to toil for
poverty wages (when they can get work), often in violation of the
countries’ own minimum wage laws.

In Haiti, for instance, workers are paid 11 cents an hour by corporate
giants such as Disney, Wal-Mart, and J.C. Penny. The United States is
one of the few countries that has refused to sign an international
convention for the abolition of child labor and forced labor. This
position stems from the child labor practices of U.S. corporations
throughout the Third World and within the United States itself, where
children as young as 12 suffer high rates of injuries and fatalities,
and are often paid less than the minimum wage.

The savings that big business reaps from cheap labor abroad are not
passed on in lower prices to their customers elsewhere. Corporations
do not outsource to far-off regions so that U.S. consumers can save
money. They outsource in order to increase their margin of profit. In
1990, shoes made by Indonesian children working twelve-hour days for
13 cents an hour, cost only $2.60 but still sold for $100 or more in
the United States.

U.S. foreign aid usually works hand in hand with transnational
investment. It subsidizes construction of the infrastructure needed by
corporations in the Third World: ports, highways, and refineries.

The aid given to Third World governments comes with strings attached.
It often must be spent on U.S. products, and the recipient nation is
required to give investment preferences to U.S. companies, shifting
consumption away from home produced commodities and foods in favor of
imported ones, creating more dependency, hunger, and debt.

A good chunk of the aid money never sees the light of day, going
directly into the personal coffers of sticky-fingered officials in the
recipient countries.

Aid (of a sort) also comes from other sources. In 1944, the United
Nations created the World Bank and the International Monetary Fund
(IMF). Voting power in both organizations is determined by a country’s
financial contribution. As the largest "donor," the United States has
a dominant voice, followed by Germany, Japan, France, and Great
Britain. The IMF operates in secrecy with a select group of bankers
and finance ministry staffs drawn mostly from the rich nations.

The World Bank and IMF are supposed to assist nations in their
development. What actually happens is another story. A poor country
borrows from the World Bank to build up some aspect of its economy.
Should it be unable to pay back the heavy interest because of
declining export sales or some other reason, it must borrow again,
this time from the IMF.

But the IMF imposes a "structural adjustment program" (SAP), requiring
debtor countries to grant tax breaks to the transnational
corporations, reduce wages, and make no attempt to protect local
enterprises from foreign imports and foreign takeovers. The debtor
nations are pressured to privatize their economies, selling at
scandalously low prices their state-owned mines, railroads, and
utilities to private corporations.

They are forced to open their forests to clear-cutting and their lands
to strip mining, without regard to the ecological damage done. The
debtor nations also must cut back on subsidies for health, education,
transportation and food, spending less on their people in order to
have more money to meet debt payments. Required to grow cash crops for
export earnings, they become even less able to feed their own

So it is that throughout the Third World, real wages have declined,
and national debts have soared to the point where debt payments absorb
almost all of the poorer countries’ export earnings—which creates
further impoverishment as it leaves the debtor country even less able
to provide the things its population needs.

Here then we have explained a "mystery." It is, of course, no mystery
at all if you don’t adhere to trickle-down mystification. Why has
poverty deepened while foreign aid and loans and investments have
grown? Answer: Loans, investments, and most forms of aid are designed
not to fight poverty but to augment the wealth of transnational
investors at the expense of local populations.

There is no trickle down, only a siphoning up from the toiling many to
the moneyed few.

In their perpetual confusion, some liberal critics conclude that
foreign aid and IMF and World Bank structural adjustments "do not
work"; the end result is less self-sufficiency and more poverty for
the recipient nations, they point out. Why then do the rich member
states continue to fund the IMF and World Bank? Are their leaders just
less intelligent than the critics who keep pointing out to them that
their policies are having the opposite effect?

No, it is the critics who are stupid not the western leaders and
investors who own so much of the world and enjoy such immense wealth
and success. They pursue their aid and foreign loan programs because
such programs do work. The question is, work for whom? Cui bono?

The purpose behind their investments, loans, and aid programs is not
to uplift the masses in other countries. That is certainly not the
business they are in. The purpose is to serve the interests of global
capital accumulation, to take over the lands and local economies of
Third World peoples, monopolize their markets, depress their wages,
indenture their labor with enormous debts, privatize their public
service sector, and prevent these nations from emerging as trade
competitors by not allowing them a normal development.

In these respects, investments, foreign loans, and structural
adjustments work very well indeed.

The real mystery is: why do some people find such an analysis to be so
improbable, a "conspiratorial" imagining? Why are they skeptical that
U.S. rulers knowingly and deliberately pursue such ruthless policies
(suppress wages, rollback environmental protections, eliminate the
public sector, cut human services) in the Third World? These rulers
are pursuing much the same policies right here in our own country!

Isn’t it time that liberal critics stop thinking that the people who
own so much of the world — and want to own it all — are
"incompetent" or "misguided" or "failing to see the unintended
consequences of their policies"? You are not being very smart when you
think your enemies are not as smart as you. They know where their
interests lie, and so should we.

Michael Parenti’s recent books include The Assassination of Julius
Caesar (New Press), Superpatriotism (City Lights), and The Culture
Struggle (Seven Stories Press). For more information visit



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