US Poverty Data Tells Only Half the Story...

In April this year, Fortune magazine published an insightful analytical piece Fortune 500: Profits bounce back. Two days ago as I went back to the Fortune website to read the piece again, I found something very interesting: sitting right next to it was the story Poverty in the US Spikes. I took a screen-shot right away.

In April this year, Fortune magazine published an insightful analytical piece Fortune 500: Profits bounce back. Two days ago as I went back to the Fortune website to read the piece again, I found something very interesting: sitting right next to it was the story Poverty in the US Spikes. I took a screen-shot right away. The picture is worth much more than a mere thousand words: I think its worth 391 billion dollars (2009 the Fortune 500 earnings) or the 14.9 million Americans without jobs. You choose.

Some excerpts from Profits Bounce Back:

Amazingly, as consumers struggle, U.S. corporations are staging a nearly unprecedented comeback that's largely escaping notice. The gargantuan, dispiriting job cuts that seem to dominate the news have also been the spur for an epic resurgence in profits. For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that's the second largest in the list's 56-year history, approaching the increase in the robust recovery of 2003.

The crucial reductions came in the item accounting for two-thirds of their costs: labor. In 2009, the Fortune 500 shed 821,000 jobs, the biggest loss in its history -- almost 3.2% of its payroll. ... ... The result was a wondrous surge in productivity, defined as the hours needed to make a bicycle, a PC, or a ton of insulation (emphasis mine)

That 'wondrous surge in productivity' came from layoffs and by getting less workers to produce the same, or more. No wonder then, that during this same 2009 when profits bounced back and productivity soared, 4 millions more Americans fell into poverty. Or that almost 44 million Americans lived in poverty and 50.7 million were uninsured - the highest ever since the Census was taken.

Let us flip back to the Fortune piece:

The star of 2009 is undoubtedly health care. The sector's earnings jumped to an all-time high of $92 billion.. Health-care earnings rose by $23 billion, or 33%. It wasn't the band of new arrivals that accounted for most of the bounty, but extremely strong earnings from two groups ... medical insurers and pharmaceuticals.

In medical insurance, profits recovered by cutting jobs and raising premiums. Obviously, the number of the uninsured grew.

And there is more. Almost at the same time that the Census Report on poverty was released, Phoenix Marketing released its report on the Size of Affluent Markets in the US.

'Impressive Resilience of Affluent Investors' reads the headline of its executive summary. It estimates that there are about 182,000 'deca-millionaire' households in the US - with $10 million or more in liquid wealth, up 17 percent. 'Wealth households', i.e. those with $1 million plus investible resources, grew by eight percent from 2009 to 2010 and now constitute nearly 5.6 million households.

The exact same story is being played out country after country. Private 'fortunes' of the few continue to grow alongside the misfortunes of many. These fortunes come directly from production and investment strategies which involve layoffs, paying pittance to workers, tax dodging, abuse of tax payers' money and so on.

And yet, while policy makers speak of poverty, hunger, maternal mortality etc., with so much moral outrage, there is a stony silence on inequality. Even worse, governments actually design and implement policies which fuel inequality. The 'crisis' was one such moment of policy intervention for inequality par excellence. Those who laid off the most workers got the most by way of bonuses. As a student of mine once said, "this is so not rocket science!"

What lies at the bottom of this inequality? Fundamentally, a completely irrational and unjust way of valuing people's work. Over time, the 'value' of how much a CEO's work is worth has increased exponentially while that of the workers have fallen.

In the 70s, American executives made over 30 times what workers made. In 2007, it was 364; in 2009, the figure stands at 263. By and large, an average CEO made in one day what a worker made in the entire year. In Canada from where I write, the highest paid 100 Canadian CEOs earned 173 times the average pay of a Canadian in 2008 - up from 104 times in 1998.

Get this: by 1:06 pm on the first working day of the year, the Canadian CEO had already made what an average Canadian earns in the entire year. Not even a whole day.

The comparisons are much worse if we look at the average worker in the developing world, who are all 'informal' workers with no contract or security or bargaining. In India, the alleged emerging economic giant, 93 percent of its workforce is in the informal sector. Wonder how long it takes for a CEO to earn what they earn in 16-17 hours of grueling labor every day, and mostly on empty or quasi-empty stomachs. A nano-second perhaps?

But why is this the case? As Leo Leopold asked very straightforwardly in his piece yesterday: What do these guys actually do that earns them such wealth?

They control. Their decision-making power is without limits. The corporate model allows for unlimited control by a few, a very few. All other stakeholders have only residual power.

This is not to say that corporate power goes entirely unchallenged. Indeed, there are numerous ongoing struggles worldwide that are doing exactly that.

But the challenge is not yet as loud in North America as it needs to be. And there are perhaps important historical reasons for that. Most importantly, when one is out of work and waiting for another, it is difficult to think of challenging those who we think are our prospective employers.

This is not merely a question of asking the minimum wage to be raised, although that would help. But really, seriously asking how those enormous salaries on the one hand - and the minuscule ones on the other - can be justified. In some parts of the world they would not be. It depends entirely on how a society collectively comes to decide on the value of people's work.

A very interesting example is the Scandinavian model, the 'Management Theory S' as Professor Robert Schuter calls it. As he explains, 'S' is based on two principles: everyone is equal, and the common good is more important than individual success. Schuter shows how these two principles keep employee compensation differences to the minimum, allows 'extras' to be taxed, and subjects all decision-making to constant scrutiny.

There are also other alternatives. The corporate model is not the only one we have. In India, the largest food products marketing organization, Amul, is a cooperative, i.e., it is owned by its producer members. It has 2.79 million members, produces 11.22 million liters of milk per day and has very solid fundamentals certified by India's top credit rating agencies.

Crucial here are the principles at play. In addition to the principle that everyone is equal, and that everyone's work is of roughly equal value, the cooperative model also asserts that it is the workers/the producers who should collectively own and control what they produce. Implicit here is the belief that it is people's work and not just 'management strategies' that produces value.

Unfortunately, every crisis drives down the value of work even further and heightens our insecurities so that it is even more difficult to raise these questions. But we have to: and now.

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