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Visualizing Our Wealth Inequality

Wealth Inequality in America

It’s not everyday that a video about wealth inequality goes viral on the internet.
But this myth-shattering video is spreading across the social web, using powerful infographics to make the case that not only is wealth distributed unevenly, but that it is much, much worse than we think.
Here at the New Economics Institute, we are driven by a desire to build a new economy where wealth is distributed equitably. As the video demonstrates, most Americans are on our side. Our task now is to tell the story of a different, more prosperous future and to build the movement to get us there.
After you watch and share the video above, help us grow the movement by making a tax-deductible donation today.
[Republished with permission]
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Does Philanthropy End Up Hurting the Poor and Vulnerable?

What follows is my response to an open discussion about the role and social value of philanthropic  foundations.  It is my response to the lead article by Dr. Rob Reich, which can be read in its entirity at the URL below.

BOSTON REVIEW

http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

MARCH/APRIL 2013

Lead Essay:
What Are Foundations For?

Rob Reich

This article leads off our debate on philanthropy, with responses from Stanley Katz, Diane Ravitch, Larry Kramer, and others.

Graham Smith

Judge Richard Posner, one of the foremost American jurists outside the Supreme Court, once observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” Why, he wondered, don’t we think of these foundations as “total scandals”?

If foundations are total scandals, then we have a massive problem on our hands. We are now living through the second golden age of American philanthropy. What Andrew Carnegie and John D. Rockefeller were to the early twentieth century, Bill Gates and Warren Buffett are to the early twenty-first century.

The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations, such as Gates’s. The assets of the Gates Foundation and a separate Gates Trust, which holds wealth donated by the Gates family and Buffett, together total more than $65 Billion. If the combined entities were a nation, it would be 65th on the world GDP list. And it’s not just billionaires and their mega-foundations that command attention. Record wealth inequalities might be a foe to civic comity, but they are good for philanthropy. The boom in millionaires has fueled unprecedented growth in the number and assets of small foundations as well.

So foundations have seen explosive growth. But why are they a scandal?  Read the Full Article.  http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

My Comments:

In setting up his essay on philanthropic foundation in this “second golden age”, Reich offered the following:  “Let us dismiss quickly one common and intuitive thought: that foundations exist because they are remedial or redistributive, responsive to the needs of the poor or disadvantaged.”

He goes on to identify public goods this way: “It has long been understood that the commercial marketplace does not do well at providing what economists call public goods. These are goods that, like a well-lit harbor, are available to everyone if they are available to anyone; and that, like clean air, do not cost more when they are consumed by more people. “

After three decades in the field of child welfare, this was a startling and insightful dismissal.  In debating whether America’s philanthropic foundations are worthy of the tax exempt status conferred on them in 1937, Reich excludes consideration of their value relative to public services that reduce human misery but carry a cost per use.  In other words Reich’s definition of public goods includes only passive public services, like street lights, but not active public services, including child welfare.  This certainly explains why foundational giving for public needs is so small a percentage of their activity.  Yet we are asked to judge whether their social contribution is worth their $53 billion in tax exemptions each year?  How much good could that revenue do to support and strengthen our most vulnerable citizens?  Don’t ask!

To characterize social services as remedial “or redistributive” of wealth, is offensive to me.  When used to characterize government spending on the general welfare, “redistribution” is a code word to frame partisan arguments in our muffled debate over distributive justice.  Taxing the more successful citizens to promote the general welfare, except for military spending, is considered an unfair redistribution of wealth, yet any discussion on  the fair distribution of profits between workers and business owners is considered out of bounds.

The context for this discussion on foundations is the social value of philanthropy at a time when wealth disparity has never been greater.  When a growing number of wealthy foundations are extracting ever more revenue from an already dwindling federal revenue stream,  excluding consideration of their impact on public services makes this discussion itself a plutocratic exercise.

The pros and cons of whether foundations generate valuable diversity and innovation were well explored by the forum’s other contributors, but none of their essays addressed underlying assumptions.  Foundations actually do play an outsized and often deterious  role in how community social services are structured, funded and distributed. None of the contributors picked the scab off  this wound to consider the broader picture.  Financially speaking, foundations are in direct competition with public social services and the vulnerable populations served. I was disappointed.

Do Pro-business Policies Reduce Poverty?

President Calvin Coolidge once said, “” the business of the American people is business”.  He was quoted out of context at the time.  His remarks were aimed at newspaper reporters who were inept at covering business news, but this intentional misquotation seemed to sum up his economic policies.

Today this misquote seems prophetic. Political leaders from both parties speak as if whatever benefits business benefits the people.  State governments offer tax breaks and business friendly regulations to attract companies that might bring in more jobs.  This is especially true in less wealthy states where poverty rates are high.  President Lyndon Johnson’s “War on Poverty” has been transformed into pro-business politics and the promise of work for the worthy.

It is true that the poor need jobs, but the causes of poverty are more complex.  There is little regard for other factors such as the need for quality daycare, health care access, job training or transportation. Journalists rarely asks politicians how they plan to help the poor.  When they do, candidates talk about their plans to grow the economy.  This has some become an acceptable answer.

The insurgent idea that serving business interests is the best way to fight poverty arguably arose in the mid 1970s when corporate interest groups were forming and the business lobby became a powerful influence on Congress.   This was the high water mark of American unions as organized business groups launched campaigns to turn Congress and public opinion against them.

At the same time, these industry lobbying groups began fermenting hysteria over the growing “welfare state.”  The poor were poor, they argued, because anti-poverty programs make people dependent on government handouts while government regulations restrict the ability of companies to create jobs for those willing to work.  According to their narrative, government needed to spend more resources supporting commercial interests and deregulating markets.  President Reagan road these pro-business, anti-union, anti-government sentiments to the White House in 1980.

The success of the pro-business movement is evident.  In this past election Mitt Romney’s entire presidential campaign centered around the idea that business prosperity was key to growing jobs and the economy. The California Republican Party explicitly incorporates this thinking in their core beliefs:

“” each person is responsible for his or her own place in society. The Republican philosophy is based on limiting the intervention of government as a catalyst of individual prosperity” Republicans believe free enterprise has brought economic growth and innovations that have made this country great. Government should help stimulate a business environment where people are free to use their talents. “[California Rep Committee Philosophy http://cagop.org/inner.asp?z=585A]

In other words, it is the role of government to facilitate the business economy but each individual’s responsibility to avail themselves of the opportunities businesses provide.

The sufficiency of robust commerce to lift all boats isn’t just a conservative or partisan idea. It is expressed and pursued often by Democrats as well. In this last election even President Obama avoided talking about the poor by referring to them as “those aspiring to be middle class.”  There was almost no mention by either party of how they would accomplish this beyond trying to grow the economy.

So how well is our pro-business politics working out for the poor? This should be an empirical question that can be tested by examining the data. Are business interests and the interests of the poor perfectly aligned? Are there points of departure where the needs of some folks cannot be met without compromising some business interests?  Most importantly, does the data show that when businesses are doing well there are more jobs and better wages?

Profits, Employment and Wages 

Corporate profits are a measure of how well businesses are doing, so conventional wisdom would say wages and employment should rise and fall commensurate with corporate profits.    The hypothesis is that when companies do well there are more good paying jobs and therefore less poverty.  Is there evidence to the contrary?

In June of 2012, the St. Louis Federal Reserve released data showing a number of economic indicators over the last 71 years.  Using their report, the graph below plots corporate profits (CP) as a percentage of gross domestic product (GDP) from 1940 to 2011. GDP is total value of all the goods and services sold and a good measure our economy. The shaded areas represent periods of recession.  This graph shows that corporate profits rebounded since the 2007 recession and are at the highest level since 1940. The recession is clearly over for corporate America.


Corporate Profits to GDP by St. Louis Federal Reserve

Does it therefore hold true that robust corporate profits mean more jobs?  The next graph plots the number of employed Americans as a percentage of our population. This graph uses an employment per population percentage because the population doesn’t stop growing during recessions.  A fair comparison over time has to incorporate population growth for the same reason dollar comparisons over time have to factor in inflation.


Civilian Employment to Population Ratios by St. Louis Federal Reserve

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This above graph shows that there are actually fewer people working today as a percentage of the population than at any time in the past thirty years. Last June, in an article related to this graphs, Business Insider magazine speculated that one reason corporations are so profitable is that they aren’t employing as many Americans.

Does it also hold true that robust corporate profits means better wages?  The next graph depicts the total amount of U.S. wages paid as a percentage of the value of all goods and services sold (GDP). It shows that wages are at an all-time low relative to the wealth being generated.  If jobless recoveries are one reason for record corporate profits, the decline in wages pictured in this next graph may be the other.


US Wages as a percentage of GDP by St. Louis Federal Reserve

It turns out that the null hypothesis is true.  Corporate profits are at a record high, employment and wages are at a record lows and the notion that what is good for business is good for people is false. The stock markets have recovered.  Corporate profits have recovered, but the financial well-being of families have declined. Median incomes are shrinking and prospects for the poor are increasingly dismal.

Are Measures of Business Competitiveness Compatible with the Interests of Individuals? 

When considering what factors make businesses more competitive it’s best to take a broad global view. A global survey of business competitiveness was recently conducted and released by the World Economic Forum. The study on global business competitiveness ranks 144 nations according to indicators grouped in 12 general categories.

Overall, the United States is very competitive, ranking 7th out of 144 countries. When you drill down in some of the 12 categories, however, you find indicators favorable for business that are clearly at odds with worker interests.  For example, In the area of “Labor Efficiency” the U.S. labor “redundancy” costs are low, which means it doesn’t cost as much here to fire employees.  This makes us more competitive (12th place) on this measure. This variable includes the estimated costs of providing advance layoff notices, severance payments any penalties that other countries might impose on employers for terminating “redundant” workers. The U.S. may be more competitive in this measure, but is this factor good for individual workers?  Does it reduce poverty?

The U.S. also did well (8th) when it comes to the ease of hiring and firing people. All of this makes for a “flexible” work force, which is good for business, but does it stabilize the workforce or encourage employers to try and weather out minor economic storms?

Are the states with the most competitive business environments doing better at lifting people out of poverty?

Every year for the past five years CNBC has scored all 50 states on 43 measures of business competitiveness.  This survey was developed with input from business groups including the National Association of Manufacturers and the Council on Competitiveness. States receive points based on their rankings in each factor and the factors are organized into broader categories. I was unable to locate a detailed list of factors within each category, but  CNBC has published general descriptions of each category. In the category of “Workforce” for instance, they indicate that the prevalence of unions in a state is a negative factor for business competitiveness, while lower costs of doing business is a positive factor. Among the factors creating low costs for doing business are lower tax rates and tax incentives or tax abatement for business.  The general category findings for each state are published.

The hypothesis, again, is that when companies are doing well there are more good paying jobs and less poverty.  So it follows that the states with the most competitive business environments should also be the states with the lowest rates of poverty.

To test this I used the CNBC business competitive findings to compare ten states with the highest poverty rates and ten states with the lowest poverty rates. The high poverty states, starting with the highest poverty rate, are Mississippi, Arkansas, Kentucky, Louisiana, New Mexico, West Firginia, Oklahoma, Texas, Alabama, and South Carolina. The ten states with the lowest rates of poverty, starting from the top, are New Hampshire, Mariland, Alaska, New Jersey, Hawaii, Connecticut, Wyoming, Utah, Minnesota and Massachusetts.  The results of this analysis are found in the table below.


State poverty levels and business competitiveness by Self

Business Competitiveness Rankings are from CNBC’s Top States for Business Special Report:

ttp://www.cnbc.com/id/100000994 

It is striking that states with the highest poverty levels are also states that are more business competitive. The average rank in “Overall Business Competitiveness” for high poverty states is 7 points higher (more business friendly) than the rank for low poverty states.  In the “cost of business” category, high poverty states have an average rank of 18 versus 37 for low poverty states.  In the “workforce” category, which includes the prevalence of unions in a state, the high poverty states have an average rank of 20 versus 32 in low poverty states.

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Despite being “business friendly”, the ten high poverty states have over eight million poor citizens while the ten low poverty states have just over three million poor. There may be some political asymmetry as well since 7 out of 10 states with the high poverty rates have conservative Republican governors, while 6 out of 10 low poverty states have Democratic governors.

Conclusions

It is clear that pro-business politics, which puts commercial interests above the individual’s interests, isn’t working for the poor or for most Americans.  While a healthy economy is necessary for individual prosperity, it is clearly not sufficient.   What is best for business may be good for some, but not for all of our citizens.  There are certain business interests at odds with individual interests. Our political leaders need to acknowledge this when making policy.

The total dominance of pro-business politics has successfully crowded out meaningful debate on how to help the poor, the ranks of whom are swelling every year.  The poor are more marginalized and invisible than ever.  Almost no one speaks for them.  There is no hope for them in the more competitive business policies being proposed.  In fact, business prosperity is no longer well correlated with job growth or adequate pay, so plans to grow the economy ring hollow. The social contact that once pegged wage increases with increased productivity is broken. As a result, big business can flourish while the welfare of workers and the poor decline. This is unacceptable.

The ascendance of pro-business politics has given rise to commerce without conscience and too many ordinary citizens are being left behind.  We need to change the dialogue and strike a better balance.  We need to reclaim the role that government must play in meeting the needs of all our people.

International Corporate Plans to Oversee National Governments

Have you ever heard of the Trans-Pacific Partnership Agreement?

This posting is not so much an article on the Trans-Pacific Partnership agreement being negotiated as it is a gateway to articles on the subject.  It is important to learn about this  subject because, as Dave Johnson wrote in OpEdNews, “You will be hearing a lot about the upcoming Trans-Pacific Partnership (TPP) agreement. TPP’s negotiations are being held in secret with details kept secret even from our Congress. But giant corporations are in the loop.”

I would like to suggest you watch the DemocracyNow video from last June (see below) to UNDERSTAND this pending trade agreement and why it is a really big deal.  Note, however, that the video of an awards cerimony was actually an anti-TPP activist’s hoax.

Here is an excerpt from Public Citizens analysis of  TPP:  ” TPP is a “trade” agreement between several Pacific-rim countries that is actually about much more than just trade. It will be sold as a trade agreement (because everyone knows that “trade” is good) but much of it appears to be (from what we know) a corporate end-run around things We the People want to do to reign in the giant corporations — like Wall Street regulation, environmental regulation and corporate taxation. ” [Note: Once finalized, this trade agreement will remain open ended so that any other nations may sign on to it in the future.]

“After more than two years of negotiations under conditions of extreme secrecy, on June 12, 2012, a leaked copy of the investment chapter for the Trans-Pacific Partnership (TPP) trade agreement was posted at http://tinyurl.com/tppinvestment. Public Citizen has verified that the text is authentic. “
“The leaked text provides stark warnings about the dangers of “trade” negotiations occurring without press, public or policymaker oversight. It reveals that negotiators already have agreed to many radical terms granting expansive new rights and privileges for foreign investors and their private corporate enforcement through extra-judicial “investor-state” tribunals.” – Public Citizen
Here is just a small example I reviewed of the wording in the actual TTP document that was leaked last June:
                                           ———————————-
Article 12.7: Performance Requirements
3. (c) Provided that such measures are not applied in an arbitrary or unjustifiable manner, or
do not constitute a disguised restriction on international trade or investment,
paragraphs l(b), (c), [and] [(t)], [and (h),] and 2(a) and (b), shall not be construed to
prevent a Party from adopting or maintaining measures, including environmental
measures:
(i) necessary to secure compliance with laws and regulations that are not
inconsistent with this Agreement;
(ii) necessary to protect human, animal, or plant life or health; or
(iii) related to the conservation of living or non-living exhaustible natural
resources.]
                                               ——————————-
What this example says is that national laws “necessary to protect human, animal or plant life or health” cannot be applied to international trading in ways that a foreign investor considers arbitrary, unjustified or trade restrictive. Elsewhare the agreement lays out how international investors can sue governments, and this process is entirely under corporate, not government, control.

http://www.democracynow.org/2012/6/14/breaking_08_pledge_leaked_trade_doc