The term ‘capitalism’ best describes the economic system in the United States. If you ask Americans the definition of capitalism, you may hear responses that include private ownership, competitive markets, profit-driven, and allowing for capital accumulation. Very often, you’ll hear about individual rights supported by the rule of law to foster freedom of choice in property ownership, consumption, and occupation. Of significance, companies as employers provide benefit packages to their employees which enable them to obtain health insurance and retirement benefits. Company management likely feels obligated to maximize profits for the benefit of its owners. To attract employees, salary and benefits must be competitive but management is not incentivized to pay employees above-market rates. Paying employees more than the market rate runs counter to the objective of maximizing profits for owners.
Employees in the U.S., meanwhile, make a living through earnings from their jobs, income from wealth, or transfer payments from the government. Presently, a significant percentage of Americans live in poverty. So long as people live in poverty, they are disadvantaged in education, food, clothing, housing, and career advancement. The current system does not seem to be reducing the poverty rate quickly enough to prevent a large portion of another generation of Americans from growing up poor.
Too Many People Living in Poverty
According to the U.S. Census Bureau, roughly 34 million Americans live in poverty. From 2014 to 2019, the percentage of Americans living in poverty fell from 14.3 percent to 10.5 percent.1 Those numbers, undoubtedly, have increased in 2020 due to the COVID-19 pandemic, after five years of decline. To reduce the level of poverty in the U.S., either personal income must increase or the cost to the consumer of essential items must decrease. Today, income for American residents in poverty can be earned through employment or received as transfer payments from the government. Significant reductions in the number of people living in poverty will require either behavior change by management of private companies or policy initiatives implemented by the government.
Reducing Poverty by Increasing Wages
Given that the costs of consumer goods in the U.S. have risen by an average of 2.2 percent per year in the past two decades,2 $154.19 in September 2020 had the same buying power as $100 had in January 2000, and the lack of dramatic improvement in the poverty rate is not due primarily to higher costs. The policy focus, then, should shift to raising wage rates as the path to lowering poverty levels.
The government’s efforts to reduce poverty have focused on transfer payments to provide income supplements or on increasing economic opportunities for residents at the lowest income levels. Are these policies likely to have a different outcome in the future or should there be a new approach? Consider the premise as stated by George Will in “The Conservative Sensibility”: “Of the three economic conditions that are important causes of social distress—poverty, insecurity, and inequality—the latter is surely the least important. The first stunts opportunity. The second casts a pall over daily life and prevents people from transcending present-mindedness. The third is not inherently injurious to anyone.”
Will quotes Harry G. Frankfurt from his book, “On Inequality”: “While inequality may not be inherently objectionable, it often does lead to less access to elite education, political influence, and other nontrivial matters.” Frankfurt describes a moral imperative as “the doctrine of sufficiency” in which everyone has enough “for the kind of life a person would most sensibly and appropriately seek.” In the United States, which faces high levels of poverty, increasing automation, a reduced manufacturing base compared to the 1990s, antiquated immigration laws, and continued emphasis on neighborhood schools and property values, the move toward a system in which poverty is not an issue and residents feel secure faces challenges.
Poverty Reduction Through Private-Sector Efforts
Can capitalism, through efforts to increase family income and limit price increases on goods, succeed in reducing poverty and achieving a more economically equitable society? The motivation for companies and their managers to focus on solutions to this issue should come from the premise that stakeholders in American companies should be sensitive to the needs of their employees and the communities in which they operate. Corporate leaders can provide resources that focus on ensuring that:
- All residents of the community receive a quality education which equips them with necessary job skills
- An adequate supply of affordable housing exists
- Paid childcare is a reality
By focusing on Frankfurt’s doctrine of sufficiency and an objective of lowering the poverty rate, the conversations about inequality become secondary. Corporate leaders and employees can focus on providing economic opportunities to a much broader portion of their communities than can be achieved by present government-led efforts. To succeed, private efforts must focus on community infrastructure and the quality of outcomes achieved for its residents. What if students graduated from each level of education with usable skills, and what if schools were graded on the employability of their students, not on test scores? What if company-sponsored daycare centers offered programs that set all its clients up to succeed in their education? What if affordable housing efforts created environments that made residents and neighbors proud of the addition to the community? What if taxes were to decrease while ‘social payments’ increased, dollar for dollar?
A creative, profit-centered approach to the American future is needed, in which the government’s role shrinks and private industry takes on a greater role in housing, education, and economic opportunity. Whether public-private partnerships or government-directed but privately funded initiatives are used, new thinking is required. Residents will need to work hard. Governmental and private-sector leaders in the community will create paths forward with enough available resources that residents have opportunities, are motivated to use them, and thus can escape from poverty and attain sufficiency.
The CSUMB College of Business’ mission is, “To inspire the practice of responsible business, balancing profit, people, ethics, equity and planet.” This is clearly topical, given the discussion here and the disruptions of the COVID-19 pandemic. A new balance between domestic and foreign production of goods, automation and needed job skills, action and inaction on climate change, and private and public funding of community-building costs must be established over the next 10 to 20 years. None of us can afford to sit on the sidelines during this rebalancing.
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About the Author
Tom Bryan is Executive in Residence in the College of Business at California State University, Monterey Bay. He was the chief financial officer of Taylor Farms, North America’s largest producer of salads, fresh-cut vegetables, and healthy fresh foods.