Mystery: How Wealth Creates Poverty in the World by Michael Parenti

Ways of Thinking - Feudalism is very much alive

Image by Judite B via Flickr

by Michael Parenti
Writer, Dandelion Salad
Previously posted July 31, 2011
April 7, 2018

There is a “mystery” we must explain: How is it that as corporate investments and foreign aid and international loans to poor countries have increased dramatically throughout the world over the last half century, so has poverty? The number of people living in poverty is growing at a faster rate than the world’s population. What do we make of this?

Over the last half century, U.S. industries and banks (and other western corporations) have invested heavily in those poorer regions of Asia, Africa, and Latin America known as the “Third World.” The transnationals are attracted by the rich natural resources, the high return that comes from low-paid labor, and the nearly complete absence of taxes, environmental regulations, worker benefits, and occupational safety costs.

The U.S. government has subsidized this flight of capital by granting corporations tax concessions on their overseas investments, and even paying some of their relocation expenses—much to the outrage of labor unions here at home who see their jobs evaporating.

The transnationals push out local businesses in the Third World and preempt their markets. American agribusiness cartels, heavily subsidized by U.S. taxpayers, dump surplus products in other countries at below cost and undersell local farmers. As Christopher Cook describes it in his Diet for a Dead Planet, they expropriate the best land in these countries for cash-crop exports, usually monoculture crops requiring large amounts of pesticides, leaving less and less acreage for the hundreds of varieties of organically grown foods that feed the local populations.

By displacing local populations from their lands and robbing them of their self-sufficiency, corporations create overcrowded labor markets of desperate people who are forced into shanty towns to toil for poverty wages (when they can get work), often in violation of the countries’ own minimum wage laws.

In Haiti, for instance, workers are paid 11 cents an hour by corporate giants such as Disney, Wal-Mart, and J.C. Penny. The United States is one of the few countries that has refused to sign an international convention for the abolition of child labor and forced labor. This position stems from the child labor practices of U.S. corporations throughout the Third World and within the United States itself, where children as young as 12 suffer high rates of injuries and fatalities, and are often paid less than the minimum wage.

The savings that big business reaps from cheap labor abroad are not passed on in lower prices to their customers elsewhere. Corporations do not outsource to far-off regions so that U.S. consumers can save money. They outsource in order to increase their margin of profit. In 1990, shoes made by Indonesian children working twelve-hour days for 13 cents an hour, cost only $2.60 but still sold for $100 or more in the United States.

U.S. foreign aid usually works hand in hand with transnational investment. It subsidizes construction of the infrastructure needed by corporations in the Third World: ports, highways, and refineries.

The aid given to Third World governments comes with strings attached. It often must be spent on U.S. products, and the recipient nation is required to give investment preferences to U.S. companies, shifting consumption away from home produced commodities and foods in favor of imported ones, creating more dependency, hunger, and debt.

A good chunk of the aid money never sees the light of day, going directly into the personal coffers of sticky-fingered officials in the recipient countries.

Aid (of a sort) also comes from other sources. In 1944, the United Nations created the World Bank and the International Monetary Fund (IMF). Voting power in both organizations is determined by a country’s financial contribution. As the largest “donor,” the United States has a dominant voice, followed by Germany, Japan, France, and Great Britain. The IMF operates in secrecy with a select group of bankers and finance ministry staffs drawn mostly from the rich nations.

The World Bank and IMF are supposed to assist nations in their development. What actually happens is another story. A poor country borrows from the World Bank to build up some aspect of its economy. Should it be unable to pay back the heavy interest because of declining export sales or some other reason, it must borrow again, this time from the IMF.

But the IMF imposes a “structural adjustment program” (SAP), requiring debtor countries to grant tax breaks to the transnational corporations, reduce wages, and make no attempt to protect local enterprises from foreign imports and foreign takeovers. The debtor nations are pressured to privatize their economies, selling at scandalously low prices their state-owned mines, railroads, and utilities to private corporations.

They are forced to open their forests to clear-cutting and their lands to strip mining, without regard to the ecological damage done. The debtor nations also must cut back on subsidies for health, education, transportation and food, spending less on their people in order to have more money to meet debt payments. Required to grow cash crops for export earnings, they become even less able to feed their own populations.

So it is that throughout the Third World, real wages have declined, and national debts have soared to the point where debt payments absorb almost all of the poorer countries’ export earnings—which creates further impoverishment as it leaves the debtor country even less able to provide the things its population needs.

Here then we have explained a “mystery.” It is, of course, no mystery at all if you don’t adhere to trickle-down mystification. Why has poverty deepened while foreign aid and loans and investments have grown? Answer: Loans, investments, and most forms of aid are designed not to fight poverty but to augment the wealth of transnational investors at the expense of local populations.

There is no trickle down, only a siphoning up from the toiling many to the moneyed few.

In their perpetual confusion, some liberal critics conclude that foreign aid and IMF and World Bank structural adjustments “do not work”; the end result is less self-sufficiency and more poverty for the recipient nations, they point out. Why then do the rich member states continue to fund the IMF and World Bank? Are their leaders just less intelligent than the critics who keep pointing out to them that their policies are having the opposite effect?

No, it is the critics who are stupid not the western leaders and investors who own so much of the world and enjoy such immense wealth and success. They pursue their aid and foreign loan programs because such programs do work. The question is, work for whom? Cui bono?

The purpose behind their investments, loans, and aid programs is not to uplift the masses in other countries. That is certainly not the business they are in. The purpose is to serve the interests of global capital accumulation, to take over the lands and local economies of Third World peoples, monopolize their markets, depress their wages, indenture their labor with enormous debts, privatize their public service sector, and prevent these nations from emerging as trade competitors by not allowing them a normal development.

In these respects, investments, foreign loans, and structural adjustments work very well indeed.

The real mystery is: why do some people find such an analysis to be so improbable, a “conspiratorial” imagining? Why are they skeptical that U.S. rulers knowingly and deliberately pursue such ruthless policies (suppress wages, rollback environmental protections, eliminate the public sector, cut human services) in the Third World? These rulers are pursuing much the same policies right here in our own country!

Isn’t it time that liberal critics stop thinking that the people who own so much of the world—and want to own it all—are “incompetent” or “misguided” or “failing to see the unintended consequences of their policies”? You are not being very smart when you think your enemies are not as smart as you. They know where their interests lie, and so should we.


Michael Parenti is an award winning, internationally known author. His most recent books are The Face of Imperialism (a critique of the U.S. global empire; 2011) and Waiting for Yesterday: Pages from a Street Kid’s Life (an ethnic memoir about his early life in Italian Harlem; 2013); and Profit Pathology and Other Indecencies. For further information about his work, visit his website: www.michaelparenti.org.

Originally published and crossposted from www.commondreams.org, February 16, 2007

from the archives:

Block the Merger of Bayer and Monsanto by Ellen Brown

Chris Hedges and Richard Wolff: Capitalism Does Not Work for the Majority of the People

Make No Mistake: The Rule Of The Rich Has Been A Deadly Epoch For Humanity

Michael Parenti: Does Capitalism Work? (2002)

The 1% Pathology and the Myth of Capitalism

Capitalism: The Systematic Poverty and Exploitation of Human Beings by Finian Cunningham

Michael Parenti: These Countries Are Not Underdeveloped, They Are Overexploited (1986)

26 thoughts on “Mystery: How Wealth Creates Poverty in the World by Michael Parenti

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  15. I was working in Nepal back in 1993. 1993 was a traumatic year for Nepal with an awful Monsoon season with flooding that killed many Nepalese and more folks from Bangladesh. The international community was mobilised to help with the recovery and I had the opportunity of meeting some of the folks bidding on the projects. One fellow told me that his plan was to build levees along the banks of Ganges and Brahmaputra rivers to stop the flooding from affecting the low lying regions.

    Take a moment and let this sink in. This fellow was proposing building levees along two rivers that drop tens of thousands of feet in a little over 150 miles on their trip from the Himalayas to the coasts of Bangladesh. In the United States, within the previous year the Mississippi and the Missouri Rivers, two wide and generally slow moving rivers, had both breached their levees and devastatingly flooded parts of the richest country on earth. And here we were discussing using international aid funds to build levees on two very much more violent rivers in one of the poorest countries on earth.

    Let’s consider this suggestion from a different angle. Part of the reason for the international concern was the large numbers of lives lost when the rivers breached their banks. Each monsoon season brings some level of flooding, but this year had been particularly bad. One has to wonder why people continue to live in such a flood prone area. The reason, as it was explained to me, is that the floods bring water and nutrients to the area that is flooded allowing for better harvests. So, assume for a moment that the proposed levees could be built and maintained. That would mean that the farmers would have to find a different means of getting nutrients to their crops which likely would mean having to purchase fertiliser every year from then on. Hardly a good situation for subsistence farmers.

    So, where am I going with this story? If this project had been successful, it would have been an example of international money being used in a way that made lots of money for the aid companies that got the contracts to to the work, but that provided little benefit to the locals.

    This is only one of many stories of the way that international aid causes dislocation of local economies and ends up making the poor poorer while leaving the rich to live high off the fatted calf.

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  20. How does what you describe compare to China’s foreign investments? It is my understanding that China’s investments are actually helping foreign countries and not further impoverishing them.

  21. For 11 years. Company like Walmart hire only part-time for associate. Adding to welfare count in every state.. Big companies use trickery in the USA. Old true saying. Rich get richer, the poor get poorer. A outstanding Blog.

      • You are right. Nothing had change. Now Government want to deploy soldiers to the border. My Grandfather was a Mexican citizen. He joined the US Army in 1942. He cooked and served for four years in WW2. A white Captain assisted him and he became a citizen. We are wasting money and we are on the wrong path. Just trickery of the Washington Leaders. They want us to forget the killings in Florida, all the wars going on and the 21 trillion in debt USA. If we don’t change. We will become like Rome. Fall to our own debts.

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