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Economics for the Future

How's the economy looking to you?

Of course, none of us has ever seen "the economy," since the term is just an abstraction. But it is an abstraction that covers such a broad range of activities that we probably need a few new words to cover them all.

If you're poor, the economy doesn't look too good. Worse, there are many people with power who don't have your best interests at heart. The US House is flirting with reductions in food stamps of up to $135 billion (while keeping subsidies for already wealthy mega-farmers).    

Cynically, state legislatures are denying the poor the opportunity to receive health care coverage under ObamaCare. In Michigan, for example, working parents now must be below 64% of the federal poverty line to receive Medicaid; jobless parents must be below 37%; and childless adults are ineligible altogether. With Medicaid expansion (a provision of ObamaCare that the Supreme Court ruled each state could make its own decisions about), people in each of these groups would be eligible if their incomes were below 133% of the Federal poverty line. Yet the Michigan Senate is unsure if will allow this, although the federal government will cover more than 90% of the cost for the next decade.

On the other hand, the economy looks pretty bright for those with the smarts -- make that connections -- to benefit. Thomson Reuters has come under scrutiny for packaging the University of Michigan-produced consumer confidence index for the benefit of high-frequency traders who pay to receive it two seconds before it is released more widely -- a window in which hundreds of thousands of trades are executed and millions of dollars made by understanding consumer sentiment just a shade in advance of other stock traders.

Legal or not (there is some question), and ethical or not (ditto), this kind of economy has been designed for the exclusive benefit of the wealthy. Despite claims of creating more efficient markets, there is nothing in this kind of activity that resembles the economic activity that benefits, and that we can "see," on Main Street.

That economy -- the real economy -- is defined by jobs, actual goods and services, and enduring relationships -- not milliseconds. As Marjorie Kelly explains in Owning Our Future, this economy can be structured for sufficiency (genuinely meeting a community's needs, over a long period) rather than efficiency (trying to make as much money and profit as quickly as possible). The key is developing means of ownership that create genuine wealth, whether that ownership is in the hands of employees, communities, or mission-driven organizations.

Just one example, which Kelly mentions: Evergreen Cooperatives in Cleveland provide jobs and opportunities for low-income residents. Its employee-owned green laundry, solar/energy efficiency, and hydroponic gardening businesses contract with major Cleveland organizations including the Cleveland Clinic, University Hospital, and Case Western Reserve University to provide needed services. The revenues from these businesses stay within Cleveland to create community wealth rather than wealth for absentee owners, mainly supporting residents with household incomes below $19,000 (the federal poverty line for a family of four is $4,500 more than that). An institution that received much deserved recognition at the recent BALLE conference, Evergreen businesses allow employees to purchase an ownership stake in the company after six months of employment (which it helps finance), entitling them to vote on all issues (one vote per owner), to receive health insurance, and to expect $65,000 in equity from profits in eight years of employment.

This kind of economy has many different manifestations. What unites them is the vision of a stable, inclusive community, striving for sufficiency, honoring the needs of people and respecting the natural world. An economy built to endure, not live its life in seconds.

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What does electoral emergence look like? 

Consider: We just re-elected a Democrat President who will need to work with a Republican House and Democrat Senate. Or viewed differently: the people have said that they want a divided government (as Speaker Boehner suggested), not an unimpeded move towards a more progressive agenda.

Or did they?

The Presidency is the only national office that we vote for. Even so, it's hard to imagine that the popular vote would have been same if, say, states like Vermont (67 percent Obama) or Utah (73% Romney) got the same attention as Ohio.

The House results were even more affected by artifacts of our electoral system. With all 435 House seats contested, Democrats received almost half a million more votes, but the Republicans won a majority of the seats. Why? Because of the way congressional districts are drawn, which itself is strongly influenced by which party is in power in the states. As the Washington Post pointed out, in states where Republicans controlled redistricting, Democrats almost uniformly performed far worse in elections for the House than for the Presidency. Examples: in Ohio, Obama won 51% of the vote, but Democrats won only 25% of House seats; or South Carolina, where Obama won 45% of the vote, but Democrats won 14% of house seats. 

In the Senate this year, 23 of the 33 seats being contested were held by Democrats, making it difficult for Democrats to hold on to their 53-47 (those numbers again!) margin, if the nation were voting in a party-neutral, 50-50 ways. Yet, rather than losing 6.5 seats net and losing Control of the Senate, as statistics would suggest, Democrats gained two seats, by winning 25 of the 33 contests, while winning the popular vote across these Senate races by nearly 13 million votes.

The divided political situation we now face results from an electoral chemistry that combines any number of influences, from Article II of the Constitution, which created the Electoral College (originally conceived to produce results in elections dictated neither by political parties nor by national campaigning); to the most recent census and its influence on congressional re-districting; to someone with a cell phone recording Mitt Romney's "private" thoughts; among many, many others.

Together, these influences produce an "emergent" picture of a national electorate. Emergence is a characteristic of a system where what is apparent outwardly arises from any number of smaller features that may be hard to detect and whose interaction looks little like these features in isolation.

So, is John Boehner right in saying that there "is a mandate for both parties to find common ground and take steps together to help our economy grow and create jobs, which is critical to solving our debt"? 

My position is that to figure out what is on the nation's mind, it is best to look at outcomes most reflective of overall, versus local, views. Or: look at the popular vote for President, the House, and the Senate. Democrats won each of these races, by margins of 3 million, half a million, and 13 million votes respectively. To paraphrase the cognitive scientist Douglas Hofstadter: Although a green fence is made up of atoms and atomic particles, none of them is green. To see the color of the fence, just open your eyes.

The popular vote for the Presidency, the House, or the Senate are not perfect indicators of our national desires. But they suggest that the people want the country to go in a direction Democrats have suggested: investmenting in education, health, infrastructure, a greener planet. 

And greater inclusivity.
You know the saying: lies, damn lies, and statistics. Now add: political statistics.

Friday's jobless rate is either good news, terrible news, or made up news (shameful, Jack Welch).

I decided to do a bit of fact checking to see what I could come up with.

To put things in a bit of historical context, economists backdate the recession to 2007, but the collapse of Lehman Brothers and the too-big-to-fail crisis began almost exactly four years ago.

What do Bureau of Labor Statistics data tell us about ten countries? (Aus is Australia.)


  USA       CAN   AUS   JAP    FRA   GER   ITAL     HOL   SWE  UK            
2007 4.6 5.2 4.4 3.6 8.1 8.7 6.2 3.6 6.1 5.4
2008 5.8 5.3 4.3 3.7 7.5 7.6 6.8 3.1 6.1 5.7
2009 9.3 7.3 5.6 4.8 9.2 7.8 7.9 3.8 8.3 7.7
2010 9.6 7.1 5.2 4.8 9.5 7.1 8.5 4.6 8.3 7.9
2011 8.9 6.5 5.1 4.2 9.4 6.0 8.5 4.5 7.5 8.1
2012 Q2     8.2 6.4 5.1 4.0 9.8 5.7 10.7 5.2 7.4 8.1


Unemployment Rates, adjusted to U.S. Concepts

What jumps out to me: 
  • Since 2007, every country but Germany has a worse unemployment rate. This is a global--not a national--problem. The group of European countries, whether we consider the EU-27 or only those that have adopted the Euro as their currency, have seen unemployment increases each year since 2008. Those groups are not explicitly represented in the BLS data.
  • Since 2009, just after Lehman Brothers hit the fan, through the second quarter of this year, four of these ten countries the BLS cites for comparison have seen their unemployment rise.  The United States is not one of them.
  • From 2011 to the second quarter of this year, only one country has seen its unemployment rate drop by 0.5% or more. That country is the United States.
unemployment-chart1.gif
 Unemployment, seasonally adjusted, March 2011-August 2012.


The overarching lessons, which we should all remember but don't (or won't):
  • We--all countries--are in this mess together. Too big to fail might describe banks. Too interconnected to stand alone describes national economies.
  • No leader has the ability to magically restore the economy of his nation.
  • All things considered, the United States is faring fairly well.
Oh yeah: and for the first time in the Obama's presidency, unemployment is under 8.0%




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Presidential Debate: Focus on Inclusivity

If I were hosting the upcoming presidential debate on domestic policy, what questions would I ask?

They would center on inclusivity:

  • How can we challenge the economic beliefs that are holding back our economy?
  • How can we include the poor as a source of resourcefulness, innovation, and business opportunity?
  • How can we better identify and support local (social) entrepreneurs?
  • What urban centers are taking the lead in creating sustainable, inclusive communities?
  • What innovative approaches to education are working and can prepare students for meaningful careers?
  • How does social wellness use existing resources to create more inclusive health for us all?
  • What does inclusive leadership look like?
These broad questions deserve our unwavering attention. No matter how you keep score--99 to 1, 53 to 47, or something else--too many are struggling to have decent life. 

What if I were asked these questions--how would I answer them?

Glad you asked: In my new book Inclusivity: Will America Find Its Soul Again (written with Christian Sarkar, who also created paintings for the book), we tell fifty stories about those who are taking giant strides in tackling these issues. These vignettes tell of entrepreneurs leading a resurgence in Detroit, Tony Hsieh (founder of Zappos) reinventing Las Vegas and David Orr (a leader in the environmental movement) creating the most sustainable community anywhere in the US, the midwest community of Oberlin, Ohio. We tell how poor kids--in our inner cities or equally poor rural areas--are being given new educaitonal opportunities and are rising to the occasion. We tell how doctors are writing prescriptions for food, how struggling high school students become devoted and successful tutors, and how a national entrepreneur identification and training program in South Africa could become a model for the United States.

More inclusive education and health care would go a long way towards fully using the talents of our populace and creating expanded opportunity for everyone--wealthy and poor alike. More inclusive places to live coupled with more inclusive economics would create not just a fairer, but a stronger, country. Those blazing the trail of inclusivity exhibit a kind of leadership that is uncommon--creating value for others first. But it is within the reach of us all.

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Americans Love Socialism

The Atlantic just ran a nice article in which it reported an interesting survey it had conducted. In the survey, respondents (only Americans) were shown two nations' wealth distributions--one like Sweden's (but even more equitable); and one like the United States's--and asked to choose which country they'd rather live in. Respondents preferred the country with the Swedish distribution.


Well, the survey was mostly conducted like this. An important detail is that respondents didn't know the names of the countries they were judging, just the level of wealth of the different population segments within them. 

The US distribution looked like a pie with five very uneven slices: the smallest piece (shared by the poorest 20% of the country) was only 0.1% (1/100th) of the pie; the next was 0.2% (1/50th), the middle two pieces were 4% and 11% respectively; and the largest 84%. In contrast the "Swedish" pie, had five considerably more equal slices: 11%, 15%, 18%, 21%, and 36% respectively. (A perfectly "equitable" pie would have five 20% slices.)

piechart.tif




The "Swedish" distribution was favored regardless of one's outward political orientation: Democrats preferred it, and so did Republicans. The wealthy preferred it and so did the poor. The young and old, too. The voting was not even close, with 92% of all respondents preferring the equitable distribution to the one that prevails in the United States.

Another thing: respondents had no idea that the United States distribution of wealth was so lopsided. They thought the poorest 40% of the country had about 9% of the wealth (vs. only 0.3%). They thought the top 20% controlled 59% (vs. 84%).  The latter means, of course, that the vast majority of the country--everyone except those in the top 20%--has only 16% of the country's wealth.

Respondents weren't even asked about those at the very top where things are really lopsided. The wealthiest 1% controls 35% of the nation's wealth. The top 5% controls 62%.

In plain and encouraging terms, these results mean that US citizens want a more equitable distribution of wealth. We may fight about the wisdom of taxes, the deficit, the debt, the role of government -- but in many ways those are mechanisms, and wealth (and opportunity that goes along with it) is an outcome. An outcome that we agree about as a nation.

That does leave for debate the means for getting there; and the politics, which would be messy, all too likely would obscure what the vast majority of the country wants (remember: 92% prefer Sweden-on-steroids to the USA; and when respondents "constructed" an ideal wealth distribution rather comparing two that they had to choose between, they constructed one that was more equitable than any country on earth).

But, if we remember the goal that we all agree on--one of equality and inclusivity, not inequality and exclusion--it can unite us and guide constructive policy and actions.

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Sandwiches against Madness

I'm in London before heading tomorrow to Oxford for a colloquium on social entrepreneurship. I stopped at a British food shop, PrĂȘt a Manager, which offers advice about addressing hunger that is as eloquent as any paper I'm likely to read at the Oxford gathering. Simple advice of the kind we'd all be much better off following. 


PrĂȘt a Manager is a chain of shops that serve sandwiches, salads, and coffee; plus porridge and a few other items that seem very English. The ingredients they use are fresh; the food is chemical- and additive-free. And it's tasty. All good things.

The walls have a bunch of sayings you might find in a yoga studio: "To feel full of life, don't eat too much, don't eat too little." And other things about what (not) to put in our bodies. This all might seem too new age-y, but their napkin tells a different, very practical story:

At the end of each day we give our unsold sandwiches and salads to local charities and shelters working with the homeless. We don't do this because we're "nice people." We do this because throwing good food (and hard work) in the bin is madness."

We're in an age of madness, don't you think, where simple truths are getting drowned out by loud voices with tons of money and by all-"facts"-deserve-an-equal-airing news coverage?

Sometimes it's not so hard to see who needs help and how we can help them. When we see this, throwing these ideas in the bin is just madness.

Awethu: Imported to Detroit?


As anyone reading this space knows (anyone? anyone? I can read your comments if you click the "(No) Comments" link above, you know), I've been thinking a lot about Detroit. And I think it's fair to say that, once foreign cars began to arrive in the United States, and then gain wide acceptance for being affordable, high quality vehicles, Detroit was in trouble. Imports have not been kind to Detroit.

But here's one that could be.

I met Yusuf Randera-Rees several weeks ago at the Skoll World Forum and talked to him on the phone a few days ago.  His organization, the Awethu Project, is creating vibrant businesses where they rarely exist: South Africa's townships, or what we would call slums.

The Awethu Project conducts brief trainings for those in the townships on how to create a business and then tells them to think up a business idea and put it into practice in their community. A month later, those who have created the most profit (with records to back up their claims) begin a more extended period of training. They receive support both for personal development and formalizing their business ideas, being taught "hard" topics like time budgeting and record keeping as well as "softer" topics including personal discipline. Those who excel become part of Awethu's business accelerator, where Awethu helps move them from being small, isolated business towards becoming what Awethu really expects of them: to become business that are as good as the top businesses in the world and to link up, as appropriate, with that business ecosystem. Awethu also invests in these businesses, so their success benefits Awethu, further reinforcing the relationship and Awethu's desire to see them excel.

The idea behind Awethu is simple: identify gifted entrepreneurs in under-resourced communities, and provide them with the training and resources needed to compete with the world's best. The underlying premises, of course, is that there is a latent pool of such individuals everywhere who lack the opportunity, but not the inherent skills, to launch world-class businesses.

And if those potential world-beaters are everywhere, then they are certainly in the poorer parts of Detroit.

Yusuf is well educated, optimistic, and idealistic. And his efforts produce: he has developed a model of business talent identification in the township of Alexandra that has been noticed by the South African national government, which is now funding the project. In the coming year, Awethu will identify and put through its business accelerator program 1,000 entrepreneurs with world-class talent. As Awethu expands, Yusuf expects to take this idea across the country and then across the African continent.  

You've heard Chrysler's new slogan: Imported from Detroit. This is an idea Detroit (and the US) need to import themselves. Now.

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Phillip Cooley opened a restaurant in Detroit, Slows Bar BQSlows anchors a block in Detroit's Corktown, a row of shops which  is changing from seedy to hip. Cooley opened Slows with some backing from his parents,  his own carpentry skills, and the sweat equity of his partners--who were also his chef and sous-chef. With sales of   $1.8 million the first year (2005), Slows and Cooley have also spread the wealth. Their very presence created a  bright spot across from Detroit's massive, but abandoned Rail Depot. Astro coffee is now next door, bustling with activity, and Cooley, himself, is marching with tools in hand from building to building making improvements. He dispenses  advice and stakes others  who want to build businesses to help the community.


A half-mile or so down the street from Slows is another Cooley idea -- Ponyride. The name, of course, evokes a sense of childlike wonder, and that is surely what the facility will create. Now, it is a 30,000 square foot industrial space being converted into a launching pad for Detroit-changing businesses and activities. Tenants wield crowbars and hammers, exchanging their labor for incredibly low rents: $.10-$.20 per square foot, utilities included.

Among current tenants are artists, furniture makers, and studios for tango, fencing, and dance. And Veronika Scott. 

Veronika Scotts space at PR.JPG



Inside Ponyride7.JPG


Scott's organization, The Empowerment Plan, is a social enterprise that makes a self-heated, waterproof coat that expands to become a sleeping bag. Made by homeless women, the coat is designed precisely for those not lucky enough to know if they'll have a place to sleep for the night, or where.

Eventually, Ponyride will hold monthly open houses where community members can take classes in things like letterpress, woodworking, fencing, maybe even accounting--people in these professions are all tenants, too--to learn something they didn't know and that they may be able to apply in their own lives. "Ponyride is a tool to challenge the imagination," said Nick Piotrowski, Ponyride's office manager and Executive Board member.

Cooley hopes that current tenants like Veronika Scott burst the seams of the space they occupy at Ponyride, finding bigger digs where they can do more good, hire more people, and maybe even take the idea of Ponyride and start something similar. Ponyride itself is creating an open-source description of its own operations, successes and mistakes, for others to learn from. 

Just as Henry Ford borrowed his ideas for his assembly line from meat packing plants and then saw his own innovations widely adopted in manufacturing, Cooley is not the first to undertake urban revitalization, but he is laying down a model that others will surely follow. His energy, commitment, success, and willingness to share guarantee it.

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Slows lets us know that there are ways that entrepreneurial activity can bring inclusive gains. Good ideas create ripples, immediately and in ways never intended or imagined. The pebble that gets the ripples going seems to be money, but it is really the unleashing of productive energies. Money, moolah, hard cash can do that. But there are other ways., which we'll cover another time.



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Detroit 2.0 or 2 Detroits?

Are we creating Detroit 2.0, or are we creating 2 Detroits?  

There is a renewed sense of energy and optimism in Detroit.  I am seeing this as I explore Detroit's business incubators (writ large), and there is much to applaud.  Detroit Venture Partners is creating attractive workspaces for businesses to rub elbows, learn from, and and support each other.  It is providing early-stage funding for a handful of promising web and IT start-ups.
  
Detroit Venture Partners is not the only organization that is investing time, money, training, or other resources in Detroit. The Green Garage hopes to create a greener, more entrepreneurial city. The Detroit Creative Corridor Center supports businesses catering to those in the arts and other creative endeavors. 

I love these efforts. I just I don't think that they're enough. 

Detroit is on the verge on joining Flint, Benton Harbor, Pontiac, and Ecorse as a "failed" Michigan city that will be run by a state-appointed emergency financial manager. This politically fraught move would strip power from the city and sell or privatize city assets while further curtailing already eroded city services. The difficult straits that Detroit finds itself in suggests that, for all the high-tech, high-arts, green activity that is animating the city, we need something, well, grittier. That does not mean 1950s-era manufacturing; that day is gone. Even the successful investment by the government in General Motors and Chrysler is helping the state more than the city.
  
A broader, more inclusive form of capitalism is necessary--something I think of as BOP USA. The idea of BOP (bottom of the pyramid) business is gaining acceptance among companies that recognize that poor, developing world countries have considerable, and growing, aggregate wealth. And, more importantly, they represent the frontier of business where new markets are being created, new products are being developed, and innovation is everywhere. If in India or Latin America, why not Detroit?
 
Data on wage inequality indicates that the most unequal wage distributions are in cities with the highest levels of knowledge workers, including New York, LA, and Silicon Valley. Lower-paid workers earn more if they live where knowledge (creative class) workers' wages are higher. But the overall average wage in these locations is almost perfectly correlated with the average of the knowledge (creative) class. With a little math and a few assumptions about the relative numbers of knowledge- and lower-skill workers, we can conclude that the contribution of lower-paid workers' wages to total wages is fairly small (but didn't we know that?).  More simply: wealthier wage earners pull up lower wage earners, but not by much.
  
So, what can we do to "save" Detroit. We can hope to create a complementary class of entrepreneurs who create less by using web services or nano tech and more by employing people who can be well-trained and work hard (even though they can't write iPhone apps). We need incubators to support these new kinds of business, and fortunately we are beginning to see them in BizdomEnterprsing Health, and TechTown.  And we need more social venture capital and business support services for those who launch businesses in Detroit, create products and services in Detroit, and provide benefit for all of Detroit.
  
Otherwise, Detroit 2.0 is a dream for the fortunate few, creating too little opportunity for the city as a whole.
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Please join me in this discussion. I'd love to know your thoughts. We can make a difference.
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Rural Schools Need Help. Here's How.

Matt Salefski was a student in my graduate level class, Solving Societal Problems through Enterprise and Innovation.  He wrote a term paper, which I have modified slightly, that talks about the "hidden" problem of serving the needs of poor, rural students and presents ideas for addressing this problem in a cost effective manner.

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