The Root Cause of Hunger and Poverty

Hunger is everywhere in the world, not only in the poorest countries where the poorest people live but also up to the wealthiest nations where the world’s richest people resides. There might be many causes of hunger, but undoubtedly there is only one principal cause, and that is poverty. People are hungry because they cannot afford to buy foods even though there are plenty of these around.

Different people gave different opinions regarding the causes of poverty, but not all of these are real, some are only myths. If we trace in history the root cause of poverty, we will surely find out that poverty started when the system of society base on exploitation and oppression of human to human began. And from that, we will find out that the number one root cause of today’s worldwide poverty is the world capitalist system in its highest stage, imperialism.

Ten years after the 1996 Rome World Food Summit (WFS), the number of undernourished people in the world remains stubbornly high, said the 2006 report of the Food and Agriculture Organization (FAO) of the United Nations. In 2001–03, FAO estimates there were still 854 million undernourished people worldwide: 9 million in the industrialized countries, 25 million in the transition countries, and 820 million in the developing countries. Of the latter’s 820 million people: 212 million live in India; 206.2 million live in Sub-Saharan Africa; 524 million live in Asia and the Pacific; 52.4 million live in Latin America and the Caribbean; and 37.6 million live in the Near East and North Africa.

In the developing countries, out of 5.1 billion people (approx.) or 3/4 of world population: 1 billion people live on less than $1/day; 146 million children under age 5 are underweight; 10.1 million children under age 5 die every year, over half of hunger-related causes; 1 in 6 people is hungry; 1 in 6 people lacks safe drinking water.

In the United States, the U.S. Department of Agriculture (USDA) reported that in 2006:

• 35.5 million people lived in households considered to be food insecure.
• Of these 35.5 million, 22.9 million are adults (10.4 percent of all adults) and 12.6 million are children (17.2 percent of all children).
• The number of people in the worst-off households increased to 11.1 from 10.8 in 2005. This increase in the number of people in the worst-off category is consistent with other studies and the Census Bureau poverty data, which show worsening conditions for the poorest Americans.
• Black (21.8 percent) and Hispanic (19.5 percent) households experienced food insecurity at far higher rates than the national average.
• The ten states with the highest food insecurity rates in 2006 were Mississippi, New Mexico, Texas, South Carolina, Oklahoma, Utah, Louisiana, Arkansas, Kentucky, and Arizona.

Nearly half of those lining up outside soup kitchens in the United States (U.S.) have one or more family members employed, but most of them are simply too poor to buy food. They are the people who scavenge in dumpsters outside restaurants. They’re the schoolchildren who cannot pay attention in class because they did not have dinner or breakfast.

According to the United Nations (UN) the number of chronically hungry people worldwide is growing by an average of four million per year at current trends, and about 25,000 people die every day of hunger or hunger-related causes.

In the Philippines

In October 2007, the Social Weather Stations (SWS) reported that about 3.8 million Filipino families experienced involuntary hunger without having anything to eat, at least once in the three months previous to the latest SWS survey of Sept. 2-5, 2007, hitting a new record-high of 21.5 percent.

This was a “dramatic” reversal of gains in June where hunger fell to 14.7% from 19% in February 2007 and November 2006. The 21.5% was almost 10 points above the 11.8% average for the 38 hunger surveys SWS had conducted quarterly starting mid-1998. This was despite government’s implementation of anti-hunger programs like the food-for-school program and the Gulayan ng Bayan to encourage backyard farming.

This May 2008, a new SWS survey was released showing that fewer Filipino families, around 2.8 million of them, experienced involuntary hunger in the last three months but a majority are dissatisfied with the way the Arroyo administration is addressing the problem.

The national percentage of families who experienced involuntary hunger eased to 15.7% from 16.2% in December, the survey, made exclusive to BusinessWorld, showed.

The latest result, however, was still four points above the 12% average for 40 quarterly SWS surveys from mid-1998 to the present, the independent research institution said.

Food shortage

In this era of highly developed science and technology, it is not logical to think that food shortage will be the cause of hunger anywhere in the world. As a matter of fact, FAO studies confirmed that food shortage is not and will never be the cause of hunger in the world, at least up until 2030.

According to 2000 technical interim report from FAO, the long-term food security outlook for developing countries is good. While the world population is expected to reach eight billion by 2030, growth in global agriculture should be more than sufficient to meet world demand.

The FAO report is relatively optimistic that, at the world level, there will be sufficient agricultural production to meet increases in demand over the next thirty years. By 2030, for example, crop production in developing countries is projected to be 70 percent higher than in the 1990s. Still, this increase in production will be far lower than the increases seen during the “green revolution” begun in the 1960s.

The report indicates that while the predictions in the rate of annual growth in global crop production is expected to decrease over the next 30 years relative to those advances seen in the previous 30, it will still exceed the demand for increased agricultural production. With lower population growth and the gradual attainment of medium to high food consumption levels in most countries, crop productivity will continue to outpace the overall growth rate in the demand for food. The report acknowledges the persistent contradiction between having sufficient food production at the world level and food shortcomings in developing countries, and recognizes the need for increasing productivity in developing countries.

It is important to note that FAO’s prediction of an abundant world food supply is based solely on the availability of present day technical knowledge. The potential agricultural benefits of genetic engineering were intentionally not considered. Genetically engineered crops, livestock, and fish were omitted by FAO due to ambiguities over the long-term promise, safety and consumer acceptance of this technology.

Again in 2002, FAO reports that the world produces enough food to feed everyone. World agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase. This is enough to provide everyone in the world with at least 2,720 kilocalories (kcal) per person per day (FAO 2002, p.9).

Yes, there is food abundance not scarcity in the whole world. But why are so many people still getting hungry? The problem is that the world’s food supply is not evenly distributed. Those who have much accumulate more, while those who have little edge toward starvation.

Actually many “hungry countries” have more than enough foods but for export, not for domestic consumption. Many of them are net exporters of food and other agricultural products. In 1997, for example, the American Association for the Advancement of Science found that, in the developing world, 78 percent of all malnourished children aged below five live in countries with food surpluses.

In one interview, Anuradha Mittal relates the following story:

“In other developing countries … around three-quarters of the countries that report child malnutrition are exporting food. Remember the much-publicized famine in Ethiopia during the 1980s? Many of us don’t realize that, during that famine, Ethiopia was exporting green beans to Europe.

“In 1999, a UN Population Fund report predicted that India would soon become one of the world’s largest recipients of food aid. The report went on to blame the increasing population for the problem. What it did not mention is that the state of Punjab, also known as “the granary of India,” grows abundant food even today, but most of it is being converted into dog and cat food for Europe. Nor did the report mention that the neighboring state of Haryana, also traditionally a fertile agricultural state, is today one of the world leaders in growing tulips for export. Increasingly, countries like India are polluting their air, earth, and water to grow products for the Western market instead of growing food to feed their own people. Prime agricultural lands are being poisoned to meet the needs of the consumers in the West, and the money the consumers spend does not reach the majority of the working poor in the Third World.

“Of the 830 million hungry people worldwide, one third of them live in India. Yet in 1999, the Indian government had 10 million tons of surplus food grains: rice, wheat, and so on. In the year 2000, that surplus increased to almost 60 million tons — most of it left in the granaries to rot. Instead of giving the surplus food to the hungry, the Indian government was hoping to export the grain to make money. It also stopped buying grain from its own farmers, leaving them destitute. The farmers, who had gone into debt to purchase expensive chemical fertilizers and pesticides on the advice of the government, were now forced to burn their crops in their fields.

“At the same time, the government of India was buying grain from Cargill and other American corporations, because the aid India receives from the World Bank stipulates that the government must do so. This means that today India is the largest importer of the same grain it exports. It doesn’t make sense — economic or otherwise.

“This situation is not unique to India. In 1985, Indonesia received the gold medal from the UN Food and Agriculture Organization for achieving food self-sufficiency. Yet by 1998, it had become the largest recipient of food aid in the world. I participated in a fact-finding mission to investigate Indonesia’s reversal of fortune. Had the rains stopped? Were there no more crops in Indonesia? No, the cause of the food insecurity in Indonesia was the Asian financial crisis. Banks and industries were closing down. In the capital of Jakarta alone, fifteen thousand people lost their jobs in just one day. Then, as I traveled to rural areas, I saw rice plants dancing in field after field, and I saw casava and all kinds of fruits. There was no shortage of food, but the people were too poor to buy it. So what did the U.S. and other countries, like Australia, do? Smelling an opportunity to unload their own surplus wheat in the name of “food aid,” they gave loans to Indonesia upon the condition that it will buy wheat from them. And Indonesians don’t even eat wheat.”

The Rice Crisis

But how about this 2008 rice crisis, is it real or artificial?

Today’s world rice crisis is real. While FAO assures that there will be no food shortage at least up to 2030, it seems the studies discussed above fail to consider the abrupt reduction of areas use in food production as possible factor of food shortage. One big factor in today’s rise crisis is the switch from food to biofuel production in large areas of the world, in particular to fulfill the US energy demands. Also related to this is the continuing loss of agricultural land to residential and industrial development,[][]

Other factors cited for the rice crisis includes global population growth, rising world oil prices at nearly $100 a barrel, rising fertilizer expenses, climate change, and growing consumer demand in China and India.  But most if not all of these factors were already considered in FAO studies.

The international rice crisis was triggered by a global rice shortage. With rice stocks at their lowest for 30 years, prices of the grain rose more than 10 per cent on April 2008 to record highs and are expected to soar further up to 40 per cent in the coming months. Already China, India, Egypt, Vietnam and Cambodia have imposed tariffs or export bans, as it has become clear that world production of rice this year will decline in real terms by 3.5 per cent. Most countries are threatening serious punishment for hoarders. Food riots have recently taken place in many countries across the world like Egypt, Uzbekistan and Ivory Coast. In February, riots over food price increases in Cameroon left 40 people dead.[][][]

The increase in rice prices has matched sharp inflation in other key food products. But with rice relied on by more than half the world’s population, the impact of a prolonged rice crisis for the world’s poor – a large part of whose available income is spent on food – threatens to be devastating.

The consequences are visible across the globe. In Bangladesh, government-run outlets that sell subsidized rice have been besieged by queues comprised largely of the country’s middle classes, who will queue for hours to purchase five kilograms of rice sold at 30 per cent cheaper than on the open market.

In Thailand this April 5, 2008 – where the price for lower-quality rice alone has risen by between $70 and $100 per ton in the past week alone – Deputy Prime Minister Mingkwan Sangsuwan convened a meeting of key officials and traders to discuss imposing minimum export prices to control export volumes and measures to punish hoarders. The meeting follows moves by some larger supermarkets in Thailand to limit purchases of rice by customers.

The shortage has afflicted India, too: on March 31, the government banned the export of non-basmati rice and also raised the price of basmati rice that can be exported.

And although China has said it is secure in its supplies of rice, the fact that the government has offered to pay farmers more to produce more rice and wheat suggests otherwise. A continuing change in the global diet is also putting a further squeeze on rice. In China, for example, 100 million rural migrants to the country’s big cities have switched from a staple of wheat to rice as they have become wealthier.

Fears over the potential impact of the rice crisis has been heightened by estimates by both FAO – which has predicted the 3.5 per cent shortfall – and comments from the World Bank president, Robert Zoellick, on the organization’s website, estimating that “33 countries around the world face potential social unrest because of the acute hike in food and energy prices.”

In the Philippines, the National Bureau of Investigation has been called in to raid traders suspected of hoarding rice to push up the prices. Meanwhile, activists have warned of the risk of food riots.

Fear is so deep that the country’s agriculture secretary, Arthur Yap, this month (April 2008) asked fast-food restaurants including McDonald’s and KFC – which generally supply a cup of rice with their meals in Asian branches – to halve the amount of rice supplied, so that none would be wasted. In addition, traders who try to stockpile rice have been warned that they face a charge of ‘economic sabotage’, which in the Philippines carries a life sentence.

Rice is the most important food commodity in the Philippines; a shortage would mean hundreds of thousands, if not millions of Filipinos going hungry.

The Philippines consumes about 11.9 million metric tons (13.12 million U.S. tons) of rice annually, most of which is grown domestically. But dwindling domestic production and corruption in the rice supply chain have created a recurrent shortfall of about 10 percent. The government has to purchase about 2 million metric tons (2.20 million U.S. tons) from the international market every year, making the Philippines the world’s biggest rice importer.

Now, while President Gloria Macapagal-Arroyo (PGMA) assures the Filipino people that there will be no rice shortage in the country, rice prices have started to inch up already in the local market. From the lowest P25 per kilogram a month ago, it went up to P35 – P45 per kilogram this April 2008.

While PGMA  assures the people that there will be no rice shortage, the government is now facing the problem of distribution of the remaining stocks. Huge queues form wherever government stocks are being sold at subsidized prices of P18.50 per kilogram. The Department of Agriculture (DA) has tapped the Catholic Church in the distribution of government-subsidized rice, assuring it a weekly allocation of at least 50,000 sacks for the poor in various parishes in Metro Manila.

“There’s no shortage,” insist Agriculture Secretary Arthur Yap. ‘The problem is not with supplies, but with price.” PGMA has assured that the country would weather the rice crisis, telling the people not to panic over the lack of supply of the staple. At least 500,000 metric tons (MT), 70 percent of which are from Vietnam and 30 percent from Thailand, have arrived. And the government assures that in April, May and June, 700,000 MT more are arriving from Vietnam and Thailand and 30,000 MT from Pakistan.

But as pointed out earlier, there is a world rice crisis today caused by factors already stated above. Specifically in the Philippines, the main cause of the crisis is the backward and feudal state of agriculture in the country and is worsened by neo-liberal policies of the Macapagal-Arroyo regime and trade liberalization that has drastically cut rice lands through land-use conversions and crop conversions. Now this was further aggravated by the rice cartel by their control of the rice industry and their hoarding practices today.

Rafael “Ka Paeng” Mariano, chairman of Kilusang Magbubukid ng Pilipinas (KMP), said: “It is crystal clear that there is an actual crisis that is why Malacañang is trying to increase our rice stock through importation. The rice cartel or the Binondo 7 knows this and that is the reason why they are hoarding and increasing their prices. Now, importing more rice from other countries will only make matters worse because there is no more rice supply in the world market available for export and second a food security program based on imports is not food security at all. It will only make us more dependent on other countries and hold our food security hostage to other interests. What we need now are immediate rice price controls and at least a 25 percent increase in the local procurement of rice of the National Food Authority (NFA), so that the cartel cannot get their hands on the April-June harvest.”

PGMA has vowed to crack down on rice hoarders, people who buy rice at a subsidized price from the NFA and sell it at a higher price in markets. “Though no charges have yet been filed, Yap was staking out warehouses and following trucks to see where the rice was going,” the President said.

But KMP is accusing the government officials as the main culprit and they asked Congress to investigate Agriculture Secretary Arthur Yap for the reported hoarding of the government-subsidized rice by some unscrupulous rice traders.

“It’s Secretary Yap who assigns the rice quotas in regions, so he himself should be held accountable why so much rice is being diverted. This has been occurring even when he was still NFA administrator,” KMP said. “These are known at the top of the NFA and DA, at least. As we found out, this practice of diverting NFA rice to commercial sales has been happening for a long time and has already been exposed by the NFA Employees Association,” KMP added.

The real cause of hunger is poverty

Poverty is the condition of having insufficient resources or income. In its most extreme form, poverty is a lack or deprivation of basic human needs, such as adequate and nutritious food, clothing, housing, clean water, and health services, and also “intangibles” such as the opportunity to learn and to enjoy the respect of fellow citizens.

Extreme poverty can cause terrible suffering and death, and even modest levels of poverty can prevent people from realizing many of their desires. Relative poverty is the condition of having fewer resources or less income than others within a society or country, or compared to worldwide averages. In developed countries, relative poverty often is measured as having a family income less than one-half of the median income for that country.

A common method used to measure poverty is based on incomes or consumption levels. A person is considered poor if his or her consumption or income level falls below some minimum level necessary to meet basic needs. This minimum level is usually called the “poverty line”. What is necessary to satisfy basic needs varies across time and societies. Therefore, poverty lines vary in time and place, and each country uses lines which are appropriate to its level of development, societal norms and values.

Information on consumption and income is obtained through sample surveys, with which households are asked to answer detailed questions on their spending habits and sources of income. Such surveys are conducted more or less regularly in most countries. These sample survey data collection methods are increasingly being complemented by participatory methods, where people are asked what their basic needs are and what poverty means for them. Interestingly, new research shows a high degree of concordance between poverty lines based on objective and subjective assessments of needs.

When estimating poverty worldwide, the same reference poverty line has to be used, and expressed in a common unit across countries. Therefore, for the purpose of global aggregation and comparison, the World Bank uses reference lines set at $1 and $2 per day (more precisely $1.08 and $2.15 in 1993 Purchasing Power Parity terms). It has been estimated that in 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day. These figures are lower than earlier estimates, indicating that some progress has taken place, but they still remain too high in terms of human suffering, and much more remains to be done.

Poverty Statistics •  Half the world — nearly three billion people — live on less than two dollars a day. • The GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world’s 7 richest people combined. • Nearly a billion people entered the 21st century unable to read a book or sign their names. • Less than one per cent of what the world spent every year on weapons was needed to put every child into school by the year 2000 and yet it didn’t happen. • 1 billion children live in poverty (1 in 2 children in the world). 640 million live without adequate shelter, 400 million have no access to safe water, 270 million have no access to health services. 10.6 million died in 2003 before they reached the age of 5 (or roughly 29,000 children per day).

The world’s poorest people—many of whom live in developing areas of Africa, Asia, Latin America, and Eastern Europe—are struggling daily for food, shelter, and other necessities. They often suffer from severe malnutrition, epidemic disease outbreaks, famine, and war. In wealthier countries—such as the United States, Canada, Japan, and those in Western Europe—the effects of poverty may include poor nutrition, mental illness, drug dependence, crime, and high rates of disease.

In the Philippines, according to assessments from the World Bank (WB), 10.8 percent of the total 87 million population of the country survive or manage to survive on $1 (P48) per day and 41.2 percent make do with less than $2 (P96) per day.

But while UN agencies use indicators that can compare performance across countries, such as population below an international poverty line of $1 per day as pointed earlier, in the Philippines, there was an attempt to make use of commonly available indicators. In measuring extreme poverty, instead of the $1 per day benchmark, the Government decided to use the national poverty threshold. These differences must be noted if Philippine progress is to be compared to other countries using different indicators.

Based on the said national poverty threshold, the magnitude of poverty in the Philippines increased from 23.8 million in 2003 to 27.6 million (or 32.9% of the population) in 2006, according to the official figures by the National Statistical Coordination Board (NSCB).  This was a reversal of the trend experienced in 2003, when the poverty incidence fell to 30% from 33% in 2000. It should be noted that there were actually more Filipinos in 2006 than in 2000 (when some 25.5 million Filipinos were poor).

This increase in poverty incidence occurred despite the much publicized high economic growth by the Macapagal-Arroyo administration. One reason is that the official poverty figures may actually be understated because of the low poverty threshold the NSCB uses to estimate the extent of poverty. For 2006, the NSCB pegged the per capita poverty threshold at P15,057 per year or P1,254.75 per month (more or less P41/day). For a family of five, this is equivalent to P75,285 per year or P6,274 per month. This is way below the $1 (P48) a day set by the World Bank.

According to independent think-tank Ibon Foundation, the use of the term minimum basic needs (see footnotes 15) highlights the limitations of the government’s definition of poverty. The government considers only minimum survival standards to measure poverty, thus capturing only those who are desperately poor and cannot meet even their most basic needs. But those individuals and families who fail to meet decent living standards should also be considered poor. For example, families with one or two minimum wage earners whose incomes fail to meet their needs are also poor, even if their income is above government’s poverty line.

In fact, the government’s own National Wages and Productivity Commission (NWPC) accepts this reasoning. Thus, the NWPC releases regular estimates of family living wages; such figures measure what is needed for a decent standard of living plus a 10% allowance of total expenses for savings or investments.

As of 2005 (to ensure compatibility with the 2006 poverty threshold since the next estimate was as of December 2006), a family of five needs a monthly P16,218 for decent living, or 258% of the P6,274 per month that the NSCB claims that a Filipino family needs to stay out of poverty in 2006. If only the NWPC’s food and non-food expenses estimates are considered, then the poverty incidence is 42.5% of NWPC’s estimates.

Thus, it is clear that the actual extent of poverty in the country is grossly understated. In IBON’s January 2008 nationwide survey, 7 out of 10 Filipinos rated themselves as poor.

The increased poverty incidence also raises the question of why the number of poor increased even as government figures showed increasing economic growth. The NSCB attributed the higher poverty incidence to the insufficient rise in personal incomes coupled with higher prices, thus making it difficult for poor Filipinos to meet their basic needs. NSCB also admitted that the implementation of the reformed value-added tax (RVAT) increased prices.

But what economic planners failed to point out was that government itself is responsible for low wages prevailing in the country. Government actually uses the poverty threshold as the basis for setting the minimum wage — thus, a low poverty line justifies low subsistence-level wages as part of government’s foreign income-driven development strategy. Despite this, the NSCB still said that a worker in the National Capital Region earning the minimum daily wage of P362 (or P9,412 a month) can support a family of five based on a monthly poverty threshold of P8,569.

Also contributing to the rise in poverty figures was record-high unemployment rates. From 2001 to 2006 the country suffered from an average of 11.3% unemployment and 18.5% underemployment, the worst such six-year period recorded in the country’s history.

If jobs were created during the period, these were mostly poor quality, low-paying jobs. According to the NSO Labor Force Survey, from 2001 to 2006 the most number of jobs created were in agriculture, wholesale and retail trade, and private households with employed persons. These were among the lowest paying and most insecure jobs in the country.

Thus, majority of Filipinos did not enjoy the benefits of growth. And what growth there was did not result in an improvement in income inequality. According to the 2006 Family Income and Expenditures Survey (FIES), which is used to compute poverty, the richest 20% of families (accounting for some 3.5 million families) account for 52.8% of total family income.

It should not really be surprising that the numbers of poor Filipinos increased. Agriculture and manufacturing, which should experience growth in order to generate jobs and contribute to overall national development, continue to experience moribund growth. In fact, the number of new manufacturing jobs from 2001 to 2006 was just 153,000 and the sector even lost 18,000 jobs in 2006. Sectors driven by speculation and with uncertain contributions to real development, on the other hand, were the ones that drove the increased GDP growth.

Root cause of Poverty

Some people believe that poverty results from a lack of adequate resources — resources such as land, food, and building materials — that are necessary for the well-being or survival of the people. Others see poverty as an effect of the uneven distribution of resources around the world on an international or even regional scale. This second line of reasoning helps explain why many people have much more than they need to live in comfort, while many others do not have enough resources to live.  Other cited causes of poverty include low income that resulted in the inability to meet standards of living and costs of living, inadequate education and employment opportunities, globalization, overpopulation, environmental degradation, and many more.

Poverty has been a concern in societies since before the beginning of recorded history. If we trace the roots of poverty thru history we will find out that poverty begins when some people started to exploit and oppress other people.

In the early stage of human society, the people don’t produce their needs. They just gather the fruits of nature which can be found everywhere. They don’t keep food for reserves. They stay in one place until they consume all the foods there. After that, they will look again for foods in some other places. They are nomadic. If one group of people failed to find foods, all of them in that group will die in hunger.

Then comes a time when some groups of people learned and developed how to culture edible plants and animals. This knowledge of agriculture brings big changes in the way of life of primitive people. They ceased to be nomadic and settled permanently in definite territories which they began to claim as their property.

When people developed agriculture, they began to produce surplus products which they kept as reserves. This is what we call social surpluses. In having social surpluses, they had prevented hunger within their group, and also gave them free time from economic production. More social surpluses mean more free time. Free time gave them the opportunity to develop more their economy as well as create and develop other aspects of life especially politics and culture. In this way human society develops.

But the developments of different groups of people were uneven. While there were some groups who discovered and developed new ways of living, more groups of people stayed in old nomadic way of life. They knew nothing about territorial property ownership. What they knew is that all fruits of nature in any place belong to everyone. Whoever found it can take it. They still cannot comprehend and cannot recognized territories with permanent settlers doing agriculture as livelihood. As a consequence, trouble arose that resulted into fighting whenever nomadic people came across territory of a permanent settlers and start gathering foods there.

In the early fighting, each of the contending groups just killed their enemies. But there comes a time when some groups, especially the agriculturists, began capturing their enemies and use them as slaves to work for their economic production. At first, the permanent settlers developed their armed groups just to defend their territories and livelihood. But as they realized the value of slaves in their economy, they began to develop their armed groups for defense into an army of conquerors to capture more slaves by conquering not only nomadic people but also other permanent settlers as well.

As the history of the development of human society unfolds, small fighting grew bigger and bigger into battles and wars. Battles and wars primarily to gather loots and slaves with corresponding expansion of the controlled territories and level of rules for the victors: from tribe to kingdom; and from kingdom to empire. From this arise a series of human society based on the exploitation of human to human — richness and poverty began. Whereas the earlier society is called the primitive communal society, these next societies based on exploitation of human to human are called: the slave society, the feudal society and the capitalist society.

Conquering territories and then later colonizing to gather loots continues all throughout history from slave society to capitalist society, and this is the primary reason why there are rich and poor countries in the world. This is a kind of what they call primitive accumulation of capital in which the capital use by the highly industrialized nations today originated.  The wealth of the rich nations came no other than the poor nations. The rich nations become rich because, as they conquer, they plunder, grab, stole the wealth of the poor nations. The poor nations become poor because they were the victims of plundering, grabbing, and stealing. And that was the origin of worldwide poverty.

1.  Slave society

To continue our story on the development of human society: conquering to gather loots and slaves in the early stage of society means wiping out the whole conquered tribe or community. Adults were hard to train as slaves as well as heavy burden as prisoners, so they have to be killed. Usually, the children and women (virgins) were the best captures to become slaves. The children are the easiest to train as slaves and the women to be the slave wives of the conquerors.

As time goes on, when the slave children became parents, and their offspring became parents too and bear new generation of slaves, the history of their original free tribal communities which were wiped out were forgotten. What this new generation of slaves knew was that all their ancestors were slaves. From this came the belief that being slaves with corresponding masters are natural and is set by destiny.

Slave Society is the first society where the fundamental class conflict is based on the division of people into masters and slaves, with slaves being the dominant producing class. The masters owned the slaves and treated them just like any other ordinary properties rather than people.

While the slaves have no rights at all, the masters have the obligations to provide them the necessities for subsistence, or else they cannot use them in production. Of course these necessities for subsistence came from no other than the products or wealth produced by the slaves themselves. What the masters took for themselves are the social surpluses of which their wealth came from. But the masters can stop providing the necessities for subsistence to their slaves whenever they please, as a punishment for disobedient for example or even just for caprice. And in times of incapacity or old age were the slaves can no longer do their job in production, the masters can leave them to death just like useless rags thrown out of garbage.

So in slave society, the existence of rich people (the masters) hand in hand with the poor people (the slaves) began. They live together symbiotically. But in the final analysis, without poor people (the slaves), rich people (the masters) cannot exist. On the other hand poor people (the slaves) can live freely without having any master.

2. Feudal Society

In feudal society, it is not the human beings (serfs or peasants) who are owned by the exploiter (the landlords) but the lands as the principal means of production. The serfs or peasants, who were the primary forces of production is relatively free compare to the slaves. But the serfs or peasants (specifically in Europe) were forcibly tied to the land.  When the land is sold to other landlords, for example, the peasant must be included. The serfs cannot abandon the land they were tilling. If they do, they will be chased and captured as criminals and will be forced back to till the land or face the penalty of death.

Not like in slave societies where the slave owners have direct hand in economic production, the landlords have nothing to do with the production and leave them all to the peasants.  What the landlords were only up to was their share in production. They are almost parasites. And not like in the slave society where almost all the necessities of life came from their masters, the landlords have no obligation to give the necessities for subsistence to their serfs or peasant. The latter should produce all their needs as “free people”.

Because the landlords are the nominal owners of the lands or they claim to be the owners of the lands, by force (militarily) they oblige the peasants to give them share of their produce. The part that goes to the landlords are the social surpluses and what remains to the peasants are their needs for subsistence. In some part of Europe during the early stage of feudalism, the serfs or peasants cultivate the lands of which all the products produced goes to the landlords. The serfs or peasants were just given a small parcel of lands where they can produce their needs. But they can cultivate these lands only after they finished working in landlord lands. So the social surpluses which go to the landlords have to be secured first before the production of the producers needs for subsistence.

The feudal system resulted in poverty on the part of the serfs or peasants on the one hand, and richness on the part of the landlords on the other hand. While the produced that goes to the former were barely enough for their needs most of the time, the latter accumulate wealth out of the products they have continuously collected without a sweat.

3. Capitalist Society

Capitalism is the socio-economic system where social relations are based on commodities for exchange, in particular private ownership of the means of production and on the exploitation of wage labour.

In the micro level, here’s how capitalism operates. The capitalist or the bourgeoisie owns the means of production (the capital) which includes money, machineries, land, buildings, etc., depending on what commodity the capitalist are producing or want to produce.  The means of productions alone cannot produce a single commodity without the labour power. It is the labour power that gives life to the means of production in order for this to become productive. So the bourgeoisie needs labour powers to operate a business and make profits.

The labour power is owned by a worker or proletariat. The working class or the proletariats was principally created out of the peasants who lost or ejected to the land they were tilling. They become property-less, that’s why they are called proletariat. The only property a proletariat possesses which he/she can use for making a living is his/her labour power. The condition in the capitalist society is that the bourgeois class has the monopoly of the ownership of the means of production. In order to live, an individual proletariat has no option but to sell his/her labour power to the bourgeoisie.

The sold labour power became wage labour as the proletariat became wage labourer. Wage labour is use by the bourgeoisie to increase the value of their property (capital). In pre-capitalist societies, the labour of the producers was rendered to the ruling class by traditional obligations or sheer force, rather than as a “free” act of purchase and sale as in capitalist society.

Value is increased through the appropriation of surplus value from wage labour. As have been pointed out earlier, in earlier societies the producers produce beyond necessary level of subsistence, and this is what we call social surplus, i.e. people produce more than they need for immediate reproduction. In capitalism, surplus value is appropriated by the capitalist class by extending the working day beyond necessary labour time. That extra labour is used by the capitalist for profit; used in whatever ways they choose.

As what have been said, the main classes under capitalism are the proletariat (the sellers of labour power) and the bourgeoisie (the buyers of labour power). The value of every product is divided between wages and profit, and there is an irreconcilable class struggle over the division of this product.

In the macro level, capitalism develops through various stages. Since capital is both a pre-condition and outcome of capitalism, a period of primitive accumulation marks the beginning of capitalism; this may involve outright theft and plunder (as pointed out earlier), and in particular the creation of a class of people who no longer own any means of production – a proletariat.

By freeing the labour process from traditional forms and expanding labour cooperation through world trade, capitalism initiates a rapid transformation in the labour process and promotes the development of science and technology. Meanwhile, religion and kinship ties are continuously undermined.

“Imperialism is the root cause of today’s worldwide poverty”

Capital is built up in a few countries at the expense of other countries which are used as sources of cheap labour and raw materials and dumpsites of overflowing surplus products.

The competition between millions of small-scale producers which was characteristic of the early days of capitalism leads to the concentration of capital in the hands of just a few, as a more efficient means of production. At a certain point (the beginning of the 20th-century), the entire globe had been divided up between a few great powers. Thus begins the final stage in the development of capitalism, imperialism, characterised by the domination of the banks, the formation of large multi-national corporations, by war and revolution.

The epoch of imperialism opens when the expansion of colonialism has covered the globe and no new colonies can be acquired by the great powers except by taking them from each other, and the concentration of capital has grown to a point where finance capital becomes dominant over industrial capital. Lenin enumerated the following five features characteristic of the epoch of imperialism:

(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; (2) the merging of bank capital with industrial capital, and the creation on the basis of this “finance capital”, of a financial oligarchy; (3) the export of capital as distinguished from the export of commodities acquires exceptional importance; (4) the formation of international monopoly capitalist associations which share the world among themselves, and (5) the territorial division of the whole world among the biggest capitalist powers is completed. Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capital is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed. [Lenin, Imperialism the Highest Stage of Capitalism, LCW Volume 22, p. 266-7.]

“The development of capitalism has arrived at a stage when, although commodity production still “reigns” and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of the profits go to the “geniuses” of financial manipulation. At the basis of these manipulations and swindles lies socialized production; but the immense progress of mankind, which achieved this socialization, goes to benefit… the speculators.” (p. 206-207)

The surplus capital of these corporations, which arose from the exploitation of Labour, is exported to less developed countries where capital is more scarce, the price of land lower, wages lower, and raw materials cheaper; all resulting in a widening of profit margins. Capitalists need to export capital because in the most developed countries capitalism has become “overripe”, the working class consciousness too advanced for heavy exploitation (i.e. huge profit margins), and while finance capital has a breeding ground for growth, productive capital (computer and clothing factories, etc) can be much more profitable elsewhere.

Thus, the history of capitalism generally begins with free competition; i.e. petty-bourgeois production), which naturally progresses to a concentration of production (bourgeois production), which continually strive towards monopolies (socialized production). Monopolies, being so contrary to the foundations of capitalism, are the greatest contradiction of capitalism, a contradiction rampant in the imperialist stage – for every business not only strives toward, but needs to dominate markets completely, to become a monopoly, while government must do everything it can to prevent this in order to survive, realizing this social form of production ultimately destroys the capitalist system.

“[Imperialism] is something quite different from the old free competition between manufacturers, scattered and out of touch with one another, and producing for an unknown market. Concentration [of production] has reached the point at which it is possible to make an approximate estimate of all sources of raw materials (for example, the iron ore deposits)… [throughout] the whole world. Not only are such estimates made, but these sources are captured by gigantic monopolist associations [now called multi-national conglomerates]. An approximate estimate of the capacity of markets is also made, and the associations “divide” them up amongst themselves by agreement. Skilled labor is monopolized, the best engineers are engaged; the means of transport are captured – railways in America, shipping companies in Europe and America. Capitalism in its imperialist stage leads directly to the most comprehensive socialization of production; it, so to speak, drags the capitalists, against their will and consciousness, into some sort of a new social order, a transitional one from complete free competition to complete socialization.

“Production becomes social, but appropriation remains private. The social means of production remain the private property of a few. The general framework of formally recognized free competition remains, and the yoke of a few monopolists on the rest of the population becomes a hundred times heavier, more burdensome and intolerable.” (p. 205) [Vladimir Lenin; Imperialism: The Highest Stage of Capitalism]

The free market that had been envisioned by Adam Smith was shown impossible by the late 19th and early 20th century, when monopolies dominated nations causing massive Economic collapses in the 1890s, a world production crisis during World War I, and the worldwide depression in the 1930s. Thereafter national, and later international, regulation of the capitalist marketplace became necessary (SEC, International Monetary Fund, the World Bank, etc.); while the growth of militarization remains a necessity to expend excess production. For example, the United States having overspent the Soviet Union in militarization, in the last decade of the 20th century continued to create wars throughout the world – Panama, Iraq, Bosnia, etc. – unleashing double and triple the firepower in all of World War II. After the incredible expenditure of vast munitions and weapons (over $300 billion per year), the subjugated and destroyed nations are then offered contracts and infiltrated by capitalist business for the process of “rebuilding”.

Today imperialism continues to manipulate every countries of the world thru globalization by imposing liberalization, privatization and deregulation.  This is done primarily thru their instruments of globalization like the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) with General Agreement on Tariff and Trade (GATT).

•  Liberalization: giving up domestic control over essential sectors such as trade and finance, permitting foreign companies to own key enterprises such as national banks, easing controls on foreign investment and capital, reducing trade tariffs, duties, restrictions and barriers, etc. •  Privatization: increased role of the private sector in providing all types of goods and services, transfer of ownership and management of public enterprises to private companies, change in operational aspects of public/state companies with increased stress on full cost recovery, efficiency, etc. •  Deregulation: a general withdrawal of the State from providing control or oversight over economic and financial transactions, the removal of all government/public “interventions” that might affect the free functioning of the market; for e.g., removal of price controls on goods and services, dismantling of public subsidies, etc.

The Destruction of Capitalism: In capitalist society the working-class continues to grow, and ownership over the means of production continually dwindles into fewer and fewer hands. One example of this is the stock market, where the finance banks emphasize that “all workers” can own a piece of various companies. In fact, through offering “ownership” of these companies to more people, financial oligarchies are able to gain greater control over these companies by diluting the ownership amongst an unorganized group while also extracting capital from this large group for further investment. For example, a bank need only own 10 or 15 percent of a certain company to have an enormous controlling interest over that company, so long as the vast majority of stocks in that company are owned by thousands and tens of thousands of different people, people who do not have the time to attend shareholder meetings and are not united and unorganized on how to exert control over the company.

Furthermore in capitalist society, the value of labour increases while labourers continually receive a smaller portion of that value they create. The selling of labour itself is continually reduced from something that is sold on a monthly or yearly basis to something that is sold day by day, and hour by hour, piecemeal or in short term contracts. As a result, the income gap grows continually larger. For example in the United States (from 1988-1998) income for the poorest 20 percent of the population rose a meager $110 to $12,990. For the richest 20 percent it increased by $17,870 to $137,480. (Data according to the Center on Budget and Policy Priorities and the Economic Policy Institute, checked with U.S. Census data; January, 1999).

Capitalist ideology attempts to refute Marxism on the basis that the biggest class in capitalist society is the “middle-class”. This class conception however is based purely on economic wealth (two cars in the garage, an income of x amount of dollars, etc.) and not on that person’s actual relations to the means of production (See definition on class). The enormous majority of the population in a capitalist society is proletarian – however through imperialism some highly specialized proletarians (from executive officers to autoworkers, information technology workers to industrial foremen, etc.) are paid very well (not by the full value of what they actually produce, but by a higher percentage of that value when compared to unskilled workers and workers in nations subjugated to imperialist exploitation).

In order for capitalism to function correctly, the petty-bourgeois class must be in existence. This is one of the great contradictions in capitalist society, because on the one hand while capitalist production continually pushes small-business people out of the market (for example, the owner of the general store, vegetable shop, small grocery store owner – all are wiped out by corporations who establish enormous shopping centers to meet a large variety of consumer needs, with products of higher quality at a cheaper price); while on the other hand capitalism cannot survive without a class of people establishing new businesses to fill new consumer needs; and from a very select few of those businesses to recruit new bourgeois, forming large corporations (in U.S. this is referred to as the “American dream”).

The ultimate failure of capitalism is brought about by capitalist production itself – the further technology advances, the more expensive and powerful are the machines needed for production, while at the same time, as a result of technological advances, products produced by more efficient machines become cheaper and cheaper. This has the effect of firstly driving the petty-bourgeoisie into extinction (who cannot afford to constantly upgrade their productive forces, while their products continually become cheaper (the reason they are heavily subsidized by advanced capitalist governments); and further the creation of larger corporations, which in turn must not only shrink internally to maintain “efficiency”, but must also merge with other companies, forming multinational conglomerates, etc. The further this process continues, production becomes increasingly centralized, and when controlled by the capitalist, the more oppressive and backward production becomes (Microsoft at the end of the 20th century).

As the production becomes more and more concentrated and sophisticated, the accumulation of wealth and capital becomes faster and faster and the fewer and fewer victorious bourgeoisie becomes richer and richer. On the other hand, the impoverishment of the majority of people in every country the imperialists penetrated all over the world as well as people within the imperialist countries themselves becomes faster and faster and more and more intense. Today everywhere in the world we can see people without food to eat and house to live. They are like nomadic people looking for foods from garbage to garbage and rest wherever there are vacant spaces for the purpose like public parks, under bridges and overpasses, sidewalks, abandoned buildings etc. Many of them suffer insanity because of hunger. Many just die because of hunger, food poisoning, sickness, accident, and other simple causes.

Today, capitalist system in its imperialist stage, as it penetrates every country all over the world, is the root cause of poverty worldwide and in every country. If poverty has to be eradicated, imperialism must be brought to an end.

In the Philippines

The root cause of hunger and poverty in the Philippines is the neocolonial and semi-feudal system of society which is dominated by US imperialism in alliance with the local ruling exploiters, the comprador big bourgeoisie and the landlord class.

Historically, the Philippines was one of the source of Western primitive accumulation. Thru bloody conquers, it has became a colony of Spain for about 300 years, by the United States of America starting at the beginning of the 20th Century, by Japan for just about 3 years during World War II, then back to the United States until it was given a nominal independence on 1946.

But even after the giving of this nominal independence to the Philippines, the United States retain its significant control over the country’s economy thru the support of the local ruling class whose interests are identical to US imperialist interests in the country. From colony, the Philippines was transformed into a neocolony. Today’s Philippine economy is a neocolonial appendage of US imperialism and world capitalist system. It is exceedingly dependent on direct investments, loans and trade with the global centers of capitalism. It is bound by policies dictated by major capitalist countries bilaterally or through multilateral agencies like the International Monetary Fund (IMF), World Bank (WB) and the World Trade Organization (WTO).

This neocolonial set-up has stunted our country’s economic growth and made it subservient to the economic interests of US imperialist and its allies. It has tied our country to their needs, making the country a rich source of cheap raw materials, cheap labor and dumping ground for their surplus products.

Despite its external linkages, our country retains a distinct system of socio-economic relations. These are precisely called semi-feudal. The basic exploited classes are the workers and peasant, the direct producer and yet the classes who suffers from hunger and poverty.  The comprador big bourgeoisie and the landlord class are the basic exploiting classes, the owner of the means of production who, together with the imperialists, collects and accumulate social surpluses. From these classes came the bureaucrat capitalists who amass wealth through graft and corruptions. The intermediate social strata are the middle bourgeoisie and the far more numerous urban petty bourgeoisie.

The Philippine social economy remains underdeveloped. It is still basically agrarian and pre-industrial in terms of the development of the productive forces. The principal means of production is still agricultural land, which is mainly for domestic food consumption and secondarily for export crops (coconut, sugar, bananas, pineapple, etc.).

The degree of mechanization in agriculture is limited and is concentrated on estates for export crops. In 2001, only some 11,500 tractors and 700 powered harvester-threshers were available for over 13 million hectares of agricultural land. Only 30 percent of the country’s total farm area is irrigated as of 2002. Land ownership is heavily concentrated with less than 1/3 of landowners owning more than 80 percent of all agricultural land. In addition, vast tracts of lands are controlled by big multinational corporations.

The Philippines has rich natural resources and most of the minerals for industrialization. But after extraction, the mineral ores do not go beyond the primary stage of processing and are exported as raw materials. There is a certain amount of modern industry but this is based on equipment, fuel and other inputs from abroad. The industrial sector produces neither capital goods nor basic metals and chemicals.

Export-oriented low-value added semi-manufacturing, which have come into favor with policymakers and investors since the late 1970s, is far more import-dependent and provides less regular employment than the repackaging and reassembly for import-substitution and domestic consumption in the 1950s and 1960s. It has reduced output value and employment since the 1997 economic and financial crisis in Southeast Asia.

The crisis of overproduction of semi-manufactures for re-export since the middle of the 1990s (1994 for garments and 1996 for electronic assembly) has come on top of the earlier crisis of overproduction of raw materials since the late 1970s. However, despite the continuing global oversupply of low value-added semi-manufactures, the Philippines has continued to stick to electronic assembly and garments. These account for 75 per cent of gross export earnings. However, the high imported content of the semi-manufactures – up to 85-95 percent in the case of electronic equipment – yield a very small amount of net export earnings.

The Philippine economy is in a chronic state of crisis. This has rapidly deepened and aggravated under the current policy regime of unbridled “free market” globalization under which foreign monopoly capitalism is actually on a rampage. The semi-feudal economy is incurring huge foreign trade deficits faster than ever from the unequal exchange of its raw-material exports and consumption-driven manufactured imports. The foreign trade deficits have not been relieved but in fact been aggravated by the export-oriented low-value added semi-manufacturing because this involves a high amount of overvalued imported content.

The huge trade deficits and rising debt service result in chronic current accounts deficits and unfavorable balance of payments. But the deficits are often covered by new debts at more onerous terms, including short-term portfolio investments and the flotation of bonds by state corporations in the capital market. These render the economy more vulnerable. The foreign debt is ever mounting. The foreign exchange remittances of overseas contract workers are in fact used for further import-dependent consumption but are often cited as resources for paying a major part of the foreign debt.

The high level of government budgetary deficit (which was trimmed down at least to P51.559 billion in the first quarter of 2008, from P51.968 billion in the same period last year as reported by the government) is due to economic depression, the sale of income-generating state assets, reduction of tariffs, tax evasion by the exploiting classes including tax holidays and exemptions, bureaucratic corruption and high military expenditures. Moreover, the reactionary government and its various corporations enter into onerous loan and supply contracts with foreign banks and companies that aggravate the deficits to be covered by local public and foreign borrowing.

The Philippine economy and the reactionary government in particular are bankrupt. But they are kept afloat by exporting ever larger volumes of certain goods whose prices keep on sinking, by rescheduling of old debts and incurring new debts at ever more onerous terms under various programs dictated by the IMF and the World Bank, by privatization of government assets and by capturing the foreign exchange remittances of Filipino overseas contract workers who now constitute 10 per cent of the population and whose annual remittances have grown to USD 8.5 billion in 2004.

We can trace the deterioration of the Philippine economy by looking at the growth and uses of foreign and domestic borrowing, from one regime to another. The Marcos regime was the very first one to dramatically raise the level of foreign borrowing from the level of USD 600 million in 1965 to USD 27.2 billion in 1986. The regime used the foreign funds to finance the graft-ridden construction of sugar, coconut, copper and nickel mills, irrigation systems, roads and bridges and tourist facilities. This was mainly under the auspices of the Keynesian policy stress of the World Bank before 1980.

But at the onset of the 1980s, economic policy stress would shift to monetarism and neoliberalism in the US and in the world capitalist system. Supposedly the time had come to act decisively against so-called wage inflation and social spending by the state. Both were blamed as the cause of the stagflation problem. While the US sought to attract funds from abroad by offering high interest rates in the market, the World Bank was made to cut down on concessionary official lending and the IMF was made to whip up trade and investment liberalization, privatization and deregulation as payback from the third world debtors.

The tight international credit situation in the 1980s compelled the Aquino regime to raise the level of local public debt from PhP 144.4 billion in 1986 to PhP 521 billion in 1992. The Aquino regime restricted imports and brought the level of foreign debt to USD 29.9 billion in 1992. To countervail depressed prices in the global market, the raw material exports of the Philippines had to be increased. Still the financial crisis sharpened in the early 1990s.

The Ramos regime harped on “free market” globalization. It outstripped the Marcos regime in foreign borrowing and the Aquino regime in local borrowing. It brought the level of the country’s foreign debt to USD 46.2 billion and total domestic public sector debt to PhP 922 billion in 1998. These borrowings were made in order to cover foreign trade and budgetary deficits, respectively. The deficits grew as the regime promoted the export-oriented low-value added semi-manufacturing and private construction of high-rise office buildings, residential towers, hotels, golf courses and other recreational facilities. The economic and financial collapse came as a major part of the 1997 Southeast Asia crisis.

The bankruptcy of the Philippine economy and state was conspicuous when the Estrada regime took over. Government expenditures went too far ahead of tax revenues. The IMF kept on pressing the regime to reduce government expenditures, adopt new tax measures and give priority to debt service. To pursue its bureaucrat capitalist purposes, the regime engaged in scams by raiding the pension funds of state and private employees and collecting money from the underworld. The Estrada regime raised the level of the country’s foreign debt to USD 51.2 billion and local public debt to PhP 1.068 trillion by year end 2000.

The Arroyo regime raised the level of the country’s foreign debt to USD 56.3 billion and the local public debt to PhP 1.833 trillion in June 2004. The compounded foreign and local public debt is PhP 6 trillion. In fact, the foreign debt has gone beyond USD 60 billion and the local public debt beyond PhP 2.5 trillion. In terms of the size of the total public debt, the Philippines is in a worse situation than Argentina. The Philippine public debt/GDP ratio has risen from 56 per cent in 1997 to 80 per cent in 2004. Last year, the reactionary government paid 81 per cent of its revenues for both interest and principal amortization. This year it is allocating 94 per cent of revenues for debt service.

Since 2001, the Arroyo regime has over borrowed from the private capital market, mainly US, by floating bonds. It is now given a low credit rating and is being forced by the IMF to raise taxes amid a depressed economy. The value added tax is being raised by 20 percent. Other measures for raising taxes are being implemented. Under conditions of deregulation, the oil companies are allowed to freely raise their prices and so are the power, water and other public utilities, their service rates. The reactionary government is raising the fees for services it provides.

The IMF and WTO require the regime to undertake further denationalization, liberalization, privatization and deregulation. State assets such as those in the National Power Corporation are being bargained away. Debts of state corporations being auctioned off remain as sovereign debt and do not become the liability of the new private owners. The mineral, forest and water resources of the country are further being opened up for unrestricted exploitation by the foreign monopolies. Mimicking the Bush regime, the Arroyo regime is planning to privatize the social security agencies of the state.

Major official statistical data in the Philippines are falsified to conjure the illusion of achievement. The Arroyo regime claims that the GDP grew by 6.1 percent in 2004. The Employers Confederation of the Philippines describes this as jobless and industry-less growth. The regime pretends to surpass by so many times the stagnant growth rates in the most advanced capitalist countries. It absurdly cites the heavy electoral spending last year, the proliferation of international call centers and false estimates of production rises in agriculture and service sectors of the economy as major items in the GDP growth.

The chronic rate of mass unemployment in the Philippines goes beyond 40 per cent. One can arrive at this rate by compounding the officially admitted unemployment and underemployment rates (the latter is actually unemployed). Unemployment has increased conspicuously since the 1997 Asian financial crisis, with the formal sector shrinking fast. The claimed unemployment rate of 11.7 per cent in 2004, which is comparable to that of Germany, is simply unbelievable. Supposedly “employed” by some specious definition are 30.635 million workers out of a total labor force of 34.571 million. But only 18.62 percent (5.067 million) are verifiably employed in the formal sector, while 67.47 per cent (20.670 million) are in the informal sector, which is a realm of random surveys and false estimates.

The real value of nominal wages has drastically gone down due to the rapidly soaring prices of basic commodities and services. Inflation has been pushed by the peso devaluation, the scarcities in import-dependent basic producer and consumer goods and the heavy electoral spending by the regime. The inflation rate of 5.4 per cent for 2004 in IMF and government statistics is simply unbelievable.

The peso has been devalued vis-à-vis the US dollar and is now less than half its value in 1996 and only a third its value in 1985. Funds for essential producer and consumer imports have become scarce because of superprofit-taking by the monopoly firms, the huge amounts of debt service, spending for foreign-made luxuries and weapons and salting away of dollars by big Filipino businessmen and high bureaucrats.

The broad masses of the people suffer the rising costs of basic commodities and such services as transport, water and electricity. Since the privatization and deregulation of public utilities in the 1990s, the price of oil products has increased on average by 160 percent, of electricity by 175 percent, and of water services by 450 percent. The social infrastructure is breaking down and the allocations for such social services as health, education, unemployment relief and housing are being cut back. The Arroyo regime has drastically slashed real spending on education by 3.2 percent, on health by 24.5 percent and on housing by 61.0 percent from 2001-2004.

Contrary to absurd government claims that poverty has fallen from 40 per cent to just 30.4 percent of the population in 2003, some 90 percent of the population live on the equivalent of around USD 3 a day. A recent report by the Asian Development Bank points out that the Philippine government achieved the reduction of the poverty level not by raising the people’s income but by lowering the poverty line (as what we have discussed earlier). Indeed, while the general price level supposedly rose by some 15 percent between 2000 and 2003, the government raised the poverty line by just 7 percent – to just PhP 33.60 or some USD 0.60 a day.

Millions of children are subjected to forced labor, malnutrition, deprivation of education, military assaults on rural communities and forced evacuation. Women are degraded and forced to leave their families in order to earn a living abroad. Large numbers of women and children are forced into prostitution. The environment is being damaged by logging for export and foreign mining pesticide-dependent plantations and other pollutant enterprises.

These sufferings of the Filipino people occurs vis-à-vis the continued amassing of wealth by the imperialists and the local exploiting classes. This neocolonial and semi-feudal system of society makes the rich people richer and the poor people poorer. The latest Family Income and Expenditures Survey (2006 FIES) shows that the 10% richest Filipinos in the country earns  more than a third of the country’s total income or 19 times more than the poorest 10%. According to Forbes Asia, the combined wealth of the 40 richest Filipinos is $17 billion (PhP 714 billion at PhP42:$1) which equal to the total incomes of nearly 60% of Filipino families or almost 52 million Filipinos.

REFERENCES

1.      The State of Food Insecurity in the World 2006; Food and Agriculture Organization of the United Nations (FAO) 2006 Report

2.      World Hunger Facts; ELCA World Hunger Online, April 2008

3.      Hunger and Food Insecurity in the United States; Food Research and Action Center; January 17, 2007

4.      On The True Cause Of World Hunger; An interview with Anuradha Mittal by Jensen; published in “The Sun”; February 2002

5.      Hunger rises to record high 21.5% – Social Weather Station; Helen Flores;
Philippine Star; October 2nd, 2007

6.      Hunger – One in five, or 3.8 million Filipino families; SWS: Hunger hits record high, afflicts 3.8M Pinoy families; Hand In Hand Ministries, International; Sunday, October 07, 2007

7.      Hunger measure improves; By Alexis Douglas B. Romero; Business World – Vol. XXI, No. 194; Manila, Philippines; May 5, 2008

8.      FAO Report: Enough Food in the Future–Without Genetically Engineered Crops; Food and Agriculture Organization (FAO) of the United Nations, Economic and Social Department. 2000;Union of Concerned Scientist Website; April 2000

9. Food First: Beyond the Myth of Scarcity, and World Hunger: Twelve Myths; by Frances Moore Lappe’ and Joseph Collins,

10.  FOOD: New Report Exposes Myths About World Hunger; by Danielle Knight; The Progress Report; The Real Problem: Lack of Economic Justice

11.  Hunger: Myths & Realities ; 12 Myths About Hunger; Rehydration Project; Summer 2006; Updated by Holly Poole-Kavana

12.  Food riots fear after rice price hits a high; The Observer; World news section; guardian.co.uk; April 6 2008

13.  Food security; From Wikipedia, the free encyclopedia

14.  Food riots fear after rice price hits a high; The Observer; World news section; April 6 2008

15.  Farmers warn that Philippines faces rice shortage, as government signs import deal; The Associated Press; March 26, 2008

16.  Farmers’ group calls for rice price controls; By Jerome Aning; Philippine Daily Inquirer; March 27, 2008

17.  Gov’t taps Church in distribution of NFA rice; By Jeannette Andrade; Philippine Daily Inquirer; 04/08/2008

18.  Arroyo assures people anew against rice crisis; By Lira Dalangin-Fernandez; INQUIRER.net; April 8, 2008

19.  A rice shortage?; Editorial; Philippine Daily Inquirer; March 25, 2008

20.  There is an Actual Rice Crisis Aggravated by an Artificial One – Rice importation fosters crisis; by Kilusang Magbubukid ng Pilipinas; April 2008

21.  Hunger and World Poverty; United Nations World Food Program (WFP), Oxfam, UNICEF

22.  Poverty; from MSN Encarta

23.  Understanding Poverty; World Bank

24.  I have known hunger – here’s what it looks like; by Hayao; February 5, 2007

25.  2006 Official Poverty Statistics: Worse Than It Looks; by IBON Media; IBON Foundation; March 18,  2008

26.  Capitalism, Imperialism; Encyclopedia of Marxism; Marxists Internet Archive (www.marxists.org); 1999-2008; Editor: Andy Blunden

27.  Imperialism the Highest Stage of Capitalism: by V.I. Lenin; Lenin’s Collected Works Volume 22

28. Socio-Economic And Political Realities And The Need For Peace Negotiations; By Prof. Jose Maria Sison; Delivered at the International Peace Research Institute in Oslo, Norway; June 1, 2005

29.  Peasant Women’s Agenda For Food Security and Self Sufficiency; by AMIHAN, National Federation of Peasant Women; Asia Pacific Forum on Women, Law and Development (APWLD)

30.  RP gov’t trims budget deficit to P51.559B in Q1; GMANews.TV, with Associated Press; April 24, 2008

31.  A Philippines Free from Poverty and Inequality is Possible, But Not Under Gloria; Global Call to Action Against Poverty-Philippines; Tuesday, February 5, 2008

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  In 2003, the  total world population is 6,295,934,476; and this year 2008, it reaches 6,677,563,921 according to the U.S. Census Bureau, International Data Base.

The industrialized countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malta, the Netherlands, Norway, Portugal, South Africa, Spain, Sweden, the United Kingdom and the United States of America. The undernourishment figures for these countries are not estimated separately but as a group of countries.

Human Development Report 2006. United Nations Development Programme. November 2006.

Anuradha Mittal, a native of India, is an internationally renowned expert on trade, development, human rights, democracy, and agriculture issues. After working for ten years as the policy director and then the co-director at the Institute for Food and Development Policy/Food First, Ms. Mittal established The Oakland Institute in 2004.

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Feed the world? We are fighting a losing battle, UN admits

The poverty threshold is defined as the minimum income/expenditure required for an individual to meet its basic food and non-food requirements. The poor are thus considered as those individuals or families whose incomes fall below the official poverty threshold and cannot afford to provide in a sustained manner for their minimum basic needs for food, health, education, housing and other social amenities of life.

Gross domestic product (GDP) grew an average of 4.6% from 2001 to 2006, while gross national product (GNP) grew by 5.1% over the same period. From 2004 to 2006, when the poverty increase was recorded, GDP and GNP grew by 5.5% and 6.1%, respectively; this was substantially higher than the 3.7% and 4.1% recorded from 2001 to 2003.

Credit: http://knol.google.com/k/ramon-ayco/the-root-cause-of-hunger-and-poverty/12kkr4vlogdhw/2

Islamic Economic System and Poverty Reduction

Dr. Saif Siddiqui, Assistant Professor, Centre for Management Studies, Jamia Millia Islamia (A Central University),  New Delhi – 110025 , India

Abstract

Poverty is an economic condition of lacking basic necessities needed to live a reasonable life. This includes need for money, food, water, education, and shelter. Poverty reduction is a process, aiming to reduce the level of poverty in a group of people or countries. World Bank suggests that poverty can be reduced by various means and methods, which includes economic growth (increase in income and living standard) and direct aid / private charity.

World so far has followed two economic systems, communism and capitalism. The communism was based on an emotional reaction against evil consequences of the capitalist economy, specially, against the element of inequitable distribution of wealth. But capitalism prevails, which still suffer from inequities in the distribution of wealth. The world needs a Third Economic System. Elements of Islamic Economic System involve: financing /trading, Zakat and Interest free loans. Even poor persons, with some credibility, can survive in this economic system. Islamic economics prefers co-operation to competition. . This aspect of co-operation is a key to poverty reduction. It is possible to reduce poverty by following Islamic economic system because it takes care of society and social justice.

Keywords: Islamic Economic System, Poverty Reduction JEL Classifications: P51

Electronic copy taken from: http://ssrn.com/abstract=1332618

Islamic Economic System and Poverty Reduction

Poverty is an economic condition of lacking basic necessities needed to live a reasonable life. Basic necessities include money, food, water, education, and shelter. Poverty reduction (or poverty alleviation) may also be describe as a process which aims to reduce the level of poverty in a group of people or countries. The World Bank defines extreme poverty as living on less than US$ 1 per day, and moderate poverty as less than $2 a day. It has been estimated that in 2001,

1.1 billion People had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day. The proportion of the developing world’s population living in extreme economic poverty has fallen from 28 percent in 1990 to 21 percent in 2001.

Some of the popular methods for poverty reduction as suggested by World Bank are:

• Economic growth (increase in income and living standard)
• Direct aid / private charity,and

Poverty is prevalent in all types of economic systems (capitalism and communism) due to their inherent shortcomings.

Is it possible to reduce poverty by following the islamic economic system ? Islamic And Other Economic Systems Mufti Taqi Usmani once opined at the International Conference of the World Muslim Congress that:

“The twentieth century has witnessed the rise of communism and the conflict between capitalist and communist countries and lastly the fall of communism. The communism was based on an emotional reaction against some evil consequences of the capitalist economy, specially, against the element of inequitable distribution of wealth, which has been experienced in the capitalist countries throughout the centuries. The capitalist economies still suffer from inequities in the distribution of wealth. There is still a large gap between the haves and the have-nots and ‘poverty in the midst of plenty’ is still the major problem of their economy. These are the real problems created by capitalism and unless they are satisfactorily solved, it may give birth to another reaction that may be more aggressive than communism.

The world, therefore, is badly in need of a Third Economic System. The Muslim Ummah can work out this system based on the Islamic norms”

J.R. Presley wrote in his book, directory of Islamic financial institutions, that, western financing (with interest) have allowed individual enterprises, countries and even part of the world to rise to a debt level which are beyond their capacity to repay. H.I. Leibling in his book, U.S. Corporate profitability and capital formation, also says that,’’ in US the main reasons of secular decline in the growth of capital stock has not been the lack of aggregate demand but higher interest’’

The third economic system is a system as taught by the The Holy Qur’an and Sunnah of the Prophet (PBUH), which is capable of solving the economic problems being faced by the world today. Benefits of this system, which combine the benefits of both communism and capitalism, are:

1. Private ownership and market economy,
2. Profit motive
3. Justice in distribution, and
4. Elimination of inequities

These benefits are related to the methods of poverty reduction as stated earlier. Economic growth is possible with private ownership; aid or charity can be a symbol of justice in distribution, which may eliminate inequities also.

Islamic economic system not only allows the market forces of demand and supply but also provides mechanism to keep them operative with their natural momentum without creating monopolies and concentration of wealth.

It is known that production; consumption and distribution are three basic functions of economics. Islam, which teaches justice and equality, clearly puts these functions as follows:

Production function:

1. Demand/ supply of prohibited goods should fall to zero
2. Production of luxury goods be checked
3. Producers should not maximize profits
4. Competition among producers should be healthy

Consumption function:

1. Prohibited goods cannot be consumed.
2. Consumption cannot be extravagant
3. Consumption should lead to an efficient and pure life
4. Every individual should consume enough goods to lead a reasonable life

Distribution function:

1. Prices should be reasonable, neither too high nor too low
2. Interest must not be paid
3. Wealth concentration should be avoided

These basic functions also provide a socialistic approach of Islamic economics, which help in reducing poverty. This system gives an opportunity to persons with lesser income to live a reasonably dignified life. As a matter of morality, Islamic economics prohibits speculative transaction and forward trading to avoid circumstances of instability. S.J. Phansalkar in his book, how not to ruin your small industry, also concluded that.’’ speculative transaction are not in favour of entrepreneurs’’

Elements of Islamic Economics

Elements of Islamic economics involve:

1. Islamic mode of financing /trading
2. Zakat
3. Interest free loans

1. Islamic Mode of Financing /Trading

Mudarabah (capital trust)

Mudarabah is a special kind of partnership in which one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called “rabb-ul-mal”, while the management and work is an exclusive responsibility of the other, who is called “mudarib. Mudarabah may take two different forms:

Al-mudarabah al-muqayyadah (restricted mudarabah)

The rabb-ul-mal may specify a particular business for the mudarib, in which case he shall invest the money in that particular business only.

‘Al-mudarabah al-mutlaqah” (unrestricted mudarabah)

The mudarib shall be authorized to invest the money in any business he deems fit. It is necessary for the validity of mudarabah that the parties agree, right at the beginning, on a definite proportion of the actual profit to which each one of them is entitled.

Musharaka (Islamic partnership)

Musharaka can be defined as a “form of partnership where two or more persons combine their capital or labour together, to share the profits, enjoying similar rights and liabilities” It is a limited period contractual agreement between the partners, to use both human and financial resources and distribute whatever profit and loss they make in accordance with capital and human resources invested.

In such a kind of Islamic partnership, partners need not have equal shares, or equitable responsibility for the management. Losses would be shared in accordance with capital contribution. It is not only the contribution of capital that governs Musharaka in Islam. In practice labour, skills, management, goodwill, credit-worthiness and contacts can also form the partners’ contribution.

Murabahah (mark up sale)

Murabahah is a kind of sale where the seller mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit thereon. Thus, Murabahah is not a loan given on interest; it is a sale of a commodity for cash/deferred price.

The Murabahah may involves purchase of a commodity by a bank on behalf of a client and its resale to the latter on cost-plus-profit basis Murabahah is a mode of financing as old as Musharakah. Today in Islamic banks world-over 66% of all investment transactions are through Murabahah.

A simple sale in Arabic is called Musawamah – a bargaining sale without disclosing or referring to what the cost price is. However when the cost price is disclosed to the client it is called Murabahah. A simple Murabahah is one where there is cash payment and Murabahah Muajjal is one on deferred payment basis.

Ijara (Islamic leasing)

Ijara is an Islamic form of leasing. Here the bank buys capital equipment or property and leases it out under installment plans to end-users. As in conventional leasing there may be an option to buy the goods at the end of the Ijara built into the contracts .The installments consist of rental for use and part-payment.

The customer selects the asset to be financed and the bank then purchases it from the supplier and leases it to the customer for an agreed period. Refinancing of assets owned by the client in a sale and leaseback arrangement is allowed under certain circumstances.

2. INTEREST FREE LOANS (Al-Qard al-Hasan)

Islam prefers a loan as a form of social service by the rich to help the poor. Islam does not recognize any loan with interest for the benefit of the debtor. M. Umer Chapra, an authority on Islamic economics, has given the definition of qard al hasan as: “Qard al-hasan is a loan which is returned at the end of the agreed period without any interest or share in the profit or loss of the business.” The receiver of qard al-hasan is only required to repay the original amount of the loan.

Economic objectives of qard al-hasan are:

1. The mobilization of wealth among all people in the society.
2. To strengthen the national economy.
3. To facilitate the poor to create new jobs market and business ventures by using their merits, skills and expertise.
4. It can remove social and economical discrimination from the society, and

Social objectives of qard al- hasan are:

1. To help needy peoples.
2. To establish better relationship among poor and the rich.
3. Non-Muslims, who might be attracted by knowing the beauty of Islam. There is a great reward in the Hereafter for giving qard al- hasan

Some verses in favour of interest free loan are mentioned as under:

He who will give Allah qard al hasan, which Allah will double into his credit and multiply many times. [Surah-Baqarah (2): 245]

Establish regular prayer and give regular charity and give Allah qard al hasan [Surah-Muzzammil 73): 20]

Prophet (PBUH) said, “In the night of the journey, I saw on the gate of heaven written, ‘reward for sadakah is ten times and reward for qard al-hasan is eighteen times’. So, I asked the angel, how is it possible? The angel replied, “Because beggar who asked had already had something but a loanee did not ask for loan unless he was in need.” [Ibn Hisham & Ibn Majah].

M.G. Bokare former VC of Nagpur university has written in his book, Islamic economics, that.’’ Many social thinkers other than Marx, in the period of ethos of socialism had expressed their views in the favour of interest free capital in economy. These are G.D.H. Cole, William Petty, Lousie Blanqui, Sismondi and Ferdinand Lasalle.’’ It is not surprising that inspired by the benefits of qard al hasan, Jews has also established an association namely; Jewish Free Loan Association in USA. In bible following verses can be found:

[God says] “If you lend money to any of my people with you who is poor, you shall not be to him as a creditor, and you shall not exact interest from him” Exodus (22:25)

“You shall not lend upon interest to your brother, interest on money, interest on victuals, interest on anything that is lent for interest. To a foreigner you may lend upon interest, but to your brother you shall not lend upon interest; that the Lord your God may bless you in all that you undertake in the land which you are entering to take possession it.” Deuteronomy (23:19-20)

In Vedic literature too condemnatory remarks on interest can be traced. Rig Veda says, ‘’ save us from usurers’’. Atharva Veda prays.’’ Let us die with debt so that our children do not carry our burden’’.

3. ZAKAT

The word Zakat means ‘purification. It is the amount of money that every mentally and financially able, free adult, Muslim, male and female, has to pay to support specific categories of needy people. Islam believes that all things belong to God, and that wealth that is held by human beings is a mere trust. .It can be purified by distributing a prescribed proportion for those in need.

“The alms are only for the poor and the needy, and those who collect them, and those whose hearts are to be reconciled, and to free the captives and the debtors, and for the cause of Allah, and (for) the wayfarers; a duty imposed by Allah. Allah is knower, Wise.” [Surah - Tauba (9): 60]

The prophet (pbuh) said: “Any owner of gold and silver who does not deliver from them their right, on the Day of Quiyamah (Day of Judgment), (the gold and silver) will be shaped as foils of fire. Then it will be heated in the fire of Hell; (and) then with it he will be ironed on his side, his forehead, and his back”(Muslim)

Zakat is obligatory after a time span of one lunar year (approximately 355 days) passes with the money in the control of its owner. Then the owner needs to pay 2.5% (or 1/40) of the money as Zakat. The owner should deduct any amount of money he or she borrowed from others Poverty reduction through Islamic economics Islam hates state of poverty due to accompanying one hundred and one evils with such a person. Dr. M. Nijatullah Siddiqui has written clearly in his book, economic enterprise in Islam,that “poverty is not a desirable state in the eyes of Islam but love of worldly wealth is also a source of evil.” It shows that a person should rise from the level of poverty but must keep only that much wealth that is sufficient to carry him and his dependents. The surplus or a predetermined share should be distributed among poor.

The Prophet (PBUH) once said that “when Allah gives you in plenty be liberal in your livings”. These words can be analyzed with a simple principle of economics that rise in expenditure can boost the economy. In simple words, demand for a new dress by a richer person provides work for weaver, tailor and cobbler. Demand for good food by him may provide employment to a cook.

The Prophet (PBUH) also said that” your faith is not complete till you like the same for your brother as you like for yourselves”. He also mentioned that “I testify that all Muslims are brethren” It can be concluded that Islam prefers co-operation over competition among Muslims. This aspect of co-operation is a key to poverty reduction. Islamic trading, qard- al hasan and zakat, all are based on the co-operation theory. Even poor persons, with some credibility, can opt Islamic form of financing

Conclusion

Two methods suggested by World Bank to reduce poverty, are integral part of Islamic economics. But it is largely in theoretical form for which no consistent example is available.

Most of the Muslim countries do not follow the basics of Islamic economy. Some of them have given a modest start in the form of Islamic banking, but others are still following the capitalist system, which has made the economic atmosphere much worse than that of the developed capitalist countries. Some countries like Malaysia are following a dual system, based on both Islamic and conventional economics.

Shariah have given the clear cut Islamic principles that could have reduced poverty and the inequities existing in Muslim countries and others. Islamic economic principles provide answers to every economic problem with a human touch. Muslim world has to restructure their economic system on the basis of The Holy Qur’an and Sunnah to provide a living example. If the principles of Islamic economy are implemented sincerely, the third economic system can overshadow the prevailing system.

Lastly, it is said that it is possible to reduce poverty by following Islamic economic system because it take care of society and social justice , which is ignored by western economy. It is the system, that says:

‘’He who sleeps on a full stomach whilst his neighbour goes hungry is not one of us.”      (Saying of Prophet Muhammad PBUH)

“Allah will deprive usury of all blessing, but will give increase for deeds of charity” [Surah-Baqarah (2): 276]

“If the debtor is in a difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.” [Surah-Baqarah (2): 280]

Islam, Poverty and Micro Finance “Best Practices”

By Dr Mohammed Obaidullah

How does one go about reducing poverty levels and providing micro finance (MF) in Muslim societies? How does one make a choice between the Islamic model of MF and the MF “best practices” that reflect wisdom and lessons learnt from decades of “real life” MF experiments. The former is normative and largely an untested proposition in the context of a modern economy, notwithstanding a small number of recent experiments. The latter, on other hand, as proponents claim, are well-experimented and well-documented and made widely available among the global MF community. A significant contributor to this exercise has been the Consultative Group to Assist the Poor (CGAP), a multi-donor consortium dedicated to advancing micro-finance. CGAP envisions a world in which poor people everywhere enjoy permanent access to a range of financial services that are delivered by different financial service providers through a variety of convenient delivery channels. It is a world where poor and low-income people in developing countries are not viewed as marginal but, rather, as central and legitimate clients of their countries’ financial systems. In other words, this vision is about inclusive financial systems, which are the only way to reach large numbers of poor and low-income people. As a way forward to realize this vision, CGAP has come up with a set of key principles of MF that together constitute the essence of “best-practices” MF.

These principles broaden the definition of MF from micro-credit to provision of an array of financial services, such as, savings, insurance and remittance as a panacea for the poor and the under-privileged to move out of poverty into a state of increasingly better standard of living. The principles advocate free pricing of the services. They emphasize that access to MF and not cost of MF should be under focus in designing and implementing a poverty alleviation strategy. The strategy should aim at sustainability through a shift from a charity-based donor-dependent approach to a market-based for-profits approach emphasizing systemic efficiency and transparency and restricting use of donor funds to temporary support in the initial stage of an MFI and capacity building. Recent writings advocate use of charity for providing social safety nets for the extremely poor who are unbankable and therefore, unserved by the for-profit MFIs. The principles also underscore inclusiveness and integration of MF with the formal financial system.

How should one deal with poverty under Islam? All principles or laws in Islam owe their origin to its holy book – the Quran and the sayings and deeds of its Prophet (peace be upon him) encapsulated in books of Hadith. Consider this saying of the Prophet (peace be upon him) that forcefully drives home the central message of Islam regarding poverty, “Poverty is almost like disbelief in God.” On another occasion the Prophet (peace be upon him) is reported to have said “There is no asceticism in Islam”. Islam views poverty to be a curse to be eradicated through productive efforts unlike some world religions and philosophies (such as, Sufism) that celebrate asceticism. There is therefore, a convergence between the objectives of Islam and the avowed aims of “best practices” MF.

While poverty eradication remains the cherished goal of Islam and MF “best practices” is there a degree of commonality too in their approaches and strategies to poverty alleviation? Lessons from real-life experiences reflected in the “best practices” MF indicate a dual approach – use of charity as well as “for-profit” micro finance. At the same time, donor funds should complement private capital, not compete with it. The charity-based approach should be restricted to either providing temporary start-up support designed to get an institution to the point where it can tap private funding sources, or devoted to capacity building to take care of the shortage of strong institutions and managers. A charity-based approach is also needed for providing social safety net to the extremely poor and the destitute and therefore, unbankable.

How does the above compare with the Islamic approach to dealing with the poor and alleviating poverty?

Zakat and sadaqah as instruments of charity occupy a central position in the Islamic scheme of poverty alleviation. Zakat is the third among five pillars of Islam and payment of Zakat is an obligation on the wealth of every Muslim based on clear-cut criteria. Rules of Shariah are fairly clear and elaborate in defining the nature of who are liable to pay Zakat and who can benefit from Zakat. The first and foremost category of potential beneficiaries is the poor and the destitute. A greater degree of flexibility exists with respect to beneficiaries of sadaqah.

The primary issue with Zakat and sadaqah-dependent institutions is the issue of sustainability as they are essentially rooted in voluntarism. Funds mobilized through charity could fluctuate from time to time and may not lend themselves to careful planning and implementation.

The issue of sustainability is addressed in the institution of awqaf through creation of permanent and income-generating physical assets. Awqaf has historically been the major vehicle for creating community assets. There are however, restrictions on development and use of assets under waqf for pre-specified purposes that introduce rigidity into the system.

While Islam strongly encourages charity from the giver’s point of view, it seeks to minimize dependence on charity from the beneficiary’s point of view and restricts the benefits to flow to the poorest of poor and the destitute, who are not in a position to generate any income and wealth.

A famous hadith not only underscores the above, but also demonstrates how to design and implement a strategy of poverty alleviation. The essence of the hadith is broken down into numbered statements so as to highlight the key principles and components of the strategy that follows from the hadith.

A man of the Ansar community came to the Prophet (peace be upon him) and begged from him. (#1) He (the Prophet) asked: Have you nothing in your house? He (the man) replied: Yes, a piece of cloth, which we wear, or which we spread (on the ground), and a wooden bowl from which we drink water. (#2) He (the Prophet) said: Bring them to me. He (the man) then brought these articles to him and he (the Prophet) took them in his hands and asked to the assembly of people: Who will buy these? A man said: I shall buy them for one dirham. He (the Prophet) asked twice or thrice: Who will offer more than one dirham? Another man said: I shall buy them for two dirham. (#3) He (the Prophet) gave these to him and took the two dirham and, giving them to the man of the Ansar, he said: Buy food with one of them and hand it to your family, and buy an axe and bring it to me. (#4) He then brought it to him. The Prophet (peace be upon him) fixed a handle on it with his own hands (#5) and said: Go, gather firewood and sell it, and do not let me see you for a fortnight. (#6) The man went away and gathered firewood and sold it. When he had earned ten dirham, he came to him and bought a garment with some of them and food with the others. (#7) The Prophet (peace be upon him) then said: This is better for you than that begging should come as a spot on your face on the Day of Judgment. Begging is right only for three people: one who is in grinding poverty, one who is seriously in debt, or one who is responsible for compensation and finds it difficult to pay. (Sunan Abu Dawood, Kitab al-Zakat, Book 9, Number 1637)

The components of this hadith can be seen to emphasize the following fundamental conditions of a successful micro-finance program:

#1. Access of the poorest of the poor to the program:

The Prophet (peace be upon him) was the spiritual as well as the political leader of the Muslims and he was accessible to the poor and the needy at all times for economic and financial assistance;

#2. Careful assessment of the financial health of the poor; enquiry blended with empathy; insistence on contribution and beneficiary stake:

Many failed MF programs owe their failure to inadequate evaluation of the client’s financial condition. Provision of micro finance does not stand to reason for a person in need of social safety nets resulting in the funds being consumed away instead of being invested. The poor come in disparate categories with varying needs of consumption and productive investment and risk of delinquency and default. Micro-finance programs involving indiscriminate funding of the poor, such as, most government-managed ones are destined to fail. This is one of the cornerstones of MF “best practices” that assert the government should have no role in direct or indirect provision of financial services and its role should be restricted to providing a supporting and enabling environment. Insistence on beneficiary stake is of course, a device to reduce moral hazard and enhance efficiency.

#3. Transformation of unproductive assets of the beneficiary into income generating ones through rigorous valuation (on the basis of price discovery through auction method); Involvement of the larger community in the process:

Often the poor own high-market-value assets, such as, land in a prime city location without being able to derive income or benefit from the asset. While ownership of land does provide them with a bulwark against unforeseen adversities, this is an uneconomical and wasteful method of insurance. What is desirable here is a way to transform the unproductive asset into a productive one that could generate income. The original asset is not lost but transformed into an income-generating one.

The price at which the original asset is disposed of must be fair and should not take the form of a distress sale resulting in loss of value to the seller. Contemporary finance theorists find the auction system to be the most efficient process of discovery of the intrinsic worth or the fair price.

The involvement of larger community in the poverty alleviation program is also highly desirable for success of the program. For many contemporary successful MFIs, the right strategy is to involve grass-root NGOs in the process.

#4. Meeting of basic needs on a priority basis and investment of the surplus in a productive asset:

Once again this highlights the need to take into account the consumption needs of the clients before expecting them to create wealth. The realization about the need for a social safety net and to link the same to micro finance at a later stage has come only recently in the MF industry.

#5. Direct involvement of the program in capacity building in the run-up to income generation and technical assistance to the beneficiary; Commitment of top management of the program:

This part of the hadith demonstrates a unique form of commitment and involvement on the part of the Prophet (peace be upon him) in the program of poverty alleviation. The involvement could not be more direct and the commitment more pure.

#6. Technical assistance in the form of imparting requisite training to the beneficiary for carrying out the business plan/ income-generating project; monitoring through a time-bound schedule and impact assessment through a feedback mechanism:

The need to establish an effective linkage between financial assistance and technical assistance is emphasized among MF professionals as never before. Also the importance of impact assessment can be hardly overemphasized.

#7. Transparent accounting of operational results and liberty to use part of income to meet higher needs.

In short, the Islamic approach to poverty alleviation is more inclusive than the conventional one. It provides for the basic conditions of sustainable and successful microfinance, blending wealth creation with empathy for the poorest of the poor. There are certain aspects of the Islamic approach that need added emphasis.

One, transparency through meticulous accounting and proper documentation is a fundamental requirement of financial transactions in the Islamic framework. As the holy Quran asserts:

“O ye who believe! When you deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing” and “Let a scribe write down faithfully as between the parties” (2:282)

The import and significance of this verse is often not fully understood. Indeed, lack of proper documentation and accounting by beneficiaries is a major challenge confronting microfinance. Proper accounting and accurate measurement of results of operations or profits is a pre-requisite for profit-sharing based mechanisms. They are no less important for lending operations. Indeed MF “best practices” emphasize on documentation and transparency as a fundamental requirement for success of any MF project.

Two, as discussed earlier, a common feature of successful microfinance experiments is group-based financing and mutual guarantee within the group. This is a highly desirable feature of Islamic societies. Mutual cooperation and solidarity is a norm central to Islamic ethics. The second verse of Surah Al Maida in the holy Quran says:

“Assist one another in the doing of good and righteousness. Assist not one another in sin and transgression, but keep your duty to Allah” (5:2)

The following hadith by the Prophet (peace be upon him) reinforces this principle of cooperation and mutual assistance.

“Believers are to other believers like parts of a structure that tighten and reinforce each other.” (Al-Bukhari and Muslim)

Our discussion so far, has excluded the issue of product design. Conventional MF products are interest-based. Islamic MF products must be free from interest and several other elements forbidden under Islamic law. Contemporary mainstream Islamic finance has expended considerable effort in developing Shariah-compliant products and services for deposit mobilization, financing, remittance etc. using Shariah-nominate contracts that are free from the forbidden elements. These products with minor modifications if required can be used for MF as well. Islamic scholars strongly favor “free pricing” of these products and services as the same is a fundamental norm. It may be noted that MF “best practices” also argue against price ceilings, even though the justification provided may be quite different.

Based on the discussion above, one finds that the Islamic approach to poverty alleviation should involve several layers of intervention. All kinds of assistance should be preceded by enquiry and assessment of financial health of the client. A charity based intervention inherent in the institutions of Zakat and sadaqa is recommended to take care of consumption needs of the extremely poor and the destitute and create a social safety net, notwithstanding the never-ending debate on the desirability of using Zakat funds for investment and financing. The other institution of charity – the awqaf is ideal for creation and preservation of assets that can build capacity and provide technical assistance for skill improvement and development of human resources. The social safety net and technical assistance may then be linked to financial assistance. The financial assistance should aim at wealth-creation using Shariah-compliant for-profit modes with free pricing. The entire process of course, would need to be completely transparent with proper documentation, accountability and responsibility with a time-bound schedule. Along the way, less or zero productivity assets may need to be transformed into more productive ones while ensuring minimal transaction costs. Provision of financing could involve formation of groups and be made in a graduated manner.

Before we conclude that the Islamic approach to MF and the MF “best practices” converge in many respects with the notable exception of product design, it is important to sound a note of caution. The above analysis is based on a rather tiny sample of hadith. Therefore, care must be taken to avoid rigidly labeling the suggested approach as the solitary and distinct Islamic model of MF. The purpose of the present discussion is simply to demonstrate that there may not be any inherent conflict between the Islamic approach and much of the MF “best practices”. At the same time, the religious and cultural sensitivities of the poor Muslim clients need to be taken into account while designing financial products and services. This should be emphasized as an imperative for achieving the goal of poverty alleviation through enhanced financial inclusion in Muslim societies.

The author is an Economist with Jeddah-based Islamic Development Bank. Views expressed in this paper are those of the author and not of his employer organization. He may be reached at m_obaidullah@yahoo.com