Taking Responsibility for Extreme Inequality

“Growing inequality is one of the biggest social, economic and political challenges of our time.” Says The Economist in a special report this month. 

This map, also taken from the same article, show America among countries leading in wealth disparity with 10.5% of our GDP being made up by the world’s largest concentration of billionaires.  The deep orange color illustrate our >20% increase in inequality since 1980. 

With this great gap between the rich and the poor, does the title, “land of opportunity” still describe America?  What has contributed to this great discrepancy between the “haves” and the “have-nots” in America?  How does vast inequality affect our economy?  Is there an optimal rate of inequality that will maximize economic growth?  Who is responsible for establishing and restoring equality in our nation? 

These and many other questions caused me to dig deeper and learn more about the economic situation we find ourselves in, and where things could go from here.

Does the title, “land of opportunity” still describe America? 

Norms article today addresses the cost of inequality and points us to an article by New York Time’s Nobel prize winner, Joseph E. Stigliz who indicates it’s important we pay far closer attention to the financial world as America’s inequality rate is at undisputed historic highs. “. . . the top 1 percent takes in about a fifth of the income, and controls more than a third of the wealth” says Joseph.  And that is coupled with the resulting effect of less access for the vast majority to opportunities that would help individuals obtain positive economic mobility and overall future economic prosperity.  Weather or not this question can be answered conclusively, it may be too soon to tell.  It is clear in many of the articles that I read however, that there is growing concern that there is much less opportunity than there used to be.  The age old saying, it takes money to make money comes to mind, and seems to ring true now more than ever in our US history.  Take a look at these disparities:

What has contributed in America to this great discrepancy between the “haves” and the “have-nots”?

According to Zanny Minton Beddoes, who wrote The Economist article mentioned above, and  Learn Liberty, which seems to come from more of a conservative perspective – they both agree cronyism is one of the main factors.  This short video shows how cronyism, is hurting our economy and how governmental regulation does not always work in favor of small businesses.  With this in mind, it’s important as we go to the poles with a balanced perspective on the benefits and drawbacks that come with more regulation.  Ultimately what we need are government officials that have the integrity to not be bought-out by lobbyist that represent the “haves.”  Rather we need leaders and legislators who will stand up for the 99% of people (the vast population they are supposed to represent that don’t have the means by which to fill their pockets).

A second factor is the need to invest more in our youth - giving them access to opportunity. Traditionally this has been through education.  America used to lead in education however in more modern history we have fallen behind while our cost of education is skyrocketing.  Various forms of education need to be explored as the education system itself has become far too clunky, entrenched in it’s own bureaucracy of maintaining control.  According to research my team has been doing on college graduates, there is only a 6.4% wage difference between high school graduates and college graduates . . . and just 3% above the Median worker (see table below).  Either our thinking that a college education is the ticket to a better life is in serious question . . . and possibly just another way for the wealthy to line their pockets — or students are simply not receiving the value in the quality of the education they are paying for.

How does vast inequality affect our economy? 

There is great debate on this topic however in the end it seems all too apparent that the place in which we find ourselves now has not provide the healthy setting for a growing economy. Here are eleven charts that illustrate how out of whack inequality really is.  According to Stigliz, “Were the rich paying their fair share, our deficit would be smaller, and we would be able to invest more in infrastructure, technology and education — investments that would create jobs now and enhance growth in the future. While education is central to restoring America as a land of opportunity, all three of these are crucial for future growth and increases in living standards.”

Is there an optimal rate of inequality that will maximize economic growth?

According to research done by Jorge A. Charles-Coll there is a direct link between income inequality and economic growth.  Jorge reviews empirical data on international trends using the Gini Coefficient discovering that .39 is the optimal rate of inequality for efficient economic growth.  The questions is then begged – what is the current rate today in America.  According to this article published in The Atlantic, America is close to the bottom at .45.  Interestingly even Warren Buffet, a billionaire investor agrees that the rich need to be taxed more for the sake of our economy and the common good.

Who is responsible for establishing and restoring equality in our nation? 

The president generally is thought to hold a large amount of this responsibility by providing leadership that will protect the interests of the people.  As voters, likewise we also hold that responsibility to educate ourselves on the issues and elect the best person for the job.  But I think it’s important that we take it a step further and find creative ways from a grassroots level to leverage change – and that would be why I’m at BGI J

Poverty in America

To those living in the developing world, the idea of poverty in America may seem like an oxymoron.  How can a nation, known through out the world as “the land of opportunity,” have people living in poverty?

This year five of us BGI students will take a deeper look into what is keeping young adults, from an impoverished background, from achieving a living wage – even after having achieved a bachelor’s degree.

Though the course of this project we will take a greater look at current economic systems, the supply and demand of bachelor degree holders in the market place, the financial bind this puts these undergraduates in and what possible opportunities there may be to make a difference in a system that is - as far as they are concerned - failing.

The current economic crisis certainly has not helped the situation in which recent graduates now find themselves.  College graduates age 24 and under are now facing an almost 40% underemployment rate likely due to the lack of demand in the economy.   Scraping by on low paying jobs, they are still faced with having to pay back huge school loans on an education that’s price has drastically increased over recent decades.

Listening to lectures this past weekend on Economics, unpacking the extremely complex system I couldn’t help but wonder, (1) How did we get here? (2) Is it possible to fix the system?  . . . and (3) If not, then what?

If it is the job of the government to foster a stable market and set up conditions for economic growth then we have a ways to go in establishing that type of governance. 

The way in which monetary policy is set up is actually quite surprising.  With the “stork of a pen” governments including our own can will money into being.  There are two basic kinds of money – commodity money, and flat money.  The first has something on which the money is based the other is simply a social construction that simplifies trading however if a society begins to lose confidence in the currency the value drops.  Where does the United States of America stand between these two types of currency?  Somewhere in between. 

The US Treasury and Fort Knox hold a large quantity of gold provides a sense of security behind our “Federal Reserve Notes” that we carry around in our wallet.  However, interesting banks are only required to have 10% reserves of actual liquid funds and are free to loan out the rest.  It’s not surprising then that when bad loans where made that our faith in the economic system we created also fell apart.

Stay tuned as we dive deep into the US and world economic system, poverty and potential solutions.

What would I do if I knew I couldn’t fail?

How many times have I allowed the fear of failure to keep me from pursuing a dream?  And how would I make decisions differently if I had the confidence of knowing I would succeed at anything I put my mind to?

After all, how can an attempt at making lasting positive change in the world ever be a complete failure, unless — I never try?  Besides what is failure but an opportunity to learn, grow and make mid-course corrections as I pursue a vision of “what could be.”  The only failure then is in giving up or, heaven forbid, never starting.

As I begin grad school this Fall, these questions provoke me to dream bigger and expand my thinking about what the future might hold.

Hi, my name is Arlene Raub.  It’s been my passion, for more than 15 years, to help those living in poverty to become self-sufficient and effect positive change in their communities.  I have worked in both the nonprofit and private business sectors leveraging my time and skills to advance the work of organizations that are making a significant difference throughout the world. 

My passion for partnering specifically with young people in extremely poor countries began in 1997 when I was stationed in Sierra Leone, West African.  I was an intern with Children of the Nations (COTN), a brand-new nonprofit organization with a vision of caring for the needs of orphaned and destitute children in extreme poverty.  I signed up with an adventurous spirit wanting to see the world and make a difference — I had no idea my encounter with poverty and war would provide direction for my life. 

I formed deep relationships with the nationals I met and on May 25, 1997, the coup that left Sierra Leone in ashes left me reeling in sorrow for the friends that called it home.  How could the people of a country so rich in minerals and natural resources live in such poverty and distress?  If there was a chance I could make a difference, I would. 
In 2000, while completing my degree in Intercultural Studies, I joined staff with Children of the Nations.  I served in multiple roles as Communications Director, a member of the Management Committee, and the Intern Coordinator, seasonally leading teams into developing nations to aid orphaned and destitute children. 

The organization grew quickly and consistently by 40% year-over-year.  By 2007, COTN’s rapid growth lead me to hand off the communication department and help develop their international office as the first International Liaison.
It was during this time, I began to dream about earning a Masters in Business Administration (MBA) — I could see the direct benefit and immediate need for this level of education.  However, the impact of the recession kept me from pursuing an MBA at that time, leading me instead to expand my experience in other ways.

September of 2009 I accepted an Account Manager position with Masterworks, a private business that provides effective marketing for many influential nonprofit organizations.  Though I had learned to manage budgets years earlier, it is at Masterworks that I received my working knowledge of business basics like ROI principles, proformas and strategies based on proven analytics.  The experience I gained was invaluable.  I couldn’t help but revisit my desire to pursue an MBA and dream about the impact its knowledge could have for the youth, the future leaders, of developing nations. 
Like many who may be reading this blog, I was drawn to Bainbridge Graduate Institute (BGI) because I saw the need for training in business principles that support sustainable development.

This year I look forward to becoming more conscious of the mental models I have, studying new ways of seeing the world through sustainable development and learning how to help shift the paradigms of other, particularly in the business world, to include the triple bottom line.

Poverty in developing nations is the economic topic I hope to address as we break into teams. According to UN statistics, 55 countries have a population of 20% or more that are living on a Gross National Income (GNI) of less than US $1.25 a day, which is considered the international poverty line.  These countries that are behind the development curve have become marginalized, finding themselves and their resources taken advantage of by those that are more advanced in their understanding of business and commerce.

Within these struggling countries there is further socioeconomic discrimination against those living in the lowest 20% of income.  Without intervention, this bottom-fifth of the population are confined to their poverty because they do not have the means by which to gain the knowledge and/or resources to change their situation – this phenomenon is commonly known as the poverty cycle.  Further yet, the children of this group suffer the most when they do not have adults that will stand up to protect and care for them. Orphans and destitute children facing neglect in these countries are the world’s most vulnerable population.

And . . . if it were not already difficult enough, the remaining majority of the population (in their own struggle to survive and retain their slightly advanced position) all too commonly uses the bottom-fifth as a stepping stool to leverage their own position.  An example of this would be an aunt and uncle using orphaned nieces and nephews, to preform work, beg on the streets or to sell goods to bring income into the house hold . . . while giving biological children preference to attend school or even eat first when food is scarce.  In such cases, equality and human rights are not observed.

My heart aches for the youth of these countries that desperately want to break out of the cycle of poverty and create a different world for themselves and their families. It’s time we empower them with business skills and equip them to be leading change agents in their country stimulating economic growth.

“Businesses are the engine of growth and have the potential to make a huge impact on improving the lives of people in developing countries through investment, job creation, skill enhancement and the development of new technologies.”

As we look at the needs of the world today it is apparent that new business models are needed to address economic instability, environmental depletion and social justice.  Since things must change, failure is not an option.  I look forward to learning with you as we boldly pursue our dreams and combine our efforts to create a sustainable future!