Role of Capitalism in Poverty Eradication - Coursework Example

University: Role of Capitalism in Poverty Eradication. Name: Date: ROLE OF CAPITALISM IN POVERTY ERADICATION. INTRODUCTION According to Bryant (2012), capitalism is defined as a political and economic system where a nations’ resources and their distribution are owned privately as opposed to ownership by the state. The economic leaps brought about by the capitalistic economic structure in fostering financial growth over the last three decades remains largely undisputed the world over. However, the extent to which capitalism has benefited poverty eradication in developing economies and the sustainability of these assertions still remains a widely debatable issue. This paper, therefore, provides a well-researched and thorough evaluation on whether there is indeed any truth behind the claim that capitalism and the market forces of free trade have been the primary contributors towards extreme poverty eradication of close to 1 billion people in the last two decades. The paper shall analyze the facts as presented from reliable sources and the analysis provided shall encompass the views of both examples from economic data and from my understanding, interpretation, and critical analysis of the reference materials. CAPITALISM IN POVERTY ERADICATION The Millennium Development Goals made a target of reducing world poverty levels between the years 1990 and 2015 (Bryant, 2012, p.20). Surprisingly though, even with a dismal failure in achieving other goals, this single target was attained 5 years prior to the anticipated time line. In part, the MDGs did provide an insightful approach of quantifying global progress in eradicating poverty. The global extreme poverty line stands at $1.25. According to data collected from 2008 World Bank Development Indicators, a staggering 48.6% of the World live below $2.5 a day (Singh et al., 2012, p.45). Moreover, United Nation’s data indicates that presently, nearly 1.1 billion people live below the poverty line. Although these figures are extremely high, it should be noted that they have significantly reduced over the last two decades. Global poverty statistics disclose that these figures have reduced by almost half in the developing countries; with the number of people living in extreme poverty dropping from 43.2% to 21.6% between the years 1990 and 2010 (Kaul, 2011, p.59). While these statistics seek to illustrate the seriousness of poverty and its prevalence in both developing and developed nations, they also show that corrective measures, if effectively put in place and monitoring consistently carried out, there can be achievement of a slow but sure turn around. Undoubtedly, the causes of poverty in the third world countries are preventable. This is largely based on the fact that the vicious cycle of poverty has taken root in these countries due to the poor economic policies and choices, and largely due to strife and political instability (Cousins, 2009, p.897). Over the last 20 years, United Nations, through cooperation with these countries, has attained commendable success in restoring calm in most of these nations and consequently, setting up a conducive environment for most of these nations to concentrate on constructive economic activities. While the cause of poverty are essentially complex, capitalism has played a critical role in restoring calm and engaging both third world countries and emerging economies in workable strategies of alleviating poverty. Ironically, most of the countries in the developing world are richly endowed with natural resources, as augmented by IMF records which show that more than 50 developing countries are categorized as resource-rich (Fosu, 2011, p.148). In analyzing the facts on the extents to which capitalism has helped in fighting poverty, with a record 1 billion people having been raised below the $1.25 extreme poverty benchmark, it is necessary that we weigh the merits of capitalism against its demerits and determine critically if it is indeed the force behind this success. One of the greatest benefits of a capitalist system is the decentralization effect it has on a nation’s economy. The shift from the autonomous government monopolies to allowing local as well as international investors has greatly assisted third word and emerging nations to fight against poverty (Bryant, 2012, p.34). This has been achieved through creation of all cadre of jobs, from the manual labor to highly professional and skilled jobs. Unemployment figures in emerging worlds have been increasing at a decreasing rate, strongly indicating that there is progress in alleviating unemployment Another great benefit that has been attributed to adopting the capitalist economic model has been the quickening of economic growth. Essentially, engagement in free market enables investors to gather vast information about potentially viable business opportunities (Singh, 2009, p.67). With this in mind, investors only engage in investment projects that are sure to have returns by predicting market forces. What this has meant is that while investors have been engaging in economically progressive businesses, there has been an overall creation of wealth in these nations. Ultimately, this has led massive job creation and injected flow of money into the economy, the long term benefits being clear reduction in the number of the poor in these countries. Undeniably, a critical analysis of the leading cause of civil strife in third world countries has been the incessant struggle for certain groups within these countries to take full control of natural resources. With the intervention of world peace keeping bodies such as the United Nations and other Non-Governmental Organizations, it was possible to bring these nations on a dialogue table to forge the way forward (Singh et al, 2012, p.85). What has been discussed behind these closed doors invariably has resulted in creation of economic structures that have put up economic units in which every unit is accorded the liberty to operate in the most economically efficient manner. The remarkable paradigm shift in economic progress in countries such as South Africa from low income to middle income economies is candid testament of the economic gain secured by exercising a harmony of decisions in distinct economic units (Baffoe & Khayum, 2013, p.87). One of the notable factors that makes the claim that capitalism has contributed towards poverty eradication is the rapid growth of private enterprises over the last twenty years. Although the governments have made commendable contribution towards seeing to it that private institutions have taken root, there has been a decided advantage in countries relying on the private sector over the government owned enterprises (Cammack, 2004, p.193). In practice, the decision making process is painstakingly slow in government institutions, understandably so due to the numerous protocols involved before conclusive decisions are arrived at. On the contrary, private investments have the advantage of having a faster decision making processes since there is no bureaucracy involved. This is the underlying benefit that comes with capitalism, and in the long run, it has developed the tremendous effect of enabling business expansions, job creations, and formation of mergers with the ultimate result of generating economic synergy. In assessing the claim that capitalism is to be accredited for the tremendous developments in rooting out poverty, it is necessary that opposing views be addressed. First, cynics argue that capitalism fosters wealth and income inequalities leading to promotion of poverty. However, the reality is that the practice of capitalism only develops this quality in the initial stages when opportunities are only within financial reach of the well to do. In the long term, however, economists have noted that capitalism narrows this economic disparity by creating opportunities for every individual (Prahalad, 2010, p.92). Another argument has held that the competitive strategies employed in capitalism brings about economic fluctuations and depression leading to unemployment and subjecting citizens in these countries to abject poverty through unemployment. However, contrary to this belief, capitalism has proved to be the only economic system that is self-sustaining. From the early 1990s to the first decade of the 21st century, capitalism has turned around obscure economies to becoming economic powerhouses by merely responding to price-profit mechanism and the flexibility of the forces of demand and supply (Cammack, 2004, p.206). Nevertheless, even with the highly impressive figures and statistics centered at indicating the accomplishment in eradicating world poverty levels, serious concerns have been raised regarding the skewness of this data. Specifically, the fact that China has contributed a staggering 68% of the 1 billion people supposedly pulled out of extreme poverty in the last two decades (Kaul, 2011, p.118). From another perspective, this has strongly indicated that improved governance and policies supporting trade in developing countries is one of the principal ways of eliminating poverty. By improving its governance and encouraging capitalist trade, China was able to make a dramatic turnaround in its economy, a fact well substantiated by its reduction of poverty levels from 83.7% on the early 1980s to a meagre 10% as at 2010 (Baffoe & Khayum, 2013, p.106). CONCLUSION. In conclusion, it is evidently clear that if appropriate measures are put in place, developing countries will continue to thrive. Pulling 1 billion people out of extreme poverty is no mean task. Undoubtedly, the task that lies ahead of developing nations is not to rely so heavily on statistical figures of how many citizens live below the $1.25 poverty line. The urgent need is to put up policies, encourage free trade, address inequality in income distribution, and regulate consumer exploitation by the private sector. Most importantly, encouraging and promotion of private investors through creating an enabling environment for all business, from the local sole traders to the multinational corporations and waiving trade tariffs will undeniably close this gap in wealth distribution in developing countries and raise their citizens from the annals of poverty (Cousins, 2009, p.906). Ultimately, it is only by calling upon these deliberate measures geared towards giving the poor an opportunity to become richer that capitalism can sustainably achieve this laudable achievements. If well adhered to, then it would not be surprising that in 2030, after another two decades, the proportion of the destitute could be cut down by another one billion. REFERENCES Baffoe-Bonnie, J., & Khayum, M. (2013). Contemporary economic issues in developing countries. Westport, Conn, Praeger. Bryant, J. H. (2012). How the poor can save capitalism: rebuilding the path to the middle class. Cammack, P. (2004). What the World Bank means by poverty reduction, and why it matters. New Political Economy, 9(2), pp.189--211. Cousins, B. (2009). Capitalism obscured: the limits of law and rights-based approaches to poverty reduction and development. The Journal of Peasant Studies, 36(4), pp.893--908. Fosu, A. (2011). Growth, inequality, and poverty reduction in developing countries: recent global evidence. Brooks World Poverty Institute Working Paper, (147-150). Kaul, C. (2011). Statistical handbook on poverty in the developing world. Phoenix, AZ, Oryx Press. Prahalad, C. K. (2010). The fortune at the bottom of the pyramid: eradicating poverty through profits. Upper Saddle River, N.J., Wharton School Pub. Singh, A., Kapoor, K., & Bhattacharyya, R. (2012). Governance and poverty reduction: beyond the cage of best practices. New Delhi, PHI Learning. Read More