Poverty and Inequality: The Business Cure

Poverty has long been a cause celebre; inequality seems the cause du jour. The oceans of ink spilled on these topics are mostly finger-pointing, short on solutions, and the solutions are too often worse than useless. But three pieces in a recent issue of The Economist stood apart.

The “Schumpeter” business column, headed Not open for business, concerns why U.S. employment lags despite massive government stimulus. What government gives with one hand it smothers with the other. Start-up companies account for all of America’s net job creation,* and government is stifling them.

First, they’re starved for human capital. Our native students don’t acquire enough of the right skills; and when foreigners do, “the authorities do their best to drive them out of the country once they have been educated or to break their spirits on the visa treadmill.” Legions of foreigners who want to work here or start businesses wind up going elsewhere due to our suicidally restrictive immigration policy.

Secondly, there’s over-regulation. In 2009-11, Schumpeter relates, 106 new regulations were issued with projected annual economic impacts exceeding $100 million each. I’ve written about how legislation like Sarbanes-Oxley and Dodd-Frank imposes vast new bureaucratic requirements. Giant established companies, with armies of lawyers, can cope, but not small and starting firms. The dramatic decline since 2001 in new companies going public is no coincidence.

This is part of government’s war on business. You’d think, given the parlous state of U.S. employment, there’d be a cease-fire. And (notwithstanding all the anti-business rhetoric of “progressives”) neither the public nor the government actually wants this war.

Yet it goes on, because too few seem to grasp that for good jobs paying good wages you need good businesses earning good profits. Here in New York politicians like Gov. Cuomo talking “economic development” seem oblivious to the war. Recently the state sued a host of smaller firms because a workers compensation trust into which they’d long faithfully paid can no longer meet employee claims; many face being driven out of business.

If you want to redistribute wealth, first you’ve got to create wealth to redistribute.

Next there’s a book review – The Great Escape: Health, Wealth, and the Origins of Inequality by Angus Deaton. In a nutshell, much of the hand-wringing over supposed rising inequality overlooks non-money factors, most notably health and longevity, where the gap between rich and poor has been narrowing significantly. Deaton does recognize the billion or so in poor countries still excluded from this trend. Should we give money to help them? His answer is basically no; while some targeted health programs are effective, most foreign aid does more harm than good because the key problem is not lack of resources but bad governance. And aid tends to keep bad governments bad.

Which brings us to another book review: of Paul Polak’s and Mal Warwick’s The Business Solution to Poverty. You read that right: capitalism, which so many (so wrongly) blame for poverty is really the solution. Rather than seeing the poor as victims needing handouts, the authors see them as potential workers and customers.

They write mainly about the latter role, and how products and services can be targeted to the needs of poor people, which if done right not only generates profits but also improves life for the purchasers. We see, yet again, the error of viewing business as merely exploitive. What business is instead really all about is profiting by satisfying others’ needs and wants.

And, more broadly, again it is capitalism, business, industry, commerce, enterprise, that is the answer to poverty: not people given money but earning it. Rich countries, and rich people, in the main, are rich because they produce things that better the lives of others. That’s how the whole world gets richer.

* I.e., among other employers, job gains and losses cancel out.