Capitalisation implications on income inequality

This article discusses the economic situation of capitalism and its implications on income inequality. It explores the effects of globalisation on capitalism and the extraction of surplus from colonies. The article also highlights the factors that cause stagnation in recovery and fail to reach full recovery.

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CAPITALISM
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Introduction
Capitalism is an economic situation whereby the ownership of capital goods is left in the
hands of private individuals. The production of goods and services are dependent on the market
economy instead of it running through central planning. In the modern world, most countries
practice mixed capitalist whereby there is some kind of state regulation of the businesses and
industry. Workers in one hand do not spend their entire income on consumption but save some
income and this with time will add a part to their wealth. In a case whereby workers save, then
the dichotomy of capitalism and inequality will fade with time. The capitalists will get income
from the property while workers will get income from both property and work. With time, the
workers will own the entire property and wealth. However, due to the existence of the golden age
of capitalism, it has been hard for that theory to come true since worker wealth has been negative
as a result of unemployment and other factors. The primary question that economists ask
themselves, therefore, is the question of capitalism being concerned with both the existence of
wealth and also increased inequalities.
Because the property held by workers is very minute, we then consider capitalism under
social groups. Here, it is important to note that the share of wages remains rigid for a long period
because labour supply is dependent on population and is determined exogenously while the

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growth of capital is subject to variations (Prabhat , 2015, p. 157). The mainstream solution to this
argues that the latter comes about because wages remain unchanged over time.
There exist some goods that capitalists cannot strife without and these goods are got
when the pre-capitalist sector is opened up. Obtaining these goods will require
deindustrialisation and drain of resources procedures. The mainstream economic theory asserts
that in a case whereby the size of capital available is limited, the limit perpetuates itself through
speeding up to the rate at which capital is accumulated — capitalism precisely is known to have
great effects in most cases preserving a reserve army of the labour of a relative size that is not
diminished (Prabhat , 2015, p. 157). The latter will include the primitive accumulation of wealth
by capitalists which perpetuates income inequality. Therefore, we can conclude that wealth
inequality goes up as a result of squeezing up the petty producers. The existence of a reserve
army also perpetuates the existence of and widening of the wage inequality gap between classes.
This army makes the subsistence wage to stay stagnant at certain levels. An increase in the army
lowers the wages. There can however be segmentation of workers, and this directly affects
capitalists when the capitalists segment them according to those residing in the metropolis and
those living in the periphery.
Segmentation of workers is possible when there is limited mobility if labour and capital
are limited. Segmentation is made possible by the absence of free mobility of both labour and
capital. The segmentation of the world economy rules out the behaviour to rule out the
equalization of both labour and capital. The wages where the bulk of the reserve army was close
to the subsistence level but the wages in the other segment is dependent on a variety of factors
like emigration from Europe to the white settlements whereby the original inhabitants were

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driven off and their land occupied by immigrants. The emigration kept up the reservation wages
in Europe and the magnitude of the reserve army within the first world countries was also kept
small (Prabhat , 2015, p. 158). The latter made it possible for trade unions to wrestle concessions
from the capitalists in the form of increased prices as a result of an increase in labour
productivity. The mainstream growth theory was based on the factors shares presumption while
the increased inequality was based on the development literature.
Globalisation brought about the polarising tendency of capitalism. Segmentation of
workers has been broken down since the workers in the third world countries also affect those in
the advanced countries. Capitalists look for opportunities to invest in the third world countries
and also increase wages on the part of the advanced countries (Prabhat , 2015, p. 161). However,
with the delocalisation, the labour reserves in the third world countries cannot be exhausted, and
the wages in the developing countries continue to languish. There is no more segmentation of
workers in today’s era and this leads to a clears manifestation of the income polarising tendency
of capitalists (Prabhat , 2015, p. 161). Today, the recruitment to the levels of the capitalist is not
confined in the advanced nations but to all nations. The latter makes no difference to the
tendency of polarising.
Increase in surplus creates an ex-ante tendency towards underconsumption in the
capitalist’s economy. The latter can bring a country to economic crisis. This can be solved by the
use of a coordinated stimulus by several advanced countries (Prabhat , 2015, p. 157). The
possible solution to the ex-ante is in the provision of bubbles. Their formation gives rise to the
transient boom, and their collapse leads to a rise in a recession.

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Inequality has further been triggered by the existence of the large army of labour as
denoted earlier whose size is not diminished and the class of large capitalist within the capital
sector. The dispossession of the small capitalists leads to the lowering of the absolute share and
income (Prabhat , 2015, p. 158). There are serious threats posed by the inequality in income. Our
focus here should be on the capitalist sector and the settings in it. Wealth inequality here will
grow because of the centralisation of capital and primitive accumulation of capital.
The first source is related to the provided source in that the source discusses the factors
that are causing stagnation in recovery. The author of the journal points out the four causes that
are making countries stagger in inequality and fail to reach full recovery. The author points out
that the middle class is very weak that it cannot support the consumer expenditure. He says that
the upper class takes home 93% while the middle class take home very little and consequently
consume all income without making savings. The latter is also discussed in Prabhat Patnaik’s
journal (TINA , 2013). The author also includes the notion of frequent and severe booms that
take place in the USA which make the economy more vulnerable. He notes that although the
inequality did not lead to the previous economic crisis, the last inequality occurred was in 1920
and it lead to the great crash and depression. The economic inequality is said to be related to the
economic instability, and if the two are not taken care of, the author notes that they could cause
stagnation in the economic development for long (TINA , 2013). The author points out that the
society is squandering the most valuable resources and hence the dream for a better life that
would attract investors is consequently crushed by the widened gap between income and wealth
just as discussed in Prabhat Patnaik’s journal.
In his journal Globalization and the Impasse of Capitalism Prabhat Patnaik, the author
takes that opportunity to address the issue of income distribution in the current era of

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globalisation. The author points out that globalisation has been a mere interruption of the
episodes of globalisation. The author is also concerned with the values of labour power and the
implications of the distribution of wealth. He points out that the mainstream economics portray
capitalism as a closed system which is made up of capitalists and workers (Prabhat , 2016). The
author suggests that there exists differences in the current globalisation and the previous ones.
He points out today’s globalisation is composed of mobile capital as finance and also as capital
in production which is meant to take advantage of cheap labour. The author also points out that
there is a high reservation wage in the developed countries when compared to the less developed
countries. The latter is said to have been caused by the fact that the capitalist took advantage of
the less developed countries and utilised cheap labour (Prabhat , 2016). The capitalists are said to
have moved to the third world countries due to the existence of raw materials and also to look for
a market for their goods.
The author also discusses the issue of the extraction of surplus from colonies like India
by use of quid pro quo which was used to finance the British capital exports. India was made to
consume goods from Britain, and this was done at the expense of de-industrialisation of its
industrial sector (Prabhat , 2016). India was not given a chance to export its products. This
finally made the country to have marginal debts with Britain. This is related to Prabhat Patnaik’s
journal since the author also discusses the issue of surplus and how they created debts for the less
developed countries and hence leading to fewer developments in the long run.

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References
Prabhat , P., 2015. Capitalism and. Agrarian South: Journal of Political Economics, 4(2), pp. 2-
167.
Prabhat , P., 2016. Globalization and the Impasse of Capitalism. [Online]
Available at: http://www.networkideas.org/themes/political-economy/2016/10/globalization-and-
the-impasse-of-capitalism/
[Accessed 28th October 2016].
TINA , R., 2013. Inequality Is Holding Back Recovery. [Online]
Available at: https://opinionator.blogs.nytimes.com/?
module=BlogMain&action=Click&region=Header&pgtype=Blogs&version=Blog
%20Post&contentCollection=Opinion
[Accessed 19th January 2013].