Economics: Frequently Asked Questions

  • Why must profit always come first under capitalism?Capitalism is a system that requires companies to make a profit, if they are to survive. For a detailed answer to this question see Why Profit Gets Priority.
  • What is the current extent of global inequality?For the facts about this, see our article: Who Owns the World?
  • Why do you say that capitalism is divided into two classes—the working class and the capitalist class.For a discussion of this question, see our article Two Class Society.
  • Do you favour using taxation to redistribute wealth to the poorest sections of society?It is an often missed fact about capitalism that it is the capitalist class who pay taxes. (See our article, The Taxation Myth, for further discussion of this.) Under capitalism, whether free market or state run, the state is under economic pressure to keep taxes to the minimal level required for serving the purposes of the capitalist class. Our article, Holes in the Safety Net, shows how several of the industrialised countries are under great pressure to minimise their welfare budgets. The history of the twentieth century showed that taxation cannot be kept at a level high enough to eliminate poverty through social transfers.
  • Are booms and slumps inevitable under capitalism?Yes. For our explanation of this, see our article Booms and Slumps—What Causes Them?
  • Are you opposed to free trade?
  • ‘Free trade’ is a term used to refer to the reduction or removal of trade barriers in global capitalism. In recent years, capitalism has tended to shift towards free trade, in this sense. Opposition to the institutions that have administered these shifts (the General Agreement on Tariffs and Trade, the World Trade Organisation, International Monetary Fund, World Bank etc) has become increasingly prominent.
  • Yet, free trade has arisen as a necessity for capitalism which must constantly seek new ways of achieving profitable production. On the other hand, capitalist states have (and will continue to show that) they will revert to protectionism (trade restrictions) towards certain nations, when it is deemed to suit their interests. A global capitalism where protectionist measures are adopted more widely (as was the case prior to World War II) would not necessarily be any more in the interests of the working class majority.Environmentalist campaigners have advocated protectionism as a means of restraining the profit motives from inflicting environmental damage. The World Socialist Movement views this as an unrealistic aim, due to the inherent priority of profit within capitalism. For a detailed review of these issues, see our series of articles on Globalisation.
  • Can the poor countries of the ‘South’ achieve the same levels of wealth as the ‘North’?
  • We refer you to the answer of the Third World Network to this question on their website www.twnside.org.sg:According to the World Bank’s 1988 World Development Report, the per capita gross national product for the 20 richest countries was $12,960 for l986, with an annual growth rate of 2.3%. A simple calculation gives a yearly increase in per capita income of $298.08.The per capita GNP for the poorest 33 countries in that year was $270, with an annual growth rate of 3.1%. The same calculation gives a one-year increase in per capita income of $8.37.

    For these countries to equal the $298.08 increase of the rich countries, an annual growth rate of 110.4% would be required.

    Of course, if the poor countries maintain a higher growth rate than the rich countries for a very long time, theoretically they can eventually catch up. How long would that take?

    Supposing the growth figures in the World Development Report remain unchanged, we can calculate that the poor countries will achieve the 1986 income level of the rich countries in 127 years. But they still will not have caught up, for the rich countries will have developed further themselves.

    At these rates, the poor countries will actually overtake the rich countries in half a millennium, 497 years to be exact. At that time, the world per capita income will be $1.049 billion per year.

    But in fact the growth rate for the poorest countries excluding India and China (it was mostly China’s reported growth rate of 5% and vast population that skewed the figures) is less than that of the rich countries, which means they will never catch up. And many of them have negative growth rates.

    It should be remembered that the per capita income in the ‘advanced’ countries of the North, such as Europe, Japan and the U.S.A., disguises a great degree of poverty in these nations. Much of the wealth of these nations is in the hands of the minority who own and control the the means of production and distribution in these advanced nations.

  • Do you agree with those campaigners who call for ‘third world’ debt to be cancelled?Since it became generally recognised in the mid 1980s that Southern nations had accumulated a level of debt they could not support, debt negotiations have shown that, at best, the debt can only be contained at the margins. To entirely write off the debt would be too costly for the Northern banks and governmental institutions. In the agreements that have been reached, creditors have reduced their requested interest repayments. However, the bulk of debt owed by the South has remained untouched.Private banks are accountable to their shareholders and must therefore ensure that interest payments are met, in so far as is realistically achievable. Governments sometimes run budget deficits themselves and their fiscal balances are constantly under pressure. Only when repayment seems simply impossible have the creditors shown a willingness to compromise over repayments. As long as capitalism remains in place, the South seems destined to continue being dependent upon Northern capitalism which uses it as a pool of cheap labour and natural resources to exploit. This is why the World Socialist Movement calls for a worldwide socialist revolution in order to remove the minority-owned system that continues to enforce third world debt.

    For a brief review of the history of the ‘debt’ of the ‘third world’, see Dropping the Debt?