How Capitalism Breeds Poverty: The Brutal Logic of Neo-Liberalism

The horrific spectacle of tens of thousands of people stranded, and effectively abandoned, for days in New Orleans in the wake of Hurricane Katrina has shocked the nation and the world. With the death toll estimated to be in the thousands, the fact that class and race discriminated against the victims poses important questions about our society.

News commentators and politicians have been at a loss to explain away these disturbing facts. The public is left to ask: How could such levels of poverty and desperation exist in the richest country in the world? How could the supposed ‘model for the free world’ have created such poverty and despair?

Life-Threatening Poverty

It has become clear to millions that no one in government was prepared to develop, let alone implement, an evacuation plan for those without automobiles or to protect and rescue the victims. As a result, thousands are estimated to have died.

Robert Bullard, founder and director of the Environmental Justice Center at Clark Atlanta University, said: “When something happens like this, most aren’t able to pack up and drive 300 miles and buy gas and check into a hotel with no credit card … This is a race and class issue.” According to estimates, over 80,000 residents had no way out of the city.

27% of New Orleans’ 485,000 residents live below the poverty level. 67% are African American, with more than 50% of them living in poverty.

At the heart of this issue are the conditions of poverty and economic abandonment faced by hundreds of thousands of urban working-class families. With no access to an automobile, the absence of any serious public transportation alternative, and lacking a credit card as a means to book a motel room, conditions of poverty became life-threatening.

Conditions in New Orleans

A central tenant of this system is that to have a decent life you need to have a living-wage job. In New Orleans, or almost any other of the largest 50 cities in the country, poverty, low-wage jobs, and unemployment are the norm for tens of millions of Americans.

According to the 2000 census, the poverty level in the devastated Lower Ninth Ward of New Orleans is 36.4%. A quarter of households have an annual income of less than $10,000. Half live on less than $20,000. Half of those living in the ward are categorized as ‘not in the labor force’ because they have given up looking for a job.

African Americans, and now also Latinos and other recent immigrants, are systematically shut out of opportunities for decent living-wage jobs and segregated into the poorest neighborhoods. In the case of New Orleans, that meant neighborhoods like the Lower Ninth Ward, which is the lowest-lying, swamp-infested region of New Orleans.

The Lower Ninth Ward was one of the last regions of the city occupied. It was an area hit hard by Hurricane Betsy in 1965. Despite appeals, new safety systems were not introduced.

In New Orleans as a whole, the literacy rate is only 40%. More than two classrooms of young students drop out of the Louisiana school system every day. Louisiana spends an average of $4,724 per child on education, with only four states paying lower teacher salaries.

But conditions in New Orleans are not unique. They mirror the kind of life tens of millions of poor working-class families suffer through, everyday, across America: a country where 40 million Americans live below the official poverty line; where one in three children are poor; where, according to The Children’s Defense Fund, nearly one million African American children live in extreme poverty; where the real level of unemployment, when you count those too discouraged to look for work, approaches 10%; and where corporate-backed politicians have prided themselves on having shredded the safety net for the poor.

The corporate media always portrays this as some form of personal failure. In coming months, many promises will be made that federal handouts will rectify this. Promises have been made before. Following the eruption of blacks in the inner cites in the mid-1960s, the political system was shamed into providing some relief. But 40 years later, conditions for the majority of workers and the urban poor are worse than ever.

The simple fact is, the creation of poverty is a product of our economic system. It is a necessary by-product of capitalism. It flows from the internal workings of the system, which allows a few rich owners of vast capital to extract the labor of its workers for a pittance.

The extreme polarization of wealth in the U.S. has been accelerated and exacerbated by the neo-liberal policies pursued by both major parties during the 1970s, 1980s, 1990s, and so far this decade. The fact that the presidential candidates for both the Democratic and Republican parties in 2004 never focused on the conditions in the inner cities is an expression of this.

Profit at the Expense of Cuts in Public Spending

The guiding philosophy of both political parties is rooted in the idea that making conditions good for corporate owners (investors) will provide for all Americans. Under this philosophy, called neo-liberalism, removing all laws that constrain business profits is considered beneficial to the economy and to the U.S. public. In other words, that means slashing government programs and laws which do not directly benefit owners of capital (i.e. the richest 0.1% of the public).

The past 25 years have seen drastic, extreme, and devastating cuts in spending in all areas of life, whether for housing, schools, public hospitals, public transportation, the infrastructure, job programs, welfare, etc. For example, federal support for low-income people’s housing was slashed from $32 billion in 1978 to only $5.7 billion in 1988. That’s a decline of more than 80%, when adjusted for inflation. It has since been almost completely eliminated.

The refusal of the Bush administration to spend money to repair the levees is only a very sharp example of the complete abandonment of infrastructure spending flowing from the neo-liberal model. A study by the American Society of Engineers in March 2005 described how cuts in funding for bridges, public transportation, dams, schools, the drinking supply system, etc. means that a whopping $1.6 trillion would need to be spent over the next five years to bring the nation’s infrastructure up to date.

Funding has been slashed for education at the federal and state level. As a result, the literacy rate of the U.S. has dropped from 18th to 49th place among the world’s nations. In a massive study conducted by the National Adult Literacy Survey, over 90 million adult Americans, nearly one out of two, were found to be functionally illiterate, without the minimum literacy skills required in a modern society. Forty-four million adults were found to be unable read a newspaper or fill out a job application, while a further 50 million could not read or comprehend above the eighth grade level.

City, state, and federal politicians have gone on an orgy of cuts to taxes and regulations on the corporations and their rich owners. A big handout has been privatizing public services. This reduces taxes for the rich and allows them to directly profit from those services, resulting in demands for lower wages and cost cutting. This results in lowering the quality of services – i.e., few public hospitals, poorer quality public housing, further unemployment and lower wages for those in the community. All these are recipes for further inner-city poverty.

The policies of neo-liberalism have hit African Americans and Latinos the hardest. The consequences can be seen in New Orleans with the recent removal of housing projects under the program Hope VI. This resulted in 7,000 poor people, mainly African Americans, being thrown in the street to join the countless others looking for work, without even a roof over their heads.

This dismantlement of government programs and government spending has been a huge boom for the profits of corporations and the super rich who own the bulk of shares. Now the horrific social consequences of these actions have erupted to the surface. But this is only one part of the neo-liberal program.

An essential weapon in the neo-liberal assault has been the demand for free trade. Corporate owners want to be ‘free’ to operate in any community they want, based on who can guarantee them cheaper labor and less restrictions on profit-making. If that means abandoning whole communities and moving operations to a different region or country, so be it.

Low Wages

To boost their profits, employers have ruthlessly attacked wages, benefits, and working conditions. Both political parties collaborated in refusing to raise the minimum wage, resulting in tens of million of workers seeing their living standards drop below the poverty line. Restrictions have been increased on eligibility for unemployment benefits. Fewer and fewer workers now qualify for any unemployment benefits, resulting in tens of millions dropping off the rolls and forced to live without any income.

Inherent in capitalism has been the maintenance of a sizeable pool of unemployed workers living on the edge of poverty who are desperate for jobs. It keeps workers competing with each other to get jobs, allowing corporate owners to keep wages low. This was first described by Karl Marx, the founder of scientific socialism, as an essential weapon used by capitalists to keep down wages. When this political and economic system is judged by future inhabitants of the planet, this policy will be judged, correctly, as one of the greatest crimes against humanity

Former Wall Street executive David Driver summed it up well: “The United States is the most capitalistic of major industrialized nations. This is not because America is a leader in per-capita gross domestic product, per-capita income, or productivity growth, for it is not. America does, however, have one of the most pro-business, inequitable, and inhumane socioeconomic systems in the industrialized world…It certainly does not benefit the average citizen, not does it benefit the country as a whole.”

Or, as John Hinderaker, a board member for the Center of the American Experiment, a conservative think-tank, said: “There’s more opportunity in the American economy today than at any time in its history. It’s important to point out that income inequality isn’t a bad thing, it’s a good thing.” The viewpoint of the capitalist class couldn’t be better put.

This neo-liberal attack has lead to a massive increase in corporate profits. Just from 1980 to 1995, corporate revenues rose 129.5%, corporate profits rose 127% and executive pay rose 182%. The richest 1% of the population now own more wealth than the bottom 90%. There has been a massive shift in wealth from the working class to the capitalist class.

The Democratic Party

The Democrats have attempted put the blame for these policies on Republicans. We should not be fooled by this. The facts show they have gone along with this whole agenda. It was Democratic President Carter who began the whole cycle of deregulation of industries.

The promises made by the Democrats are only to get workers to vote them into office. Once in office, they have followed their corporate funders’ directives. President Clinton abandoned his election promise to provide healthcare for all, using his political capital to push through the free trade treaty NAFTA and the creation of the free trade watchguard, the WTO.

At times, the Democrats have led the charge. For example, President Clinton, a conservative southern Democrat, made a central plank of his 1996 reelection campaign the promise to “end welfare as we know it.” The plan of the Democrats was to get out in front of the Republicans by promising to attack the most vulnerable citizens in our society – poor mothers and children. This was to secure more corporate backing for their party than the Republicans.

They destroyed one of the key gains won by the mass union struggles of the 1930s. These working-class struggles also won the 40-hour workweek, social security, and led to a general rise in wages for tens of millions of workers.

Clinton’s new welfare law stated: “no individual or family shall be entitled to any benefits or services.” In other words, families who lose their jobs will no longer receive a guarantee of any income. This forces workers to take any job at any wage, if they can find one. Those who can’t find one have been abandoned economically. They are forced to live by their wits, and whatever else they can draw on, to put food on the table and a roof over their families’ heads.

Clinton also presided over a massive layoff of federal workers as part of his “reinventing government” policy. He intensified the racist policy of increasing the militarization of the border with Mexico. He oversaw the criminal policy of Iraqi sanctions, which resulted in the deaths of over a million Iraqis. Presidential candidate John Kerry offered no substantial alternative to Bush, promising to continue his free-trade policies, the war in Iraq, and the whole neo-liberal agenda.

Both the Republican and Democratic parties were set up and are controlled by big business. Despite populist rhetoric and differences on some issues, their central agenda has been to further the interests of the owners of the large corporations.

These policies have been carried out irrespective of which political party has won elections. Every piece of legislation that becomes law has to be passed by the House and the Senate and signed by the president. Except for two short periods of two years, no party has controlled all these institutions during the last 40 years. It can be said, definitively, that these policies are bipartisan.

The Politics of Poverty and Crime

Shut out of the economic system, disenfranchised by a political system dominated by big-business political parties, and ignored by the corporate media, the genuine and real suffering of the poor has been hidden by the dominant U.S. culture. Worse still, they have been demonized. Under such conditions, it is no wonder that acts of desperation occur.

The response of both political parties to the desperate acts of those in poverty, whether seeking employment in the drug trade or other schemes, has been to use the criminal justice system. This deliberate policy of criminalizing poverty has led to the highest incarceration rate of any country in the world.

Over one million African Americans are now behind bars, as drugs and HIV/AIDS have flowed into inner cites devoid of hope of finding living-wage jobs. It is such conditions that have allowed gangs and violent criminals to terrorize whole communities, events which are distorted by the corporate media to condemn those living in the community.

Consider the response of the Louisiana governor, Kathleen Blanco, to the desperate actions of the poor in New Orleans in the first week of the tragedy. She declared a shoot-to-kill policy for anyone found looting. This immediately brings back memories of the lynchings of blacks during the days of Jim Crow laws in the South.

Damu Smith, founder of Black Voices for Peace and ten-year resident of Louisiana, put it this way: “I want zero tolerance for that kind of language being used by leaders of our government to discuss poor people, black people, who are trying to survive in the – under the most desperate, insane circumstances. I want zero tolerance for thousands of our troops being sent to Iraq when we need them here. I want zero tolerance for public officials going before the airwaves talking about the wonderful things that they’re doing when the head of FEMA yesterday said that he didn’t know that there were thousands of black people, thousands of people at the New Orleans center, between 15,000 and 20,000 people are there with no food and no water, and last night he said he didn’t know that.”

Time for a Radical Change

The class and race issues brought up by this tragedy show the desperate need for a radical change in U.S. society. The hundreds of thousands left abandoned in the poor areas of New Orleans without jobs, with crumbling schools, lack of public hospitals, and without any hope of getting them have given Americans a glimpse of the ugly underbelly of this system.

As an immediate first step, we need to enact a massive public works program to rebuild the region of New Orleans and other devastated areas of Louisiana and Mississippi. This should be done by offering jobs and, if needed, training to those who have been displaced. The millions of unemployed and underemployed in the region should also be hired. This work should all be done at a living wage, and with full union rights and benefits.

However, conditions in New Orleans are an extreme example of the dire conditions facing tens of millions of workers in other cities and regions of the country. We need to set up similar massive programs of public works in these other cities and regions. This would include work to rebuild the infrastructure, build quality public housing, hospitals, transportation, schools, etc. Reallocation of investment and the hiring of unemployed workers could create new productive industries and factories, which would provide for the needs of working-class people living in those communities.

Such a rebuilding of the economy could ensure every person in the country had decent housing, a guaranteed living wage, access to quality healthcare and child care, and security in their old age. Funding must also be made available to clean up environmental pollution, and to reallocate scientists to address the massive environmental problems related to global warming and work out a plan to reverse them.

An Alternative to Capitalism

We should be under no illusions that the capitalist system can do this. The sizeable period of economic growth of the 1950s and 1960s is over. It was based on the period of the explosive emergence of U.S. capitalism during the turn of the last century, and a temporary period of worldwide superiority of U.S. manufacturing in the aftermath of World War II.

Today, we see a world economic slowdown, with U.S. corporations shutting down production here in search of areas that produce higher rates of profit. The economic engine of jobs, which helped some workers in previous generations to get out of the ghettos, will not be reoccurring. The vast majority of jobs created under Clinton and Bush have been low-wage jobs, which have replaced higher-wage jobs. Under the rule of capitalism, the majority of the public faces further sharp attacks on their living standards and quality of life, with a growing number being forced into dire poverty, homelessness, and destitution.

Capitalism is a system designed to produce for private profit, not for public need. It is only by taking decision-making out of the corporate boardrooms and placing them under the democratic control of the majority that the economy can provide for our needs. To do that, we need to bring into public ownership the largest 500 corporations and financial institutions.

If the assets of these giant companies were under our democratic control, then investment and resources could be democratically controlled by working-class people. Resources would be available to address our most pressing social problems and allocated to areas of most need.

To achieve this means breaking from giving any support to the two big-business political parties – the Republicans and Democrats. They are both fully implicated in creating the present mess we are in. We need to build a new political party to represent our interests as workers, the poor, and young people, and which points a finger at the real villains, the super-rich and the capitalist system.

Freed from control by corporate sponsors, this workers’ party could put forward a program that addresses our needs. It would be able to end this system of capitalism, which has been responsible for enriching a tiny group of billionaires at a time of massive need and poverty. We could then create a new democratic socialist society, where the working-class majority would have the power rather than the 1% who are rewarded under this system.

September 18, 2005