Does Our Economy Need Poverty?

One of the deep underlying economic issues at the root of the debate over whether it can work for San Francisco to mandate health insurance, over whether it makes sense to require a "living wage" rather than the record low minimum wage we have now, and whether the American economy is equipped to handle globalization, and a whole host of other economic policy debates, is whether our economy needs poverty to survive. Put in the affirmative, the question is whether it is possible to have a sustainable high wage economy (i.e. one not propped up by low wages elsewhere).

A big part of this question is the exploitation v. indifference issue. In an exploitation scenario, which comes close to the Marxist idea, the rich are wealthy because they exploit and take economic fruits from, the poor. In an indifference scenario, large pockets of poverty don't receive anything much from the rich, but the rich receive very little from the poor either.

Significant parts of the poverty we see in the world today more nearly flow from indifference than exploitation. For example, with the exception of mining for precious metals, uranium and oil, very little American wealth derives from the labors of the poor in Africa. Certainly, corporate America does little to make life in Africa better -- it is selfish both in preserving its wealth for itself and in guarding precious intellectual property, like drug patents. But, it also doesn't derive much profit from Africa.

In the same way, corporate America isn't exploiting, so much as being indifferent to the inner city ghettos that their downtown office towers loom over. It doesn't make its money from the ghettos workers or its consumers in any significant amount, even though it rarely steps up to the plate with sufficient force to make life there better.

This matters because it implies that where poverty is caused by corporate indifference, rather than exploitation, that the rest of the economy will not be harmed, indeed, it will be helped, if a way to end that poverty can be found. That kind of poverty is not something our economy needs, it is something that arises through some combination of gap in the web of social responsibility (keep in mind that not working alone is no justification for poverty, most Americans, including children, the elderly and homemakers do not hold a paid job of any kind), and a failure to find high productivity activities for the people who are trapped in enclaves of poverty to engage in.

In contrast, at both the international and domestic level, the working poor may very well be exploited, in the sense that the profits from their efforts may go to benefitting others when different social arrangements could give them a bigger piece of the pie. Internationally, the biggest concern involves unsafe, unenvironmentally unsound factories in places from Mexico to China to Vietnam that pay very low wages to their workers compared to those paid in the places where the goods produced are ultimately used. Domestically, the big concerns are in the low wage service sector (in areas like child care, janitorial work, fast food work and retail sales) and in construction and agriculture, where undocumented immigrants are often paid under the table and receive substandard wages (while driving down wages in those industries generally).

How important quantitatively those forces are to the economy is unclear. What would a society where chicken factory workers and burger flippers made $12 an hour plus health insurance look like? Clearly, consumption would be more expensive, but how much of an impact would it have on the average family budget?

Also, exploitation is a sensitive word. Many of the people doing that work feel that they receive an honest wage for honest work and get by well enough, if modestly. From a quality of life perspective, the Chinese factory worker or phone bank worker in India is much better off than the subsistence farmer in Niger who is entirely ignored by the outside world. And, likewise, many undocumented workers cleaning rooms in Aspen or doing construction work in Washington Park would be inclined to say that they have a better life than single parents without work living in public housing in Five Points or Lincoln Park, in Denver. Being "exploited" is not necessarily worse than being ignored by and apart from the larger world economy.

Similarly, there is real room for debate over whether, in the absence of offshoring and immigration (legal and illegal alike), those jobs would be filled by the people in the United States who are poor now. Would our ghettos be thriving working class neighborhoods instead? In a place like Flint, Michigan, one is pretty tempted to say yes. But, in much of the United States, that is a hard call to make.

The question won't be answered in this post, but I do think that it is the right question to be asking. Also, it is worth noting that it is not a question that can necessarily be answered from first principles of economic theory. It isn't a question about how markets in general work. It is a question of what is doing on within those markets empirically. But, in the absence of an answer, it is hard to make good policy, so it deserves more attention.