Andrea Montefusco

Legitimising Inequality:
A Marxist Rationale for Poverty

Prepared by
Andrea Montefusco

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Andrea Montefusco

Poverty is a social condition that transcends time and place and has been the

subject of many public policy debates, it has attracted interest from a myriad of

institutions, governments and academia alike. The aim of this brief paper is to

address the intrinsic relationship that exist between poverty, socio-economic

inequality and capitalism utilising a Marxian approach. I will assert that, in Marx’s

view, the mechanics of capitalism legitimize inequality for the latter is the condicio

sine qua non for the former. I will also argue that Marx’s theories are still relevant

one and half centuries after his death and provide an invaluable theoretical platform

to explain the role of capitalism in creating and sustaining class disparities. Although

an understanding of poverty can be drawn from a very large number of social

theories I will focus mainly on using lenses grounded in economics and political

science. Ultimately my argument will demonstrate that notwithstanding the difficulties

any society may encounter in tackling and eliminating poverty, the answer does not

reside within the capitalist system.

Defining poverty, understanding its roots and exploring solutions seems to be a

testing ground for social sciences and their exponents. As a matter of fact the

literature on poverty is almost as old as the phenomenon it covers and its

interpretation, like many other subjects under scientific scrutiny, varies widely

according to the lens applied. The locus from which poverty generates appears to

follow a spectrum of responsibility that slides from individuals’ ego and their moral

underpinnings all the way to trans-national financial exchanges and global dynamics.

From psychology to philosophy, from sociology to political science there is no lack of

aetiological discourse (Vu, 2010).

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The body of research that exists on poverty is polarised toward the concept of

‘absolute poverty’ (Dasgupta, 1995) mostly applicable to third world countries and

much less on the phenomenon of ‘relative poverty’ experienced in more

economically advanced nations. Absolute poverty describes situations whereby

resources to satisfy basic human needs like food, shelter and medical care are

scarce or non-existent (United Nations, 1995) whilst relative poverty varies among

societies and their relative standards of living, income, access to services etc. (JRF,

2013). The World Bank utilises the poverty line - “the minimum level of income

deemed adequate in a particular country” (Ravallion, 1992, n.p.) - to identify a

threshold of deprivation within a specific context.

The Joseph Rowntree Foundation’s (JRF, 2013) view on poverty includes both

absolute and relative elements and defines it as a situation where “a person’s

resources (mainly their material resources) are not sufficient to meet minimum needs

(including social participation)”. Whilst some authors, like Peter Townsend (1979),

provide an outlook of poverty based on the milieu within which it occurs - “the lack of

resources necessary to permit participation in the activities, customs and diets

commonly approved by society’ (n.p.). The most popular approaches to

understanding poverty stem from ‘neoclassical economics’ founded on the ideas of

David Ricardo (1772-1823) and Alfred Marshall (1842–1924) utilising concepts such

as supply and demand to determine price, market ‘periods’ to keep track of market

fluctuations and market competition as a means to improve efficiency (Sanchez-

Martinez & Davis, 2014). Under this framework, poverty seems to have a strong

correlation with individuals’ ill-informed choices and poor behaviours (Blank, 2003;

Bradshaw, 2006). An in-depth analysis of neoclassical theory is beyond the scope of

this paper.

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Most of Karl Marx’s philosophy, economic and political theory outlining the role of

capitalism in social inequality and poverty can be found in his foundational text ‘The

Capital’ which spans over three volumes (1867–1883). According to Marx’s theory

the evolution of social inequality and consequently poverty can be attributed to

‘market dysfunctions’ present in capitalist societies and through the control and use

of means of production (Patnaik, 2015). In Marx’s view there exist two main classes

in society one comprised by capitalists and the other by proletarians. Merchants,

industrialists and bankers and on a smaller scale, business owners and aristocrats

were classified as capitalists whilst all those people who directly depended on their

wages for survival were seen as proletarians (Townsend, 1979). An intermediary

class the ‘petty bourgeoisie’ existed between the two and consisted of small traders,

crafters and landholders which, according to Marx, was destined to disappear

swallowed by capitalist expansion, something he termed ‘primary accumulation’ of

capital. The latter, according to Harriss-White (2006), is one of 8 conditions she

identified through which capitalism engenders poverty. She also mentions the

disappearance of small family business concerns, the direct link to widespread

unemployment, the further impoverishment of already depressed economies by

international monetary funds and the logic of indiscriminate growth causing

environmental destruction, to name a few.

The incorporation of the ‘petty bourgeoisie’ and disappearance of small concerns is

part and parcel of Marx’s ‘centralization of capital’. This concept refers to the

accumulation of capital by increasingly lesser market players which, in turn, form

massive monopolies and oligopolies through the destitutions of other smaller

capitalists and by making leverage on economies of scale and competition (Patnaik,

2015). A modern example of this can be seen through commercial acquisitions by

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large multinationals and the subsequent disappearance of small local businesses.

This process alone is responsible for a significant increase in inequality. Further

inequality is also present in the distribution of income through the ‘wage system’. In

this system labour power is treated as a commodity, on the same par of machinery

and stocks of goods (Harriss-White, 2006).

Peet (1975), using a Marxist approach, asserts that the wage system is responsible

for two forms of major inequality manifesting at an ‘intra-class’ and ‘inter-class’ level.

The phenomenon of intra-class inequality, at a later stage described as dual labour

market, is part of what nowadays is recognised as segmentation of labour and

occurs through the development of different types of skills and training required to

fulfil various forms of labour. The effort employed by labour power (workers) to

acquire skills and training is consequently incorporated (and rewarded) through the

wage system. This process creates several subclasses within the proletarian sector

organised in a hierarchical order based on specialised skills and in some cases

location, such as for those living in metropolitan centres or peripheries (Patnaik,

2015).

At the top of this hierarchy there lie a subclass of producers that receive higher

wages, greater benefits and possess more robust skills and education. Inversely, at

the bottom, we find those workers receiving subsistence-level wages whom must

accept and adapt to poorer working conditions. Members of the two systems rarely

crossover especially those in the lower classes as the costs associated to upward

mobility are far greater than their income capabilities. Furthermore the higher earning

classes will put systems in place so to restrict access to their portion of labour

market therefore increasing and perpetuating the inequality gap (Peet, 1975).

Henceforth we can surmise that inequality does not reside only in wages allocation

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but also in opportunities, moreover as put by Townsend ‘the unequal distribution of

resources confer power to control the further allocation of resources and hence is a

source of tension and conflict’ (1979, p. 82).

Inter-class inequality on the same token occurs between the large proletarian class

(in all its segments) and the capitalist class. The latter purchases labour power from

workers whom, in turn, produce a labour surplus that is in excess of the cost of

labour (wages), this ‘surplus’ once commodified and sold constitutes profit (capital).

The accumulation of capital through time increases exponentially whilst the wage

system stays the same thus augmenting interclass disparity. We can evince from this

process that inequality is a natural by-product of the capitalist system.

Capitalism to expand requires following a vector of capital accumulation and

reduction in labour costs. A number of strategies are employed in the mode of

production to support this process. A way to accomplish this is through the use of

mechanization and technology. Utilizing advanced work systems and modern

equipment labour power demand will decrease whilst its surplus value will increase.

This can also be achieved by intensifying labour or the capital per unit of labour

which implies the use of less workers and more hours of work (Collins, 1984). This

increase in value surplus is then re-invested causing further capital accrual and

further economic disparity between classes. This is also described by Schumpeter

as ‘creative destruction’ in which innovation in economies results in displacement

and unemployment (1950).

The function of social inequality is at length explored by the American sociologist

Herbert Gans (1972) who sees it as a stimulant for salary earners to apply a much

greater effort. Especially in high materialistic societies, like the USA, new

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consumeristic trends are distributed through effective media strategies, by the upper

classes to the lower societal strata. This process of ‘commodity idolatry’ within a

given society, will motivate the lowest percentile of income earners to work harder

and engage in the least dignifying jobs so to keep up with the pacesetters of the

classes above. Commodity therefore becomes a mystical target that, once acquired,

increases the perception of an individual’s status mobility and serves the function of

reducing the sense of inequality and class alienation (Peet, 1975).

Both the destruction of small rural and artisan economies and the use of

accumulation methods described insofar result in a class of redundant workers

competing with each other to sell their labour power for survival. Instances of

underemployment and unemployment rise whilst the need for skilled workers drops.

A popular term, used by Marx to address this cohort of people is the ‘industrial

reserve army of labour’. This group of people is essential to capitalism as it

represents a typology of labour power that can be quickly accessed in case of

economic booms and equally rapidly discarded during stagnant economic periods

(Peet, 1975; Collins, 1984; Watson, 2002; Cammack, 2009; Levrero, 2013; Patnaik,

2015). Marx divides this reserve army in 4 different segments: the floating, latent,

stagnant and pauperised based on skill, work frequency and employment access.

The floating army consists of a labour force that, although specialised, is moved out

of work during negative economic cycles. The latent army instead is comprised of

those that due to economic changes are on the verge of joining the rank of

proletariat like women at home, former agricultural workers, youth, etc. For the

stagnant the term applies to those individuals the due to modernisation, changes in

work systems and technology have a limited possibility to sell their labour. The last

category is filled by those people that are pauperised, who, for a number of reasons,

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cannot maintain steady work such as the sick, the disable, prisoners, alcoholics etc.

(Watson, 2002).

The functions of the reserve army of labour are multiple. In capitalist economies a

large size army will see wages hardly increasing beyond the mere subsistence level

given the large supply of people work-ready and willing. Labour productivity, due to

employment scarcity, will increase thus translating into a reduction in share of wages

and less employment. A lower share of wages consequently will signify a higher

profit for capitalists (Patnaik, 2105). Another intrinsic, as well as, important function

of the reserve army is to discipline workers by competing for jobs with the ‘active’

working force, especially those in low-wage, low skills categories and therefore

discouraging the latter from seeking higher wages and better conditions (Kennedy,

2005). This process of intra-class competition ensures that the capitalists’ surplus

value is not affected by production costs but in fact keeps expanding.

The relatively recent phenomenon of economic globalisation has resulted in a ‘semi-

infinite’ bonanza of reserve armies accessible on a transcontinental scale, this can

be observed in the case of a large number of Western multinationals shifting their

manufacturing, IT and call centres to East and South East Asian countries benefiting

from lower wages and less regulated working conditions. Although some of these

countries, during certain economic cycles, do register a spike in national product, the

level of wages for labour still remains low as any claim for higher salaries could

motivate foreign investors to move elsewhere (Patnaik, 2015). Intuitively, we can

surmise that this globalised access to the reserve armies of foreign markets not only

can increase the overall profit of capitalists at the other side of the world but also put

downward pressure on the wage system of most advanced countries whereby the

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local labour force lives under constant threat of losing income to Third World fellow

workers. And the conflict continues, poverty increases and so does inequality.

Australia, like many other countries, has not been immune to an increase in wage

inequality, although its constitutional provision for a minimum wage has kept this

phenomenon in check (Collins, 1984). Notwithstanding, through the introduction of

workfare policies such as those advocating for ‘mutual obligations’ of the 90’s and

early 2000’s, Australians long-term unemployed have been forced to join the

stagnant and pauper sectors by allowing them to access welfare benefits if engaged

in low-paid, part-time and casual employment (Watson, 2002). Through the negative

social labelling and moral pressure of the Howard government Australian capitalist

concerns have seen the size of their reserve army ballooning under the disguise of

encouraging people to become job ready and taking part in community contribution

(p.96).

The overall adoption of capitalism around the world especially in its strongest form,

‘Neoliberalism’, has infallibly resulted in significant examples of class division,

increased poverty and economic disparity (Nuruzzaman, 2004; Cammack, 2009;

Luna, 2016). It begs the question why international bodies such as the United

Nations, the Commission for Africa and World Bank have attempted to fight poverty

at a global level and continue to do so by utilising methodologies of business

expansion and market development and therefore strongly relying on capitalist

practices (Harris-White, 2006; Cammack, 2009) whence the latter seems to

invariably increase the poorest slice of population whilst increasing affluence for

those already affluent.

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As amply demonstrated in this paper poverty and inequality constitute essential

elements of capitalism. Social and economic disparity among classes serves as

propulsion for capitalist economies and helps creating an army of labour, locally and

internationally, that guarantees a boundless disposal of low-wage workers ready to

accept whatsoever the market dictates to ensure mere subsistence. Global

institutions and governments alike are either powerless in their quests to eliminate

poverty or are silent accomplices of the capitalist machinery and its indiscriminate,

unilateral accumulation of wealth. If inequality and poverty are to be eclipsed,

classes need unification rather than separation and a new economic consciousness

must ascend, for capitalism is not the touted solutions to the world’s economic

wounds but rather an enemy disguised as friend.

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