Is Poverty in Poor Countries due to Rich Countries?

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Poverty in Poor Countries

Is poverty in poor countries due to the rich countries? Big yes! Many economists and political scientists argue that inequality, poverty, poor infrastructure, and corruption in the developing economies (such as in the Global South) are the result of exploitation by the large economies (mainly in the Global North) in the wake of industrial and info-tec revolutions.

The colonial expansion of the West also solidified poverty in poor countries. The colonial masters employed manipulation to extract natural resources and use cheap labor.

Global South and Global North

Global South and Global North are two terms that emerged in the 1970s. These are general terms that seek to divide the world into halves based on economic development. The Global South is an imaginary group of countries that have poor infrastructure and are plagued by extreme corruption, poverty, and inequality.

The countries in Africa, Latin America, Asia (except a few), etc. are considered Global South, colloquially termed as developing and underdeveloped countries. It has long been a place with overwhelming inequality, poverty, and poor infrastructure, despite having vast natural resources.

On the other hand, there is the Global North which includes rich countries like the United States, the United Kingdom, France, Germany, Italy, Canada, etc., and some Asian countries like Japan, Hong Kong, Taiwan, Singapore, South Korea, etc. are a part of the Global North.

Although countries like Hong Kong, Taiwan, Singapore, South Korea, etc. are in Asia, they are considered now in the Global North in the wake of the industrial revolution in the last few decades.

Poverty in Poor Countries is a Colonial Legacy

Firstly, colonialism is the taproot of nearly all socio-economic and political challenges in poor countries. The European nations in the 15th, 16th, and 17th centuries such as  Portugal, Spain, Great Brittain, France, Italy, Netherlands, etc. colonized most of Asia, Africa, North, and Latin America. They siphoned off the wealth and natural resources of their colonies to strengthen their own empires.

Today, poverty in poor countries is the consequence of economic depredation caused by the colonial powers. It is strange that almost all the strong and leading economies in the current times are the former colonial masters such as the United Kingdom, France, Italy, Spain, the Netherlands, Japan, and others.

On the other hand, the former colonies such as Ghana, Antigua, Barbuda, Barbados, the Bahamas, Pakistan, Belize, Barbados, Canada, Grenada, Jamaica, Papua New Guinea, Sierra Leone, the Gambia, Nigeria, Kenya, Uganda, Tanzania, and others. are plagued with income inequality, poverty, joblessness, poor infrastructure, and the institutional breakdown.

Colonial Powers Blame the Former Colonies for all the Mess

Ironically, the colonial powers blame the former colonies for the internal strife and social tensions, economic failure, and political troubles. This is nothing else but a narrative built by the former colonists to always blame the bereaved countries for their failures. In reality, poverty in poor countries is the result of blatant exploitation by the former colonists.

In reality, most of today’s big economies like the United Kingdom, France, Germany, and many other colonial masters exploited the Global South during colonization and used natural resources and cheap labor for their industrialization and urbanization. It means the industrialization of the Global North was the de-industrialization of the Global South, the leading cause of poverty in poor countries.

Big Economies Use Economic Institutions such as IMF, WB, and WHO to Exploit

The third main reason behind poverty in poor countries is the debt trap of IMF, World Bank, and WTO. The United States and the other strong Western countries have used economic institutions such as the International Monetary Fund, the World Bank, and the World Trade Organization for their economic benefit.

Angus Madison in his Contour of the World Economy says that the United States was the strongest economy in the world in the post-World War period. It along with the former colonial masters made the Bretton Woods Institutions such as the World Bank, the International Monetary Fund, and the erstwhile General Agreement on Tariffs and Trade (the mother institute of the World Trade Organization).

Since then, they have been trying to dictate the economic system of the Global South, exacerbating poverty in poor countries. These financial institutions make sure that the poverty in the poor country never ends. It explains why over 110 debt-strapped economies are unable to pay about $2 trillion in debt.

Income Inequality has Increased in Poor Economies

From Millennium Development Goals to Washington Consensus, all the strategies for economic development in the Global South have ended in smoke. As a matter of fact, this income inequality and poverty in poor countries are further increasing.

In many African, Latin American, and Asian countries, this phenomenon is quite conspicuous. It shows that the global economic institutions made by the Global North are there to serve their own economic interests rather than help the poor economies in the Global South.

Sidelining the Dedicated Leaders and Installing Corrupts

The most effective tool to exploit the poor economies is to sideline the loyal and dedicated leaders who may prove a resistant force to preclude the economic depredation. They install corrupt leaders that enable them to keep exploiting the weaker economies, a major factor behind poverty in poor countries.

For example in 1953 in Iran Muhammad Mossadak, Time Magazine’s “Man of the Year” was overthrown by the CIA with the collusion of England and France.

The only mistake he made was to displease the rich countries with a bold announcement to nationalize the Iranian oil companies which had earlier filled the pockets of the UK, France, and the US. That is self-evident how unjust and avaricious the rich economies can become to protect their economic interests.

Deposition and Deaths of Loyal Leaders

The case of Ecuador was no different when in 1981 the Pro-Us leader when faced with a tough campaigner Jaime Roldos who blatantly spoke the way the US and other European countries were exploiting it and supporting the corrupt leaders and giving safe havens for money laundering.

Not surprisingly, he died in a mysterious plane crash. A state-level investigation was launched but the witnesses soon died in car accidents. Then in 1981, Omar Torrijos started disobeying the rich countries over economic pulse Panama Canal lost his life in an airplane crash. Such odious manipulations to remove loyal leaders are a reason behind poverty in poor countries.

In 1954, democratically elected Guatemalan President Jacobo Árbenz was overthrown by the CIA because he decided to nationalize the United Fruit Company. Soon, the CIA replaced him with Carlos Castillo Armas, a badly corrupt but Pro-US leader. Resultantly, the Fruit Company kept on filling the breadbaskets of the West.

Exploitation by the Big Economies is the Main Cause of Poverty in Poor Countries

According to Amartya Sen, the Global North exploits the natural resources and the cheap labor of the Global South through different means and tools. Sen in his magnum opus, ”Poverty and Famines” shows how the Global North has used free trade and other means to exploit the developing countries.

For example, he says that those countries that are exporting wheat and other edibles are the ones where there are famines. Areas where there are the most fertile fields, suffer food shortages, a blatant example of exploitation by the big economies and the subsequent poverty in poor countries.

It is since the countries like the United States, the United Kingdom, France, Germany, Italy, Canada, Hong Kong, Taiwan Singapore, etc. take cheap labor from poor countries and raw materials to continue their industrial output.

The poor economies give their natural resources to the rich countries at cheap rates and end up lacking food to feed the poor tillers and farmers.

Rise of Globalization and the Emergence of Corporatocracy

Private companies and businesses have emerged as the new superpower in the wake of the industrial and info-tech revolution. A new culture of corporatocracy has become the new reality, which is marked by cutthroat competition.

Corporatocracy is a term that refers to the power of the corporate sector, especially a few powerful companies that control new all socio-economic and political aspects of life. These giant companies hire special technicians whose only concern is to increase the profit of the company and reduce expenses. It means these big corporations must increase profitability even at the cost of poverty in poor countries.

For example, he says that those countries that are exporting wheat and other edibles are the ones where there are famines. Areas where there are the most fertile fields, suffer food shortages, a blatant example of exploitation by the big economies and the subsequent poverty in poor countries.

The key objective of corporatocracy is to amass wealth and build stakes in different sectors by increasing profitability at any cost. It is often based on the exploitation of poor labor, debt slavery, monopoly, and fraudulent financial policies.

How does Corporatocracy Rules the world?

Today, of the 100 biggest economies, 54 are the corporate companies that control the whole world. In the United States, two companies, Vanguard and BlackRock control everything the customers buy.

It is pertinent to mention that corporatocracy is theoretically based on ethical egoism, an amoral philosophy that companies must increase profit regardless of any moral considerations.

For them, business is business and no ethical standards may govern the market. In this way, these corporate tycoons exploit the labor class. They give the lowest possible salary and try to use force to do the maximum of the work. The workers undergo physical attrition and face burnout because of exploitation and manipulation.

Slave Wages to Workers in the Poor Countries

Karl Marx rightly recognized the exploitative nature of the big companies that had emerged in the earlier industrial revolution. He predicted that the poor will become poorer and the rich class will become richer. They would give the workers slave wages that will not let them improve their socio-economic life. In this way, the companies cannot afford to give life-improving salaries, which further pervades poverty in poor countries.

Oxfam in its recent report, “An Economy for the 99 Percent” reveals that 8 rich people, the owners of the tech and retail companies own more than half of the world’s wealth.

These 8 people include Bill Gates, the founder of Microsoft, Amancio Ortega, the founder of Inditex and Zara Fashion, Warren Buffett, CEO of Berkshire Hathaway, Jeff And, the founder of Amazon, the largest retail company, Carlos Slim Helu, the founder of Grupo Carso, Larry Ellison, the founder of Oracle, and Michael Bloomberg, the founder of Bloomberg.

8 Corporations Own Half of the World

It goes to suggest that these 8 companies control nearly half of the wealth and most of the business market. The report also shows that the wealth of these companies increased by around $11800 per person (182 times more) as compared to $65 per person).

Hence, these few companies have monopolized the global economy and they are hampering the sustainable development of the poor economies and people around the world. For instance, BlackRock and Vanguard control most of the corporate market in the United States. Bloomberg has termed BlackRock the fourth branch of the government.

BlackRock Influences Federal Reserve

BlackRock has huge sway in food manufacturing, social media, news media, transportation, and pharmaceutical companies. They have high shares that give them a huge influence in public matters.

Interestingly, BlackRock has developed software that helps the federal reserve system to work properly and manage transactions. It also shows they have a considerable influence on Federal Reserve.

Many experts also believe that these two companies are responsible for nearly every market effect including economic recessions in recent times. Hence, it is quite conspicuous that corporatocracy, with the help of technocrats, is controlling the global economy.

How can a Country Get Rid Of the Debt Trap?

There are two options for a debt-ridden country. The first way is to succumb to the economic policies of the IMF. It means the country should bring austerity measures and reduce spending on social development projects, increase interest rates, cut salaries and bonuses of salaried people, increase taxes on basic commodities and services, etc.

These measures have miserably failed over time such as in Greece in 2010 and 2020. The medium and small industries almost went dead while the potential investors left the country. With this, the exports remain stagnant and the fiscal deficit keeps increasing, further aggravating the economic meltdown, which deepens poverty in poor countries.

The second option is to become a sovereign default country. It is a formal announcement that the country no longer can pay the outstanding debt and liabilities.

Bankruptcy is not an Unusual Thing

Nearly all major economies tried this method to come out of the debt trap and fiscal imbalance. For instance, more than 50% of European countries, 40% of African and 30% of Asian economies declared state bankruptcy (sovereign default) in the past two centuries.

Surprisingly, the United States, the largest GDP for over two hundred years, has declared bankruptcy on 5 occasions since its independence on July 4, 1776. Germany, the fourth-biggest economy in 2022 has gone into sovereign default on 8 occasions. China and Britain also declared bankruptcy 4 times. Japan went bankrupt on 2 occasions as well.

Last year, Brazil declared bankruptcy due to the economic crises in the wake of the novel COVID-19 pandemic. Therefore, it is a viable option to bide time and request the financial institutions and other lenders to readjust the loan and even wave off a certain amount.

Economic Stability in the Aftermath of State Bankruptcy: Iceland in 2008

Initially, the stock exchange may crash and investors may leave the country but soon things will return to normal. Iceland, a Nordic island with a 366,000 population and a GDP of over $22 billion is a great example of benefiting from the decision of declaring bankruptcy. Prior to the economic meltdown, Iceland took loans of over $100 billion from different banks at interest rates of around 15%.

Interestingly, the GDP of the country was around $17 billion, 5 times less than the acquired loan. The 2008 economic recession smashed the prosperity bubble and the country could not pay the outstanding debt and liabilities. It means poverty in poor countries is not natural but man-made (made by core countries). Geir Haarde, the prime minister of Iceland got another $2.1 billion loan but it could not save the economy.

The country became sovereign default. The stock went down about 95%, and the value of currency lost half of its value. But soon, there came a revolution when people came to the street. The referendum brought a new government into power that started facilitating the local industries and the entrepreneurs.

Due to bankruptcy (no liabilities), the country made huge economic progress, increased dependency on local sellers, and reduce imports. There was no fiscal deficit the next year and the country also had no fear of paying a huge amount of debt payments. Until 2017, the GDP growth of Iceland was over 6.6% ($24.50 billion). Today, Iceland is one of the freest and fastest-growing economies in the world.

There is another befitting example is Ecuador which not only declared bankruptcy but also made an audit of the debt. It denied the disbursement of debt that was meant to serve a few corrupt people rather than the economic development of the country.

There are a few other such examples when some states made an audit and refused to pay the debt that was meant for oligarchs rather than the country. These examples show that economic plights such as poverty in poor countries are caused by the rich countries and not because of internal challenges. Besides, riddance from IMF & World Bank loans is the only way to build a sustainable economy.

Final Thoughts

To conclude, it is quite evident that poverty in poor countries is due to the rich countries. The big economies exploit and manipulate the poor economies of the Global South, especially through debt traps. This started from the colonial expansion of the Western countries in order to get cheap labor and raw material.

They have used economic institutions like the World Bank, IMF, etc. to continue this exploitation and manipulation. Around 100 “low-income” and “lower-middle-income” economies are not able to return $2.1 trillion to World Bank and IMF including Argentina, Sri Lanka, Afghanistan, Haiti, Pakistan, Chad, Bolivia, and Zimbabwe.

Moreover, the external debt payments by developing economies grew by 85% as a proportion of government revenue between 2010 and 2018.

In 1913, Argentina was 10 of the wealthiest countries; today, a defaulter that needs around $50 billion a year to survive. Pakistan’s public debt to GDP currently stands over 71.4 % and the balance tipping too far. All Pakistan needs is to rid of IMF and World Bank programs. It means poverty in poor countries is the result of exploitation by the big economic powers.

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