a illustration of a graph of arrows pointing up with a symbol of money. Showing that the wealth is increasing.

(HS Insider)


Opinion: How capitalism exacerbates social issues

American capitalism has consequences outside of the United States.
<a href="https://highschool.latimes.com/author/edwinbai/" target="_self">Edwin Bai</a>

Edwin Bai

October 11, 2022
Without a doubt, capitalism is the dominant economic system within today’s global society. Even so-called communist countries, such as China, partake greatly in capitalism by indulging in the free market and facilitating systems of wage labor. It’s evident that most of, if not the entire world, participates in this global system of capitalism.

Yet when we examine the cause for societal issues and other concerns, hardly anyone puts the blame on capitalism. Hunger and poverty are among the most pressing issues worldwide, but what exactly causes these issues to occur?

First and foremost, it is necessary to define what exactly capitalism is. In his book “The Wealth of Nations”, Adam Smith, the so-called father of capitalism, defines this economic system to be self-serving with no need for a government or regulatory force to control the free market. Smith believes that humanity’s self serving behavior coupled with the profit incentive would be enough to sustain society.

Essentially, capitalism relies on human nature and individualism to run itself. On paper, this may seem like a fine idea; people will be more attracted to products that serve their needs at a cheaper price, which can spur innovation in order to satisfy the free market. In practice, however, capitalism is a much different story.

In today’s society, those that are in the upper echelon are often looking for ways to maximize profit while reducing costs within a capitalist system. As explained by Karl Marx’s Conflict Theory, the bourgeoisie, a minority group who controls the means of production, exploits the labor of the proletariat, the majority working class, in order to gain profit. Such examples of exploitation include lowering of wages, long work hours, and dangerous working conditions.

The proletariat is replaceable, and in a free market society, there’s always someone who’s willing to work for less. As a result, it becomes a scramble for resources within the working class, while the bourgeoisie remains economically stable and can simply pick and choose their preferred workers. Driven by human nature and the profit motive, the bourgeoisie is incentivized, even encouraged, to pay workers less, make them work longer, and spend as little as possible on the wellbeing of their employees who have little to no say in the workplace. 

This theory is backed by evidence from instances in real life, particularly the Gilded Age in American history. As the name suggests, the Gilded Age looked like a prosperous time in American history marked by high economic growth, but under the surface the Gilded Age was full of serious social problems, some of which are directly tied to the nature of capitalism.

As mentioned previously, the bourgeoisie is incentivized to pay workers less, which was common throughout the Gilded Age. The 1890 Census Bulletin stated that the average annual salary in 1890 was $564, far below the poverty line according to PBS. Moreover, working hours during the Gilded Age were long and unrewarding. It was common for people to work 10 hours a day, 6 days a week with low wages and no benefits or medical coverage as stated by UShistory.org.

At a time where the American economy was growing at a rapid pace, the proletariat lagged far behind in wages and working conditions while the bourgeoisie raked in billions in today’s money. Evidently, capitalism, as explained by Conflict Theory and proven by real world examples, benefits a small wealthy minority at the expenses of the majority. So how does capitalism affect the world as a whole?

When examining the wealth distributions of regions around the world, we see that Latin America and Africa are by far the poorest regions, with a mere fraction of the wealth of Asia, Europe, and North America as illustrated by the International Monetary Farm (IMF). While China’s GDP is nearly $20 trillion USD, the entire continent of Africa barely reaches even $3 trillion.

Millions of Africans are left without clean drinking water, food security, or basic sanitation. Reuters states that poverty in Latin America will rise to one-third of the region’s population this year. As the world’s millionaires and billionaires can spend their lives in luxury, eating golden steaks and using gold plated toilet paper, hundreds of millions in the global south can barely make enough money to last for another week.

These countries as a whole are economically destitute, without the capabilities to improve their conditions without relying on foreign aid. So why are these countries so poor? Part of it stems from colonialism by European powers, which is tied to capitalism according to the journal Science & Society

In his book, “Capitalism: A People’s History,” David Singerman takes a closer look at the cause and effects of capitalism on the third world. 

“Two-thirds poor and one-third rich.” That was how the world lived for generations according to George W. Ball, American ambassador to the UN in the 1960s. This pattern reflects the inherent  characteristic of capitalism to always benefit a wealthy minority that exploits the impoverished majority through economic pressure. This idea is reflected on a global scale according to a study done on 5 countries: India, Turkey, Egypt, Pakistan, and Trinidad. The results of this study concludes that collectively, 89% of all patents in those nations were owned by foreigners, usually large, multinational corporations.

This pattern is repeated in Chile; from 1937 to 1967 the percentage of foreign-owned patents rose by 65% to 95%, as documented within Singerman’s book, illustrating how impoverished nations are exploited by wealthy corporations for their own gain. What could have been used by third world nations to generate profit for themselves was instead bought by corporations who use these patents for their own profits, leaving those third world nations at a loss. 

Moreover, the lack of technological innovation and adaptability is further exacerbated by western capitalist nations. Since the 1960s, the west has contributed to an extensive brain drain of third world countries; the higher salary of western nations has led to a loss of 30,000 highly educated scientists in developing nations each year. As recorded by Singerman in his book, the UN Conference on Trade and Development calculated that the worth of this human migration to the US, UK, and Canada combined was around $51 billion. As a result of this incentivized brain drain, western nations profited massively, while developing nations languished behind, heavily lacking in scientists and research needed to improve local conditions and generate technological innovations. 

The consequences of capitalism in third world countries can be illustrated through the coffee industry in Latin America. Whereas developed nations can sell coffee for a large profit, thereby leading to higher wages in said countries, the industry pays a hunger wage to the Latin American workers who plant and harvest the crop. In fact, only 5% of the cost of producing coffee goes to workers in Latin America, while 40% goes to the middlemen who transport coffee. In Haiti, the wages on coffee plantations range from $0.07 to $0.15 a day, resulting in the highest rates of poverty in all of Latin America as illustrated by Statista. This example clearly illustrates the detrimental effects capitalism has on developing countries. 

We can further examine the consequences of capitalism on the developing world by taking a look at Africa. Much of the continent was colonized by European empires during the early 20th century, and the capitalist policies of these empires contributed heavily not only to the stunting of economic growth but also to the physical deterioration of African people. It began with the implementation of monoculturalism within African colonies; whereas African countries were formerly diverse in their agricultural production, European empires put a heavy emphasis on cash crops within the region, replacing plantations once used for staple foods for crops that generated more profits. This led to an agricultural destabilization of the region, and famines occurred as a result of this practice according to Singerman’s book. 

In Gambia, where rice farming was popular, colonial empires replaced much of the best land used for rice with groundnuts that generated more profits for the empire. The shortage of rice led to an endemic famine within Gambia. Moreover, when the cash crops were affected by diseases and such, it led to overwhelming disaster, such as in the case of Gold Coast cocoa in the 1940s when it was affected by swollen-shoot disease as documented by Crop Protection. The effects of monoculturalism were largely negative to the colonized nations; not only were they forced to replace popular crops with cash crops, but the disasters that occured from this practice affected no one but the colonized groups, while European empires profited greatly. 

The physical effects monoculturalism had on Africans were even worse. Besides the periodic famines within the region, monoculturalism also caused chronic undernourishment, malnutrition, and physical deterioration of the body of African peoples; a clear testament to the fact that capitalism destroys regions and peoples in pursuit of profit. Modern Africa suffers from extreme poverty with no feasible way of escaping. Its resources are shipped out to foreign multinational corporations, its people are forced to work low wages, and the brain drain within the region prevents Africans from creating technological innovations. Sure, some of the problems could be blamed on the ignorance of government officials or corruption, but the stem of these issues come from exploitative capitalism.

Many people claim that capitalism has lifted millions out of poverty, and though this is true in some cases such as China, it does not tell the whole story of how capitalism has affected the world as a whole. Some countries rise, at the cost of others. In their pursuit of profit, colonial empires first used their military might to enslave and exploit the labor of African and Latin American countries, causing these regions to suffer from severe poverty. Even after decolonization, third world countries continue to be at the mercy of economic giants such as the US and China.

Since these countries offer cheap labor and have an abundance of natural resources, it’s easy for multinational corporations to extract profit and material from these countries while leaving very little for these countries to use themselves. Global capitalism has created a system where wealthier nations get wealthier while impoverished nations have little hopes of escaping extreme poverty. Capitalism has lifted millions out of poverty, but it also put millions more into extreme poverty.

These predatory and exploitative practices by both corporations and countries are incentivized and encouraged under the profit motive within a capitalist system, and as such, capitalism is an inherently destructive system that enriches the few at the expense of the many.

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