Sustainable management: Poverty, opportunity, justice
- Peter Lorenzi
- Dec 13, 2023
- 30 min read
There is a tendency when studying the concept of sustainability for one to think in terms of threats, meaning threats to the condition of the environment, or to the economy, or to human equality. The focus here is to look more to opportunities, including opportunities to mitigate threats. In seeking out opportunities we will, at times, identify threats. This promises to be a balanced, comprehensive approach.
Another widespread tendency in this 24x7, hyper-connected, information economy is for the news media to focus on threats, on negative events, on ominous forecasts, on apocryphal anecdotes, and other elements of traditional journalism, “If it bleeds, it leads.” For example, climate ‘scientists’ improve their power and funding by predicting alarming scenarios ten or twenty years into the future, even if time shows the predictions to be exaggerated if not false. There is no accountability primary because there is no ‘science,’ meaning that hypotheses are tested and predictions can never be proven false if every scenario is ten or twenty years from today, constantly moving.
The premise of this book is that human progress and success in extending the quantity and quality of life around the plant has been based on the ability to exploit opportunities – not fear or people – to allow humankind to pursue ideas to invest, to innovate, and to inspire the creation of a better life, to make prosperity rather than poverty, the dominate mode of human existence.
To understand the importance and nature of wealth and its creation, we need to understand poverty, its definition, nature, causes and effects.
1. Creating – not re-distributing -- wealth reduces poverty.
2. Wealth creation requires economic growth.
3. Economic growth increases relative poverty.
4. Relative poverty is one form of inequality.
5. Not all inequality constitutes unfairness or injustice. “Life is unfair.”
6. Social justice is an issue of opportunity, process and outcomes.
7. Poverty and social injustice today are most often the result of a lack of opportunity.
Poverty is at the root of many of our social, cultural problems, including race, health, education, and perhaps most of all – opportunity. We can create wealth without reducing poverty, history shows that as more wealth is created, more people move out of poverty.
Bono: “In the United States,” he explained, “you look at the guy that lives in the mansion on the hill, and you think, you know, one day, if I work really hard, I could live in that mansion. In Ireland, people look up at the guy in the mansion on the hill and go, one day, I’m going to get that bastard.”
Thomas Aquinas: "Envy according to the aspect of its object is contrary to charity, whence the soul derives its spiritual life... Charity rejoices in our neighbor's good, while envy grieves over it."
Overview of poverty prior to progress and prosperity
To understand business, management and leadership you need to understand how and why these concepts and practices emerged. In examining the ‘why’ question, we have to come to grips with the history of human development which can best and simplest be characterized as the progression from global poverty to global prosperity. This progression has been marked by (1) unprecedented, unrelenting increases in the creation of multiple forms of wealth, (2) tremendous reductions in absolute poverty, and (3) massive resulting increases in income and wealth inequality. Real, significant progress started about the time of the Industrial Revolution. The driving force was free-market capitalism. The development of entrepreneurial business, modern management practices, and enlightened forms of leadership provided the basis for sustaining and increasing the initial spurt of industrial growth that also guided us from the industrial age to the service economy and to the modern information economy to today’s knowledge- and data-based network economy.
Reflect back two hundred years and the dilemma is clear: 94% of the world’s one billion people live in absolute poverty, living on a very real edge, and threatened on a daily basis by natural forces, e.g., disease, starvation, pestilence, extreme weather. War was often the means to secure limited resources and to subjugate people for the benefit of nobility. Wealth was almost a surreal concept for all but the world’s one percent, and wealth was almost exclusively natural wealth, mostly limited and hoarded whenever possible. What natural wealth that could be created and renewed by human effort, e.g., crops, forests, were unproductive, labor intensive, and subject to the whims of Mother Nature. Life itself was “nasty, brutish and short,” with infant mortality above 50% and life expectancy less than forty years.
The world was in a precarious state. Half of all newborns died before reaching the age of five. Plagues had the possible of wiping out entire countries. Changes in the climate could make food production highly unpredictable. There was little room for error, little savings (and almost no personal wealth), and little resistance to the natural forces of Mother Nature. Malthus’ forecast was that people would continue to populate faster than food production could increase, producing even more dire circumstances for those fortunate (or unfortunate) enough to survive childhood.
Defining and understanding poverty
Measures of poverty have long focused on an absence of wealth, income or the basic necessities for survival – food, clothing, shelter. To understand and address poverty, it is critical to understand absolute poverty, relative poverty and consumption.
1. Absolute poverty is a condition that occurs when a person’s or a household’s income falls a specific threshold level of income, i.e., below the ‘poverty level’. As explained by an NAS panel, "Absolute thresholds are fixed at a point in time and updated solely for price changes.... In contrast, relative thresholds, as commonly defined, are developed by reference to the actual expenditures (or income) of the population." In 2013, the American government-established absolute poverty threshold for a single person under the age of 65 was $12,119.
2. Relative poverty serves as the basis for political arguments in favor of income re-distribution, intended to eradicate inequality. Most western economies outside the United States, household poverty is defined as income below 60% of the median household income. Note this World Bank discussion of measuring poverty.
3. Consumption is a better outcome indicator than income, is easier to measure than income, and better reflects a household’s ability to meet basic needs.
Yet the single most expressive way to define poverty today is a lack of opportunity.
· Almost half the world — over 3 billion people — live on less than $2.50 a day.
· The GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world’s 7 richest people combined.
· Nearly a billion people entered the 21st century unable to read a book or sign their names.
· 1 billion children live in poverty (1 in 2 children in the world). 640 million live without adequate shelter, 400 million have no access to safe water, 270 million have no access to health services. 10.6 million died in 2003 before they reached the age of 5 (or roughly 29,000 children per day).
“We don’t actually count benefits in kind or aid through the tax system in our definition of poverty, although we do count just giving poor people cash money. The upshot of this is that in the old days what the poverty line was really measuring is the number of people who were poor after the things we did to reduce poverty. Today that same poverty line is measuring the number of people who are poor before all the things we do to reduce poverty. We don’t care whether people have jobs or not, we don’t even care whether people have incomes or not: we only care that people have the opportunity to consume. It’s not income poverty that is the real concern, it’s consumption poverty that ought to be. Figure 2 shows us this is around and about zero now in the US.”
“But more important than this is the fact that this measurement of relative poverty is not in fact a measurement of poverty at all. It’s a measure of inequality. We can all argue about whether inequality is bad, how much is too much and so on but it’s a very different concept from poverty.” “What this tells us is that the very poorest of the poor in the US, the bottom 5% (and thus very definitely below that poverty line) are in fact richer than 95% of all Indians. And 85% of all Chinese and 55% of all Brazilians.”
Understanding and preventing poverty[1]
Concerns about poverty stem from the growing gap in incomes and the contradictions of growth in both wealth and income inequality. Economic growth increases the income gap while decreasing the number of people living in absolute poverty.
The primary issues remain: What constitutes poverty? Is poverty a relative or an absolute term? Is poverty an absence of wealth, income, consumption or opportunity? Is poverty defined as near-starvation? or food uncertainty? Or is it the absence of an opportunity for education? Or lack of access to medical treatment?
1. Census data as far back as 1988 showed three essential behaviors that characterized American adults notin poverty. They finished high school, worked for one year, and married and stay married. For more perspective, Google “three causes of poverty.”
2. More than ten years later, the recommended strategy was similar. William Galston, an assistant to President Clinton, said, to avoid poverty, do three things: finish high school, marry before having a child, and produce the child after you are 20 years old. He noted that only 8% of people who do all three will be poor; of those who fail to do them, 79% will be poor.[2]
3. Poverty is relative and place-specific. A person considered ‘poor’ in the United States may appear wealthy to the poor in another country.
4. Robert Rector of the Heritage Foundation (link) noted these conditions of Americans defined as poor by the Census Bureau.
· 46% of all poor households own their own homes.
· 76% of poor households have A/C (30 years ago, 36% of U.S. had A/C).
· The average poor American has more living space than the average person in Paris, London, Vienna, or Athens.
· Nearly three-quarters of poor households own a car; 30 % own 2 or more.
· Ninety-seven percent of poor households have a color television.
· 78% percent have a VCR or DVD; 62 percent have cable or satellite TV.
Wilkinson: How economic inequality hurts societies (TED 2011; 16:54)
Contrast the American assertion from our Declaration of Independence – life, liberty and the pursuit of happiness – with the comparable French motto – liberte, egalite, fraternite – both from the late eighteenth century and the time of their respective revolutions. These simple phrases demonstrate a marked difference in the two cultures and the political system and rights that emerged from this thinking. The American motto emphasizes more individual pursuits, not equal outcomes; the French motto is more collective, socialist. The following video demonstrates some of the issues that arise from profound cultural differences around the world, without clearly demonstrating cause and effect.
This painful yet incomplete analysis of the relationship between income/wealth inequality and health raises more questions than it answers, including, “Does inequality cause health problems, or is it the reverse?” Or, “Are negative health incomes more the result of bad choices or of a lack of health insurance?” Or, “What does the ‘American dream’ promise or imply?” And to start, “Does the French concept of ‘liberty, equality and fraternity’ convey the same sense of values as the American commitment to ‘life, liberty and the pursuit of happiness’?”
You all know the truth of what I'm going to say. I think the intuition that inequality is divisive and socially corrosive has been around since before the French Revolution. What's changed is we now can look at the evidence, we can compare societies, more and less equal societies, and see what inequality does. I'm going to take you through that data and then explain why the links I'm going to be showing you exist.What all the data I've shown you so far says is the same thing. The average well-being of our societies is not dependent any longer on national income and economic growth. That's very important in poorer countries, but not in the rich developed world. But the differences between us and where we are in relation to each other now matter very much. I'm going to show you some of the separate bits of our index. Here, for instance, is trust. It's simply the proportion of the population who agree most people can be trusted. It comes from the World Values Survey. You see, at the more unequal end, it's about 15 percent of the population who feel they can trust others. But in the more equal societies, it rises to 60 or 65 percent. And if you look at measures of involvement in community life or social capital, very similar relationships closely related to inequality.
This is social mobility. It's actually a measure of mobility based on income. Basically, it's asking: do rich fathers have rich sons and poor fathers have poor sons, or is there no relationship between the two? And at the more unequal end, fathers' income is much more important -- in the U.K., USA. And in Scandinavian countries, fathers' income is much less important. There's more social mobility. And as we like to say -- and I know there are a lot of Americans in the audience here -- if Americans want to live the American dream, they should go to Denmark.
The other really important point I want to make on this graph is that, if you look at the bottom, Sweden and Japan, they're very different countries in all sorts of ways. The position of women, how closely they keep to the nuclear family, are on opposite ends of the poles in terms of the rich developed world. But another really important difference is how they get their greater equality. Sweden has huge differences in earnings, and it narrows the gap through taxation, general welfare state, generous benefits and so on. Japan is rather different though. It starts off with much smaller differences in earnings before tax. It has lower taxes. It has a smaller welfare state. And in our analysis of the American states, we find rather the same contrast. There are some states that do well through redistribution, some states that do well because they have smaller income differences before tax. So we conclude that it doesn't much matter how you get your greater equality, as long as you get there somehow.
What about causality? Correlation in itself doesn't prove causality. We spend a good bit of time. And indeed, people know the causal links quite well in some of these outcomes. The big change in our understanding of drivers of chronic health in the rich developed world is how important chronic stress from social sources is affecting the immune system, the cardiovascular system. Or for instance, the reason why violence becomes more common in more unequal societies is because people are sensitive to being looked down on.
Analysis
1. While health outcomes inequalities are a form of injustice, it is not clear that these differences are caused by income inequalities, nor is it clear that reducing inequality would reduce health outcomes, nor is it clear that the direction of the causality assumed in the talk is in the direction Wilkinson claims.
2. There is a cultural difference and a significant difference in economic impact between single mother households and two unmarried parent households. In America, about twenty percent of single-parent households are single father households.
3. The American federal tax system is significantly progressive, e.g., the top 1% of wage earners pay 35% of federal income taxes. Wilkinson needs to use after-tax incomes and after-benefit incomes to better claim inequality in incomes. He is looking at before-tax wages, not after-tax incomes of those with high incomes nor the after-benefit incomes of those with low or no wages.
4. Wilkinson speaks from the clear perspective of an English culture that has maintained a class structure that – by culture, not by income – creates feelings of disrespect and inferiority, based on one’s social standing.
5. Global wars reduce inequality. The greatest ‘leveler’ of global wealth inequality ever was World War I. In global conflicts, almost everyone becomes worse off. Massive, consistent, constructive, prosocial and altruistic efforts to reduce income inequality include taxation, wealth re-distribution, charity, pensions, public education and healthcare (e.g., Medicare, Medicaid), unemployment benefits, Social Security, disability payments, and other social welfare programs, none of which are considered by Wilkinson. In the United States, about 65% of what the federal government spends is in wealth transfers to improve the incomes of the ‘bottom 95%.’ Private, personal charity in the United States in 2016 was nearly $400 billion, which is more than the entire economy of 90% of the world’s countries. The United States has about 4.67% of the world’s people, 21% of world GDP, and 25% of global wealth.
Wealth inequality in America (2012; 6:23)
This video, based on a short academic article, based on a survey of people’s perceptions and preferences, tells us more about the shift from freedom (negative rights) to entitlement (positive rights), based on the idea that income inequality can be ‘fixed’ by wealth re-distribution. The somber narration shifts carelessly between wealth and income. The video also ignores the research that shows that people’s perceptions greatly underestimate the percentage of income taxes paid by the wealthy (the lowest 47% of incomes pay no federal income taxes). The analysis ignores lifetime income mobility and the effects of taxes.
A business professor and economist asked more than 5,000 Americans how they thought wealth was distributed in the United States. This is what they said they thought it was. Dividing the country into five rough groups of the top, bottom and middle three 20% groups, they asked people how they thought the wealth in this country was divided. Then he asked them, what they thought was the ideal distribution, and 92%, that’s at least nine out of 10 of them said it should be more like this. In other words, more equitable than they think it is. 1% of America has 40% of all the nation’s wealth, the bottom 80%, eight out of every ten people, or 80 out of these 100, only has 7% between them, and this has only gotten worse in the last 20 to 30 years, while the richest 1% take home almost a quarter of the national income today.
Analysis
1. What happens to the analysis when we measure income, wealth, consumption, and/or government benefits?
2. Is a widow living on Social Security in a million-dollar home poor or wealthy? Is a Millennial with $100,000 in college debt and a $80,000 income, living in Manhattan, poor or wealthy? The greatest shift in wealth in America in the past fifty years has been a shift of poverty (negative net worth) from the retired elderly to the young working college graduate.
3. In general, Americans have income mobility, i.e., you can start in the bottom quintile and move up two, three, even four quintiles in a lifetime. Most of those among the wealthiest in America did not inherit that wealth; they created wealth for themselves and for others. And mobility goes both ways: Fortunes are made and lost.
America’s wealthy top one percent did not inherit it[3]
“In 1900, it required a net worth of $39,000 to be classified as America’s top 1%. The median factory worker earned just shy of $500 per year. At the end of the Gilded Age, it would have been a fair claim to suggest that the United States resembled an aristocracy, as over half of America’s richest 1% received at least $20,000 in inheritance. Statistically speaking, if you were at the top crest of America’s wealth distribution, it was more likely than not that your wealth could be tied to receiving something from your parents. Modern America, with all of its hand-wringing over the role that intergenerational wealth transfers play in creating systemic unfairness at a minimum and consolidated political power at a maximum, overstates the extent to which calcified wealth is present in the United States today.
The best work I’ve encountered that really dives into the data points is “Whatever Happened to the Great Inheritance Boom?” by New York University professor Edward N. Wolff and Maury Gittlemann from the U.S. Bureau of Labor Statistics. According to his research, the top 1% in America requires a net worth of $6.8 million. Only 14.7% of wealth transfers in the United States involves a wealth transfer of $1 million in more. This still requires additional work to reach the top 1% status but gives us a glimpse of the role that a meaningful inheritance plays in making someone a member of the top 1%. Only 2.27% of the top 1% reaches that status through an inheritance of $6.8 million or more that automatically puts them there. Assuming conservatively that a third of those receiving at least a $1 million inheritance don’t increase it six-fold, this means that only one in ten of those with a $6.8 million net worth or higher received that the bulk of their funds through inheritance.
Now, as baby boomers age, it is also likely true that the figure will creep back up above the current 14.7% figure. With $22 trillion in wealth that needs to be doled out from those born between 1935 and 1955, it would not surprise me to see a return to the early 1990s ratios in which 20-25% of the wealth in the top 1% comes from an inherited source. Even this does not bother me. Why? Because the top 1% of wealth in America is not a static group. As of 2007, the average American that reaches the top 1% status only remains there for 8.2 years of his life. That is a function of compounding, which tends to give the greatest returns near the end of one’s life once the snowball has had decades to build up while rolling down the hill.”
Do we need to rethink capitalism? (TED 2015; 9:51)
This talk suggests a need to ‘re-think’ capitalism when the problem is often one of the absence of capitalism, when markets and people are not free, or when crony capitalism creates phony capitalism. The media, academics, the political elite – and some financial ‘experts’ -- fail to understand or to appreciate capitalism, while benefitting greatly from its existence. The speaker has a personal, self-serving definition of capitalism, making in effect, a straw man argument. A flat statement, e.g., “Income inequality is not a good thing,” is rhetoric, not evidence, not critical thinking. Innovation displaces people from jobs, not capitalism.
I started in my 20s trading commodities, cotton in particular, in the pits, and if there was ever a free market free-for-all, this was it, where men wearing ties but acting like gladiators fought literally and physically for a profit. Now, higher profit margins do not increase societal wealth. What they actually do is they exacerbate income inequality, and that's not a good thing. But intuitively, that makes sense, right? Because if the top 10 percent of American families own 90 percent of the stocks, as they take a greater share of corporate profits, then there's less wealth left for the rest of society.
Income inequality is not a good thing. This next chart, made by The Equality Trust, shows 21 countries from Austria to Japan to New Zealand. On the horizontal axis is income inequality. The further to the right you go, the greater the income inequality. On the vertical axis are nine social and health metrics. The more you go up that, the worse the problems are, and those metrics include life expectancy, teenage pregnancy, literacy, social mobility, just to name a few. … where does the United States rank? Where does it lie on that chart? And guess what? We're literally off the chart. Yes, that's us, with the greatest income inequality and the greatest social problems, according to those metrics.
Now, capitalism has been responsible for every major innovation that's made this world a more inspiring and wonderful place to live in. Capitalism has to be based on justice. It has to be, and now more than ever, with economic divisions growing wider every day. It's estimated that 47 percent of American workers can be displaced in the next 20 years.
Analysis
1. Greed is not peculiar to capitalism. Capitalism means creation, not accumulation.
2. While the cotton trading market is a symptom of capitalism, cotton trading is not capitalism; it is not even a good metaphor for capitalism. And cotton trading does not create wealth; it is primarily speculation in price differences.
3. Capitalism is about entrepreneurship, creatively combining capital to create more capital. Capitalism spurs creative innovation.
4. Capitalism is about trade, markets, political and economic freedom; it is more about choice then the competition that often results.
5. While businesses might prefer to operate as a monopoly, the ‘invisible hand’ of capitalism usually precludes that option. However, governments are monopolies and they create monopolies through regulation, subsidies, and crony capitalism.
6. Inequality is correlated with negative social outcomes but that is not proof that income inequality causes social/health issues. The reverse may be true, e.g., health and social problems may cause income inequality.
7. Many other factors correlate with social problems. Wealthier, free countries tend to have more social problems because people are free to make bad choices and have enough money to make them. Countries with little economic growth and miniscule immigration also have fewer social problems. People in poorer countries and economies rely more on collective efforts to protect their interests, to survive.
8. A corporation’s primary responsibility is wealth creation, not charity. Corporate charity pales in comparison to American personal charity (about $400 billion a year) and federal government wealth transfers (about $2.6 trillion a year).
9. Here is a simple, even simplistic guide: Capitalists create, entrepreneurs innovate, socialists distributeand communists appropriate (take from you).
Equal opportunity and treatment do not lead to equal outcomes
Equality can be expressed in terms of inputs, process and outcomes, or (1) equal opportunity, (2) equal treatment in process, and (3) equal outcomes, respectively. You could give every person admission and free tuition to Harvard, and each person would likely differ in his or her academic performance, subsequent life, income and career. Equal opportunity does not produce equal effort or equal outcomes in wealth or income. As long as people make choices with the same opportunities and procedural justice, there are going to be differences in the outcomes. Economic growth can be facilitated by equality in opportunity, e.g., property rights, and equality in process, e.g., rule of law. Growth can also improve equality in both opportunity and process. As either a cause or result of equal opportunity and equality before the law, economic growth is still most likely to increase income variation. And the starting line of equal opportunity will never be perfectly equal. People come to the starting line with personal, social, financial and cultural differences, some of them advantageous and some of them problematic. The original United Nations’ Millennium goals focused on the eradication of absolute poverty. The resultant success in reducing global poverty was due, in part, to increasing inequality, as all income quintiles worldwide increased. Now the United Nations has shifted its attention to relative poverty, failing to recognize that strong economic growth helped all income quintiles.
Poverty, equality and justice
1. Wealth creation is not a zero-sum process. One person’s success does not have to impair another person’s state or prospects. Equality does not mean simply dividing the existing wealth “equally” among all people.
2. Capitalism trumps socialism. Despite its critics and shortcomings, capitalism does not create poverty. Capitalism creates and distributes wealth. The time-tested method from reducing poverty and human suffering is economic growth, not in trying to create equal outcomes. Per Winston Churchill: “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”
3. Wealth and income distribution are secondary issues to wealth creation and they are impossible to sustain without wealth creation. Per Margaret Thatcher, “The problem with socialism is that sooner or later you run out of other people’s money.”
4. Attention to wealth creation does not imply inattention to social justice, poverty or human dignity. Rather, the practice of wealth creation provides the funds to empower people, to provide charity, and to reduce poverty. Most importantly, capitalism and wealth creation have created and continue to create numerous, sustainable routes out of poverty.
5. Freedom of choice is also the freedom to fail. If every risk were guaranteed against failure, there would be no risk and little reason to avoid failure. If a fair income and wealth were guaranteed, what would happen to incentives to create wealth?
6. Appreciate the differences between political rights and economic rights. The former describes basic human rights, e.g., freedom of speech, freedom of religion, right to a trial and to due process. The seminal human rights document, the Magna Carta, guaranteed rights to people that were once the exclusive right of kings.
Then there are those who advocate communism (not socialism) as the solution, starting with New York Mayor Bill Di Blasio.[4]
In 2013, you ran on reducing income inequality. Where has it been hardest to make progress? Wages, housing, schools?What’s been hardest is the way our legal system is structured to favor private property. I think people all over this city, of every background, would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. I think there’s a socialistic impulse, which I hear every day, in every kind of community, that they would like things to be planned in accordance to their needs. And I would, too. Unfortunately, what stands in the way of that is hundreds of years of history that have elevated property rights and wealth to the point that that’s the reality that calls the tune on a lot of development.
I’ll give you an example. I was down one day on Varick Street, somewhere close to Canal, and there was a big sign out front of a new condo saying, “Units start at $2 million.” And that just drives people stark raving mad in this city, because that kind of development is clearly not for everyday people. It’s almost like it’s being flaunted. Look, if I had my druthers, the city government would determine every single plot of land, how development would proceed. And there would be very stringent requirements around income levels and rents. That’s a world I’d love to see, and I think what we have, in this city at least, are people who would love to have the New Deal back, on one level. They’d love to have a very, very powerful government, including a federal government, involved in directly addressing their day-to-day reality.
How can we resolve this gap? Do not assume that all important resources are fixed and zero-sum in their use. And some important resources have not yet been discovered. Understand and respect the personal and social value of private property. People tend to better manage resource when they own them. The antidote to poverty is not a fairer distribution of a fixed amount of wealth or income. The antidote is the broad creation of wealth and reduced wasteful consumption.
Equ(al)ity and social justice
The paradox of equality thorough social justice claims results from the confusion between equal rights to opportunity or process with equal outcomes. At the extreme, it refers to the abolition of private property. That is, to be fair and equal, every person on earth deserves an equal, just, fair share of the earth’s (natural) resources. Considering the fact that most wealth is not natural or fixed, and that it is created, fighting over an equal distribution of the world’s natural resources is foolish, pointless. Equality or social justice can occur in opportunity, process and outcomes. In constitutional democracies, the legally prescribed rights of equal opportunity and due process constitute social justice. Social justice as measured by equal outcomes is much more problematic, because the diligent exercise and protection of equal opportunity and due process lead to great variability in outcomes. Income and wealth inequality are the most likely product of equal opportunity and fairness in the process, especially in the absence of an operational definition of equality in income or wealth.
A mathematical demonstration of the last thirty years of global economics illustrates the point. Opportunity and process improvements in the past thirty years have improved political and economic outcomes to people with daily incomes of $1, $10, $100, $100, or with comparable differences in initial wealth. A tripling of incomes in thirty years produced a decline in absolute poverty (one of the United Nations’ Millennium goals of that period) and an inevitable growing disparity in incomes and wealth. The $9 daily difference between the two lowest income levels is now $27. The difference between the top and the bottom has grown from a daily $99 to $997. Equal growth rates across income levels produce variability (inequality) in wealth and income outcomes. Analyses of income inequality often ignore income mobility, intergenerational wealth transfers, government transfer payments and benefits (estimated by Robert Rector as over $22 trillion in the past thirty years in the United States), single-parent household economics, and the positive correlation between age and wealth. Wealth transfers, charity, foreign aid, and loan forgiveness can mitigate much of the negative results of the disparities, but they do not correct inequalities in income or wealth. Death and taxes produce that relative equality.
Poverty isn’t a lack of character (TED 2017; 14:58)
The author starts with a false, misleading contrast: a lack of cash versus a lack of character. Using Thatcher’s quote misrepresents what she was talking about, and that was the common series of bad choices that people make that can lead to embedded poverty. Poverty, entitlements, subsidies can become a enervating lifestyle, a culture, based not on personal defect but rather on a lack of education, positive role models, and a culture supportive of achieving independence.
I'd like to start with a simple question: Why do the poor make so many poor decisions? I know it's a harsh question but take a look at the data. The poor borrow more, save less, smoke more, exercise less, drink more and eat less healthfully. Why. Well, the standard explanation was once summed up by the British Prime Minister, Margaret Thatcher. And she called poverty "a personality defect."
Some of you may believe that the poor should be held responsible for their own mistakes. And others may argue that we should help them to make better decisions. But the underlying assumption is the same: there's something wrong with them. If we could just change them, if we could just teach them how to live their lives, if they would only listen.
I accidentally stumbled upon a paper by a few American psychologists. They had traveled 8,000 miles, all the way to India, for a fascinating study. And it was an experiment with sugarcane farmers. You should know that these farmers collect about 60 percent of their annual income all at once, right after the harvest. This means that they're relatively poor one part of the year and rich the other. The researchers asked them to do an IQ test before and after the harvest. What they subsequently discovered completely blew my mind. The farmers scored much worse on the test before the harvest.
And I can sum it up in just two words: scarcity mentality. It turns out that people behave differently when they perceive a thing to be scarce. And what that thing is doesn't much matter -- whether it's not enough time, money or food. So suddenly I understood why so many of our anti-poverty programs don't work. Investments in education, for example, are often completely ineffective. Poverty is not a lack of knowledge. A recent analysis of 201 studies on the effectiveness of money-management training came to the conclusion that it has almost no effect at all. Now, don't get me wrong -- this is not to say the poor don't learn anything -- they can come out wiser for sure. But it's not enough. "It's like teaching someone to swim and then throwing them in a stormy sea."
George Orwell, one of the greatest writers who ever lived, experienced poverty firsthand in the 1920s. "The essence of poverty," he wrote back then, is that it "annihilates the future." vSo I wonder: Why don't we just change the context in which the poor live? It's a monthly grant, enough to pay for your basic needs: food, shelter, education. It's completely unconditional, so no one's going to tell you what you have to do for it, and no one's going to tell you what you have to do with it. The basic income is not a favor, but a right. There's no stigma attached.
So ... here's my dream: I believe in a future where the value of your work is not determined by the size of your paycheck, but by the amount of happiness you spread and the amount of meaning you give. I believe in a future where the point of education is not to prepare you for another useless job but for a life well-lived. I believe in a future where an existence without poverty is not a privilege but a right we all deserve. So here we are. Here we are. We've got the research, we've got the evidence and we've got the means.
Analysis
1. There is no practical, acceptable, fair way to distribute ‘free’ money…and to call it ‘income.’ Would the distribution favor single persons or large families? Would it encourage consumption and discourage savings? Would it be an entitlement or an earned privilege? Who decides who receives what amount of free income?
2. The speaker ignores the abundance of resources already subsidizing people, regardless of their employment status, including food stamps, housing vouchers, free (and very expensive) public K-12 education, Medicaid, disability insurance. In fact, how would he treat these payments if everyone received a universal basic income?
3. Regarding the experiment with the farmers, measuring IQ before and after the harvest: The very nature of IQ is that it is not easily changed, and certainly not in the short term. Performance on a math test may suffer due to increased stress, but IQ cannot change so readily or quickly.
4. "It's like teaching someone to swim and then throwing them in a stormy sea." Although teaching someone money management skills when they have NO money could be pointless (as would assuming that the trainees would never have any money and that they’d be better off without money management skills once they did have money), teaching someone to swim before they are thrown into a stormy sea is EXACTLY what they need. And so is teaching someone money management skills before they have any money is highly useful.
5. Does this mean that your salary is the only relevant measure of value? I believe in a future where the value of your work is not determined by the size of your paycheck, but by the amount of happiness you spread and the amount of meaning you give. If not, perhaps this already exists: Many people work for this very reason.
TED Does money make you mean? (2013; 16:35)
I want you to, for a moment, think about playing a game of Monopoly. Except in this game, that combination of skill, talent and luck that helped earn you success in games, as in life, has been rendered irrelevant, because this game's been rigged, and you've got the upper hand. You've got more money, more opportunities to move around the board, and more access to resources. And as you think about that experience, I want you to ask yourself: How might that experience of being a privileged player in a rigged game change the way you think about yourself and regard that other player?
We ran a study on the UC Berkeley campus to look at exactly that question. We brought in more than 100 pairs of strangers into the lab, and with the flip of a coin, randomly assigned one of the two to be a rich player in a rigged game. They got two times as much money; when they passed Go, they collected twice the salary; and they got to roll both dice instead of one, so they got to move around the board a lot more. The rich player started to move around the board louder, literally smacking the board with the piece as he went around.
We were more likely to see signs of dominance and nonverbal signs, displays of power and celebration among the rich players. We had a bowl of pretzels … the power of the situation seems to inevitably dominate, and those rich players start to eat more pretzels.
And as the game went on, one of the really interesting and dramatic patterns that we observed begin to emerge was that the rich players actually started to become ruder toward the other person -- less and less sensitive to the plight of those poor, poor players, and more and more demonstrative of their material success, more likely to showcase how well they're doing.
Now, this game of Monopoly can be used as a metaphor for understanding society and its hierarchical structure, wherein some people have a lot of wealth and a lot of status, and a lot of people don't; they have a lot less wealth and a lot less status and a lot less access to valued resources. And what my colleagues and I for the last seven years have been doing is studying the effects of these kinds of hierarchies. What we've been finding across dozens of studies and thousands of participants across this country is that as a person's levels of wealth increase, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increase. In surveys, we've found that it's actually wealthier individuals who are more likely to moralize greed being good, and that the pursuit of self-interest is favorable and moral. Now, what I want to do today is talk about some of the implications of this ideology self-interest, talk about why we should care about those implications, and end with what might be done.
Now, I don't mean to suggest that it's only wealthy people who show these patterns of behavior. Not at all -- in fact, I think that we all, in our day-to-day, minute-by-minute lives, struggle with these competing motivations of when or if to put our own interests above the interests of other people. And that's understandable, because the American dream is an idea in which we all have an equal opportunity to succeed and prosper, as long as we apply ourselves and work hard. And a piece of that means that sometimes, you need to put your own interests above the interests and well-being of other people around you. But what we're finding is that the wealthier you are, the more likely you are to pursue a vision of personal success, of achievement and accomplishment, to the detriment of others around you.
Here I've plotted for you the mean household income received by each fifth and top five percent of the population over the last 20 years. In 1993, the differences between the different quintiles of the population, in terms of income, are fairly egregious. It's not difficult to discern that there are differences. But over the last 20 years, that significant difference has become a Grand Canyon of sorts between those at the top and everyone else. In fact, the top 20 percent of our population own close to 90 percent of the total wealth in this country.
We're at unprecedented levels of economic inequality. What that means is that wealth is not only becoming increasingly concentrated in the hands of a select group of individuals, but the American dream is becoming increasingly unattainable for an increasing majority of us. And if it's the case, as we've been finding, that the wealthier you are, the more entitled you feel to that wealth, and the more likely you are to prioritize your own interests above the interests of other people and be willing to do things to serve that self-interest, well, then, there's no reason to think that those patterns will change. In fact, there's every reason to think that they'll only get worse, and that's what it would look like if things just stayed the same, at the same linear rate, over the next 20 years.
Now inequality -- economic inequality -- is something we should all be concerned about, and not just because of those at the bottom of the social hierarchy, but because individuals and groups with lots of economic inequality do worse ... not just the people at the bottom, everyone.
So what do we do? This cascade of self-perpetuating, pernicious, negative effects could seem like something that's spun out of control, and there's nothing we can do about it, certainly nothing we as individuals could do. But in fact, we've been finding in our own laboratory research that small psychological interventions, small changes to people's values, small nudges in certain directions, can restore levels of egalitarianism and empathy. For instance, reminding people of the benefits of cooperation or the advantages of community, cause wealthier individuals to be just as egalitarian as poor people. In one study, we had people watch a brief video, just 46 seconds long, about childhood poverty that served as a reminder of the needs of others in the world around them. And after watching that, we looked at how willing people were to offer up their own time to a stranger presented to them in the lab, who was in distress. After watching this video, an hour later, rich people became just as generous of their own time to help out this other person, a stranger, as someone who's poor, suggesting that these differences are not innate or categorical, but are so malleable to slight changes in people's values, and little nudges of compassion and bumps of empathy.
Bill Gates talked about the problem of inequality facing society as being the most daunting challenge, saying, "Humanity's greatest advances are not in its discoveries -- but in how those discoveries are applied to reduce inequity." People who are wealthy, are using their own economic resources, adults and youth alike -- that's what's most striking to me -- leveraging their own privilege, their own economic resources, to combat inequality by advocating for social policies, changes in social values and changes in people's behavior that work against their own economic interests, but that may ultimately restore the American dream.
Analysis
1. “Monopoly can be used as a metaphor for understanding society and its hierarchical structure.” A metaphor, yes, but a wholly inaccurate and useless one. Monopoly is a game, life is not. People play Monopoly for fun, not for money (unless a professor pays them to play in his experiment).
2. A game of monopoly has a beginning (where everyone is equal) and an end (that comes much more quickly than real life). Monopoly ‘wealth’ is not real wealth. Contrived inequality is not the same as earned inequality. Creating a “bottom of the social hierarchy” makes no sense at all.
3. Monopoly is NOT a metaphor for life, business or free-market competition. It does not come anywhere close to representing actual life or income inequality situations.
4. The speaker does not understand the difference between income and wealth.
5. A laboratory of very brief duration with arbitrary awarding of artificial wealth – or pretzels -- is a poor, foolish basis for attempts to generalize findings to the real world, as is the experience of watching a 46-second video.
6. Is this statement from Bill Gates an insight or an example of meaningless rhetoric? "Humanity's greatest advances are not in its discoveries -- but in how those discoveries are applied to reduce inequity."
Recommendations
1. Increase political and economic freedom. Provide equal opportunity and equality before the law.
2. Don’t conflate opportunity with outcomes. It is more important to have everyone better off than to have everyone reach equal outcomes.
3. Encourage entrepreneurship ad meaningful jobs. New businesses, products and services provide productive work that is the most powerful and equitable form of wealth creation for 90% of the working population.
4. Bring people into the workforce. There are 94 million working age Americans not employed and not seeking employment. Ten million more employed, even at annual wages of $30,000 would create economic growth, increase tax revenues, reduce the federal deficit, and reduce income inequality. Other than in the very short term, welfare and charity are not income and do not effectively reduce or eliminate poverty; rather, they can cause poverty to persist.
Final thoughts and reflections
A world of equal outcomes is the fundamental goal of socialism, yet socialism has more often than not meant a sharing of less and decaying wealth while also restricting or oppressing social justice in terms of opportunity or judicial due process. Under capitalism, social justice in outcomes is a likely outcome of social justice in opportunity and process. More so, capitalism creates the wealth that socialism intends to consume. The tragedy of the commons better illustrates the flaws importance of private property than does it demonstrate the value of socialist equal sharing. Without the wealth generated by capitalism, socialists would not have the needed resources to re-distribute.
Reducing and preventing poverty by creating opportunity
· Shift in emphasis from natural rights to asserted rights in high-income countries.
o Natural rights: Political and economic freedom, e.g., speech, religion, assembly, trade
o Asserted rights: Education, housing, healthcare, pensions, clean water
· Movement to increase political and economic freedom (natural rights) in low-income countries.
· Shift from opportunity and process to outcomes as key areas of social justice in high-income countries.
· Growth in opportunity and process as key areas of social justice in low-income countries.
· Recognition of income and wealth inequality resulting from strong economic growth.
· Shift in institutions, from traditional marriage, family and local neighborhoods to state, federal and global institutions.
· Shift from physical infrastructure to intangible, information and service infrastructure; deterioration of the social contract/infrastructure.
[2] James Q. Wilson. The family way. Wall Street Journal. January 7, 2003.
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