Capitalism and the Economic Crisis in Kurdistan
1/3/2017 3:59:00 PM
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The system of capitalism is presented as a successful means for delivering the goods and services among people. It also makes a promise to provide jobs for workers and bailout the national economy during crises. Perhaps however, the opposite idea is more likely to be true. Karl Marx believes, the system of capitalism is unstable and creates an unbalanced collection of wealth among people which inevitably leads to crises. As I will discuss, I wonder though whether capitalism has the ability to survive without; firstly, a proper implementation of some essential social programmes, and secondly a genuine role by politicians in re-balancing the wealth in communities to defend vulnerable sectors of society during recession.
In regards to the Kurdistan Region of Iraq (KRI), in recent years, a decade of prosperity has occurred that led to the creation of a fertile era for capitalists in the region. The number of large private businesses has increased tremendously in Kurdistan, particularly after economic growth that begun in 2003 and continued until 2014. During this period the economy of the region began to boom in regards to many aspects, such as property development, roads, urban planning, and investment in oil and gas. Furthermore, the region experienced a new form of growth with the emergence of a significant number of private schemes both local and international, such as big shopping malls, private banks, large telecommunication companies and a number of corporations for dealing with oil and infrastructure.
With the emergence of several large businesses in the KRI you would expect that job creation would therefore grow and in turn help the region’s growth. However many people in the region are unemployed and the Kurdistan Regional Government (KRG) still cannot fulfill its budget.
Capitalism here has created a huge gap between two social classes, bosses and workers, who directly face each other in an economical equation. As time passes, day after day, year after year and so on, the wealth of workers goes to the pockets of the huge business owners. Eventually, this period will end up with crises and lopsided summation of wealth where only a tiny amount of society are in a good position and power, while the others are left in poverty and depression.
A similar case is happening, currently, in Kurdistan and this could be considered as another factor behind the current economic depression in the region.
According to a report by Oxfam in January 2016, the sixty two richest people own the same wealth as the bottom 50% of the world’s population – and this figure is expanding as time continues. In addition, the report states that since 2010, the wealth of the poorest half of the world’s population has fallen by a trillion, meantime the wealth of the richest 62 has increased by more than half a trillion dollars up to $1.76tr.
The question then arises; if capitalism cannot deliver the goods and services to the masses equally, and if it creates extremes of wealth and poverty worldwide, how does it continue to survive? And how have other countries coped with the situation?
The answer lies within two main polices that can be applied to almost every developed country. Firstly, the role of the state in providing social programmes, such as unemployment payment, free health insurance, free education and maybe cash assistance or any other way of serving the mass at large. Secondly, government should raise the tax to a considerable rate, especially for the private sectors and profitable businesses, in order to fulfil its budget, and afford the social projects it has in place. These two policies have been proven in examples of some countries in the past as the best way to assist citizens during crises, regardless of what the market provides them.
An example is the depression that occurred in the 1930s, around a decade after World War One. During this period a severe economic crisis hit the globe, termed the Great Depression. Many of the industrial countries were in a critical situation of poverty, and strikes spread on the street. As a consequence, a new form of state-intervention took place in the US and several regions of Europe, which increased taxes, limited the power of corporations, enhanced wages, and gave state-support to the people. The strategy was successful; if you look at the prosperity and the growth of those countries now, it is far beyond the growth of countries that adopted a more rigid system of capitalism. This is at least partially true as far as a significant number of countries in Africa, the Middle East and Asia are concerned.
A further example is the governmental strategy of former US President Franklin Roosevelt for relief, recovery, and reform, known as the New Deal. Eventually, this made him one of the most famous US-president’s in history – elected four times in total. The New Deal was also in response to the Great Depression in an effort to recover the economy to a normal and stable state. The strategy included three main aspects, providing financial help to the mass of US workers, establishing a system to directly assist the unemployed and finally, creating a variety of federal hiring programmes that created more than twelve million jobs at that time. Roosevelt’s strategy was successful and created growth in the U.S. However, his success could not have been achieved without cutting the wealth of large enterprises by raising taxes – especially in the 1950s and 1960s when the richest US individuals faced a top income tax rate of 91 percent.
Nonetheless, the KRG’s response to the current economic downturn in Kurdistan is going in the opposite direction of Roosevelt’s policy. The KRG, instead of taxing huge business enterprises, is cutting the wages of civil servants in the region. The government owes each employee around five months full pension, in spite of the significant deduction in their monthly payment. Each employee is now getting around one third of their wage. The middle class in Kurdistan suffer from low income and heavy living expenses. Meanwhile, the KRI continues to provide a low rate of taxation for large-income businesses.
According to Law No. 26 of 2007 from the Kurdish Parliament, the maximum scale of taxation is only 15% for the private sector, including the large oil corporations and telecommunication companies that operate in the region.
In general, today’s crisis in the KRI is not exceptional and it is highly important for Kurdistan to learn from other states as to how they can resolve their own economic problems. With a system of capitalism, crises continuously erupt, and intervention in the market and private property is essential to encounter and manage these crises. Without intervention, the economy may remain unhealthy and inflated long enough to threaten community trust in government. It has been proven by western developed countries that with a good policy of taxation and some advanced social programmes, the best conditions of living can be assured for individuals, particularly for workers and the middle classes who are the most vulnerable during crises.
Daban Sabir holds a BA in Politics, a LLM in Law, and is an anti-corruption activist with Anti-Corruption International.