Chasing Tax Cheats to Create Jobs: Why Don’t We Do That?

I’m guessing that tax collectors have never been a popular group, but we need thousands more of them, probably about 50,000 more. Why? Because something like $400 billion in business and personal taxes go uncollected each year, and with more employees to do more audits, the Internal Revenue Service (IRS) would collect a big chunk of that missing money.

Jacob Hacker and Paul Pierson in their recent book American Amnesia report that for every dollar spent on tax law enforcement the government gets $6 in additional revenue – and even better, if the new auditors were told to focus on high-income groups where most outright fraud and evasion occurs, the return is $47 for each $1 spent on hiring tax collectors. To hire 50,000 new IRS workers to focus on getting the rich to pay what they legally owe, I figure, might cost about $3.5 billion but could produce some $150 billion in new revenue. Why wouldn’t we do that?

With that additional revenue, the government could invest in a 10-year infrastructure program like the one Bernie Sanders wants, including investments in producing and installing green energy technology. This would create 1.3 million jobs a year, mostly in manufacturing and construction. Why wouldn’t we do that?

In the first instance, “we” wouldn’t do any of that because the Republican Party, which currently controls both houses of Congress, won’t allow it. Indeed, the Republican House has been cutting the IRS budget as part of its strategy to reduce the size of government (“starving the beast”).   But along with the huge tax cuts for the wealthy that are part of every Republican platform, the GOP attack on the IRS has the practical fundraising effect of benefiting its donor class.  It’s part of a theory that the only road to economic growth is to throw money at rich people and corporations in hopes that they will use some of it to create jobs – a theory that has not only been refuted by historical experience backed by hard data, but which is highly unpopular with voters.

But the harder question is why Hilary Clinton and the Democrats don’t use a program like this as a rhetorical stick to beat Republicans mercilessly as the party of the 1%, for the 1%, and by the 1%. The GOP is that party, and it wouldn’t take much opposition research to “brand” it as such. Clinton does that a little bit, both rhetorically and in her economic program, but she has eschewed prosecuting the kind of real class war in the tax code that Bernie Sanders advocated – to tax “unearned” investment income at the same rates as the income people work for and to impose a sales tax on buying stocks and bonds that is miniscule compared to the sales tax we pay for a meal at Burger King. Her “fair tax” plan is composed of several little wrinkles that add up to a total increase in revenue of $50 billion a year, all of it from the top 2%. That’s better than throwing money at rich people, but it’s too small to have much of an impact on the economy or on our still increasing levels of income inequality. Prosecuting Bernie’s class war, on the other hand, would have produced at least $250 billion in annual revenues.

Short of that, however, beefing up the IRS to fight “waste, fraud, and abuse” by high-income earners has a number of features that should be useful to Clinton Democrats. First, because it does not address the structural class inequities embedded in the tax code, it might not offend the Democrats’ donor class. It’s simply a good-government, law-enforcement measure designed to catch wealthy tax cheats not “the good capitalists” we all depend on for jobs. Second, it would allow Democrats to give a full-throated defense of what a good government could provide – including well-paying government jobs and key public investments that are good for the economy in both the short- and long-terms while providing many, many more jobs. Likewise, combined with the increased revenue from Clinton’s mini-tax wrinkles, it is large enough to have a significant impact on improving the economy and reducing income inequality. Finally, and possibly most importantly, it would allow Democrats to directly confront what Hacker and Pierson see as a nearly unbeatable Republican strategy: “Say government isn’t doing its job, make it harder for the government to do its job, repeat.”

Despite these clear political advantages – especially as she runs against a presidential candidate who refuses to release his tax returns – Clinton is unlikely to raise this issue for a variety of reasons. But if she wins the election, and especially if she wins big, a Democratic Party that has been moved decisively to the Left will provide favorable terrain for long-term progressive change. Progressives from the grassroots to the think tanks will have new opportunities to advance a bigger, bolder agenda, as the labor movement in the 1930s and the Civil Rights Movement in the 1960s successfully pushed on reluctant presidents. Taxes that produce giant revenues have to be a key part of that push, and too often they have not been.

A recent example of this failure is Tamara Draut’s brilliantly optimistic analysis of renewed labor activism in Sleeping Giant: How the New Working Class Will Transform America. Before outlining what is by now a pretty standard economic, racial, gender and environmental justice program, she eloquently complains:

For the past several decades we’ve been sold the idea that somehow our country is broke.   That there simply is no way we can afford the investments that would improve the lives of   millions of people, not to mention modernize our nation’s decayed infrastructure. Asking ‘How are you going to pay for it?’ is an inside-the-Beltway paradigm that has seeped into our popular discourse. It’s a question lobbed by reporters and politicians, aimed at exposing the futility of dreaming of something better.

But then Draut’s program does not answer the “pay for” question, and this is fairly common, a convention of sorts among progressive books that make a compelling economic and moral case for the overwhelming value of a particular policy program and then just blindly assert that it is affordable. This is a strategic mistake.

One of the advantages of our outrageous levels of income and wealth inequality is that there is now a treasure trove of income being snatched up every year by the top 1% (about $1 trillion in my estimate) that used to go to workers and could again if we had taxes like we had before President Reagan took office. A class war in the tax code has been rejected by Democratic primary voters for now, but surely there’s a bipartisan coalition of rank-and-file voters out there for chasing tax cheats to create jobs. It beats chasing food stamp recipients for buying steak and lobster, and there’s a lot more money in it.

Jack Metzgar, Chicago Working-Class Studies

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Greyhound Racing in Australia: The Demise of a Working-Class Pastime (and Why That’s a Good Thing)

 

The recent announcement that the New South Wales government in Australia was banning Greyhound racing starting in 2017 surprised many. They didn’t expect this from the conservative Liberal Party that runs the NSW government, and many were cynical about the government’s track record of selling off public assets. After all, the publically owned greyhound racetrack in Sydney occupies prime city real estate. But animal welfare organisations have been campaigning for a ban for a long time (with recent support from state politicians from the NSW Greens). They have pointed to the much-publicised cruelty of the industry, including destroying healthy dogs that are no longer winning races and using ‘live baiting’ to ‘blood’ dogs, practices that were exposed by investigative journalists working for the Australian public broadcaster. Their report (which included graphic footage of dogs chasing live animals attached to lures) led to an inquiry into the industry and the subsequent announcement of the ban.

Of course, the NSW greyhound racing industry was shocked and outraged by the ban, which would mean the loss of jobs and livelihoods for a number of workers. They insisted that the industry was improving its practices and could weed out those who didn’t adhere to the regulations. Some suggested that the ban was an assault on working-class culture and aimed at ordinary people who supplemented their incomes via dog racing or took pleasure in the pastime. Dog trainers were described as ‘battlers’ (a favourite Australian term that can refer to working-class people or anyone seen as hard working and not a member of the elite). The NSW Labor party aligned themselves with the industry and also played into this idea.

Although class is not generally discussed in Australia in an explicit way, those in power sometimes acknowledge class differences and use them to justify or sell a particular policy. Suddenly, the working class exists and is under siege by the elites. Australians generally dislike snobbery, so suggesting that the ban reflects elite scorn for working-class activities is a clever tactic. But such arguments hide the wealth tied up in the industry and the money made through gambling. Most of the big players in the greyhound industry are not ‘battlers’.

It is true though that greyhound racing has been a working-class pastime. Some working-class people keep a couple of dogs and race them as a hobby. I’m sure many of these dogs are much loved and well looked after, and they are not necessarily euthanized when they stop being successful on the track. But the cruelty within the industry is systemic, and individual dog owners doing the right thing doesn’t counter the widespread abuse of the animals. And even the most diligent owner can’t prevent dogs from being injured during races or training.

Many of those who have been campaigning against greyhound racing in NSW have been labelled as middle-class greenies with no idea about working-class life. That’s why a working-class perspective is important. Not all working-class people advocate for pastimes that lead to animal suffering, even when the pastime has been an important aspect of their culture. I grew up close to one of London’s most famous greyhound racing tracks, Walthamstow Stadium (The Stow). The pub on my public housing estate was called The Greyhound. Going to the dogs was a common pastime in our neighbourhood, and the stadium was a much-loved feature. The atmosphere was exciting with the bookies shouting odds, dogs barking in the sheds and paraded before racing (as kids we would walk along the rail on the outside of the track and pick a dog we thought was the best, usually based on the colours it was wearing or whether it looked at us as it passed). The punters would study the form (I still have a copy I picked up one night), the lights would dim, and the stadium would go quiet before the ‘hare’ was released, the traps opened and the dogs would come zooming around the track. The stadium would explode as punters yelled names of their dogs, getting louder as the dogs reached the final post. Then the winners would cheer and the losers sigh as they dropped their spent bookies tickets and went back to the bar. It was magic.

As a young person, I didn’t think about the impact on the animals. I hated horse racing, but it was not a working-class sport. I’d never been to a horse race, so it was easy for me to condemn it as a cruel pastime. Greyhounds were close to home – everyone enjoyed the dogs, and it took me a while to make the same association. I remember as a teenager seeing a local newspaper report on ‘hare-coursing’ (live baiting of dogs), and while I thought this to be horrible, I dismissed it as the actions of a rogue few. When The Stow closed down and was sold to a private developer, I was very upset. It was the end of an era, and my community lost jobs and a special part of local culture. The façade of The Stow and some of the internal structure were heritage listed and form part of a new private housing development, but people still lament the demise of the race track.

Years later I realised that my support for greyhound racing was hypocritical. It wasn’t good enough to defend something just because it was associated with working-class culture. In addition to the suffering experienced by the animals, there are other unethical aspects of the industry, namely gambling, which can have a devastating impact on working-class people. The average punter is likely to be a loser and the gambling industry stands to gain

As someone who is proud of my working-class culture, I find it difficult to admit that some working-class pastimes should be banned, especially when the demise of greyhound racing will result in job losses. But jobs in an unethical industry are not good jobs. Instead of protecting these jobs, we need programs to assist employees in finding new occupations.

Arguments opposing the ban on the grounds that it is an attack on working-class culture won’t wash with me. I’m making a stand against this working-class pastime even as I remember the fun I had at The Stow. Not all aspects of our culture should be maintained, and we need to be willing to call out unethical practices. This doesn’t weaken working-class culture, it makes it stronger.

Sarah Attfield

Click here to read “The Manor 2,” a poem about dog racing from Sarah’s 2000 collection, Hope in Hell.

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Why Clinton Could Lose the Working Class in Ohio

Note: As the Republican National Convention gets underway in Cleveland, we’re reposting John Russo’s recent op-ed explaining why Hillary Clinton could lose working-class voters in Ohio and what she would need to do in order to win. The piece first appeared in the Plain Dealer on June 26,2016.

In the latest Quinnipiac poll, Hillary Clinton and Donald Trump are tied in battleground Ohio. This suggests a very close race in Ohio in the fall. Economic issues, especially trade, led many former Democrats to cross party lines to support Trump in the Republican primaries. Many who hadn’t voted in recent elections joined them. We’re likely to see a repeat of this in November unless Democrats change their trade policies. None of this should surprise Democrats, especially those in Ohio.

As a professor of labor studies and co-director of the Center for Working-Class Studies at Youngstown State University for more than 30 years, I had many opportunities to talk politics with workers there. In 2000, many told me that, after voting for Democrats all their lives, they were choosing guns, gays and God over Al Gore, who had been a primary spokesman for the North American Free Trade Agreement (NAFTA) seven years earlier. In 2002, Northeast Ohio Democrats threw out eight-term congressman Tom Sawyer on the basis of his support for NAFTA, despite Sawyer having a 90 percent voting record on labor issues.

Since the passage of NAFTA, Ohio Republicans have controlled state government save for a brief interlude caused by Republican corruption in 2006. At the same time, two Democrats — Sen. Sherrod Brown and Rep. Tim Ryan, who replaced Sawyer — have been elected and re-elected in no small part due to their opposition to NAFTA and the pending Trans-Pacific Partnership (TPP). Clearly, trade policy poses a problem for Democrats and their presumptive candidate. Clinton has been tied to former President Bill Clinton’s NAFTA legislation and its Wall Street proponents. While she has stated that she is against TPP at this time, many Ohioans hear that as weasel words that only contribute to their distrust of Clinton.

It is widely speculated that the Obama administration will push for TPP acceptance in the lame-duck session following the 2016 general election. According to a tweet from CNN’s Dan Merica, Clinton says she will not lobby Congress on the issue. But this will only undermine her credibility and provide Trump with an incentive to continue to demagogue the issue.

In Ohio, about 60 percent of voters in 2012 did not have a college degree, one of the most commonly used (though problematic) proxies for identifying working-class voters. Slightly more than half of them voted for Obama, according to CNN exit polls. But while Obama won a majority of working-class votes in Ohio, he lost among whites, winning only 41 percent of their votes. This suggests that a significant portion of Obama’s working-class support in 2012 came from Ohio voters of color, not white voters. Four years later, the combination of white working-class support for Trump, as we saw in the primary, and expected lower African-American turnout — Clinton is unlikely to inspire the enthusiasm that Obama generated — may swing Ohio’s prized electoral votes to the presumptive Republican nominee.

Clinton needs the support of working-class Ohioans – the very people who have been hurt the most by trade policy. To do that, she needs to stop insisting that trade is good. Her current stance is similar to wooing West Virginia coal miners by touting the benefits of non-carbon fuels. Similarly, she should stop talking about retraining and promising high-tech jobs, which only reminds voters of how hollow such programs have been in the past.

Instead, Clinton should acknowledge that we have lost the trade war and pledge to use every legal means at her disposal to protect American workers and industries from the continued onslaught of imports. This would include initiating trade cases against countries that target American industries by subsidizing their exports, exploiting workers, manipulating their currencies, and polluting the environment.

She should threaten to impose tariffs on every imported product from countries that refuse to implement the same U.S. Occupational Safety and Health Administration and U.S. Environmental Protection Agency regulations and federal, state and local tax requirements that are imposed on American businesses.

At the very least, Clinton should do more than promise to build a strong infrastructure program. Such a program would put the skills, materials and physical strength of working-class Ohioans to work and improve Ohio’s competitive economic environment. Clinton has identified specific programs but she needs to do more to explain how she will pay for them. Otherwise, her campaign platform will sound too much like an echo of past hollow campaign promises.

Clinton should also stress making college affordable for the working class and those living in poverty. Not everyone wants a desk job in front of a computer, and older workers may not be interested in retraining for high-tech jobs. But they do want more education and training for their kids.

Finally, working people worry about how they will fare economically after retirement. They know that Wall Street oversold 401(k) plans and that traditional pensions are disappearing. Clinton needs to reject Wall Street’s calls for changes in Social Security and offer a specific program to maintain private pension plans without cutting benefits.

If Clinton does not develop a strong and believable working-class agenda, I predict that the Democrats will lose Ohio in November, and that would open the door to a Trump victory nationally.

John Russo, Kalmanovitz Initiative for Labor and the Working Poor, Georgetown University

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Defending the Working Class from Financial Abuse

For decades Wall Street’s big banks and the financial services industry have used—and abused–the judicial system to hammer working-class families and erode the American Dream. Left virtually defenseless because they could not afford to hire attorneys to fight back, millions of homeowners and consumers stood by helplessly as they lost their homes to court-ordered foreclosures or had their wages garnished to repay debts they didn’t actually owe.

Now, thanks to federal legislation like the Dodd-Frank Act, aggressive action by the Consumer Finance Protection Bureau (CFPB), and rulings issued by federal and state judges, consumers are slowly but surely gaining access to the courts and are now using the judicial system to turn the tables on the financial firms that have run roughshod over them for far too long.

These laws, regulations, and rulings create financial incentives for private attorneys and consumers to take on big banks and predatory lenders. Those incentives include forcing financial firms to pay the attorney fees of consumers who have been wronged, eliminating forced arbitration clauses that make it extremely difficult, if not impossible, for lawyers to file class action suits against the bad actors in the financial services industry, and making it possible for borrowers to collect significant monetary damages from lenders who violate their rights.

Much like the contingency fee system and class action suits that improved auto safety, forced pharmaceutical companies to remove dangerous drugs from the market place, and held polluters accountable for damaging the environment, the new rules and regulations make it economically feasible for private attorneys to grapple with the teams of high-paid lawyers who represent banks and other lenders. That will bring much needed stability and accountability to the nation’s consumer credit market.

While most of the big banks and traditional mortgage lenders are acting more responsibly these days, because they are bound by consent decrees signed in the wake of the 2007—2008 financial meltdown, new, largely unregulated entities including hedge fund-backed firms like Caliber Home Loans and Nationstar are using tactics as old as the predatory lending crisis itself: moving quickly to foreclosure, losing mortgage paperwork, and delaying or denying loan modifications to terrorize borrowers and toss working-class families out of their homes.

Unfortunately, the ongoing abuses aren’t limited to mortgage lending. Today, millions of people are struggling to repay home equity and other loans they took out as they attempted to keep their heads above water during the great recession. Not surprisingly, predatory debt buyers have purchased those loans from the original lenders and are now using local courts to seek judgments and collect debts that the borrowers may not owe. The debt buyers have been counting on the fact that consumers could not afford to retain counsel to defend themselves. In ruling that Ohioans now have the right to sue abusive debt buyers and the attorneys who represent them, the justices of the Ohio Supreme Court described the problem this way:

A predictable result of debt buyers filing a high volume of lawsuits based on imperfect information is that lawsuits are regularly filed after the right to collect debts has expired or that seek a debt that is not owed; “each year, buyers sought to collect about one million debts that consumers asserted they did not owe.

Like courts across the country, the CFPB is taking action against predatory debt buyers. For example, the agency sued Fredrick J. Hanna & Associates, a Georgia law firm, which it described as a “Debt Collection Lawsuit Mill,” and won a consent entry that prevents the firm from filing lawsuits or threatening to sue unless they can prove that the debt they are attempting to collect is valid.

The CFPB’s willingness to take on predatory lenders, the fact that it is now financially feasible for private attorneys to sue lenders, the enactment of tough new state laws that prohibit unfair and/or deceptive practices, favorable court decisions, and consumers’ ability to seek and secure significant monetary damages from firms that violate the law all combine to create a more level playing field in the credit markets.

The good news doesn’t end there. The CFPB is moving to impose regulations on payday and auto title lenders that will make it harder for the vultures that dominate the industry to exploit consumers. While some have criticized the proposed rules for not going far enough, they represent an important first step toward reining in an industry I fought hard to regulate during my tenure as Ohio’s attorney general.

I’ll be the first to admit that these important changes in the law don’t have the sex appeal of major public policy initiatives like health care reform. But throwing open the courthouse doors to those who have been victimized by big banks, mortgage servicers, debt buyers, and payday lenders and discouraging future abuses will enable millions of working-class families to gain control of their finances and renew their pursuit of the American Dream. And that will, inarguably, have a profoundly beneficial effect on our economy and our society for decades to come.

Marc Dann

Marc Dann is Managing Partner of the Dann Law Firm. He specializes in representing clients who have been harmed by banks, debt buyers, debt collectors, and other financial predators. He has fought for the rights of thousands of consumers and brought class action lawsuits in both private practice and as Ohio’s Attorney General.

 

 

 

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A Working-Class Brexit

I woke up Friday morning to the news that my country decided that it no longer wants to be part of the European Union. With a large turnout of 72% of the eligible electorate, the vote went 51.9% in favour of leaving against 48.1% for remaining – 17.4 million against 16.1 million, in case you wondered. As a result, the clock has begun to tick down on 43 years of British EU membership, creating huge levels of uncertainty. This morning the pound sterling lost 10% of its value against the dollar – the biggest one day decline since 1985 – and a massive £200 billion was wiped off the stock market.

But what was behind this result, which seemed until the eve of poll to be heading towards remaining in the EU? Class was one of the biggest factors. Let me explain. Early analysis of the results shows that if you had a college degree or were young, you were more likely to vote to remain. Geographically, England and Wales voted for Brexit, except for London. Scotland, however, voted overwhelmingly to remain, opening up a very real prospect of another independence referendum and the disintegration of the UK. Many places in England and Wales outside London, often but not exclusively Labour Party traditional heartlands, were amongst the strongest supporters of leaving. This seems to have resulted from a cocktail of resentments against ‘them’, the ‘elite’, the ‘establishment’ or simply the ‘experts’. This resentment has been simmering in these Labour heartlands for decades and predates the banking crash of 2008. Resignation, despair, and political apathy have been present in many former industrial regions since the wholesale deindustrialisation of the British economy in the 1980s and 1990. The election of the Blair -led Labour administration of 1997 masked the anger felt in these areas as traditional labour supporters and their needs were often ignored, while traditional Labour supporters were used as voting fodder. Over the thirteen years of Labour power, that support ebbed away, first as a simple decline in votes, but gradually turning into active hostility to the Labour party. Many embraced the UK Independence Party (UKIP).

This opposition, so skillfully drawn on by the leave campaign, is in part a working class reaction not only to six years of austerity but also to a long and deep seated sense of injustice and marginalisation. Most of the remain side, which was a cross party grouping, didn’t seem to understand this before the referendum and, even more depressingly, doesn’t seem to understand it fully now. A stock characterisation of working-class people who intended to vote leave was to label them as unable understanding the issues, easily manipulated, or worse, racist ‘little Englanders’.

A number of commentators have understood the class resentment underlying the referendum. In his thoughtful video blogs preceding the vote, Guardian journalist John Harris travelled away from the ‘Westminster village’ to the more marginal, often over looked parts of the UK. What he observed was precisely this class demographic of voting intentions, people who were in effect members of what sociologist Guy Standing has called the precariat. Fellow Guardian columnist Ian Jack wrote a similarly powerfully reflective piece linking the working-class vote with deindustrialisation. Both Harris and Jack emphasize the point that for unskilled workers with only a secondary school education, three decades or more of neo-liberalism has left deep scars socially, politically, and culturally, with little hope or expectation that anything would change for the better. In a vox pop radio interview the day before the referendum, a person stopped for their views simply said, ‘The working class is going to get screwed whether we stay or leave, so we might as well leave’.

This sense of ‘them’ versus ‘us’ was heightened by the long line of establishment figures from the world of politics, business, and finance who were trotted out to warn the voters that Brexit would mean Armageddon. Far from helping the remain side, these interventions from the likes of Christine Lagarde, managing director of the International Monetary Fund, Bank of England Governor Mark Carney, and even President Obama merely exaggerated the distance between working-class voters and those who wanted them to vote to remain. Speaking after the official result was announced, UKIP leader Nigel Farage explicitly used the language of class in his celebratory speech, saying that this was a vote of ‘Real people, ordinary people, decent people against the big merchant banks, big business and big politics’.

Many on the progressive left have seen this Brexit result coming and have linked it to a far wider set of issues than those of the immediate problems of the EU. In a video blog two days before polling, Owen Jones linked the marginalisation and alienation felt by many working-class voters and support for populists like Donald Trump, Bernie Sanders, and other non-mainstream political movements in Europe. What this all points to is a real rejection of the hegemony of what veteran left-winger Tariq Ali has called the ‘extreme centre’ that has promoted globalisation and neo-liberalism. In the narrative of the extreme centre, there is no place for those left behind, damaged by the collapse of industries and forced to face the brunt of never ending austerity. Faced with what are viewed as out of touch elites telling an angry electorate that they must vote to remain, there is little wonder that many working-class people opted to vote out. It’s hard to predict what will happen next, over the short, medium, and long term. But one thing is clear: class will play a big role.

Tim Strangleman

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The Limits to Entrepreneurship: Why Innovation Won’t Solve Poverty

“Entrepreneurship” generates big buzz and the cacophony is enormously positive. Legions of leaders, organizations, and politicians promote entrepreneurship as an alternative pathway to a better life for the poor, disconnected, and left behind.  For example, Steve Case, who made a fortune with AOL, launched a multiyear “Rise of the Rest” campaign with bus tours and “grass roots” campaigns highlighting the “growth of start-up communities in pockets of the country not generally known … for producing tomorrow’s next big companies.”  With a White House sendoff, Case led well-promoted business pitch competitions in Baltimore, Buffalo, Cincinnati, Detroit, Manchester, Nashville, and Philadelphia.

House Leader Paul Ryan is mostly the opposite of Steve Case politically.  But Ryan’s economic plan is founded on the idea that growth begins with “the creativity and entrepreneurial spirit of the American people.” In response to Obama’s 2016 State of the Union Address, Ryan tweeted, “The answer to poverty lies in entrepreneurs and innovators who are actually making a difference, community by community.”

Cultural icons are held up as evidence that entrepreneurship can lead creative young people out of poverty toward the sweet life of luxurious living, fame, and fortune.  Just model yourself on Jay Z!

Can starting your own business rocket someone from the near bottom to near top of the economic pyramid?  It might work for a few lucky, hard working, dedicated, amazing individuals, maybe. Some do indeed generate new economic opportunities for themselves – and, in a very few cases, even for others in their community.  But that isn’t even half the story.  All too often, the results are much less rosy. It’s not a secret: most entrepreneurs fail.  And those with too little can ill afford more loss.

I’ve learned that lesson through years of work as a senior political advisor, campaign organizer, wonkish researcher, and philanthropy innovator. My entrepreneurship “street cred” is based in six original field research projects on entrepreneurship in harsh rural economic climates of the late 1980s and early 1990s.  We traveled light, from rural Iowa during the farm bust following a historic ag-export fueled boom to North Dakota as communities staggered through an inevitable bust after (another) drilling boom.  We visited persistent poverty areas in Arkansas’ delta counties and Aroostook County in noncoastal, northernmost Maine — places that struggled then and now without a glimpse of “boom times.” We searched for entrepreneurs using varied business models, market niches, and means.  We pioneered methods to measure their numbers and their effect on local economies. We also talked with them about their motives, means, advances, struggles, and losses. Since then, I’ve also studied business innovators at different stages of development, learning about their strategies for attending to  their business bottom line while also generating good opportunities for workers and their communities.

For the overwhelming majority of people in or near poverty, “entrepreneurship” is simply a fancy way to spell “hustle” and “bootstrap.”  Few of the great winners of the entrepreneurship derby realize that for many in the precariat, this is the ultimate flimflam in the cloak of artful words and seeming disregard of some pesky facts.

  • Entrepreneurship Is Driven by the Fortunate: According to the Kauffman 2015 Index of Start Up Activity, eight of every ten new entrepreneurs came out of another job, school, or other labor market status.  Only two of ten started their businesses while unemployed.  And those who did were more likely to start companies with lower growth potential.
  • The Poor Have Less to Invest and Can Not Afford Losses: A comprehensive survey by the Federal Reserve yields a clear snapshot of the income and wealth of American households. Less than one third of those with incomes annually under $40,000 could afford to cover an emergency expense of $400 using cash or credit card that they pay off at the end of the month.  The reasons they are so constrained are equally clear.  70% spend more than they earn, and more than half (53%) have absolutely no savings.  Starting a business or keeping one going entails myriad unexpected expenses and reversals.
  • High Failure Rate: According to Fortune, 9 out of 10 new businesses fail.  That is scary enough odds, but the “growth rate” for firms is actually negative. In one recent year, 400,000 business started in the U.S., but 470,000 firms closed. That statistic masks a good deal of human disappointment, frustration, and real personal and financial loses.  Blues singers tell that if you have nothing then you have nothing to lose.  But when it comes to the time, sweat, and funds plowed in to any enterprise startup, the rich are not like the rest of us.  Their opportunity cost calculation is markedly at odds with our experiences.  And for the precariat, this desperate road often deepens losses and dilutes opportunity.
  • Entrepreneurship Is a Declining Force: Start-up activity in the American economy has been on the decline for a good while, though it dropped further and faster when the Great Recession hit and has bounced around the bottom since then.
  • Entrepreneurship Is Mostly White and Male: The groups who have been left out the longest and furthest – women and people of color — are not reaching the “opportunity rung” of business startups. As of 2014, only 37% of entrepreneurs were women, and the gender gap has actually grown over time. While entrepreneurship rates are higher for Latinos and Asians than Whites or Blacks in the U.S., the predominance of whites in our society means that most entrepreneurs are white.
  • The Financial Fuel for Startup Growth is Geographically Concentrated: The Martin Prosperity Institute analyzed the number and value of venture capital deals in 100 metro areas for 2012.  As the map below demonstrates, venture finance concentrates in California, Northeast urban regions, and to a lesser extent the Pacific Northwest.  Venture finance is not the only way to fund entrepreneurship, but it provides key support for promising ideas and businesses to scale for growth and impact. The relative desert in the rest of the country suggests the fuel stations for developing new businesses are harder to find.  Availability is slight to none in those communities where it may be needed most.

Venture capital map

 

 

 

 

 

 

 

 

 

Finally, we need to look beyond the statistics on business startups and get real about the underlying meaning and effect.  When is an Entrepreneurial Start Up Business a Good Business? My experience with new startup owners from a broad slice of society suggests that many are pursuing intriguing ideas.  Some are skilled business managers to boot.  But most are cobbling together survival strategies. Being an entrepreneur means combining resources to support the family’s needs.  A spouse cleans houses and kids help make and sell crafts on Ebay or Etsy.  After the season ends for landscaping work, the father operates a cash-only snow plow service, collects and delivers aluminum scrap to recycling, and picks up a few jobs as a day laborer, waiting to be selected  from a long line of workers available in a Home Depot Parking lot.  Is it a way of life?  For too many, yes.  But it is hardly a living.  And it is certainly far from the security that working long and hard and playing by the rules should yield.  Does their future look bright because they’ve started four or five “new businesses? Hardly.  They barely keep from drowning financially as debt waters rise and income stagnates.

Robert Rich notes that “the dominant American myth involves two kinds of actors: entrepreneurial heroes and industrial drones – the inspired and perspired.” Steve Case and Paul Ryan believe the “inspired” entrepreneurs are the solution to poverty.  Others see hard work and sacrifice – the perspired –as the bootstrap solution for many.  Neither approach confronts the fact that the rules of our economy in this era are sharply skewed towards the wealthy and against all others.  People living in or near poverty face that reality every day.

Mark Popovich

Mark Popovich is a Vice President for Program at The Hitachi Foundation.  This commentary does not necessarily reflect the views opinions of the Foundation Board, Hitachi America, Ltd, or any Hitachi company affiliate.

 

Posted in Contributors, Guest Bloggers, Issues, The Working Class and the Economy | Tagged , , | 3 Comments

Health Class

Late last year, economists Anne Case and Angus Deaton published a paper in the Proceedings of the National Academy of Science documenting the rising morbidity and mortality in mid-life white men and women in America, especially for those with a high school degree or less.  They attributed this increase, a reversal of historic trends, to an epidemic of alcoholism, other drug use disorders, and suicide. Their findings are a wake up call for the US. Not only is something seriously wrong — it’s getting worse.

As a community psychiatrist (that is, one who works in the community providing publicly funded care) in Pittsburgh, I was not at all shocked to read the paper and the several others that followed and found essentially the same thing.  Working both in inner city black Pittsburgh and the more racially mixed Mon Valley, the primary site of Pittsburgh’s once vaunted steel mills, I have seen twenty years of increasing psychiatric burden and disability with what seemed to be a marked increase in mortality — all linked to increasingly fragmented, chaotic families, extraordinary work instability, trauma, violence, and alcohol and substance use.  While human services and health care were clearly in the picture in the lives of many (health care increasingly so with the Affordable Care Act), other critical institutions — steady work, solid education, high qualify day care, stable housing, organized communities – seemed to be less present, casualties of deindustrialization and neighborhood decline.  With the economic collapse of 2008 and the rise of the opiate epidemic, conditions have felt like they are in free fall, with tattered individuals and the remnants of families struggling to hang on.

My day-to-day job is to do what I can to help people find ways to overcome their distress and rediscover their capacities and capabilities to find a way forward. Of course, I don’t do this alone. It requires a team effort to help suffering people recover and manage their illnesses and organize the resources they need to put a life together.  We have some resources to do this, such as the ACA’s expansion of Medicaid in Pennsylvania.  But still the observation of Julian Tudor Hart, a renowned British physician working among the miners in Wales, rings true: the people with the greatest need generally have the least access to resources. Hart called this the “Inverse Care Law.”

For a long time and to this day, this has been the American approach to health care, though the ACA does a bit to address it.  Given this, some Americans may assume that the recent increase in mortality among white folks reflects a lack of access to needed care.

The work of two other Brits, Thomas McKeown and Michael Marmot reveals the inadequacy of this belief.  McKeown made the trenchant observation that it wasn’t health care that made people healthy, but rather the conditions in which they lived. Marmot pressed this observation and, in a series of famous studies of civil servants in the British Government, found that health status was tied in a step-wise fashion with class.  Poor working-class people had worse health then their middle-class colleagues who in turn were less healthy than the highly paid executives.  These findings created a fire storm around the world, but some thirty years later, the idea has finally begun to find its way to the US in the form a focus on the “social determinants of health.” Where people live, their income, the resources available to them, the web of social relationships they experience, all come under this rubric. Health isn’t just about people’s lifestyle — whether they smoke or drink — or about their access to health care. It is fundamentally about the kinds of lives people live and how they are socially structured. Health is profoundly ecological– it reflects the social habitat and physical environment people live in.

This new focus permits us to say that what’s happening to the health and well-being of poor white folks is clear evidence that the life worlds and social circumstances of their lives are falling apart.  Their social habitat is strained, and the strain is showing up in a looming body count.

We could do more to make it easier for people to access the resources they need beyond health care and by tapping into their capabilities and capacities to find ways to flourish.  Steps in this direction include concepts like the “medical home”, an expanded version of accessible team- based primary health care that focuses on people’s well-being over the life course, providing preventive and clinical services, promoting health and connecting people to the resources needed for healthy living. In psychiatry, the recognition that people with psychiatric challenges have untapped capacities to recover — to find meaningful ways to live — is reshaping clinical approaches so they connect with and build on those capabilities. These innovations are all good, but they are woefully insufficient given the scale and scope of what the nation faces.

To achieve what we need to achieve, our society needs to move the conversation about health and well-being upstream, away from a focus on health care alone, and link health and health care with general social policy.  The moves towards “the social determinants and processes of health,” “health in all policy,” “population health,” and “health impact assessments,” backed by a politics of social inclusion, are the ways forward to achieve health and social equity.

The country we create determines the patterns of life and death of the people who live here. It’s not a job just for doctors and other health care providers. We are all stewards of the health of the people of this country. Increasing numbers of people won’t thrive and will die young until we fully embrace this responsibility.

Kenneth Thompson

Kenneth S. Thompson MD is a public service community psychiatrist in Pittsburgh whose career has been focused on improving psychiatric care and achieving health equity.

Posted in Contributors, Guest Bloggers, Issues, The Working Class and the Economy, Understanding Class | Tagged , , | 2 Comments