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Tag Archives: Inequality

Time for Workers to Re-Organize!

ORGANIZED LABOR? 

Regardless of what you have been lead to believe about the evils of unions, there is no question that organized labor is responsible for creatiing the middle class and the good life as we know it today. But all that is in decline as anti-union sentiment grew in response to organized business interests in the 1070’s. I say this because I don’t see anyone else point out these facts. Here is another graphic view of how middle class income has declined in lock step with union membership over the years. Also, you will see that the savings in employee wages have gone directlty to the top 1% creating the huge income and wealth disparity we have today. Check it out:

It is clear to me, at least, that the heart of our economic woes is due to 40 years of wage suppression. This results in a declining middle class, a growing number of people falling into poverty, a decline in federal income tax revenue and an added burden on government to support a growing number of poor, working poor and unemployed Americans. You can’t separate chronically lower wages from our declining consumer spending. Regardless of what the economists say, if people don’t have money to spend the economy slows down and jobs disappear. Stocks are doing so well because so much of our financial sector is based on even more depressed foreign labor, yes, but also on depressed wages here at home.

If corporations what to stimulate consumer spending here, and make America attractive to foreign investors, they need to raise wages. They won’t do that because they personally benefit, financially, by keeping labor costs down. Their corporations benefit from the artificially cheap US labor pool created by government aid to the working poor for housing assistance, WIC, food stamps, daycare, etc. And then these bastards making all the money have the nerve to pit us against each other by promoting the lie that the working poor are somehow less worthy, or that they are stealing from us. If corporate leaders don’t see the light then the only alternative is for the work force to re-organize itself and demand higher wages.

 

What Good Can Be Salvaged from the Trayvon Martin Case

Trayvon Martin is dead and George Zimmerman walks free. Was justice served?

From http://www.flickr.com/photos/23354940@N03/9280339883/: Hood Up! Justice for Trayvon Martin
Hood Up! Justice for Trayvon Martin by musyani75

That answer depends on who is asking the question. It should be a national outrage that this question splits us along both racial and political lines, but this has all become too predictable for outrage on these grounds. If we focus on the facts of the case the verdict divides us and there is no chance for reconciling our opposing views. If we shift the focus to our racial divide the glacial pace of reconciliation is measured in generations and no satisfactory solution can be seen. If we shift the focus to politics the question of justice will fade like an echo in the wind of endless partisanship. But focusing strictly gun laws in Florida may hold some slim hope for something good to come out of Trayvon’s death.  If this trial has done anything useful, it has been to drawn attention to the crazy legal framework that informed this verdict.

Who instigates a conflict that turns deadly has always been a factor in determining guilt. The concept is that deadly conflicts are be avoided at the earliest possible stage, before they turn deadly. If you initiate the conflict, the onus is on you to end it before someone gets hurt. The “stand your ground” laws in Florida and elsewhere upends this logic. Now, whoever walks away from a murderous gun fight can legally claim it was self-defense, even if the dead guy was unarmed. It is mostly a reasonable assumption that the survivor of a deadly conflict must have felt their life was in danger at some point.

In Florida, you can now walk up to anyone in the street, provoke them into assaulting you physically and then shoot them in self-defense. You are no longer held responsible for their death. If this was not the intent of the “stand your ground” laws, it is the absurd practical implication following this verdict. These laws, with their faulty legal premises, need to be overturned.

Still I have to wonder what the legal outcome would have been if Trayvon also had a gun and ended up shooting Zimmerman first. Would days pass before he was arrested and charged?  Would he have been acquitted by this jury?

If the only twist to this story was that Trayvon had managed to turn the barrel of Zimmerman’s gun around at the last instant to kill him, would the legal premise of the stand your ground law have been applied to Mr. Martin?  Would the actions of the police and the outcome of the justice system been different?  These questions are too important to ignore, but I am afraid the best answers to them depends largely on what we teach our children.

Wealth Inequality and Our Brewing Social Crisis

by Brian T. Lynch, MSW

Wealth disparity has a profound, relativistic impact in human societies and this is worth understanding. Even in the most egalitarian societies where everything is shared, there are subtle differences in the distribution of goods and services. These small differences convey powerful social messages that are keenly felt by all its members. These messages impact social interactions and the social order. Wealth distribution has powerful symbolic meaning in every society, large or small, rich or poor.

wealth-inequality-is-much-worse-than-you-realize

Wealth Disparity is Worse Than You Think – Business Insider
http://www.businessinsider.com/inequality-is-worse-than-you-think-2013-3

When the actual material differences in wealth are subtle, the costs or benefits conferred by wealth distribution are limited to social perceptions and its impact on social order or governance. These material differences are not existential threats to the socially disadvantaged. However, as the actual material differences between members of society grows, the scarcity of essential resources for some may follow. This becomes ever more consequential as it increases the efforts needed to assure survival. It introduces more uncertainty and decreases the sense of  personal control. Distribution induced disparity can grow to the point where it can even become life threaten. Additionally, the social power differential grows to the point where social relationships by the advantaged towards the disadvantaged can become exploitive and extractive.

Under conditions of extreme wealth disparity there are  physical and psychological impacts on both the powerful and less powerful. The Socially disadvantaged undergo significant stress and will exhibit all the symptoms and conditions associated with chronic stress (alcoholism, drug abuse, depression, maladaptive behaviors, obesity, child abuse, poor health outcomes, etc.). What is important to understand is that it is the disparity in wealth that induces social stress, not the absolute measure of wealth. Extreme wealth disparity becomes pathological in all societies, both rich or poor. This appears to have been true throughout history. Evidence of the corrosive effects of social disparity has even been demonstrated in research studying the impact of dominance on subordinate primate populations, so this appears to be a natural phenomenon.

Extreme wealth disparity is a threat to society. This fact is underappreciated by many. And distribution induced shortages don’t need to be at starvation levels before reaching critical mass, especially in wealthy countries like ours. Pundits have used this starvation metric or comparisons of our poverty to that found in poor countries to dismiss the current threat we face from rapidly growing wealth disparity. A better measure of our social instability is the health and welfare of the nation’s poor. The ranks of the poor are growing and their welfare is rapidly deteriorating. Here we find a conspiracy of silence in the main stream press. The symptoms of poverty induced stress have been reinterpreted as moral weaknesses and personal failings for which the poor have no one but themselves to blame. Both the unfair distribution of current wages and the redistribution of wealth through taxes to assist the poor are almost taboo subjects. To raise these issues is to be accused of inciting class warfare, which is exactly what has been raging for decades to bring us to this point.

The last time America experienced such enormous wealth disparity we were fortunate that the worst consequence was the Great Depression and not a total social collapse. The Great Recession of 2008 is an early warning of what will happen if we don’t correct our current wealth imbalance. So far the alarm bells are ringing but the public address system is still on mute.

Virginia Gives Many Former Felons Permission to Vote

In Civil Rights Victory, Virginia Restores Voting Rights for Hundreds of Thousands Nonviolent Felons

In a major victory for voting rights, Virginia’s Republican Gov. Bob McDonnell has announced he will automatically restore voting rights for people with nonviolent felony convictions. His decision will eliminate the two-year waiting period and petition process that currently disenfranchises thousands of nonviolent felons who have completed their sentences and satisfied all the conditions of their punishments. According to the Sentencing Project, 350,000 Virginians who have completed their sentences remained disenfranchised in 2010. We speak to Benjamin Jealous, president and CEO of NAACP, which has been on the forefront of the campaign to restore voting rights to former felons. The news comes as the U.S. Supreme Court prepares to issue a major ruling that could decide the future of the Voting Rights Act.  Please click here to see this video episode. It explains the issues behind this very welcome development. This is really great news.  It doesn’t, however, change Virginia’s constitution and it is based on an executive decree, which another governor can simply recind. So the title of the piece is a little misleading since it doesn’t change anyones voting rights, it simply restores the ability of a class of non-violent former felons to vote.
I have written extensively on voting rights.  What rights you have regarding voting is determined by which state you happen to live.  The federal constitution only limits the ability of states to discriminate based on age, race, gender and such. States’ constitutionally explicit voting rights are much vary greatly and are not as comprehensive as most citizens would believe.  What isn’t explicit in constitutional language, however, is usually provided in state statues so that voting in every state looks much more uniform and universal than it actually is.   For more on state-by-state constitutional voting rights, click here.
In addition to general voting rights outlined in state constitutions, most states have constitutional exceptions as to who may or may not be allowed to vote.  Below is a table which shows common voter qualification and disqualifications as contained in the state constitutions.
Number of States WithThis Right
Percent of US Population With ThisRight
QUALIFICATIONS and EXCEPTIONS
49
99.6%
Must be A US Citizen
46
91.2%
Must be Registered to vote
20
27.6%
State’s Deployed Solders Can Vote
37
83.9%
Felony Exception
12
15.5%
Treason Exception
13
30.9%
Incarceration Exception
33
69.5%
Mental Capacity Exception
2
0.5%
Moral Conduct or other Exception
23
34.0%
Restoration from Exception
10
17.6%
No quartered solders
2
1.8%
Right to Appeal Voter Ineligibility
The greatest variation among state constitutions involves voter disqualifications.  Thirty-seven states don’t allow felons to vote and twelve states also include treason as a voter disqualification, but there are differences in how broadly or narrowly these exceptions are defined. http://aseyeseesit.blogspot.com/2012/04/can-convicted-felon-vote-major.html
State statute laws and policies create a certian amount of lattitude to manipulate the voter roles. This has become a problem in recent election cycles.  Here is just one example pertaining to felons that appeared in the Huffington Post prior to the last presidential election.
huffingtonpost.com
Posted: 07/12/2012 3:01 pm Updated: 07/12/2012 3:08 pm
Michael McLaughlin

“A record number of Americans with criminal records cannot vote in what is expected to be a tight presidential election, a new study says.

More than 5.85 million adults who’ve been convicted of a felony aren’t welcome at polling places, according to data through 2010 compiled by The Sentencing Project. That’s 600,000 more than in 2004, the last time the nonprofit group crunched the numbers.

“The vast majority of these disenfranchised adults have been released from prison. Sentencing Project researchers found more than 4 million Americans who cannot cast a ballot because they’re on probation or parole, or live in a state that withholds the right to vote from all ex-felons.

RACIAL DISPARITY

  • More than 60% of the people in prison are now racial and ethnic minorities.
  • For Black males in their thirties, 1 in every 10 is in prison or jail on any given day.
These trends have been intensified by the disproportionate impact of the “war on
drugs,” in which two-thirds of all persons in prison for drug offenses are people of color. – The Sentencing Project

 

Capital Investment Income Drives Income Inequality

A recently published analysis by Thomas L. Hungerford (see highlights below) looks at factors driving the growth of income inequality for the period between 1991 to 2006.  Hungerford looked at the contributing impact of three factors, tax policy, labor wages and capital income. During the studied period he found that capital income (capital gains, interest income, business income and dividends) was by far the largest factor contributing to rising income inequality. Wages and salaries alone were not a factor and tax policies were only a minor contributor during this period, largely due to the more favorable tax treatment of capital gains.

This report doesn’t trace the history of income inequality prior to 1991 where changes in wage growth in the late 1970’s and the collapsing of upper income tax brackets in 1980 and 1985 were more dramatic.

It is worth remembering that for most of the past 100 years capital gains was treated as ordinary income for tax purposes.  In recent times, capital gains have be treated as a separate class of income with a more favorable tax treatment. Capital ownership has always been more concentrated at the upper end of the income/wealth continuum.  Capital is, of course, an ownership stake in our economy whether through stocks, bonds, property or business ownership. The income generated when these capital investments are bought and sold is currently taxed at 15% (if it is held for more than a year). That is less than half the top tax rate for wages and salaries.  And how is capital ownership distributed in America?

Who Owns What In America?

The distribution of wealth ownership, as opposed to income inequality, is even more skewed towards the wealthy as the pie chart below shows.  The whole pie represents the total wealth in America.  Each of the five slices of the pie represent 20% of the US population according to how much wealth they own.

WealthDistribution

The slice of ownership for the poor and working poor are barely visible. Eighty-percent of all Americans own just 15.6% of America’s wealth. The number of people who slipped into poverty in 2010 was at an all time high of 46.2 million, so the poorest 20% of all Americans, in terms of wealth ownership, includes 15.5 million who are technically above the income poverty line. The poorest 40% of Americans essentially own almost nothing while the top 20% own almost 85% of everything.  As a result, favorable tax policies for capital gains income has a highly disproportional benefit for the wealthiest Americans. Capital income for this wealthy segment is what drives rising income inequality today.

______________________________________________________________________

Changes in Income Inequality Among U.S. Tax Filers Between 1991 and 2006: The Role of Wages, Capital Income, and Taxes

 Thomas L. Hungerford

thunger@starpower.net

January 23, 2013

Electronic copy available at: http://ssrn.com/abstract=2207372

HIGHLIGHTS FROM THIS REPORT:

Research has demonstrated that large income and class disparities adversely affect health and economic well-being (see, for example, Marmot 2004, Wilkinson 1996, Frank 2007, Singh and Siahpush 2006).

Research has shown, however, that income mobility [in the United States] is not very great and the degree of income mobility has either remained unchanged or decreased since the 1970’s (Hungerford 2011, and Bradbury 2011).

Earnings inequality has been increasing since at least the late-1960s (Kopczuk, Saez, and Song 2010). [The] CBO (2011) has documented that income inequality has been increasing in the United States over the past 35 years.

Three potential causes of the increase in after-tax income inequality between 1991 and 2006 are examined in the analysis: changes in labor income (wages and salaries), changes in capital income (interest income, capital gains, dividends, and business income), and changes in taxes.

Increased salaries paid to CEOs, managers, financial professionals, and athletes, is estimated to account for 70 percent of the increase in the share of income going to the richest Americans (Bakija, Cole, and Heim 2010).

A declining real minimum wage could affect lower income tax filers (the inflation-adjusted minimum wage fell from $6.57 per hour in 1996 to $5.57 per hour in 2006).

Income of the richest 0.1 percent of taxpayers is sensitive to changes in asset prices and this may have been especially important in the increase in the income share of those at the top of the income distribution (Bakija, Cole, and Heim 2010).

Frabdorf, Grabker, and Schwarze (2011) also find that capital income’s share in disposable income has increased in recent years in the U.S. and show that capital income made a large contribution to income inequality in relation to its share in income.

While the individual income tax system is progressive and has been since it was introduced in 1913, the trend has been toward lower marginal tax rates and a less progressive tax system (Piketty and Saez 2007, and Alm, Lee, and Wallace 2005). As a result, the tax system may be less able to equalize after-tax incomes.

The major tax changes between 1991 and 2006 were (1) the enactment of the Omnibus Budget and Reconciliation Act of 1993 (OBRA93), which increased the top marginal tax rate from 31 percent to 39.6 percent, and (2) the enactment of the 2001 and 2003 Bush tax cuts, which reduced taxes especially for higher-income tax filers. The Bush tax cuts involved reduced tax rates, the introduction of the 10 percent tax bracket (which reduced taxes for all taxpayers), [it also] reduced the tax rates on long-term capital gains and qualified dividends. In 1991, long-term capital gains were taxed at 28 percent (15 percent for lower-income taxpayers) and all dividends were taxed as ordinary income. The next year, the

long-term capital gains tax rate was reduced to 20 percent. By 2006, long-term capital gains and qualified dividends were taxed at 15 percent (5 percent for lower-income taxpayers). Tax policy changes that affect progressivity will affect after-tax income inequality (Kim and Lambert 2009, and Hungerford 2010).

Hungerford (2010) notes, however, that about 75 percent of families contain just one tax unit (another 17 percent contain two tax units with the second tax unit usually a cohabitating adult or a working child that cannot be claimed asa dependent on another tax return). Consequently, most of the tax units likely represent a family.

Piketty and Saez (2003) argue that capital gains are not an annual flow of income and have large aggregate variations from one year to another; they exclude capital gains from much of their analysis. Blinder (1980) argues that capital gains should not be included in income because what is important is real accrued capital gains [cashed out].  Also, that capital gains represents partial maintenance of in an inflationary world. [in other words, gains shouldn’t be taxed as it serves as an inflation adjustment for capital]

capitals gains have increasingly become an important source of compensation for corporate executives (through stock options), and private equity and hedge fund managers (carried interests). Consequently, income from capital gains is included in the analysis.

Several recent studies estimate that most or all (in some cases more than 100 percent) of the burden of the corporate income tax falls on labor through reduced wages [while] other evidence suggests that most or all of the burden of the corporate income tax falls on owners of capital. [So take your pick!]

Federal individual and corporate income taxes had an equalizing effect on inequality regardless of the inequality measure. Federal taxes had a slightly greater equalizing effect in 2006 than in 1991—taxes appear to have been slightly more progressive in 2006 than in 1991. The top marginal tax rate in 1991 was 31 percent compared to 35 percent in 2006; the lowest tax marginal rate was 15 percent in 1991 and 10 percent in 2006. However, the increased equalizing effect of the individual income tax is likely due to bracket creep—more income is taxed at the highest rates—than to tax law changes. Tax policy changes appear to have played a direct role: OBRA93 tended to have an equalizing effect on after-tax income while the 2001 and 2003 Bush tax cuts tended to have a disequalizing effect.

Tax policy may have also have had an indirect effect on rising income inequality, especially between 2001 and 2006. The reduction in the tax rate on long-term capital gains and qualified dividends may have led to the increased importance of this source in after-tax income.

Overall, changes in [wage] labor income does not appear to be a significant source of increased income inequality between 1991 and 2006. Wages had no or a small disequalizing effect when other inequality measures are used.

By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends. Capital gains and dividends were less equally distributed in 1991 than in 2006, though highly unequally distributed in both years.

 __________________________________________________________

Thomas L. Hungerford currently works at the Congressional Research Service (CRS) which is part of the Library of Congress. The CRS  provides the policy and legal analysis to Congressional committees and Members, regardless of their party affiliation. CRS staffers sometimes do reports on their own. Hungerford says this report, “… [does] not reflect the views of the Congressional Research Service or the Library of Congress.”  Hungerford is well-published in the professional literature.  He has worked for the Social Security Administration, the Office of Management and Budget, and the General Accounting Office in the past.  The excerpts highlighted here are of my own.  You are encouraged to read the full study at the URL address provide above.

 

Raising Wages Would Revive Our Economy

It seems so obvious that consumption is the fire that powers an economy and money is the fuel.  It doesn’t matter from where the spending comes in the short run, but it must come from ordinary people in the long run.  Wages paid are dollars spent and a dollar spent is a dollar earned in a free economy.   Just as you can dampen consumption by raising the cost of borrowing, you can also dampen consumption by suppressing wages, which is exactly what we have been doing for more than 30 years.  Corporations have become cash rich but customer poor.  They could end this sluggish economy tomorrow by raising wages.

Living Wage Should Be Our Minimum Demand

Here are the facts: The federal minimum wage = $7.25 /hr.  President Obama wants to raise it to $9.00 /hr.  The current US Poverty wage = $10.60 /hr.  The current living wage rate averages $16 to $23 /hr depending on where you live. The poverty wage rate and living wage rates are based on a 40 hour work week.

Profitable companies paying workers, or their out sourced or supply chain workers, less than a living wage are financially benefitting from government aid to the working poor.  We need a stable work force to be competitive.  We also can’t have people starving to death in the wealthiest nation on Earth.  Companies take advantage of this and let state or federal governments step in to help care for their workers.  This amounts to a labor discount.  Cheap labor! Corporations are padding their profits at taxpayer expense.

At least 45% of working households require some form of government subsidy to maintain their financial stability.  The cumulative effect of wage suppression over the past 40 years has become a huge taxpayer drain on households making more than the median income.  While almost everyone’s wages are suppressed relative to GDP, the ranks of the working poor have grown to almost half of the work force. Business profits that have not been shared with workers over the years has gone instead to the wealtiest 1% of American’s creating the huge income inequality we have today.

In effect, profitable corporations and companies are making their higher paid employees subsidize  part-time workers and full-time works who make less than a living wage.

So the next time you see that cleaning lady at work, remember your employer is expecting you to subsidize her family though income taxes rather than pay her the living wage she needs just to make ends meet.   Every conservative argument against raising the minimum wage is just a smoke screen for the real culpret behind unemployment and our sluggesh economy, Wage Suppression!!! 

Minimum Wage Proposal A Small Step

In his State-of-the-Union Address President Obama proposed raising the federal minimum wage to $9.00 per hour and indexing it to inflation. He said a family of four with two children still lives below the poverty line when one parent works full-time at minimum wage. The proposed increase would lift them out of poverty, he said.


by Google Images

What a welcome suprise! Virtually no attention was given to the working poor in the last election. In the past decade real wages rapidly declined for the working poor, driving ever more citizens into the grip of intractable poverty.

When a person works full-time for a profitable company their compensation should enable them to care for their family. When this isn’t the case, they must rely on taxpayer-subsidized housing, food stamps, medical care, daycare, or other supportive services. This takes a toll. It  can erode a person’s dignity and self-worth. It can foster a sense of inadequacy or self-loathing.

On a social level the working poor are often labeled and marginalized. They are deemed to be less worthy. They are less likely to be promoted or rehired after a layoff. Any economic hardship at all can lock them into a cycle of poverty where their hope for a better life evaporates with each passing year. Escaping poverty in America  today is the exception, not the rule.

Many wealthy companies are just as dependent on government subsidies for cheap labor. Without taxpayer assistance for their workers these companies would have to pay a living wage in order to maintain a stable workforce.

And what is wrong with that? Shouldn’t adequate compensation be part of the cost of doing business? Why should business owners be allowed to pad their profits by cutting labor costs at taxpayer expense?

We can expect the pro-business lobby to oppose an increase in low-wage pay while calling for more spending cuts and lower business taxes. Austerity can’t create more jobs and spending cuts will never result in more pay for low-wage earners. Only an increase in the minimum wage or a living-wage law can do that.

Pro-business economists will claim that a higher minimum wage will increase unemployment and hamstring businesses, especially small businesses. Much evidence suggests the opposite. Higher minimum wages have a simulative effect on the economy. The extra $1.75 per hour will be spent immediately, boosting business profits and sparking more demand.

The pro-business lobby will claim the proposed increase is excessive, but here the facts are against them. Even President Obama got this wrong. The poverty wage for a family of four is current $10.60 per hour. If passed, President Obama’s proposal would still means a minimum-wage worker would have to work overtime, take another part-time job, or have their spouse work part-time to reach the poverty line.

And what does it really mean to be at the poverty line? Does this make a family economically self-sufficient?

No, it does not. A living wage to lift a family of four above the need for taxpayer subsidies is considerably higher. In Wyoming, for example, a living wage for this family is $16.93 per hour. In Virginia it is $20.88 per hour, and in California it is $22.15 per hour. These figures are not government artifacts. They are actual costs based on local free-market economies.

While business owners and corporations may squeal at the size of the proposed increase in the minimum wage, they would still benefit greatly from taxpayer subsidies for their low-wage employees. Raising the minimum wage shifts some of the burden of caring for employees to the employers, but not much. It still doesn’t hold wealthy corporations responsible for their low-wage workers or for the harm that poverty wages inflict on their families.

“Free Market” Social Services Fail to Deliver

Where do you turn when your aging mother can’t be by herself anymore or you notice your baby seems a little delayed?  Imagine that your teenager start  skipping school and staying out all night or imagine you are suddenly diagnosed with a serious illness or disabled in an accident.  Where do you go for help?

Sooner or later we all knock on the door of our community’s social service network.  What greets us may be far less than we expect.  And sadly, the help available to us will depend a lot on where we live and how much money we make.   The confusing patchwork of private, public and non-profit social service agencies through which we must navigate is the natural, unintended consequence of the free market model we’ve created to deliver social services.

We are all only temporarily able bodied.  We don’t give much thought social services.   We are content knowing that free market competition is efficiently keeping down the cost of publicly financed services for the needy.

It isn’t until we seek help ourselves that we encounter a labyrinth of agencies with confusing components and cutesy sounding acronyms for their names.  Agencies often list the types of services they offer (counseling, for example) without listing the types of problems they serve (such as adolescent issues).   Consumers are expected to know which services work best for their problems.  Some agencies over promise results in their marketing or take on people with problems that would be bettered resolved elsewhere.   Access to services are often restricted by bewildering eligibility requirements based on age, gender, geography, diagnosis, income, insurance provider, religion, ethnicity, funding source or hours of operation.

If your family has one or two very common problems, chances are you will find the help you need.  But if your problems are uncommon or complex, your search will not go smoothly. And if you also happen to be poor, live in an under served community or don’t have transportation, the prospects for getting effective help are slim.

This is the character of our social service networks today.  They are not based on matching service availability and capacity to the needs of local communities.  They are loosely coordinated networks created by free market forces and competition between private or non-profit agencies scrambling for dollars.

For over thirty years we have been privatizing public social services in the belief that free markets are more efficient than government in providing the best services at the lowest cost.  Little attention is given to the inescapable fact that market driven systems create uneven results by their very nature.  This is true in commerce but especially true in public social welfare.  Larger agencies are more politically connected and better positioned to compete for public dollars.  Wealthier communities have a higher profit potential so they attract more and better competitors.   Smaller agencies and program models that incorporate innovative ideas are less able to compete for government money.

Innovative approaches to helping people are usually funded in small trials by private foundations.  Even when these trials prove successful, bringing them up to scale is almost impossible.  Agency competition actually works against it because social service providers are competing on an artificial playing field.

Governments create the playing field on which agencies compete, but the government departments responsible for developing and funding social service contracts are often under staffed and ill equipped to monitor service outcomes.  They also lack the personnel and special expertise it takes to design better programs.  The time and effort involved in researching literature, writing contract proposals, putting contracts out for bid and guiding the implementation of new programs is enormous .  Politicians don’t want to spend what it would cost to create real free market competition for high quality services.

To overcome the uneven distribution of services problem,  governments develop specially targeted service contracts with extra financial incentives to serve specific areas.  But these initiatives are expensive and tax revenues are declining.  Targeted service contracts are usually limited in size and scope because of their higher costs.

We have come to the point where the availability and quality of essential services, to treat an abused child for example,  becomes an accident of birth.  How often have I seen children getting excellent services in one county while children with identical needs have no such services in another.

Commercial markets are efficient in distributing products according to demand when profits are distributed according to merit.   This method breaks down when applied to funding social services.  Competition discourages inter-agency coordination and inadequate  funding increases agency competition in more profitable locations while discouraging them from entering less profitable communities.  This causes unacceptable inequalities in meeting the basic human needs of our people.

There are many pressing issues that demand attention.  How we fund social services is rarely among them, yet the wisdom of distributing social services through artificially created free markets cries out for public debate.

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

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 Brian Lynch.  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. 

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.