Poverty as a Necessary Lie

Why is it that in the UK after 300 years of capitalist development that there are any poor people at all. Granted, poverty isn’t what it was even a hundred years ago. Anyone who has read Harry Leslie Smith’s recent book about growing up in the Great depression - ‘Harry’s Last Stand’ - will  realise that material living standards have increased markedly since then. His book paints a really stark picture of what it was like to grow up in the hellish poverty which was widespread in the thirties.

However, poverty does still exist and not just in a relative sense – though that is still hugely important – but also in an absolute sense as well. If you are worried about being able to afford the rent or council tax and keeping a roof over your head or being able to afford to heat your home and keep your family warm and fed then this, and the gnawing fear and anxiety and insecurity associated with it, is still absolute poverty. If you are homeless you are homeless – there’s no such thing as relative homelessness if your home is freezing then you are absolutely cold and not relatively cold. If your house has damp or mould then that produces real ill health – it’s not relative ill health.

And relative poverty is not so relative. It is known that a person’s self esteem is a relational phenomenon. Our sense of personal self esteem is based on how well we feel we are doing compared to those around us so there is a status element to it. We do not compare ourselves to people in poor countries 5000 miles away but to those whom we live amongst – those just above and below us on the social scale. We don’t really compare ourselves to the rich because we never meet them.

It’s unrealistic to say to a poor person that they may be poor in our society but it doesn’t matter so much because they’re better off than a poor person in Asia or Africa because that’s not how human psychology works. If you feel excluded from full participation in your own society or that you are on the bottom rung of the social ladder then that is just as absolute in a psychological sense as any other kind of poverty. There’s seems to be an attitude when discussing relative poverty that somehow or other that because it’s largely psychological that that makes it somehow less real, less absolute than material poverty, like it’s some kind of illusion.

However, why is it that anyone in Britain in the 21st Century has to live on subsistence level, that being the level where people can just make ends meet relative to the cultural expectations of our society. According to an article in the Guardian about a quarter of even the working population earns below a living wage. It is only because we are used to experiencing this ‘reality’ from birth and are constantly pummelled by the so called ‘free press’ into believing that poverty and unemployment is the fault of the poor and the unemployed that we tend not to question this glaring truth. Part of the essential functioning of this classist system is the continuous ideological barrage kept up by the press against the poor in order to convince both the poor - and the rest of society - that poverty is their own fault

The Rigged Economy

However, what if one of the big guilty secrets of capitalism is that, rather than being the fault of the poor, poverty is actually an essential feature of the functioning of capitalism  - that some people (the working poor and the unemployed)  have to be kept on (in many cases beneath) subsistence level in order for the system to work. Why should this be the case. if it were widely know to be true would this not create a huge moral outrage. If it was known that all of the fear and insecurity , and bureaucratized humiliation and harassment and intimidation from the benefits offices and all the myriad mental and physical health and social problems related to poverty were largely unnecessary might not this lead to large scale revolt.

The whole system, as Marx understood, is based on class power and class attitudes. Neoclassical economics paints a picture of a world of free exchange between equals and virtually ignores the class structures of power and wealth within which these exchanges take place. It’s a bit like discussing the later stages of a game of monopoly as if it were just about a series of financial transactions whilst ignoring the imbalances of power which develop during the course of the game so that the weaker players gradually have less and less bargaining power until eventually they get wiped out by those who have most of the money and property.

Capitalist firms compete amongst themselves for profit. In these days it is made more acute by the predominance of the shareholder model where there is an emphasis on quarterly returns to shareholders. The shareholder is king. Poverty is created by the dynamic of capitalist competition for profit. Capitalist have an incentive to make the maximum amount of profit in order to survive in their competition with other capitalists. To do this one of the things they need to do is keep wage costs as low as possible. Since capitalist need to have a workforce which is fed and clothed and healthy enough to work and make a profit then the lowest practical level for wages is subsistence level. In reality these days many people are mired in debt and actually below subsistence level.

If any capitalist attempts to raise the level of his lowest paid workers above subsistence level then this will put them at a competitive disadvantage and they will risk losing investment or even go out of business. Even marginal differences in profit levels can put one capitalist at a disadvantage vis a vis the others and result in them losing investors especially in an economy which these days is so much more focused on short term profits.The system is all about relative power on the market and those with access to capital have more power than those with only their labour power to sell. The mobility of wealth is also a large factor since investors can move their money around whenever there is a threat to the return on their investment making it difficult for workers to press for higher wages without being hit by the old free market catch-22 that pay demands will hit profits and therefore jobs and only be counter productive. There is a real asymmetry of power in the free market which can seem quite elusive and difficult to pin down in a formal way.

It is in the collective and individual interest of capitalists that their lowest paid workers are on subsistence level. On the one hand we have crocodile tears about poverty from right wing politicians and, on the other hand, businessmen freaking out when anyone talks about creating a living wage which might actually help reduce poverty. The whole living wage question brings the issue of the necessity of poverty to capitalism into sharp focus. Why is giving people a living wage such a big deal. Why is it so difficult to do in a rich society. One main answer is that try to hit the rich and they will take their money and run away and screw up the economy.

Why is it that after 300 odd years of wealth accumulation that everyone is not comfortably above subsistence level and people don’t have to worry about paying the rent or affording basic items at all. In discussions on the distribution of wealth and income it sees that two issues are conflated. One question is why there is a distribution of income at all. There is some justification for this along the lines of different talents, levels of motivation, some jobs being regarded as more useful than others, etc. Of course questions can still be asked about why, for instance , hedge fund managers earn so much more than nurses. It obviously helps that hedge fund managers and their like rule the world and set the rules.


However, it seems to be taken for granted that the bottom end of the graph for income distribution should end on the poverty line and that there is something  ‘natural’ about the fact that the lowest paid workers are around subsistence level. However it doesn’t follow from any explanation for the distribution of income why this should be the case. Why, for the sake of argument, could it not be the case that we lived in a world with the same inequalities in income but the bottom end of the graph was well above subsistence level rather than on it. In this world perhaps even the lowest paid could would be paid a good 5,000 to 10,000 pounds per year more than bare subsistence so everyone in this economy would be comfortably off .

Put like this it is obvious from a free market point of view that it just wouldn’t work. The poor would be able to opt for more leisure time rather than working in lousy jobs for lousy wages and to be treated like a slave. This would severely affect the whole business of creating profit. Poor people who were  too well off would not be so easily pushed into producing profits for capitalist. A society with such a distribution of income just wouldn’t work from a capitalist point of view. It seems that the old adage ‘work or starve’ is still essential to the normal functioning of capitalism. It needs unemployment to keep wages down and poverty level wages to force people into producing profits at all. It is a society based on fear for those at the bottom and a prod to those above them not to slacken off in case they too should fall into the poverty zone. This show up the ugly truth of capitalism that it is based on fear and insecurity and coercion, especially for the poor. Poverty is not  necessary for any objective material reasons but it is necessary for capitalism to function – for the capitalists!

The Tories say they don’t believe in utopia but they do – austerity is their utopia. Getting the poor to pay for the excesses of the rich as after the Credit Crunch. But it goes deeper and uglier than this for Capitalism can only function on the basis of a permanent austerity for those at the bottom of the income scale. The main conflict between capital and labour is that workers crave  basic existential security and capitalisms can only functioning by denying this to them. The whole standard of living debate is a red herring .

Sure the working people’s material standard of living improved over the decades but what working people wanted was not a snail's pace incremental increase in wages where eventually they might be able to afford decent housing or education or health care (in that great free market utopia of the USA they are still waiting) but a basic level of existential security. This was the real conflict between capital and labour. The truth of this was brought into sharp focus when, after the war – people voted for the Welfare State. This showed what workers really wanted – something which they would have had to have waited forever for to attain under the so called ‘free market’ (one of the world’s great misnomers). A free market choice was no choice for most people at the time.

The main issue is also one of conflict over control and allocation of  resources – capitalist have the major say in they way in which the resources of society are used because they have ownership of the produce of society. They want to use any wealth produced for the further accumulation of capital and to provide luxuries for themselves. They also need to realise a profit which requires that workers are sufficiently well paid to be able to buy some of the goods and services produced. This is despite the fact that the workers (about 80% of the working population) are mainly responsible for producing  them but cannot use them to satisfy their own basic needs as human beings.

Inequalities in Wealth

Another advantage of pushing people onto subsistence level is that because they can’t save they can’t accumulate any capital. The rich and the middle classes can not only save but have awarded themselves the benefits of compound interest effectively awarding a bonus to people for just having money to invest. No doubt it does encourage investment but it further skews the playing field in favour of those who have money. So the wealth distribution is even more skewed than the income distribution (see pie chart below). Even a cursory look at the distribution of wealth in the UK where 30% of the population owns 77% of the wealth (from the Equality Trust website ) shows that there is no way in which the ownership of wealth reflects the actual wealth created by the different classes. Did the bottom 70% of the population really only create 22% of the wealth. According to this pie chart the poorest 30% created only 1% of the wealth and the bottom half of the population only 9% .

There are obviously self reinforcing positive feedback mechanisms at play here hugely benefiting the rich and negative feedback mechanisms hugely disadvantaging the poor. It is in no way a level playing field. It is the translation into economic terms of one rule for the rich and one rule for the poor. The pie chart below does not actually give a complete picture because some sources cite the poorest 10% as having negative wealth! These are the people living on payday loans and prey to loan sharks. So not only do they live mired in debt but they pay interest to the better off for the privilege!

The free market is an institution for pumping wealth up to the higher levels of society and renders any notion of a ‘people’s capitalism’ a bit of a sick joke. When Thatcher sold off large parts of our nationalised industries the spread of shares and the percentage of shares held by individual shareholders actually declined and we know what has happened to the distribution of wealth since then.

Free Market ‘Solutions’ to Poverty

Free market writers  are fond of throwing around the usual free market catch-22’s to demonstrate the impossibility of doing anything which takes money from the rich or gives money to the poor other than that divinely ordained by the so called  ‘free market’. What they also don’t seem to realise is that their arguments that raising the minimum wage – let alone giving people a living wage – will be counter productive is a tacit admission that poverty is an integral part of the functioning of free market capitalism.

Their solution is that people need to develop their job skills so that they can move up the scale to better paid employment but this seems rather a specious argument. The increase in people going to university has not created lots of better paid jobs instead graduates are doing jobs they could have got straight out of school. They ended up competing for the already existing jobs rather than having lots more educated and qualified people promoting the creation of lots of better paid ones. Also, could all the poorly paid people – or even a portion of them – realistically move up the scale to better paid jobs? The idea that the bottom 20 percent on poverty wages could all could move up to  the next quintile seems highly unlikely. Where would all these better paid jobs spring from and who would do the badly paid unskilled jobs they’d left behind?

This argument , often trotted out in papers like the Daily Mail or the Express , is an example of the fallacy of composition where properties of a whole class of things (in this case people) is inferred from the truth of an individual case. It does not follow from the fact that it is possible for one person by dint of hard work and luck to move up the social scale that it is logically possible for everyone on the same social level to do so. There are obviously structural features of the economy which would prevent all the poor people moving up into better paid jobs even if they all worked their socks off to get better qualified. What would be more likely to happen –and I think the expansion of the number of graduates supports this – is that the same downward pressure on wages caused by the asymmetry of power between labour and capital would simply force all these better qualified folk back down onto subsistence level.

The argument also reflects their own individualistic picture of how the economy works. There is no appreciation that there a may be larger structural class forces at play. According to this naïve view if someone acquires more skills they will - all other things being equal - earn a higher salary. What you earn is determined by what you contribute to the economy. There is no understanding that perhaps the parameters of the distribution of income is determined by the overall struggle between capital and labour for their respective shares of the national product and that the tendency of capital to want to  increase profits (and drive down wages) will not necessarily mean any increase in the overall size of the cake going to those who have to work for a living. Instead - as seems to be shown by the experience of the expansion of the numbers of graduates - the workers will simply compete against one another for their relative share of the cake and those with the least power in the market will still be bid down onto subsistence level. It never seems to occur to these commentators that the so called ‘laws  of the free market‘ are not like the laws of physics - but largely rules in a power game designed by the rich. They are no more natural (maybe given the odd exception) than the rules of Monopoly.

So, where do these rules come from. The free marketeers say that they are natural and objective and that there is no alternative. I believe that the rules partly derive from the psychology of power and the attitudes of the rich towards the poor. They also derive from the basic power structure where one class owns the means of production and the majority own little or nothing . Science shows how simple rules can result in quite complex systems. Within this simple class /power structure various groups can compete for relative advantage. Those groups with scarce skills which are in demand (eg accountants , doctors ,lawyers can negotiate better salaries for themselves. They also create virtual closed shops to restrict access to their professions to protect their financial position. Those with the least scarce skills (the unskilled) will be bid down onto subsistence levels. However I tend to believe that even if everyone in the economy had a high level of skill that some of them would still be bid down onto subsistence level because of the overall way in which  free market capitalism works. It’s a bit like a game of musical chairs in that even if everyone ran as quickly as possible someone would still end up the loser. There are two things going on here. There is the overall struggle between capital and labour to divide up the wealth produced and at the same time the workers compete amongst themselves for their share of the leftovers with the least in demand / unskilled workers being left on subsistence level.

One law for the rich is not just an empty catch phrase it reflects the reality of how the rich treat one another in a preferential manner and have a huge sense of entitlement and their negative attitude towards the lower orders. There must be some relationship between the sense of entitlement of the rich and their tendency to over reward themselves - the clique at the top who sit on one another’s boards and award one another large pay rises. People at the top can earn huge sums of money apparently out of thin air ; eg Tony Blair or Hillary Clinton earning millions for ‘speaking’ engagements to their fellow rich folk. It’s difficult to fathom what pearls of wisdom they can impart at these functions which is deserving of such financial rewards. It’s more a case of you scratch my back and I’ll scratch yours

In the past the rich thought that the poor had to be kept in poverty as this was the only way to get them to do any work. The one rule for the rich and one for the poor works its way through a number of different dimensions of society not just in the distribution of wealth. It is evident in the way the rich are treated more favourably before the law and are generally seen as being more worthy. The rich benefit from mutually reinforcing advantages (education ,health ,connections ,confidence) whilst the poor suffer the opposite.

What’s the Point of the Rich?

This is really a topic for another blog but I think it is worth pointing out that (see graph of income distribution) apart from the top decile where income – and wealth – starts to go off the scale that income distribution in the UK isn’t dreadfully unequal. The  difference  in income between the bottom and the 9th decile is in a proportion of 1 to 6 . I think that a socialist society could work with these sort of income differences provided everyone was up off the floor of poverty and had a chance of getting a fair share in the collectively produced wealth. When one looks at the sort of jobs done for £60,000 a year or less it seems obvious that the real work is done by those in the ‘bottom’ nine deciles and that the rich in the 10th decile are largely superfluous as far as running the economy is concerned.

It is difficult to think what functions could not be carried out in a democratically run economy by the 90% which would need some superior skills only possessed by the rich. It’s almost as if we have a semi egalitarian society but with a parasitical class on top whose exact worth – in functional terms – is difficult to discern let alone justify. Of course they have a whole propaganda  industry telling us daily how they are the ‘wealth creators’ and the rest of us rely on them when it’s the opposite of the truth. Thus the media constantly perpetuates the two big lies on which the whole rotten edifice stands: the necessity of poverty (the fault of the poor) and the necessity of the rich.

The chart of those on salaries up to around £60,000 a year shows the wealth of skill and talent available and those on salaries lower down the scale are hardly lacking in skills ,intelligence and common sense. Any decisions currently made by those at the top could easily be made democratically by the rest of us. Productive work could be found for those currently in the parasitical top decile. Thus it is easy to imagine an efficient and fair functioning society based in the skills of 90% of the population and without immoral differences in income and wealth. The wealth removed from the richest could be used to lift everyone well clear of subsistence level and the rules of the economy rejigged so that it didn’t have to function by through the cruel device of pushing a segment of the population down onto subsistence  level.