Home > Poverty and Inequality in the Global Economy
by Michael Yates
Monthly Review February 2004 Vol 55 no.9
[Michael D. Yates is associate editor of Monthly Review. He was for many
years professor of economics at the University of Pittsburgh at
Johnstown. He is author of Longer Hours, Fewer Jobs: Employment and
Unemployment in the United States (1994), Why Unions Matter (1998), and
Naming the System: Inequality and Work in the Global System (2004), all
published by Monthly Review Press.]
Capitalism is hundreds of years old and today dominates nearly every
part of the globe. Its champions claim that it is the greatest engine of
production growth the world has ever seen. They also argue that it is
unique in its ability to raise the standard of living of every person on
earth. Because of capitalism, we are all "slouching toward utopia,"-the
phrase coined by University of California at Berkeley economist J.
Bradford DeLong-slowly but surely heading toward a world in which
everyone will have achieved a U.S.-style middle-class life.1
Given the long tenure of capitalism and the unceasing contentions of its
adherents, it seems fair to ask if it is true that we are "slouching
toward utopia." Let us look at three things: the extent of poverty and
inequality in the richest capitalist economy-that of the United States;
the extent of poverty and inequality in the poor countries of the world;
and the gap between those countries at the top of the capitalist heap
and those at the bottom.
The United States is often referred to as a nation dominated by the
middle class and one in which it is relatively easy for a poor person to
become a person of means. Here, it is said, equality of opportunity
rules. It is hard to know what phrases like "middle class" and "equality
of opportunity" mean, but it is fair to think that such a society ought
not to be one in which there is widespread poverty and ought to be one
in which people do indeed have a great deal of economic mobility.
The data on poverty and inequality of income and wealth do not square
very well with this image. In the United States, the federal government
had defined a "poverty level of income," one below which families are
defined to be poor. It is an income below which families would find it
difficult to live without serious problems and which would place them in
real danger when faced with any sort of economic crisis, such as a sick
child or an injury at work. This official poverty level of income is
equal to three times the minimum food budget calculated by the
Department of Agriculture, a very modest standard with numerous
restrictive and unrealistic assumptions built into it, for example, that
poor families will be able to buy food at the lowest unit price and will
know how to convert the cheapest food into nutritious meals. In 2002,
this was $18,392 for a family of four, or $12.60 per person per day. In
2002, 34.6 million persons lived in poverty, 12.1 percent of the
population. The incidence of poverty was 24 percent for blacks and 21.8
percent for Hispanics. In 2001 (I don’t have data for 2002), 35.2
percent of black children under six lived in poverty, as did 29.1
percent of Hispanic children under six. These numbers rise and fall over
time and while they have been higher in the recent past, they are still
remarkably high when we consider the enormous productive capacity of the
U.S. economy and the more than 200 years in which this capacity has
steadily risen. And if we used a more realistic definition of
poverty-such as one-half the median income, a poverty definition
typically used to compare the rich capitalist economies-the incidence of
poverty would increase dramatically to 17 percent (in 1997), or more
than 45 million persons.2
What are the chances that this extensive poverty could be eliminated?
Not very high, given that this poverty coincides with large and growing
inequality of both income and wealth, inequalities ingrained in the laws
of motion of capitalism.
In the United States in 2000, income inequality was greater than at any
time since the 1920s, with the richest 5 percent of all households
receiving six times more income than the poorest 20 percent of
households, up from about four times in 1970. A study by economist Paul
Krugman (who has been skillfully assailing the Bush administration in
his New York Times column) estimated that perhaps as much as 70 percent
of all of the income growth in the United States during the 1980s went
to the richest 1 percent of all families. With respect to wealth, in the
United States in 1995, the richest 1 percent of all households owned
42.2 percent of all stocks, 55.7 percent of all bonds, 44.2 percent of
all trusts, 71.4 percent of all noncorporate businesses, and 36.9
percent of all nonhome real estate. As with income inequality, this
inequality has been increasing, at least for the past 20 years.3
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