The expansion of capitalism led to a deterioration in human welfare

Far from reducing extreme poverty, the expansion of capitalism from the 16th century onward was associated with a dramatic deterioration in human welfare, according to a study carried out by a team of international researchers. The research shows that the rise of capitalism caused a decline in wages to below subsistence, a deterioration in human stature, and a marked upturn in premature mortality.

It is often assumed that prior to the 19th century, the vast majority of the human population lived in extreme poverty, unable to access essential goods such as food, and that the rise of capitalism delivered a steady and dramatic improvement in human welfare.

This new paper calls these claims into question. The study, recently published in the scientific journal World Development, shows that the data used to make these claims relies on historical GDP data and Purchasing Power Parity (PPP) exchange rates that do not adequately account for changes in access to essential goods. This data does not offer a good proxy for human welfare and may give the impression of progress even as health standards deteriorate.

The researchers use an alternative approach to reconstructing the history of human welfare. They analyze three empirical indicators – real wages (with respect to a subsistence basket), human height, and mortality—in five world regions (Europe, Latin America, sub-Saharan Africa, South Asia and China) from the rise of the capitalist world-economy in the 16th century.

Their analysis points to three conclusions:

First, they find it is unlikely that extreme poverty was a normal or universal condition prior to the 19th century. Data on real wages indicates that, historically, unskilled urban laborers tended to have incomes that were sufficient to meet their basic needs, for food, clothing, and shelter. Extreme poverty tended to arise during periods of dramatic social dislocation, such as wars, famines, and dispossession, particularly under colonialism.

What the researchers say: “If one assumes that extreme poverty was near universal in the past, then it may appear as good news that only a fraction of the global population lives in this condition today,” said the study’s lead author. “But if extreme poverty is a sign of severe distress, relatively rare under normal conditions, it should deeply concern us that hundreds of millions of people continue to suffer this way today.”

The second conclusion is that, far from delivering progress in social outcomes, the rise and expansion of capitalism saw a dramatic deterioration in human welfare. In all the regions they review, the process of incorporation into the capitalist world-system was associated with a decline in wages to below subsistence, a deterioration in human stature, and a marked upturn in premature mortality.

“This is because capitalism is an undemocratic system where production is organized around elite accumulation rather than human needs,” the researchers explain. “To maximize profitability, capital often seeks to cheapen labor through processes of enclosure, dispossession, and exploitation.”

Finally, the authors find that recovery from this prolonged period of immiseration occurred only recently: progress in human welfare began in the late 19th century in Northwest Europe and the mid-20th century in the global South. They note that this coincides with the rise of the labor movement, socialist political parties, and de-colonization. “These movements redistributed incomes, established public provisioning systems, and attempted to organize production around meeting human needs,” the lead author concludes. “Progress appears to come from progressive social movements.”

So, what? What is obvious from all the research is that the inequality index (known as the Gini Equivalent) stood at 0.00 in hunter-gatherer times, by the time Karl Marx was penning Das Kapital it was 0.48 and in some countries today (e.g. Russia, China, Brazil, the US for example) it has reached 0.8, meaning most of the nation’s wealth and income is divided between a very few people (on the Gini scale 0 is perfect equality with no private ownership and 1 is where one person or family owns everything). At this level, societies historically fall apart. The Nobel economics laureate Paul Krugman has written that we are coming to “the end of capitalism as we know it.”

Perhaps he’s right.