Steidlmeier1988.pdf

The Business Community and PovertyPaul Steidlmeier, School of Management, State University of New York, Binghamton, NY 13901

ABSTRACT

The nature and causes of poverty are analyzed in termsof the social responsibility of business. Theresponsibility of a business enterprise to helpovercome poverty is assessed in terms of its own properaction as a business as well as in terms ofparticipation in social policy. Systemic, corporate andindividual courses of action are discussed.

INTRODUCTION

sectors of business suffer from overcapacity, it isimportant that the poor be brought into marketprocesses. To that end poverty must be eliminated.A further reason for eliminating poverty is that, moreand more, modern economies require a highly skilledlabor force. The prospects for the poor developingtheir capacities are not bright. Often their educationis inferior and they are not able to function withinthe system.

In what follows I first clarify the nature and extentof poverty. Following this I discuss its causes. I thensuggest a general social framework for eliminating itand discuss specific potential contributions of thebusiness community.

As a social and economic system capitalism has producedsome dazzling successes. Historically, even relentlesscritics such as Karl Marx conceded the point thatcapitalism produced unprecedented wealth. Despite itsrecord of success, however, capitalism has not beenable to exorcise the specter of poverty. More than anyother issue, poverty provides the prism through whichthe general public perceives the fairness of the freemarket system and of corporate behavior.

Poverty is not something that most business peoplethink about. In strategic terms, it is part of theirremote environment. It is very important, however,poverty on their agenda. There are, in fact, signs thatthey are doing just that (Conference Board, 1987).There are a number of reasons why. First, there aremoral concerns for the well being of others. It isimportant to mention moral concern at the outset. Notto do so amounts to accepting the caricature ofbusiness people as amoral and unconcerned for others,as if those who run a profitable business necessarilyhave no social conscience. Many business people abhorexploitation and have both a sense of compassion aswell as a sense of fairness (which market theory itselfpresupposes).

There are also a number of motives which can be cast interms of mutual self interest between business and thepoor. First, the long term survival of the freeenterprise market system depends upon its integrity. Itis of the utmost importance that capitalism beperceived as fair in order that people believe that thesystem is good for them. For the integrity of thesystem to be maintained it must be viewed as governedby fair rules, where all participants in themarketplace mutually benefit. If, instead, it is viewedas a struggle between the poor and dispossessed withthe rich and powerful, the market becomes a zero-sumgame. In such a scenario, poverty itself becomes asource of social instability both domestically andinternat ionally.

Another reason why ending poverty is in the interestsof business is market expansion. As it is, the poor donot constitute an effective market for business. Theirneeds do not translate into demand. At a time when most

CLARIFYING THE NATURE OF POVERTY

All of the above has forced a reexamination of thebasic nature and extent of poverty (Steidlmeier, 1987:4-8). Experts themselves are polarized around twonotions: absolute and relative poverty. FollowingAmartya Sen (1983), absolute poverty is predicated ofthe failure to develop innate capacities of anindividual such as physical, intellectual, artistic andoccupational abilities and performance. Relativepoverty is diverse and is generally defined in threeways (Townsend, 1979). Most fundamentally, it viewsboth what are described as basic needs as well as themeans necessary to meet them as culturally relative. Inthis sense there can be no absolute notion of poverty.The very notion itself is defined in terms of changingcultural and historical parameters. In a second usageof the term, the notion of relative poverty deals withincome. It does so in two ways. The first is to comparethe top xZ of income with the bottom x%. The result ispoverty defined in terms of proportional income shares.Another approach rests on the establishment of povertylines in the context of public policy. These incomelines, such as $10,900 for a family of four, serve toestablish welfare entitlements. The latter two relativedefinitions of poverty dominate discussions in theUnited States.

One problem that has emerged with such definitions isthe implied priority of economics in the definition ofpoverty. Income usually figures as the primaryindicator. There is a hard logic to all of this, for ina market economy the goods and services people need areeither self-produced or purchased. It is this primarilyeconomic focus that seemingly provides the easy Jump toa responsibility of business for poverty. Such a moveneeds further examination.

Poverty includes economics but is much more. Theopposite of poverty is not so much wealth as power. Inthe last decades emphasis in poverty analysis andpolicy has been shifting to empowerment (Butler andKondratas, 1987: 56; Harrington, 1984: 207-229).Empowerment is clearly rooted in an absolute notion of

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poverty and also definitely includes an economiccomponent. The main issue in empowerment, however, isbehavioral dependency and the inability of people tocare for themselves. This category includes everyonefrom the economically handicapped, to less talentedplodders, to those whose lives are emotionallyunmanageable. The idea of empowerment includes 1) thenurturing of self-esteem and esteem by others in thecontext of family and community and 2) educationtogether with the enabling development of capacities.Empowerment is concerned with total human developmentin the context of community. Viewing poverty in termsof empowerment has the advantage of preserving itseconomic component while directing policy toward abroader spectrum of issues. Neglect of empowerment andthe concentration of policy on defining economicentitlements and transfers is at the root of theineffectiveness of many programs.

Judging the extent of poverty has proven to be astatistical minefield. It is usually done in economicterms. The extent of underreporting is not known.Partial studies abound. Comparisons across differentstudies– which employ different base years,methodologies, definitions and assumptions– has provento be especially difficult. All of this is furthercomplicated by the volatile politicization of theissues, which affects the objectivity of analyticalframeworks themselves. Most observers seem to rely onthe Bureau of the Census for macro data. Micro data ismost often generated by grass roots organizations,social workers and surveys. With all the caveatsimplied above, I summarize some of the general data.

In 1985 roughly 31% of blacks and 29% of Hispanicslived below the poverty line. The position of blacksimproved slightly over 1970. Hispanics were some 7%worse off in 1985 than in 1970. Some 13% of all those

TABLE ONE

United States Family Income Distribution,1970-1986 (%)

TABLE TWO

Percentage of Persons Below The OfficialPoverty Line, 1960-1985 (%)

PopulationGroup and

1986 Income

Highest 20%> $50,370

SecondHighest 20%$35,016-$50,370

Middle 25%$24,021-$35,015

SecondLowest 20%$13,887-$24,020

Lowest 20%< $13,887

1970 1975 1980 1986 Change InA n n u a lIncome1973-1985*

40.9 41.1 41.6 43.7 0.3

23.8 24.1 24.3 24.0 -4.4

17.6 17.6 17.5 16.8 -7.6

12.2 11.8 11.6 10.8 -18.4

5.4 5.4 5.1 4.5 -32.3

Sources: U. S. Census Bureau as cited by McLeod(1987) and by Danziger and Gottschalk(1987).

* The d e c l i n e in mean income i s forfami l i e s with children; income for 1973and 1985 i s measured in 1985 constantdollars.

YEAR

1960

1965

1970

1975

1980

1985

ALLRACES

22.2

14.7

12.6

12.3

13.0

14.0

WHITE

17.8

22.2

9.9

9.7

10.2

11.4

BLACK

n.a.

41.8

33.5

31.3

32.5

31.3

SPANISHORIGIN

n.a.

n.a.

n.a.

26.9

25.7

29.0

Source: U. S. Census Bureau, 1987, p. 412

in poverty were children. In terms of total numbers,69% of all those classified as poor were white. Thepercentage of whites in poverty rose from 10% in 1970to around 12% in 1985. With respect to incomedistribution, only the top 20% have experienced growthin real income from 1973 to 1985. The bottom 20%suffered a decline of 32% while the second lowestquintile declined by 18%.

SORTING OUT THE CAUSES OF POVERTY

For a country that is an acknowledged leader ininformation age technology, our knowledge of the extentof poverty is fragmentary indeed. It is not surprisingthat there is little agreement regarding causes. Likeit or not, business has always been suspected bycritics of causing poverty. The debate linking businessto poverty is complex and wide-ranging (Hunt, 1972: 40-88). The anti-business feeling, however, is nurtured bymore than "leftist" thinking. At present the privateenterprise system and its principal institution, thecorporation, are viewed with considerable mistrust by•the public. In her study of The Businessman In AmericanLiterature, Emily Stipes Watts (1982) chronicles thepredominance of negative literary portrayals of bigbusiness. In recent years a number of religiousorganizations as well as private interest groups havegrown increasingly critical of "capitalism."

Members of the business community have found the abovesniping at capitalism difficult to put up with. Theycounter that the number one antidote to poverty is theprivate enterprise system itself (American EnterpriseInstitute, 1984). No other system has produced greateraggregate wealth. Furthermore, no other system canboast that so many of its citizens are so well off.Capitalism has championed the emergence, well being anddominance of the middle class.

Why continue to bedevil capitalism with the specter ofpoverty? The first reason stems from obvious cases ofexploitation of labor or of consumer fraud. These casesreinforce the notion that the market represents a zero-sum game rather than an environment of mutual benefit.

Secondly, the very success of capitalism has givenbirth to rising expectations regarding progress and thequality of life. The economic progress that capitalismbrought about made it more evident than ever thatpoverty is not necessary; it can be overcome. This

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observation leads to the conclusion on the part of somethat business should eliminate poverty. It alsoreinforces the notion that the poor are somehow victimsof an anonymous system where they have no voice and donot seem to matter.

Thirdly, the dynamics of markets themselves must beconsidered. Both the instability of business cycles,the continual presence of market imperfections and thefactor of market externalities suggest that short runsocial disequilibria would be a rather constant featureof capitalism.

The history of poverty in the United States is by nomeans uniform. Two traditions have existed side byside. The first is the American system as the land ofopportunity for the poor and downtrodden. This is theimmigrants' story which has been repeated thousands oftimes by peoples from every continent. This traditionhas profound roots in literature (Watts, 1982) as wellas in religion (Bellah, 1984). It directly answers thequest for legitimacy in terms of the successindividuals have experienced in their lives as well asin terms of God's providence, which is played out interms of individual callings and the stewardship ofGod's gifts.

At the same time there is a tradition of the poor asthe underclass. Celebrated by Henry George in his ThePoverty of Progress, in the struggles of the depressionas captured in John Steinbeck's The Grapes of Wrath,and in Micahel Harrington's The Other America, the poorare seen as struggling uphill in a game where the rulesare stacked against them.

The first tradition has also focused a social optic onthe poor as somehow being the main cause of their ownproblems, whether because of laziness, the lack ofthrift or defects of character. The second traditionsees the poor as somehow deserving. Their plight shouldevoke feelings of human solidarity if not apreferential option for the poor. This latter feelinghas spawned the welfare tradition, which grew out ofthe Englisg poor laws. (Interestingly enough, some whothink the poor undeserving will nonetheless supportwelfare in order to defuse a potentially volatile andunstable social situation). American welfare capitalismhas been most recently attacked by Gharles Murray inLosing Ground and by Stuart Butler and Anna Kondratasin Out Of The Poverty Trap. In each case theargumentation is not so much about the poor themselves,but about the inefficacy of government programs.

CRAFTING A SOLUTION: THE GENERAL SOCIAL FRAMEWORK

Although Marxist socialism has provided both the moststrident critique of the business/poverty interrelationas well as the most radical solution, it is the so-called "mixed economy" that has dominated strategy inthe West. The response to poverty has taken the form ofboth charitable works by voluntary organizations aswell as legislation. I concentrate on the latter.Legislation has first of all set out to curb theexploitation of the ugly capitalists (if,indeed, suchpeople can be called capitalists). The focus has beenlabor, consumer protection, the environment, anti-trust, and bribery and corruption. Secondly,legislation has focused upon economic welfare. In theUnited States the primary policy has been based uponthe consumption function, primarily choosing incomesupplements rather than price controls or rations associalists tend to do. This is significant, for suchpolicy conceives of poverty in terms of entitlements.

The entitlements/income transfers approach has somevalidity; its weak point is that is does not tackle thepoverty mind-set which undergirds the lack ofempowerment either in society or in one's own affairs.

The legislative approach to poverty stands indistinction to market solutions, on the one hand, andthe role of private voluntary organizations and primarycommunities, on the other. Clearly, if poverty isconcerned with personal development and socialempowerment. more than market activity is involved .

The market can only really handle the economiccomponent. It cannot directly handle problems of selfesteem or skill development. Nor can it handle thosewho are only marginally present in the market. Forexample, it will not immediately handle the problem of10 million homeless children or of the elderly, forthey are not part of the work force. Nonetheless, themarket can handle certain components of the povertysyndrome.

THE POTENTIAL CONTRIBimON OF THE BUSINESS COMMUNITY

There is no clear one-to-one relationship between thebusiness community and poverty. The causes of povertyare diverse. It is worth examining two scenarios: 1)when the existence or continuance of poverty is relatedto a business' activities, and 2) when poverty isprimarily socially or individually caused.

Certain types of poverty can be caused [wholly orpartially] by a number of business agents. First,individual business persons who abuse their roles(e.g., a particular business person who discriminatesagainst minorities, swindles or bilks the elderly outof savings, etc.). Secondly, poverty may be linked tocorporate policy which exploits direct stakeholders(e.g., wage policy which exploits cheap labor insweatshops, price fixing, redlining, etc.). Thirdly,poverty can also be caused by the impact businessdecisions have upon indirect stakeholders (e.g.,relocating plants, depleting the ecological system,taking capital out of a poor country, etc.).

In the second scenario, poverty is primarily sociallyor individually caused. It may stem from a lack ofeducation, a mentality of personal defeatism based onpoor self-esteem, from social discrimination and lackof opportunity, and from cultural factors (to name justa few basic non-economic causes). The behavioraldependency of the poor deserves special attention. Theprimary focus has fallen upon primary communities, suchas family and community, on the one hand, and uponeducation, on the other. The main issue is noteconomics but empowerment.

Before suggesting what the responsibilities of businessare, it is necessary to relate the general causes ofpoverty to some ethical principles. Poverty representsa partial negation of the common good. It derives frommultiple causes (individual, group, systemic) and itssolution would seem to call for the co-action of manydiverse moral agents. Poverty represents, first of all,a general problem of social ethics. In this sense itraises the question of the justice of the systemitself. Secondly, within this social context it is aproblem of business ethics. On this score it evokes anexamination of actual business policies. Finally,poverty raises questions of morally responsibleindividual behavior. In this case the responsibility ofthe poor themselves as well as other people is thesubject of moral scrutiny.

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Regarding poverty, there is no "special ethics" forbusiness people as opposed to other members of society.All members of society face the same moral imperatives:1) to act responsibly and do no harm to others in one'sactions and 2) to be responsive and to do good. Ifthere is anything special, it is the experientialcontext in which business men and women make theirmoral choices and topuch the lives of the poor.

The central issue of whether poverty serves theinterests of business must be squarely faced. On amacroeconomic level I contend that it does not. First,it augurs political instability. Second, the mainproblem which contemporary capitalism faces isoverproduction and the lack of markets. Thirdly,business needs a skilled and productive labor force. Afourth reason business might be willing to combatpoverty is that it might generate the goods andservices necessary to do so. The poverty programsbecome their customers, much as food stamps provideincome for the food industry. On all four points it isin the general interests of business that poverty beeradicated and the poor become empowered.

Insofar as business contributions to solving povertygo, solutions are to be found at three levels: thesystem, corporate policy and individual action. Thesocial responsibility of business differs according towhich poverty scenario one is dealing with.

Business people contend that the capitalist systemitself is an antidote to economic poverty. The logic,on the one hand, is based upon entrepreneurs who canidentify market opportunities to create wealth. On theother, it is based on accumulating an investiblesurplus which would lead to growth and jobs. For thisscenario to work, however, society must prepare thepoor to participate either as entrepreneurs or asworkers. Capitalism presupposes 1) empoweredindividuals 2) access to markets and information and 3)the dispersion rather than concentration of power. Theprinciple responsibility of business at the systemslevel is to ensure fairness in the marketplace, on theone hand, and to strengthen to proper functioning ofother social institutions, such as education, on theother. In this sense the corporation is involved in abroad social ethic (as a co-active subject of thecommon good). In a 1987 survey of 130 executives by TheConference Board (1987: 3), education was ranked as themain concern by 64% of respondents.

In discussing corporate policy regarding poverty, twoscenarios must be distinguished: 1) when business is acontributing cause of poverty, and 2) when business isnot a cause but is called upon to help resolve theproblem. On the corporate level, the principle socialresponsibility of business is not to either itselfcause or further contribute to the existence of povertyas it goes about its business. It is important to alsostate business responsibility in a positive way. Anefficient well-run business is itself a socialcontribution to a healthy economy. In a general macrosense, when business flourishes, poverty shoulddecline. Yet, as Michael Harrington pointed out in TheNew American Poverty (1984), this economic logic haschanged. For much new investment is placed outside U.S. borders and new technologies displace rather thanengage labor. The "flourishing economy" prescriptionis, therefore, endangered by three factors: 1) the poorare not educated to be capable of participating in themodern marketplace, 2) new forces of internationaleconomic production are at work and 3) with moderntechnology new investment does not necessarily meanmore jobs. Nonetheless, a well run business itselfrepresents socially responsible behavior. Ethics on thecorporate level entails a particular responsibility fora company's policy and its consequences, for what the

corporation itself does or fails to do.The second poverty scenario is more difficult for it isnot directly related to a firm's principle businesspolicies and actions precisely as a business. Theproblem business faces here is whether it can becontent to be a bystander. For poverty can be caused byomission. In this case the poverty in question does notso much result from an individual's or a corporation'sdirect decision [as in the first scenario], but fromapathy or the lack of the willingness to use availableresources to make a positive contribution (e.g.,investing in depressed areas, providing job training,corporate philanthropy, etc.). This type of scenario isclearly different from the first. Business is not seenas cause but as part of the solution. The implicationis that it should make a contribution.

The point needs clarification, for working to overcomepoverty is not the unique responsibility of business.For example, while a corporation may be sociallyresponsive by providing job training or strengtheningeducation, the social responsibility of all the peoplesimultaneously entails that educators themselves do abetter job, that governments set in place appropriatelegislative and fiscal policies, that churches aid inovercoming the psycho-social syndrome of poverty, thatunions afford equal opportunity, that the quality offamily life be improved, and so forth. Social ethics isitself social both in theory and action. When it comesto doing a social good (as opposed to simply not doingharm), all members of society share alike in thatresponsibility. There must be a fair sharing of thecosts. If, indeed, business is asked to do more in acertain area because it is well placed to do so, itmust be supported in that effort by the public(concretely, for example, with tax breaks).

Finally these prescriptions also apply to allindividual members of society, no matter what theirsphere of activity, not just to business. Many actionsthat individuals may take are focused on improving theway their principle institutions (such as acorporation, a university or a church) behave insociety as well as improving the system itself.Further, there is the individual commitment to treatothers fairly in interpersonal contacts andtransactions. This commitment goes beyond simply notdoing harm to setting aside some of one's resources andtime to help those who are less fortunate. Ifempowerment is a central problem of poverty, then it isclear that personal care for one person by another isan indispensible part of a solution. On this level ofpersonal regard for one's neighbor, business people arelike any other member of society. A sense of caring andconcern for others is a sign of moral maturity.

CONCLUSION

Social ethics and business ethics are inherently asocial process as well as one of individual commitment.Issues such as poverty are public and entail a socialprocess of public debate, choice and action. Withinthat process the social responsibility of individualsas well as of groups is defined.

If a society is to resolve poverty problems, it must berecognized that the corporation is but one of manysocial moral agents, although it is a very importantone. It has moral responsibility for its own properactions and omissions. It also has indirectresponsibility to foster the overall common good andthe justice of the social system and its institutions.

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