Income Disparity -> Ethnic Cleansing?

Amy Chua in "A World on the Edge": "There is in the world today a phenomenon that turns free-market democracy into an engine of ethnic conflagration."

Oh no. It seems like capitalism is always turning out to be an engine of some sort of conflagration. What caused it this time?

The problem is market-dominant minorities, "the Achilles' heel of free-market democracy." Well, ok, yes, that's true. The problem with free markets is that some end up with lots and many end up with little, and that's a difficult pattern to break out of. Those with a lot end up, ostensibly, as "market-dominant minorities," because they dominate the market and are in the minority of the population. But Chua is referring here specifically to ethnic minorities. And when those guys end up controlling the market, it adds a whole other host of problems.

A note: this blog and the project at large focuses on income disparity between nations, not within them. But this article came up in class and is relatively germane to the reasons behind inequality, so I thought it would be worth discussing.

An unsavory quality of humanity is that we're all racists. Yes, even you. We might as well come to terms with it, because historically it's undeniable: there's racism buried inside all of us, just itching to interact with some catalyst that brings it violently to the surface. How else do you explain our long history of ethnic conflict and genocide?

One such catalyst is the accumulation of near-oligarchical power in a society where most of the population is not of your ethnicity. For example: whites in South Africa and Latin America. Croats in former Yugoslavia. Chinese in the Philippines, Myanmar, and Indonesia. Jews in Russia. The British pretty much wherever they set foot for several hundred years. When one ethnic group realizes they have the financial and political capacity to wage ethnic cleansing, or at least the denial of human rights, on another, they invariably will. This is what happened between the Serbs and Bosnians in the early 90s (the Serbs being the perpetrators), during apartheid in South Africa in the second half of the twentieth century, and in many other circumstances throughout history.

Furthermore, Chua states that if an market-dominant minority is already in place for reasons unrelated to free-market democracy (as in South Africa, or for another example, the Philippines), the introduction of that very system does not combat but rather exacerbates the problem. This is because before it starts to combat the divergence in income groups, it almost always results in a backlash perpetrated by an envious and resentful indigenous majority in an attempt to violently overthrow the market-dominant minority. So it cuts both ways: when capitalism and democracy allows a minority to become powerful in a foreign place, it will use that power to subjugate different ethnic groups. And if capitalism and democracy are introduced into a region where a market-dominant minority already exists, that minority is the one that ends up facing violent oppression.

Chua goes on to note that there is a global market-dominant minority: Americans. (Now we're back on topic.) Chua, an American, states that "the best hope for global free-market democracy [i.e., freedom and livable conditions for all] lies with market-dominant minorities themselves [i.e., us]." She suggests that we increase the proportion of our GDP that we devote to foreign aid (which, at 0.1%, is the lowest of any first-world nation; this sentiment is shared by Columbia economist Jeffery D. Sachs, according to the book of his I'm reading for this project, The End of Poverty); restrain our usage of the policies that have given capitalism a bad name, like labor exploitation and discriminatory lending; and invest in the well-being of regions that allow our country to be so rich in the first place. In a perfect world, Ms. Chua. Perhaps in the near future there will be conditions good enough at home to allow this kind of charitable devotion abroad. Until then, I believe that the better solutions are going to be those that are figured out by NGOs in collaboration with the stricken nations themselves.

Eat the Rich (Kill the Poor)

Beyond the question of why some nations are living the high life (relatively) while others are subsisting on less than a dollar a day, there remains a strange disparity between first-world nations and the "in-betweeners"-- nations that are not desperately poor, but are not exactly enjoying the standards of living of the U.S., England, various Scandinavian countries, etc. Many Central and South American nations and former Soviet states fall into this category. Humorist/journalist/Cato Institute guy P.J. O'Rourke explores this less-vast but still intriguing disparity in 1998's Eat the Rich in way that makes the economics of wealth distribution far funnier than it was intended to be. His thesis (or rather mission statement):

"I decided that if I wanted to know why some places were rich and other places were poor, I should go to those places. I would visit different economic systems: free market, socialist, and systems nobody could figure out. I'd look at economically successful societies: the U.S., Sweden, Hong Kong. I'd look at economically unsuccessful societies: Albania, Cuba, Tanzania. And I'd look at societies that hadn't decided whether to be successful or not: Russia and mainland China. I'd wander around, gape at things, and simply ask people, 'Why are you so broke?' Or 'How come you're shitting in high cotton?'"

Arguably this is actually a more in-depth approach than is taken by many accredited theoretical economists (one of whom, a one M. Friedman, we'll be examining soon. And before you ask yourself "Aren't you trying to solve poverty here? What's with all these conservatives?," I should tell you that I am merely trying to figure out how the free market worked so well to make us really rich, until it ran into its recent problems). By visiting these various places, O'Rourke is able to communicate a cultural aspect that goes hand in hand with the types of economies he's examining, rather that simply saying "The best system to create a high standard of living for all is [capitalism/socialism/mixed economy/something else, God forbid] because of this [graph/principle/equation/vague historical example]."

He starts with the States, in a chapter called Good Capitalism, and discusses as reasons for our economy's success a lot of the practices that have been recently discredited as responsible for the "great recession." Ah, the innocence of the late '90s. One segment sums it up:

"'We're rich!' I told my wife. 'Get a Range Rover and a pasta machine!'
'We're poor!' I yelled. 'Sell the dog.'
'We're rich again!'
'We're poor.'
'We're really poor.'
'Rich! Rich!'
'Poor! Poor!'"

To have the luxury of a market where one can take outlandish financial risks that cause bouts of shouting like the one above without having anyone raise their eyebrows is representative of just how far ahead the U.S. economy is of everyone else. Under certain interpretations, anyways. The Swedish might beg to differ. In the chapter Good Socialism, O'Rourke discusses the Swedish as a people evolved beyond such petty complaints as exorbitant tax rates-- willing to give up large quantities of their income earned in a now largely-private economy to the government in exchange for top-notch education, healthcare, and other social services. And why not? Swedes get five weeks of legally mandated paid vacation. Parental leave is 450 days at 80% pay. Education is free-- through the PhD level. Life expectancy: 78.2 years. Infant mortality: 4.5 per 1,000. There are no Swedish robber barons, but everyone is pretty much set. There isn't even war.

O'Rourke goes through the flaws of each system, but they're not worth mentioning. (Besides, this isn't Sweden. Buy the damn book yourself.) More relevant is how they stack up to their Bad Capitalism and Bad Socialism counterparts: Albania and Cuba. Here are two countries that, unlike our previous examples of Haiti and most of sub-Saharan Africa, have reasonably identifiable economic systems. They're just really bad. How bad, you ask, and why? Tune in next time to find out.

Inequity case study: Haiti

I read something in The New York Times about a week ago that very succinctly explained what I couldn't in my last Haiti post or my mini-lecture at the GSS meeting last week. Aggravatingly I now can't find it online; it was called "Some Straight Talk About Haiti" or something to that effect and ran last Thursday on the editorial page. It did a pretty good job of providing historical reasons for Haiti's poverty (apparently, it wasn't because of a deal with the devil). As we have established, Haiti is one of the poorest and least developed countries in the world. The nation ranks 149 (of 182) on the Human Development Index, 80% live below the poverty line, 50% are illiterate, and there's a major brain drain: 80% of college graduates emigrate. The Haitian gourde exchange rate with the United States dollar is less than 40 to 1. Child slavery is a punishing reality-- shocking for a North American country-- and the top 1% own 50% of the wealth. And like any similarly poor nation, it is incredibly corrupt. OK, got it-- Haiti is an "economic basket case" and has been since long before January 12. What happened??

According to the phantom NYT piece, a lot of it has to do with the French. Haiti was a French colony from 1697 until 1804, when a slave uprising defeated the French army and claimed sovereignty. (Yes: an uprising consisting of a bunch of malnourished, disease-ridden slaves managed to drive out Napoleon's forces. Insert your own French military jokes here.) In 1825, France decided it wanted some compensation for recognizing Haitian independence and thus giving up a slave colony. Upon threat of war, France demanded 150 million francs ($21 billion USD, ca. 2006) in what I will call "reverse reparations." Haiti negotiated them down to 90M and then 60M, which when you think about it is pretty slick, but was still way more than they could afford. The new Haitian government took out loans from the U.S., Germany, and France itself, and finally managed to pay off the 1825 demand and enormous interest in 1947. Unfortunately during that time it wound up mired in a lot more debt of various types, and thanks to a series of dictatorships it had not developed at all since the French were forced out. Debt remains its central problem, or it did until the earthquake hit and shifted everyone's attention to the humanitarian crisis.

U.S. groups have been calling for the cancellation of Haiti's debt for years, and the World Bank relieved it of $1.2B worth in September '09. This left $800M, which many are calling for the alleviation of in light of the earthquake. My guess is that it will happen.

Haiti is a case study is how countries get to be poor, and I think it's safe to extrapolate its story to at least several other very poor nations. Colonialism is a major part of why countries are poor today, and I expect it to be a recurring theme in both the books I report on and the individual countries I study. And yes, there will be more, though given its topicality, my main focus will be Haiti, at least for the time being. I will next look into what kept it from organizing after gaining independence and establishing a functional government that actually had a plan for development. After all, the U.S. was a bunch of colonies once too.

Globalization and income disparity: intrinsically related

Amartya Sen writes in "How to Judge Globalism" (published in The Globalization Reader, Frank J. Lechner and John Boli, ed.) that globalization is tied to income inequality in this century, but may also present a way to start fixing it. Sen discusses two opposing views of globalization: as "a gift from the West to the world" that benefits all other nations by introducing them to economic policies that increase standard of living; and as a form of Western imperialism that subjugates other cultures, forcing them to bend to alien norms. Under both interpretations, the West benefits, but only under the former do the poorer nations. Sen suggests that given globalization's reality and permanence, it is something that will have to become mutually beneficial for both rich and poor nations. But does that distinction ever go away? Should it? And will it be because of or in spite of globalism?

Sen says that "global capitalism is much more concerned with expanding the domain of market relations than with, say, establishing democracy, expanding elementary education, or enhancing the social opportunities of society's underdogs." Perhaps, but a rich country is a lot more likely to have those things occur as "side effects" than a poor one. However, she (he?) also asserts that globalization is not an effective mechanism for capitalizing poor countries, and doesn't lead to prosperity, so the point is kind of moot.

The main relevant thing about this article was that the author basically says that globalization is here to stay but there needs to be some mechanism that allows the poor to get what they need. "Globalization deserves a reasoned defense, but it also needs reform." It would be interesting if someone could provide that, wouldn't it, Mr. (Ms.?) Sen? I guess that's my job.

Haiti

The earthquake that struck 16 miles outside Port-au-Prince, Haiti, on January 12, caused catastrophic destruction and death tolls that have been estimated as high as 200,000. Its aftermath could be a case study in the harms of income inequality. Haiti, the poorest country in the Western hemisphere and 149th of 182 nations in terms of Human Development Index, was utterly unprepared for a natural disaster like this one and as such the results were devastating. Haiti's construction standards are low; it doesn't have building codes, and engineers have warned for years that most Haitian homes and other buildings do not have the structural integrity to withstand an earthquake in the tectonically-active Caribbean. Haiti was also unprepared for the first wave of aid that arrived in the aftermath; the first few planes containing emergency supplies were trapped at the only major airport, as there was insufficient fuel to get them off the ground, preventing other shipments from arriving. Again, this is directly attributable to Haiti's poverty. The question is, to what is Haiti's poverty attributable? While some of the more general research I do will provide answers to that question, for the time being I will be doing research on Haiti in particular, since this tragedy has so effectively demonstrated the true cost of income disparity. Expect further updates on this topic on both the information that develops and the background circumstances that led up to the nation's paralysis in the face of disaster.

In the meantime, please make a donation online to the earthquake relief fund managed by Yele Haiti, the foundation run by Haitian-American musician Wyclef Jean, or attend one of USM's bake sales next week, all proceeds of which go towards relief for the Haitian people.

Capitalism, globalization, and income inequity

Thomas L. Friedman's definitive crash course on globalization, The Lexus and the Olive Tree, claims that since the end of the Cold War, the free market system idealized during the administration of Ronald Reagan in the United States and the concurrent premiership of Margaret Thatcher in the United Kingdom has been applied as a "Golden Straitjacket" to virtually every country around the world (with a few notable exceptions). He notes that the ubiquity of economic liberalism has resulted in economic growth but fewer political choices. Political parties, of which there are usually only two of any relevance anymore, tend to only offer slightly different permutations of the same system as "opposing ideologies." He points out that in 1996, Paddy Ashdown of the U.K. Liberal Party accused Labour PM candidate Tony Blair and incumbent Conservative PM John Major of engaging in "synchronized swimming." I might add that consumer advocate and perennial U.S. presidential candidate Ralph Nader similarly called 2000 presidential rivals Al Gore and George W. Bush "Tweedledum and Tweedledee." Gore, the Democratic candidate, filled his partisan hole as the ostensible left-winger, when in fact he was a centrist Southerner (by U.S. standards, which are different-- more on that shortly). Bush, the winner of the election, ran as a Reaganite compassionate conservative on a noninterventionist foreign policy; his presidency saw the launch of two major foreign wars and a domestic policy described by the libertarian publication Reason as "disaster socialism." What do these labels mean?

If you'll grant me the liberty to go off on a small tangent, I'll demonstrate that the answer to that is "not much." Look no further than our current president. Barack Obama is the scapegoat of what we will call for simplicity's sake the far right. (It's not actually that "far"-- at least, not far away from anyone else.) He has been described widely as a socialist by them, and even by some as a "radical Communist." In fact, President Obama is right of center on both economic and social issues according to objective measures. This is, of course, compared to the whole political spectrum, which is more liberal in, say, Europe than it is here, and Obama is indeed quite liberal for an American politician. He is not very liberal among the American people; for example, he opposes single-payer health care and gay marriage, both of which receive considerable support among citizens. (Not a majority, though: Obama supported both as an Illinois state legislator; presidential politics can change a man.)

My point: Friedman is correct in his assertion that modern politics are very narrow. Obama, a center-right politician, is called a socialist; this is one consequence of a free-market society. Almost all mainstream American politicians are right of center on economics and social issues because they are free marketers; everyone is. Obama is just less to the right than many.

This is what makes the Golden Straitjacket a straitjacket-- it restricts national politics to a very precise and narrow economic ideology (the golden comes from the prosperity that free market economics brings). Friedman positions it as an inevitability even for totalitarian countries like North Korea and impoverished ones like Sudan. Obviously the concern of this blog is with the latter and countries like it. So why is it that these countries have not adopted the Golden Straitjacket? Why are the desperately poor seemingly the last holdouts from a system that guarantees prosperity? Are they enjoying the status quo?

This blog has not yet put forth many of the sobering facts of income disparity so far, and this seems as good a place as any to start. Ready? The Big Five billionaires-- Microsoft's Bill Gates (U.S.), Berkshire Hathaway's Warren Buffett (U.S.), Telmex's Carlos Slim Helu (Mexico), Oracle's Lawrence Ellison (U.S.), and IKEA's Ingvar Kamprad (Sweden)-- are collectively wealthier than the poorest 10% of the world combined (that's 670 million people, more than twice the population of the United States. If they all made the average income of a U.S. citizen, they would have 125 times more than those five combined). That is not in spite of globalization. It's because of it. As other nations adopt free market principles, the labor starts spreading thin. Powerful, established corporations like Microsoft outsource jobs to poor countries (not ones that are so poor that they lack infrastructure, like anywhere in sub-Saharan Africa; let's use the common example of India), where competition for labor is fervent but standards of living are already low. People thus compete for a pittance in a market similar structurally to our own, where people compete to justify the Jag convertible or the little place in Aspen. (I realize this is not an entirely fair example, and it should go without saying that poverty remains a pervasive problem in the United States. Let's be honest with ourselves here, though: it's easier to get rich in this country than in the Congo.) The adoption of free markets in poor countries has allowed corporations to game the system even easier than they did when it was isolated to the U.S. and Europe. But free markets are obviously a necessity; we've established throughout history that capitalism is, in the words of P.J. O'Rourke, "the worst economic system anyone ever invented, except for all the others." So how can we reconcile free markets with a world in which people in poor countries actually have the ability to fairly compete? How do we eliminate that gap, torn open wide by globalization, without resorting to some clearly unfeasible form of global socialism?

Well, that's the $64,000 question.

The Rise of the Rest? Not likely

University of Singapore Dean Kishore Mahbubani's "The Case Against the West" is a stammering, often contradictory adaptation from his 2008 book, The New Asian Hemisphere: The Irresistible Shift of Global Power to the East, whose vitriolic Bush-era anti-Americanism/anti-Westernism is steeped in statements of the obvious ("The invasion and occupation of Iraq... was a multidimensional error"), broad generalizations coupled with vague language ("In all its analyses of global challenges, the West assumes that it is the source of the solutions to the world's key problems... this reflects a deeper structural problem: the West's inability to see that the world has entered a new era"), and outlandish predictions of Western decline based on questionable analysis. The accusations leveled at the West by Mr. Mahbubani run the gamut from the sublimely unconvincing (that the U.S. violated its own Nuclear Non-Proliferation Treaty by participating in a Cold War arms race with the U.S.S.R.; unmentioned is the fact that the U.S. has since disarmed over 13,000 weapons and currently has a stockpile containing less than a quarter of the weapons that it harbored during the 80s) to the patently ridiculous (that "Western officials have not abandoned the old assumption that an army of Christian soldiers can successfully invade, occupy, and transform an Islamic society," a statement that approaches the truth only if the words "Western officials" are replaced with "Ann Coulter") to the literally incoherent (that Asian countries have made progress that exceeds the ability of the West to keep up by emulating Western principles; that former U.S. Vice President Al Gore's Nobel Peace Prize is the last word on the threat posed by global warming and is indicative of proof that the U.S. is not doing enough to combat it). Most puzzling to me was the surprised anger Mr. Mahbubani expresses at the notion that the U.S. and Europe would dare to roll back economic practices (free trade) that have started to trend negatively for their economies, despite Eastern countries not yet being ready to take over as economic leaders. The West's greedy capitalists being accountable to the health of their own economies? Unthinkable! Oddly Mahbubani blames the West for not taking stewardship of the global economy (sort of a global application of a controlled economy, or arguably socialism) while simultaneously criticizing it for ending its push for trade liberalization (a global application of capitalism)-- all the while claiming that China is strong now and doesn't need the West anyhow.

That is Mr. Mahbubani's thesis: that Asian countries are rising such as to replace (rather than conquer) Western nations as the world's military and economic powerhouses. His evidence for this is a feeble and unsubstantiated claim that China et al. have "responded positively" to a request made in 2005 by U.S. Deputy Secretary of State Robert Zoellick that it "become a 'positive stakeholder' in the international system." Though China is increasingly privatizing its economy, it is still a Communist state infamous for human rights violations. Moreover, it is guilty of many of the accusations Mahbubani reserves for the West, such as the possession of nuclear weapons. And with the exception of Japan, all other Asian countries including runner-up India, the world's largest democracy and in some ways a reason to have hope, lag behind China in terms of economic or technological sophistication, a reality that begs the question of when, exactly, this supposed rise of the East will take place.

Zalmay Khalilzad wrote in 1995 that if the United States were to lose its hegemony, the result would not be a shift from unipolarity to multipolarity, but to "apolarity-- a global vacuum of power." He wrote that in a world just out of the Cold War, and argued-- correctly-- that U.S. leadership is crucial to prevent the rise of a "another hostile global rival" to replace the U.S.S.R. If the U.S. did not exist as a hegemon, no treaty, no matter how sound by Mr. Mahbubani's standards, could possibly stop nuclear proliferation. Furthermore, if the U.S.' hegemony were to legitimately falter, in way that allowed China or another non-Western nation to ascend to superpower status, that is a scenario in which nuclear war would be a serious and realistic concern. Fortunately, the scenario itself seems unrealistic after reading "The Case Against the West."

So what does this all have to do with global income disparity? Frankly I don't know the answer to that question yet; it's a question that this blog will aim to answer at some point, after deeper research into what causes the income gap in the first place. There are a few educated guesses I can make, however. First, China, India, and other Asian nations are among those countries with very high poverty rates. Mr. Mahbubani might think that the absence of the West and its money-grubbing capitalists might allow for the eradication of that problem, but the reality is that it would cause a host of other problems which would make income disparity seem relatively insignificant. The United States, rich as it is, may seem like a problem and an obstacle for nations that are poor, and it might be. Perhaps the U.S. should be doing more to aid poor countries. But it also might have nothing to do with the gap. That's what I'm trying to figure out, and I'll be writing on the subject soon-- but for now, I can confidently say that if the gap someday begins to close, a scenario that I will lay out a blueprint for after I am more knowledgeable, it will be because of other nations approaching the U.S.' wealth, not the other way around.

This country is here to stay; despite mistakes in foreign policy we've made and the zealous anti-American sentiments that have flared up during the 21st century, the U.S. remains a moderator of the global balance of power in a way that, according to the evidence, seems truly irreplaceable. That role comes with a responsibility to not screw up as badly as we did with the Iraq War, a regrettable error, but it's utterly absurd to allege that because of eight lousy years the U.S. is suddenly in a position to cede to countries that currently are hardly functional, economically, socially, or militarily. Part of their dysfunction is attributable to their comparative poorness, and it is that issue that this blog will ultimately address.