The Big Business of Poverty
In Al Jazeera America, Francis Secada argues the United States may need to redefine poverty measurements so that it is in line with our peer countries:
The Department of Agriculture used to perform much of the policy research on food scarcity and ran some food assistance programs, and its standard eventually became the basis for the poverty threshold during the Great Society era. However, the cost of food is arguably no longer the most substantial portion of any family’s budget costs, so using it as a premise for calculating household expenses makes little sense.
The U.S. approach to poverty stands alone in the developed world. Other nations in the Organisation for Economic Co-operation and Development (OECD), by comparison, measure poverty as being half of the national median income. By this measure, the U.S. has the third highest rate of poverty in the OECD, outperforming only Israel and Mexico.
In 2014, the annual U.S. median income was $53,657, which would mean that FPL for an individual should be $27,897 in accordance with OECD guidelines. But the U.S. measurement of poverty is only 44 percent of the OECD measurement, and the current federal minimum wage of $7.25 an hour is about 56 percent of the OECD poverty level. Increasing the minimum wage to $13 an hour would be enough to push the U.S. past this threshold, while $15 an hour would be 116 percent of the OECD poverty threshold. While this would be meaningful in terms of bringing people out of poverty, it would still fall far short of the median income.
Be sure to check out this trailer for Poverty, Inc., a documentary looking at who actually benefits from the current model for aiding the global poor.
In this interview in the Chronicle of Philanthropy, author David Reiff offers up some critiques of the current philanthropic model for addressing hunger and other problems:
Still, is there anything wrong with very wealthy and powerful people targeting an intractable problem like hunger? Surely not everything about that is bad.
Look, do I have more respect for Bill Gates than someone like [Oracle Corporation chief executive] Larry Ellison, who appears to spend a lot of his money on things like yachts? Of course I do. It still doesn’t mean this is the right way to do development work. Billionaires are accountable to no one. I’ve been very critical of George Soros, whose vision I generally share. He tries to bring about democratic outcomes but often uses undemocratic means. As far as hunger goes, just because people want to do good things, it’s not the end of the story.
You note that corporate influence in the global food equation is outsized, pointing out that three companies — DuPont, Monsanto, and Syngenta — control more than half of the seed market and are poised to make deeper inroads in Africa. Given the need to feed people, how much should we worry about this?
I believe that multinational agricultural corporations getting more of a share of the world supply of the seed business, which Gates seems to support, is a problem. That’s not a system we should have, and philanthropy has no place pushing us toward that. It’s a sign that what we’re seeing is much more about oligarchy than philanthropy.
Surprise, U.S. schools aren't doing all that badly for students if you take poor kids out of the equation, writes the New York Times' Eduardo Porter, who argues it is society failing these kids not schools:
Awareness that America’s educational deficits are driven to a large degree by socioeconomic disadvantage might move the policy debate, today so firmly anchored in a “schools fail” mode. It offers up a new question: Is it reasonable to ask public schools to fix societal problems that start holding disadvantaged children back before they are conceived?...
There’s the wide disparity in resources devoted to education, which flows naturally from a system of school finance based on local property taxes. There’s the informal tracking that happens when smart children are grouped separately in gifted and talented classes while the less able are held back a year.
Teachers are paid poorly, compared to those working in other occupations. And the best of them are not deployed to the most challenging schools. In a country like the United States, with its lopsided distribution of opportunity and reward, social disadvantage will always pose a challenge.
Meanwhile Politico looks at how $7 billion in school improvement grants made "uneven" progress using the example of two high schools, each of which where the recipients of millions:
The difference between the schools was in their readiness to make use of the sudden infusion of money. In Miami, school district officials had prepared for the grants. They had the support of teachers, unions and parents. In Chicago, where teachers fought the program and officials changed almost yearly, schools churned through millions of dollars but didn’t budge the needle...[I]f the grant application process focused less on compliance and more on readiness at every level of government — ensuring that schools and districts have the right leaders, expertise, vision and buy-in from teachers and the community — then experts and turnaround leaders say the program might have generated better results.
You might also be interested in this USA Today op-ed from a University of Tennessee professor lambasting the Ivy League as a major source for perpetuating inequality:
As Ross Douthat wrote in The New York Times, there is “a truth that everyone who’s come up through Ivy League culture knows intuitively — that elite universities are about connecting more than learning, that the social world matters far more than the classroom to undergraduates, and that rather than an escalator elevating the best and brightest from every walk of life, the meritocracy as we know it mostly works to perpetuate the existing upper class.”
Finally you might be interested in this NYTimes story on the growth of premature deaths in middle white men, many of whom are in the working class.
From the Wall Street Journal, we have a pair of stories about the relationship between wage inequality and company success. First, Greg Ip explains new research that finds more successful companies have been pulling away from the wage pack:
Mounting evidence suggests the prime driver of wage inequality is the growing gap between the most- and least-profitable companies, not the gap between the highest- and lowest-paid workers within each company. That suggests policies that have focused on individuals, from minimum wages to education, may not be enough to close the pay gap; promoting competition between companies such as through antitrust oversight may also be important...
Their data show that the biggest gains in profits have been among technology and health-care companies such as drug manufacturers. Such companies’ profits don’t come from tangible assets, such as factories and land, but intangible assets, such as technology standards, patents and networks of customers or suppliers. This makes their products more useful, while at the same time presenting formidable barriers to would-be competitors.
In another story Ip goes on to say:
[T]his at least helps explain why some companies, including Alphabet (Google’s parent) can boost pay without any ill effect. By contrast, Wal-Mart operates in a highly competitive industry, and is limited in its ability to pass higher wages on to prices. It has to raise productivity or accept narrower profit margins. Lately, it’s been the latter; when it raised pay for its workers, its stock price was clobbered.
In the NYTimes, Steven Greenhouse discussed the debate over U.S. wage stagnation:
Many employers have embraced pay-for-performance policies that often mean nice bonuses for the few instead of across-the-board raises for the many...
“Right now the labor market is good if you’re a new graduate of Harvard or Stanford in computer science or a new economics Ph.D. or if you’re coming out with a specialized skill in some health occupation,” Professor Katz said. “The upper 10 percent are probably doing O.K. in the labor market, but typical workers are still facing a lot of difficulties.”
As part of this embrace of pay for performance, many companies are giving raises or one-time bonuses only to their best performers, thus helping retain and attract top talent while subtly showing the door to less stellar workers.
Over at the Manhattan Institute, Scott Winship argues stagnation isn't as bad as Greenhouse makes it sound:
With businesses facing lower prices for their products but wage bills that had fallen less, we would have expected to see real wages actually fall after 2008, but they instead flattened out at this elevated level. This pattern reflects the well-known phenomenon of “sticky wages”–it is difficult to reduce existing workers’ pay, so employers reduce their costs, in part, by laying off lower-productivity workers.
Speaking of wages, check out this Economic Policy Institute report on childcare workers, who are among the country's lowest paid and "and seldom receive job-based benefits such as health insurance and pensions":
This paper has detailed that child care workers receive compensation so low that many are unable to make ends meet. At the same time, it has been well documented that the cost of high-quality child care puts it out of reach of many workers and their families (Gould and Cooke 2015). It is abundantly clear that the unaffordability of child care is not driven by excessively lavish pay in the sector.
As society looks for ways to make child care more affordable for American families, it is crucial to keep in mind that in the child care sector—unlike in other sectors—it is impossible to improve productivity (and hence decrease costs) without lowering quality.
Over at the Washington Post, Jim Tankersly commenting on election rhetoric and taxes, he says baby boomers are at the heart of what's wrong with the U.S. economy:
Boomers soaked up a lot of economic opportunity without bothering to preserve much for the generations to come. They burned a lot of cheap fossil fuels, filled the atmosphere with heat-trapping gases, and will probably never pay the costs of averting catastrophic climate change or helping their grandchildren adapt to a warmer world. They took control of Washington at the turn of the millennium, and they used it to rack up a lot of federal debt, even before the Great Recession hit.
If anyone deserves to pay more to shore up the federal safety net, either through higher taxes or lower benefits, it’s boomers — the generation that was born into some of the strongest job growth in the history of America, gobbled up the best parts, and left its children and grandchildren with some bones to pick through and a big bill to pay.
There are so many stories this week about Valeant, the big pharma company laid low for buying up drug IPs and jacking up the price. But you might want to check out this story on the company's relationship to Bill Ackman, an activist investor and head of hedge fund Pershing Square. Also of interest is this story from October in the Wall Street Journal on the report card of some of the biggest activist investors and whether they are good or bad for business:
While much has been written about the rise of activism, its long-term effect on companies remains little understood and hotly contested. Some contend activists are a much-needed check on corporate leaders, keeping them accountable for their decisions and spending. Others say that activists scare executives from wise decisions that need time to pay off. Still others say it is case by case, a view the Journal’s data support.
Also please be sure to take a gander at this cool WSJ infographic looking at activist investors and the companies they keep, here is a sample:
Meanwhile, New York State may be investigating whether Exxon misled the public about climate change, reports NYTimes. And two former London traders have been convicted in the United States in connection with an investigation into "rigging of an interest rate benchmark known as Libor."
In Alliance Magazine, Andrew Milner discusses the foundation's 5 percent grantmaking model and whether it is worth holding out for perpetuity:
The main argument for hanging on to their assets is that foundations can do more good over the long term than in the shorter term if investments are allowed to grow. This allows foundations to take risks and provide long-term support for long-running problems. It can even allow them to make bigger payouts in times of need, such as during the 2008 recession. As David Emerson wrote in Alliance, ‘a long-term approach to stewardship of endowments gave them the confidence to ride out short-term market fluctuations.’...
Rick Cohen will have none of it. Even with a market downturn, he argues, ‘foundations as institutional investors do much better than most private investors and their returns are quite healthy.’ And this, he adds, takes no account of the new money coming into philanthropy. Foundation Center data confirms that US foundations received $56.2 billion in gifts in 2013, a little more than they paid out in grants.
‘In what millennium will some of these foundations go out of business if they spend 6, or 7 or 10 per cent?’ he wonders. The real reason for them ‘sitting on their assets’, as he puts it, is that they are ‘too focused on their institutional survival as opposed to idea that they are problem solvers.’ In other words, the stress is in the wrong place – on the continued existence of the foundation, not on whether it does its job.
**Editor's Note: Heron's October photo of the month was published with the wrong moniker for the United Auto Workers union. This has been corrected. Thank you readers for pointing our mistake.