Poverty in the capitalistic legal order

Poverty in the capitalistic legal order


Absolute and relative poverty. The legal measures in order to tackle relative poverty. The increase in inequality and the slide towards absolute poverty. What is to be done ?


Absolute and relative poverty

It’s not just the word, but the very notion itself, the concept of poverty: real and absolute poverty, which is alien to today’s capitalist economic and financial system and its legal order. Absolute poverty or misery means “the lack of the essential means of subsistence”. It’s calculated according to the indices developed by the UNDP (United Nations Development Promotion) in relation to the basic dimensions of human life (duration of life and health conditions, access to knowledge, economic availability, degree of social participation) and in fact it involves both exclusion from the economic system and marginalization from social life.

Absolute poverty mortifies those who suffer from it and harms their dignity, absolute values and principles of modern Constitutions ^.

How, then, can this consideration remain outside the system on which the legal order of the economic activities in our country is formed, just as in other legal systems of the Western tradition?

In these countries where the center of the economic system is free exchange in the market and the pivot of the legal order encompasses the recognition of individual rights, it is only in relation to the free exercise of these rights that people come into consideration in the system and in its juridical order. Whoever is not actually in a position to exercise them simply remains outside.

We are aware, of course, that economic inequalities and social distinctions are present in society. It is further believed, however, that there are inherent mechanisms in the system so that everyone can overcome them.

Inequalities are, in fact, appreciated as indispensable engines of the system, whose dynamism presupposes the drive of each individual towards improving their own situation. It is also assumed that the improvement is mainly due to the exercising of one’s talent.
The common utility, which – according to art. 1 of the Declaration of the Rights of Man and of the Citizen of 1789 – is the only one that can justify the economic and social distinctions between men and citizens. In the capitalist system it is considered inherent in the freedom each person enjoys in participating in the economic and social activities with equal rights.This equality of rights is, however, only a starting point which does not eliminate the different results that everyone can draw from their exercise and, above all, it does not mean that their exercise is always possible for everyone.

Hence, in the capitalist system, there will always be rich and poor.

Moreover, this irrepressible distinction should be such as not to entail for anyone the definitive economic exclusion and social out-casting.

The capitalist system, on the other hand, postulates that compatible poverty, indeed socially useful to the system, is really only relative poverty. The legal order of the system enacts measures that are believed to give the opportunity to overcome this situation for those who find themselves in or have fallen into this state, but have basic requisites to be recovered, i.e. those who find themselves in a situation of relative poverty

The capitalist system does not deal with those who are irreversibly marginalized, that is to say those who find themselves in a situation of absolute poverty.

The legal measures in order to tackle relative poverty

In ancient Rome a stigma marked insolvent debtors (infames in the Laws of the XII Tables) destining them to slavery (which was the foundation of the economic system of the time) or through the Lex Roscia Theatralis, public mockery; it continued for centuries against them with legal provisions of ritual public exclusions (bankruptcy) and corporal punishment against the decoctor ergo fraudator (frauds- in the definition of Baldo). This stigma was erased through the recognition of civil rights during the era of the Enlightenment and with the great revolutions at the end of the 18th century and in continuation of the industrial development of the 19th century it was definitively overcome.

Cesare Beccaria; in Dei delitti e delle pene (On Crimes and Punishments) (1764)- chap. XXXII, Dei debitori (Of Debtors) , Milan 1964, p. 110, while continuing to affirm that the good faith in contracts and the security of trade force the legislator to assure bankrupt persons to creditors, believed that malicious bankruptcy should be distinguished from accidental one. Recognizing that the trade and ownership of goods are not the ends of the social pact or deal, they can however be a means to obtain it. He went on to declare that he was ashamed of having written that the innocent bankrupt person should be kept as a pledge of his debts or used as a slave to work for creditors but therefore not deserving of the accusations of irreligion, nor those of sedition, believing instead that he had actually offended “the rights of humanity”.

Following Beccaria’s teachings, Cosimo Amidei in Philosophical-Political Discourse on the Prison of Debtors, Harlem – Paris 1771, thought that wealth and poverty are necessary events in the political body, and whoever tries to oppose them would only tend to substitute inertia for motion. Starting off from the same principle that only the bankrupt or the malicious debtor must be punished, because in this way not the debtor but rather the criminal is punished, he added that the class of the rich and that of the poor are necessary, or rather all three classes into which the nation is divided: that of the owners, the productive class and unproductive one are necessary. Then if you remove from any of these three classes some individual and put them in prison for debt, you suspend their work for that time, which pleases the creditor but in the meantime the state loses that profit, which it would have gained, had the debtor not been distorted from their business, thus the creditor only makes them more and more powerless to satisfy the debt.

The enlightened scholar thus grasped not only the moral, but also the economic and social foundation of the diverse economic and social structures of the impending industrial society, in whose development everyone is called to participate.

In 1842 the notorious Marshalsea prison was closed in England. For over 500 years, in addition to mutineers or sailors convicted of piracy, the insolvent debtors had to remain there until they had paid off their debts (Charles Dickens, whose father was imprisoned there and therefore had to start working at the age of 12, evoked this harsh environment in many of his novels).

It’s only with the enactment of law n. 4166 of December 6, 1877, that Italy abolished imprisonment for debts (and not even completely, as the personal arrest for non-payment of compensation to the civil parties for criminal damages was only abrogated following the enactment of the civil code of 1931).
We shouldn’t forget that slavery was abolished in the United States only after mid- 19th century and in Brazil towards the end of the 19th century.

Yet in the span of that century, the capitalist system, driven by the colonialist and imperialist policies of Western countries, definitively established itself in the world and when industrial society developed as a mass society, it informed its own legal order as to the recognition of individual rights. It is only after bitter social conflicts, that Western societies get to the recognition of collective rights of the working classes.
The paradigm of individual rights, civil rights as freedom of economic initiative, has thus legitimized the social utility of inequality by supporting the economic development of the last century, backed by Keynesian policies of public intervention, by stimulating consumption, as well as protecting the Welfare of citizens.

Thus the apocalyptic visions of those thinkers who, faced with the miserable realities which had accompanied the development of the industrial society of the nineteenth century and believed that economic inequalities were inevitably destined to increase as a result of overpopulation and scarcity of resources and food (Malthus), the concentration of landed property (Ricardo) or the tendency towards the infinite accumulation of capital (Marx), were believed to have been overcome.

The economic system, driven by reconstruction after the terrible disasters resulting from the two world wars, and later by the increase in productivity mainly due to technological progress, has indeed increased the general well-being of society and limited the increase in inequalities.

This favorable situation appeared to confirm that the spontaneous participation by everyone involved in the economic and social machinery through the free exercise of rights recognized to each, while inevitably maintaining or producing inequalities, is an essential element of the system for its orderly development.

With this in mind, regulatory interventions have been implemented. On the one hand, they support participation in the economic and social system, and on the other, they aim at overcoming the difficulties that may prevent it. In short, these interventions aim at coping with the so-called market failures or those situations in which the law of the market left its own devices would lead to inefficient results.

On the one hand, procedures have been envisaged in order to prevent business activities from ceasing in the event of a crisis and avoid that the production unit is liquidated. On the other hand, its restructuring and continuation has been regulated: starting from the forerunner norm of Chapter 11 of the US Bankruptcy Code and the introduction first in France and later in other legal systems, of the so-called Alert procedures, and eventually in Italy through the legislation for the recovery of the crisis of large companies (the so-called Prodi law). A reform of the insolvency procedures has now been reached, which significantly, no longer refers in its title to bankruptcy but is rather called the Corporate Crisis and Insolvency Code (Legislative Decree 12 January 2019, No. 14). Indeed, the purpose of this legislation is not, or in any case not only, the equal satisfaction of creditors but regards mainly the prevention of the company crisis and/or its eventual recovery.

In fact, in the legal systems of Germanic tradition, insolvency has always been the only prerequisite for the application of insolvency procedures and as such there is no distinction for this purpose between civil and commercial debtors. In Italy, however, only with a more recent evolution of the bankruptcy law has the existing separation (despite criticisms by Cesare Vivante and Gustavo Bonelli) between the effects of civil and commercial insolvency been overcome and insolvency procedures now apply to all types of economic activities.

In addition to the need to keep productive organizations alive as much as possible, the capitalist system, more generally, also needs the flow of financial assets for the development of their activities to be constant, if not continuously increased.
Hence the incentive to participate in financing businesses by the largest number of people and the provision of tools that facilitate and develop credit for consumers and users.

Thus, remedies in order not to definitively exclude the debtor who has fallen into insolvency from the market, but on the contrary, to appropriately favor the reintegration.

Procedures against insolvent debtors lose their punitive connotations, which are definitively limited only to the cases of violation of criminal laws. The same state of insolvency qualifies in the case of consumers only as an “over-indebtedness”, that is to say a temporary excess of liability compared to their normal situation, which is induced by the marketing of producers and distributors to the continuous demand for often superfluous goods and services, and thus to be in a perennial state of more or less solvent debtors.

In the United States, regulations have been adopted more decisively aimed at maintaining the participation in the market by the consumer of goods or users of services, despite possible difficulties in regularly meeting the debts made as a result of such participation. Chapter 7 of the Bankruptcy Code provides for the discharge procedure for the insolvent consumer, i.e. the sale of one’s assets and the cancellation of past debts, which allows a fresh start. It essentially implies the return of the debtor to the economic system.

This typically individualistic and market-functional procedure in the United States is in line with the lack or limited presence of a social insurance system, which instead characterizes the Welfare State in Europe.

Ultimately, these measures are an expression of the same concept that considers equality achievable with the formal attribution of equal rights to all and which still allows the presence in the system of a certain degree of inequality as physiological in so far as it contributes to its indispensable dynamism.

The juridical order of the capitalist system defines its paradigms starting from the postulates of economic liberalism and the rationality of individual choices, expressly or implicitly asserted in its principles and purposes.

In the version of the most extremist doctrines, the legal order doesn’t aim at justice, but rather at economic efficiency, so that justice is evaluated with the criterion of the efficient allocation of resources.

The vision of the capitalist system as a harbinger of well-being through the presence of the relative inequalities of its participants has thus ended up taking on an even mythical character.

The economic development that took place from the end of the former until the beginning of this century had favored this optimistic vision of the system, which received its political seal with the Detroit Conference in 1953. Its theoretical formulation can be found in a thesis , the c.d curve by Simon Kuznets (Economic Growth and Income Inequality, in The American Economic Review, 1955), fueling the myth that capitalism based on the principle of free trade in markets leads not only to the increase of wealth, but also to its fair distribution according to the merits and talents of each one (“Growth is a rising tide that lifts all boats”).

The experience of the recent system crises has shown us the flaw of this vision. The hypertrophy and global development of financial markets has had distorting effects on the real economy. Adapting to working conditions has been difficult for entire categories of people, paradoxically precisely because of the extraordinary developments in technology. The wave of immigration has made social integration dramatic in Western countries and has favored the emergence of conflicts and fueled nationalistic closures.

The increase in inequality and the slide towards absolute poverty

The economic and financial crisis that we have recently experienced and its dramatic consequences have shown us, in the wake of the research and seminal work by Thomas Piketty (Le Capital au XXIe Siècle, Paris 2014; Capital et idéologie, Paris 2019), that in a capitalist market system the increase in capital income (rent) is greater than that in labor income (productivity) and that consequently as capital grows, economic and social inequalities are not destined to decrease but grow too.

In particular, it doesn’t appear at all true that the increase in capital income of some leads their greater wealth to “trickle down” significantly for the benefit of the less fortunate.

The Gini coefficient, which measures inequality in income distribution, confirms this analysis. In more recent years there has been a significant increase in the coefficient in the USA and Europe (especially in Italy and Germany) and the so-called “social elevator” has reduced its functioning (surprisingly more in the United States than in Europe).

Those who come from a disadvantaged family situation witness low opportunities to obtain an adequate level of education and access the new types of jobs offered by technological development, which have made activities traditionally carried out by the middle class obsolete. Young people in particular are offered repetitive jobs, with no prospects for qualification and improvement. Consequently, in the light of the UNDP indices, the participation in the economic and social life of a growing and important number of people risks becoming increasingly marginal and not allowing for a dignified life.

This situation increasingly turns “relative poverty” into “absolute poverty”.

The prospects in Italy are perhaps even more evident as opposed to other European countries: it’s a downward slide rather than an upward rise.

The most recent data reveals that in Italy the number of families in a situation of “relative poverty” has increased (3 million families – equal to 11.8% of the total, i.e- about 9 million people – equal to 15% of the total population). Moreover, the number of families in a situation of “absolute poverty” has increased (in Italy this encompasses 1.8 million families – equal to 7% of the total, i.e. about 5.4 million people – or 8% of the total population).

This data, even taken into account the significant presence in our country of an underground economy (unfortunately also fueled by activities run by organized crime) actually making the situation less severe, reveals a dramatic reality in any case. This confirms the shortcomings of the capitalist system and the limits of the instruments that its juridical order has so far implemented for the governance of the economy and society at large.

It is simply not enough to ask for rules in terms of correctness and transparency that ensure fairness of treatment to all those who exercise their individual rights. Nor is it an issue of intervening in cases, considered exceptional such as “market failures”.
Nor is it sufficient to provide remedies only for those who have been left behind accidentally but believed to be able to re-enter the system.
Nor can we can contemplate that the solution for those who are totally marginalized and not even access the remedies functional to the system, can come from individual or collective solidarity activities, although meritorious these remain entirely outside of it.

The dramatic consequences of the capitalist system and its inability to solve them with the tools provided by the system itself require a more drastic form of intervention.

We need to rethink the ultimate aims and tools of the economic system and reform its legal order so that the question of inequalities is not considered outside of it but placed at the very core.

What is to be done ?

Poverty, absolute or relative as the case may be, offends human dignity and dignity in our society and in our legal (constitutional) order. It constitutes an absolute not balanceable value or, in any case, certainly not to be balanced with respect to an alleged social utility of economic efficiency.

The social economic system and its legal order cannot only ignore the impact of inequalities whereas they cannot function properly if they do not take on the task of remedying them at least to the extent that they are not offensive to human dignity.

This not only means that the social economic system and its legal order shouldn’t allow the monthly emoluments of the CEO of a company listed in the USA to be on average 343 times the salary of one of its employees but it also means that the economic system must be able to offer all citizens conditions of health, education and work that allow them a dignified life.

In a nutshell, in order to be able to provide a response to the challenges posed by our time, the economic system and its legal order must be reformed to the extent necessary to resolve the pressing issue of poverty.

Those interventions such as the attribution of a so-called “citizenship income” or previously of a so-called “inclusion income” in Italy, and a revenu de solidarité active in France, or other similar instruments adopted in all other European countries, hold not only a welfare purpose but also one of social recovery of people who are on edge of exclusion and total marginalization.

Furthermore, in many of these countries, and in some others, the recognition of a minimum wage has already been envisaged as a measure. There where an employment relationship exists, it would ensure that its remuneration allows to reach the fundamental elements of a dignified life.
The limits of the tools provided for these purposes and above all, the obstacles that the system poses to them in any case, have made these interventions non-conclusive so far.

These obstacles are based on short-sighted findings that cultivate the illusion of being able to continue to reason on the basis of theoretical postulates which have been overwhelmed by recent history. Indeed, the critical significance that the resources destined to finance citizenship income could be allocated more efficiently to productive economic sectors is completely irrelevant. The citizenship income does not have the purpose of increasing demand for consumption and, therefore, indirectly the productive activity as well. The citizenship income has exactly the distinct and now indispensable function of repairing the defects and limitations of the system based on this vision of efficiency.

The solution or at least a healthy start to solve the problem of poverty will require not only the overcoming of these obstacles but further structural interventions directed towards the fundamental points of the system and the reforms of its legal order.

The discussion is open for debate, reflecting the different ideological approaches and the different paths that might be undertaken.
On the one hand, those approaches that propose interventions on the organizational structure, the activity and the very mission of the business activity that go beyond the paradigm of shareholders’ primacy and taking into account sustainability, involve people and communities, should also aim at carrying out non-profit goals. On the other hand, those of the so-called third sector, which instead call for more radical interventions towards new forms of common ownership and cooperation.

Finally, there are also approaches that propose public interventions, financed by the markets as well as by means of taxes on assets, in order to increase the elements necessary for a dignified life: education and professional training, reconversion and introduction to new types of jobs and health care.

These different approaches are not necessarily alternative.

All these approaches, even the less radical ones, require reforms that don’t leave poverty as an unpleasant but unavoidable issue outside the rules of the economic system. Instead they should tend to create tools for its integration into the system. This involves the profound change of its current fundamental principles and paradigms.

The pandemic that suddenly broke out, especially in the most economically developed countries, dramatically affected the prospect of these reforms. The issue of poverty has forcefully and definitively made its way into the system’s framework. The liberal dogma, according to which the market works autonomously, ignoring that the market also works according to rules, and which has already shown its failure with the 2008 crisis, is incapable of resolving the issue.

Keynesian-like public intervention, urgently evoked and invoked, can only give temporary relief if not carried out in a context of consideration for the nature of public or social or common goods, and of the mode of their definition, management and use in the awareness of the need for environmental protection. The approaches finally adopted at a European level, to finance a recovery based on innovative economic and social objectives, seem to be aimed in this direction.

Given these perspectives, the need to protect human dignity remains fundamental. Indeed, it is useful to recall the moral lesson of a scholar who was able to see the reality of our economic system. “What can it matter – wrote Federico Caffè – whether certain services are balanced or not! …. When social services are attacked, one does not realize the gain by the entire community. And again “Full employment – or as we would say today, the recognition of a minimum income for everybody – is not only a means to increase production and intensify expansion, but an end in itself – its advantages must be considered on the a productive level, but also and above all, in terms of human dignity”.

Diego Corapi

* This paper is based on my intervention at the meeting of 31 May 2019 among professors of the Faculties of Law of the Université de Paris II Panthéon Assas and of the Sapienza University of Rome, which is held annually for an exchange of ideas on the most notable current events proposed to the consideration of jurists. The topic proposed in this last meeting was about “poverty” and the most urgent issues that this unfortunate, but apparently inevitable situation poses to today’s societies. I revised this paper on March 1st, 2020. Meantime the growing pandemic with the consequent, vast economic imbalances and the worsening of poverty situations in Italy and in the world, made the choice of our discussion topic seem almost prophetic. I hope therefore that this paper, which announces only some aspects of the new situation, can rekindle some interest.
^ Alien to present notes is the vision of poverty that springs from its conception, not as a mortifying form of suffering but as the essentiality and authenticity of the human condition, which in the evangelical Beatitudes as well as in the Tao and Zen, leads to intimate contact with the Being. It is then understood as an emptying out of the spirit previous to the body. Upon this vision, C. Bologna, Povertà dei corpi, povertà degli spiriti, in Povertà, Atti del sesto colloquio internazionale di letteratura italiana, Università degli Studi Suor Orsola Benincasa, Naples 27 – 29 May 2015, Rome 2020, p. 21.

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