It’s All About Luck

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One of the biggest problems, says Shafir, is the message the poor receive from the system: You’re poor because you’re no good. “It’s very easy for the poor to swallow this idea,” he says. “The attitude that the poor are less successful is very common and very wrong. These days the survivor is the one with luck: Once in a blue moon someone pulls through. So the system isn’t ‘survival of the fittest’ at all.”

The Psychological Poverty Trap, Haaretz, 02/23/2012, Asher Schechter interviewing Eldar Shafir

Being Poor

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“We have learned not to try too hard to be middle class. It never works out well and always makes you feel worse for having tried and failed yet again. Better not to try. It makes more sense to get food that you know will be palatable and cheap and that keeps well. Junk food is a pleasure that we are allowed to have; why would we give that up?”

“We know that the very act of being poor guarantees that we will never not be poor. It doesn’t give us much reason to improve ourselves. We don’t apply for jobs because we know we can’t afford to look nice enough to hold them. I would make a super legal secretary but I’ve been turned down more than once because I “don’t fit the image of the firm”, which is a nice way of saying “gtfo, pov”. I am good enough to cook the food, hidden away in the kitchen, but my boss won’t make me a server because I don’t “fit the corporate image”. I am not beautiful. I have missing teeth and skin that looks like it will when you live on B12 and coffee and nicotine and no sleep. Beauty is a thing you get when you can afford it, and that’s how you get the job that you need in order to be beautiful. There isn’t much point trying.”

““Free” only exists for rich people. It’s great that there’s a bowl of condoms at my school, but most poor people will never set foot on a college campus. We don’t belong there. There’s a clinic? Great! There’s still a copay [cost levied by health insurance companies]. We’re not going. Besides, all they’ll tell you at the clinic is you need to see a specialist, which, seriously? Might as well be located on Mars for how accessible it is. “Low cost” and “sliding scale” sound like “money you have to spend” to me, and they can’t help you anyway.”

“So let’s break this down: you’re poor, so you desperately need whatever crappy job you can find, and the nature of that crappy job is that you can be fired at any time. Meanwhile, your hours can be cut with no notice, and there’s no obligation on the part of your employer to provide severance regardless of why, how or when they let you go. And we wonder why the poor get poorer.”

‘Poor people don’t plan long-term. We’ll just get our hearts broken’, The Observer, Linda Tirado

Also published in:

Poverty Premium: Rent to Own

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Amazon.com

In some ways, the business harkens back to the subprime boom of the early 2000s, when lenders handed out loans to low-income borrowers with little credit history. But while people in those days were charged perhaps an interest rate of 5 to 10 percent, at rental centers the poor find themselves paying effective annual interest rates of more than 100 percent. With business models such as “rent-to-own,” in which transactions are categorized as leases, stores like Buddy’s can avoid state usury laws and other regulations.

And yet low-income Americans increasingly have few other places to turn. “Congratulations, You are Pre-Approved,” Buddy’s says on its Web site, and the message plays to America’s bottom 40 percent. This is a group that makes less money than it did 20 years ago, a group increasingly likely to string together paychecks by holding multiple part-time jobs with variable hours.

“We’ve always talked about the benefits and costs,” she said on the drive home. “Because with a family you can’t just say, ‘I want this, I’m going to get it.’ But growing up having the chair, the recliner, the love seat, the couch and everything, you just get used to the normal stuff. Sometimes it’s hard to break from the normal stuff and get to reality.”

Rental America: Why the poor pay $4,150 for a $1,500 sofa, Washington Post, Chico Harlan, 10/2014.

Amazon.com

Then in the fall of 2001, Motta discovered Rent-A-Center. Situated in mostly poor neighborhoods, this chain’s 2,600 stores offer big-ticket items like furniture and electronics to millions of people with no credit. Hiking up prices and charging exorbitant interest, using a scheme critics have called “pay now, pay later,” the company racks up sales in the billions and is a key player in what one market research firm calls “the poverty market.”

But the story didn’t end there. Monthly bills continued to arrive, late fees stacked up, and “incomplete” payments were rejected. Rent-A-Center employees routinely called her at home, says Motta, and even came by in person to pressure her to pay. After two years, Motta had paid Rent-A-Center almost $2,000. “I was giving and giving and it was never done,” she recalled. “I told them to take their sofa.” The company would not comment on her case.

Darnley Stewart, an attorney who is leading a New York class-action suit against the company, finds this outrageous. “Rent-A-Center explicitly targets poor, largely minority neighborhoods and has no qualms about selling a cheap television for $700 to people who can’t afford it,” she says. Stewart’s suit, which is awaiting a ruling from the state Supreme Court, alleges that Rent-A-Center engaged in deceptive and fraudulent business practices by misrepresenting the actual costs of its merchandise and coercing customers with a “high-pressure sales scheme.”

In the face of steady complaints, Rent-A-Center argues that it is offering a service to an otherwise excluded demographic, and that its mission is simply to “improve the lives of our customers.” But others, like attorney Darnley Stewart, are not even mildly persuaded: “I don’t think you are doing the poor a favor by gouging them.”

Pay Now, Pay Later, Mother Jones, Anya Schiffrin, May/June 2005

Poverty Premium: Banking in the USA

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Amazon.com

Life is expensive for America’s poor, with financial services the primary culprit, something that also afflicts migrants sending money home (see article). Mr Martin at least has a bank account. Some 8% of American households—and nearly one in three whose income is less than $15,000 a year—do not (see chart). More than half of this group say banking is too expensive for them. Many cannot maintain the minimum balance necessary to avoid monthly fees; for others, the risk of being walloped with unexpected fees looms too large.

Low smartphone penetration in turn makes life more expensive in other ways. The unconnected do not benefit from the cheap communication, education, and even transport the app economy provides. A quarter of poor households do not use the internet at all, which makes seeking out low prices harder.

Inflation has also squeezed the poor more in recent years. The prices of items which soak up much of their budgets—such as rent, food and energy—have risen faster than other goods and services.

It’s Expensive To Be Poor, The Economist,  09/2015

Poverty Premium Research (Harvard Business Review)

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Amazon.com

Multinationals that failed to take these realities into account saw their best-laid business plans go bust. P&G’s PUR sachets were envisioned as a low-priced competitor to bottled water; in reality, though, poor households are used to boiling their tap water or drinking it untreated. Grameen Danone’s real competition among rural populations wasn’t expensive store-bought yogurt—it was homemade yogurt that consumers produced for a fraction of the cost.

In places where poor consumers benefit from lower prices, they often incur other costs. For example, the informal economy fails to ensure safe working conditions and reasonable wages, product quality controls, or taxes for the state. The brunt of these externalities is borne by the poor, as workers, consumers, and beneficiaries of government funds. Such places may have a “poverty premium” that multinationals could help eliminate, but that premium does not take the form of higher prices.

The Problem with the “Poverty Premium,” Harvard Business Review, Ethan Kay and Woody Lewenstein, April 2013

Ethan Kay gave a Ted Talk about creating cookstoves for poverty survivors.

Economics of Fertility and Childbearing

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Are you likely to have more kids if you are rich or poor?  Or to put this in econo-jargon: Are kids normal or inferior goods?  (Reminder: When you get rich you buy more of a “normal good,” and less of an “inferior good.” And yes, the language of economics can be a bit cold.)…

Whether you cut the data across countries, through time, or across people at a point in time, the same fact arises: The richer you get, the fewer kids you have.

Yep, kids aren’t normal.

The Rich vs Poor Debate: Are Kids Normal or Inferior Goods?, Freakonomics.com, by Justin Wolfers

Poverty Premium Research (University of Bristol)

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For the purposes of this report, we can understand the poverty premium to occur for one or more of three key reasons:

  • Additional costs directly resulting from having a low income, for example because this reduces the flexibility of payment methods;

  • Additional costs associated with a low income even though not directly resulting from it, for example the additional chance that someone on low-income lives in a high-crime area where insurance premiums are high; and

  • Additional costs that can be experienced by people across income groups, but are more likely to be experienced by lower-income households, such as not “shopping around” for utility tariffs, and which place a disproportionately high burden on low-income households’ resources.

The Poverty Premium – When low-income households pay more for essential goods and services by Sara Davies, Andrea Finney and Yvette Hartfree; University of Bristol, School of Geographical Sciences , November 2016

Notes from the Introduction:

The notion of the poverty premium was first conceived by American sociologist David Caplovitz in 1963. The term is used to describe how poor people pay more for essential goods and services compared to those not in poverty. In the UK the poverty premium has been highlighted as an important social policy concern by charities and organisations working with low-income families. In 2010 Save the Children illustrated the nominal cost of the poverty premium at £1,300 per year and showed how those on low-incomes paid more for fuel, telecommunications, insurance, accessing cash and accessing credit.

This study makes a significant contribution to moving forward our knowledge of the poverty premium in the UK. It takes a fresh look at understanding why the poverty premium arises and analyses new consumer data to show how the poverty premium is actually experienced.

Freedom Dividend

The freedom Dividend is an extremely important concept. When people are freed from slavery – or extreme poverty – the entire community is transformed for the better.

Kevin Bales, an internationally recognized expert on modern slavery and freeing people from slavery explains the concept here:

A longer explanation is provided by Michael Shelton on FreeTheSlaves.net (PDF) which includes the following:

In helping to build sustainable freedom for survivors of slavery, we see that in addition to personal liberation, there is a significant Freedom Dividend – a range of social and economic improvements that occur with the removal of individuals and groups from slavery. This freedom dividend is seen in a number of dimensions, including:

  • educational participation in girls and boys,
  • increased family incomes and payment of wages,
  • initiation of family asset formation
  • improved access to health services,
  • improved status and greater safety from violence of women and girls
  • increased political participation,
  • reduced corruption at the local level in terms of access to legal justice and in delivery of social and development services (such as access to water).

In addition, because former slaves are able to participate alongside other citizens in using public services and in local economic activity, there are improvements in social integration.

These benefits are most directly experienced by the former slaves, and they also directly affect the families of returning trafficking survivors. It is also believed (though not so far rigorously tested) that increased incomes and more efficient work practices of people coming out of slavery lead to a general upward spiral in local economic activity (including the incomes of those families who were NOT held in slavery). Also, to the extent that groups of people coming out of slavery achieve changes in government behavior, improvements in rule of law, and reduction of violence against women, this benefits a wider group of citizens.

Poverty, Inc.

I finally got the opportunity to watch the documentary Poverty Inc. It’s well worth watching and covers a lot of details that are extremely important to consider when providing assistance internationally.

As I was watching it, I kept thinking the same systemic concerns, complaints and problems occur here in the United States. The manifestation is different, but the way money, business, non-profit work and political/social forces operate are the same. Honestly, I think a Poverty Inc USA-version is both possible and warranted. Maybe someday that will happen.

The danger I see in this film is the assumption that no help at all is better than anything being provided for free. That is not the argument made by this film, either purposely or as a result of the evidence provided. The point made…extremely well…is that non profits make money off of catastrophes and continue making money as long as the catastrophes continue, which directly and drastically hinders the efforts of people trying to overcome terrible events.

Help is ethically, morally and politically necessary. However, turning people into your permanent fundraising poster child by hindering their ability to move into (or return to) a state of financial and political self-sufficiency is not help – it’s business.

This would make an excellent starting point of an in-depth discussion or class on poverty, economics, business and politics.

Details about the movie:

Prison Industrial Complex

This article has a lot of good things to say: Masked Racism: Reflections on the Prison Industrial Complex, Color Lines by Angela Y. Davis (09/10/1998)

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Prisons thus perform a feat of magic. Or rather the people who continually vote in new prison bonds and tacitly assent to a proliferating network of prisons and jails have been tricked into believing in the magic of imprisonment. But prisons do not disappear problems, they disappear human beings. And the practice of disappearing vast numbers of people from poor, immigrant, and racially marginalized communities has literally become big business.

Many corporations whose products we consume on a daily basis have learned that prison labor power can be as profitable as third world labor power exploited by U.S.-based global corporations. Both relegate formerly unionized workers to joblessness and many even wind up in prison. Some of the companies that use prison labor are IBM, Motorola, Compaq, Texas Instruments, Honeywell, Microsoft, and Boeing. But it is not only the hi-tech industries that reap the profits of prison labor. Nordstrom department stores sell jeans that are marketed as “Prison Blues,” as well as t-shirts and jackets made in Oregon prisons. The advertising slogan for these clothes is “made on the inside to be worn on the outside.” Maryland prisoners inspect glass bottles and jars used by Revlon and Pierre Cardin, and schools throughout the world buy graduation caps and gowns made by South Carolina prisoners.