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Persistent Poverty: Do We have a Handle on What Must be Done?

By Bill Schweke on 07/27/2007 @ 02:06 PM

Tags: Ideas in Development

Left-of-center policy wonks and the broader progressive community are quite excited about the effort, led by the Center for American Progress, to advocate for a national strategy to cut poverty in half. The Center’s recent publication, From Poverty to Prosperity: Report and Recommendations of the CAP Task Force on Poverty, does a good job in articulating a strong rationale and describing an agenda for getting there. Its 12-step program calls for:

1. Raising and indexing the minimum wage to half the average hourly wage;
2. Expanding the Earned Income Tax Credit and Child Tax Credit;
3. Promoting unionization by enacting the Employee Free Choice Act;
4. Guaranteeing child care assistance to low-income families and promoting early education for all;
5. Creating housing vouchers and promoting more equitable development in and around central cities;
6. Connecting disadvantaged and disconnected youth with school and work;
7. Simplifying and expanding Pell grants;
8. Helping former prisoners find stable employment and reintegrate into their communities;
9. Ensuring equity for low-wage workers in the Unemployment Insurance system;
10. Modernizing “safety net” benefits programs to obtain employment that provides a decent level of living;
11. Reducing the high costs of being poor by increasing access to mainstream consumer goods and financial services; and
12. Expanding and simplifying the Saver’s Credit to encourage saving for education, homeownership and retirement.

The report’s authors state that “the combined cost of our principal recommendations is in the range of $90 billion a year – a significant cost but one that is necessary and could be readily funded through a fairer tax system.”

It sounds great, but how do we convince the skeptical?

First, we might describe the recent success of the Blair Administration that made lowering child poverty a key priority of the government. In the late 1980s, the UK had one of the highest child poverty rates among Organisation for Economic Co-operation and Development (OECD) countries. The Blair Administration committed to halving child poverty by 2010 and ending it by 2020. Independent studies, including one by UNICEF, ¹ suggest that its approaches are working. The British government reported a 25% reduction in number of children living in households below 60% of median income from 1999-2004, meeting the Labour party’s interim benchmark. Other studies ² document a bit less progress and claim that the government missed their goal, depending on what measures are used. Still, the government’s effort, at minimum, reduced the number of children in poverty by 700,000 over five years ³, an impressive achievement and the largest percentage reduction of any OECD nation. ⁴

How did the Blair Administration manage such an effort? Through a basket of policies designed to accomplish four main goals ⁵:

• Helping parents participate in the labor market
• Providing financial support for families, with more for those most in need
• Providing excellent public services to improve children’s life chances and break cycles of poverty
• Supporting parents so they can guide children through life transitions

These goals led to the institution of several working and childcare tax credits to create incentives for people to work, as well as extending parental leave policies and improving access to early childhood education. The government also established a Child Trust Fund that provides a savings account for every child at birth, with matching incentives for lower income families. Although Britain has a long way to go to achieve its goal of ending child poverty by 2020, it is clear that a linked set of policies that encourage work, savings and education can make great progress towards reducing poverty overall.

Second, I suggest, surprisingly, turning to a philosopher, Professor Charles Karelis of George Washington University, and his book, The Persistence of Poverty: Why the Economics of the Well-off Can’t Help the Poor. He turns the typical conservative argument that the poor are responsible for their condition into a paradoxical but compelling critique of meager transfer payments, few work supports and a “bootstraps” welfare reform philosophy to guide welfare-to-work program design. So, let’s see how he conjures this trick.

Karelis argues that the answer does lie in exploring why the poor seem to sabotage themselves. He defines five habits or “non-behaviors” that are the root causes of this seeming desire to remain in persistent poverty—not working, not finishing school, not saving for a rainy day, not moderating alcohol consumption and not breaking the law.

I know that this does not sound very reassuring, and it even seems totally inconsistent with the case liberals want to make, that larger social and economic forces are the main determinates of poverty. ⁶ At first glance, the average lefty would bristle at this analysis and start muttering about “blaming the victim,” “it’s not that culture of poverty crap again,” and so forth.

But we can provide a larger framework for understanding the philosopher’s argument. After all, not all of those that are on welfare or poor are engaging in the “five bad habits.” Remember: the author is focusing on the persistent poor. Among the population of the economically struggling, you could come up with a simple classification that would provide a bit of illumination. For example, there are the “work-willing”, “the work-unable,” and the “work un-willing.”

Most of those on welfare, for instance, are only recipients for a short-time and get back on their feet. Others are so mentally disturbed, mentally troubled, strung out on drugs, physically disabled or injured, that work is not an option.

This persistent poverty can also be the result of a “vicious circle.” Bad economic misfortunes can lead to psychological strains, neurotic attitudes and dysfunctional behavior. A prolonged loss of jobs and little new employment generation is correlated over time with higher rates of teenaged pregnancies, crime, dropping out of high school, drugs and alcohol abuse. And this is true whether you are in Skowhegan, Maine or East St. Louis, Missouri, white, black, Hispanic or Asian—the same dysfunctional behaviors proliferate.

Social science has documented that even long-tenured working class individuals, displaced from their former occupation in a facility that they worked in for decades, start undergoing a negative transformation. If they do not find a job within a year, they become discouraged workers. At this point, they give up searching for employment and begin resembling the chronically poor in attitudes, habits and behaviors. A much longer sequence of counseling and training is necessary to help them get back in the mainstream, become self-sufficient again and re-connect to their networks of friends and family.

Now let us return to the learned professor’s point that the dysfunctional behaviors of some of the poor help to perpetuate their condition. The key to his argument is the belief that these actions are, in fact, rational, given their history and circumstances. He disputes explanations that emphasize the apathy of the poor, their limited time horizons, and their weakness of will—he does not blame the victim, but merely says that it is logical that the persistently poor act in ways that are ultimately self-defeating.

Karelis then shifts from the psychological factors to attack neoclassical economics. He contends that orthodox theoretical economics does not correctly understand the causal chain, and therefore does not design appropriate policies. The mistake is rooted in the concept of marginal analysis—the perception that one additional dollar means more to a poor person than a rich individual. True, the dollar amounts to a higher proportion of a poor person’s annual income, but this increase is not enough to make a real difference in one’s life, and therefore does not encourage a change in behavior.

The professor describes a new framework, using a more complex psychology and a different economic logic. It hinges on the fact that the poor stay poor because they are poor. They live in a state of insufficiency. Making $30 a day more by working doesn’t change this insufficiency, and so doesn’t lower the attractiveness of their current lifestyle and actions. For instance, moderating one’s drinking may not compensate for the extra hassles of a low paying job with no benefits. Similarly, “blowing” one’s limited funds on birthday gifts may be more attractive to those who have little each day and look forward to one special day more than saving a little money.

It is for these reasons that IDA saving programs that lead to a home purchase in a few short years can really change attitudes toward the future. Likewise, programs and efforts that result in a job that allows an escape from poverty, rather than just a move from unemployed to “working poor,” can also change motivations. Achieving “critical mass” and “sufficiency” is critical. To be upwardly mobile, you must start from a better place and have the confidence that you can advance further. Greater sufficiency must be made “real.” The program participant must really see that she is getting somewhere with their new commitment to create a more comfortable and meaningful life for their family.

Other implications are as follows. Ending welfare as we know it won’t end poverty. Making work pay is the answer. So are work supports and efforts to move beyond the status of the “working poor.” Savings incentives designed for the poor matter, because they can work. Using the savings for short-term benefits demonstrates the power of savings, and so is helpful for motivating longer-term commitments. Karelis also proposes that middle- and high schools should combine work and study more creatively and at a larger scale for poor districts and schools. This would make the connections between school and work more concrete and also generate some income for saving or spending.

Karelis further argues that income transfers, services like the Job Corps or Headstart can escape tradeoffs between efficiency and equity if they are geared along these lines: motivating, non-punitive and productivity enhancing. Indeed, he believes that “the practical upshot in the particular case of the United States is surely that the optimum balance between need-justice and market-defined justice is closer to pure need-justice than is generally appreciated.”

Evidence supports the position that the risk of poverty in America is higher than thought, that the rate of upward mobility is down, and that without labor market and other reforms, poverty is a game of musical chairs. Yet the poor need not always be with us. The Labour Party in Great Britain provides a hopeful precedent. We are gaining clarity around structuring the right combination of support and incentives to motivate people to work, save and get educated. Finally, we have some good ideas about what policy prescriptions and level of commitment would be effective tools in the fight against persistent poverty.

¹ UNICEF Innocenti Research Center. “Child Poverty in Rich Countries: Innocenti Report Card No. 6” Florence, Italy, The United Nations Children’s Fund, 2005. < http://www.unicef.org/brazil/repcard6e.pdf> Accessed 7/17/07. ² Harker, Lisa. “Delivering on Child Poverty: what would it take?” Department for Work and Pensions, England, 1 November 2006.

³ Ibid.

⁴ UNICEF.

⁵ Minhoff, Elisa. “The UK Commitment: Ending Child Poverty by 2020.” The Center for Law and Social Policy, Washington, DC, January 30, 2006.

⁶ The Persistence of Poverty focuses on issues of motivation, behavior change and the entanglements caused by not having enough assets to live a fuller, less stressful existence. It does not imply that poverty is without a structural component – a changing economy, economic dislocation, middle class flight from the cities, gender and racial discrimination, bad jobs and predatory lenders. The book Blame Welfare: Ignore Poverty and Inequality grapples with these issues. The authors, Joel Handler and Yeheskel Hasenfeld, build a strong case that welfare reform in the U.S. is not a success, and is no replacement for real anti-poverty policies. They present facts and figures about the risk of individuals falling into poverty and welfare periods, the composition of the poor, historical and sociological reasons for the persistence of poverty, the evolution of the welfare state and the low-wage labor market. Their recommendations for change are similar to the Center for American Progress program list.