To solve poverty in the classic way of thinking capitalism
To solve poverty, in the classic way of thinking, capitalism must be expanded to ensure higher wages for workers. However, the most popular explanation of the causes of poverty comes from the neoclassical side. In a nutshell, people\'s survival depends on their endowment, in a pure market economy; survival depends on what is paid by selling the labor force. Then, poverty\'s elimination makes increasing wages necessary. However, in a neoclassical point of view there is a problem. If labor demand depends on the marginal productivity of labor, and labor supply depends on the sacrifices workers make in terms of giving up leisure time, having higher wages implies that workers sacrifice more leisure time in order to earn more money, then an increased wage implies people can escape poverty, but the negative consequences will be higher unemployment, because the labor demand will be reduced. Marshall points out the consequences of demanding wages above the marginal productivity of labor (1887, XII):
On the other hand, there are activities with such low marginal productivity of labor that garners such low wages, that an increase in employment precipitates a fall below the poverty line. An example of this eletriptan hydrobromide phenomenon was women in the labor force in the textile industry in England during 19th century, “where the customary wages are too low to support a healthy life” (Marshall, 1887, XI). In such cases, Marshall suggests that capitalists and workers can reach agreements without using their power. This argument is totally false since neoliberalism has marked the decline in wages in order to increase the rate of profit for capitalists (Duménil and Lévy, 2001). In so doing, capitalists have used their power to defeat unions and inhibit their organization, and to transfer resources from the poor people to the wealthy people. It is also false that higher wages imply a higher rate of unemployment. Figure 5 plots the relationship between hourly wage and the rate of unemployment for European countries in 2013; a straight line with negative slope is the best way to describe the points. The result of the linear regression is:
The increase of hourly wage provokes a decrease in the unemployment rate of 0.14146 points. Of course, the results of this regression are just an academic exercise, but the intercept and coefficient are significant (see Table 2A in the appendix). R2 is 28% and diagnostics tests of functional form, heteroskedasticity, autocorrelation and normality in the residuals are fulfilled satisfactorily (see Table 3A in the appendix). Therefore, low wages do not imply high rates of employment. On the contrary, low wages imply high rates of unemployment. There is no argument for flexibility of labor.
The failure of Keynesian and development economics As is well known, a Keynesian state dominated the economic policy of the vast majority of Western countries from WWII to 1970s. Established policies favored the industrial sector more than the financial sector and in addition to this the Keynesian state built infrastructure. Also, in European countries organized labor conquered the provision of some public services such as health, education, pension funds, etc. In the United States, an implementation of a welfare state was achieved to a lesser degree, but in the 1940s the United Mine of workers won some rights in health care and pension funds (Rosenberg, 2003; Rahman 2012), in the 1960s, organized labor achieved health care for the elderly (Medicare) and the poor (Medicaid), and in the 1970s even more private companies and the government gave more comprehensive health care plans (Le Blanc, 1999). However, after 25 years, the Keynesian state could not solve the 1973/74 crisis. Policy makers increased public spending, but a high rate of inflation soon followed. This phenomenon of stagnation with high inflation led neoliberal and neoclassical pundits to claim that only the market was efficient. Another victory for neoclassical economics was the failure of development economics, which blossomed from WWII to the 1970s. This school held to three principles: (1) all nations in the world benefited from a high rate of economic growth; there were no winners and losers; (2) underdeveloped countries had excess labor in the rural sector that should be transferred to industrial areas, and (3) poor countries needed to industrialize through high investments. If these points, mentioned before, could not be achieved through a national bourgeoisie because endergonic was very weak, the state should have intervened to provide basic infrastructure and incentives.