Business/Finance

Do you hate the poor enough to be charitable?

Let's end poverty by beating each otherYou’re going to despise me, so let’s get that over and done with.

It is winter in Cape Town. Temperatures plunge to the low single Celsius digits. Worse than that though is the hurtling, searing, icy bullets of rain thrust malevolently in gales that reach over 100 kilometres per hour.

You don’t want to be living in a plastic shelter in an informal settlement during one of our winters. Millions do.

In winter, when the cold presses in, shack dwellers cluster closer around paraffin stoves to keep warm. There is no electricity. Common toilets are outside. Shacks lean up against each other. Accidents. Happen. Then the fires spread quickly. Thousands can be made homeless.

This happens every winter. Since 1994, when we had our first democratic elections, the scale of informal settlements has grown exponentially. People have flocked to the cities looking for work and opportunities denied them in the country. Not that there are many opportunities in the city either.

On one especially bitter Saturday morning a knock on my door. A stout woman dressed warmly with a look of balmy good-will: “I am from the church, we’re collecting clothes and money for people living in shacks,” she said.

I know what living there is like. I said, “No.”

I had to repeat myself several times. Her look: of outrage and disbelief.

The obvious? How do I know who she is or where she’s from or whether my “donation” will even be used appropriately? The belief that because it’s charity I have no right to question it.

Let’s put that aside. I wouldn’t have donated anyway.

The poor are always with us

Now, before you judge me, let me ask you this: do you believe in charity, or in opportunity?

Do you believe in helping people to remain where they are, or to help themselves to improve their lives. Do you believe, as the Christian bible says, that the “poor are always with us”?

More prosaically: do you prefer the poor on bended knee, submissive, dependent, grateful and “knowing their place”; or do you prefer them looking you in the eye and well on their way to being your equal or better?

This is a critical distinction. It defines not just your relationship with the destitute living down the road from you, but with your country’s relationship with impoverished nations across the globe; from Laos to Bangalore, from Kazakhstan to Colombia, from Nigeria to Papua New Guinea.

US discomfort with China says more about US fears of losing their top-dog economic place in the world than of their attitude to Chinese worker’s rights. A quick look at US trade policy indicates that US politicians (no doubt, with the tacit support of US citizens) prefer charity to opportunity.

Both Democrats and Republicans whinge about worker’s rights in developing nations. Democrats want to see new laws to protect these enacted. Both at home and abroad. Minimum wage laws, minimum conditions of employment. Most seriously, Democrats attempted to sneak into the recent bill about funding of troops in Iraq additional clauses relating to minimum standards of labour in bilateral trade deals.

Speaking for everyone who supports these sorts of minimum standards of employment is Tony Ehrenreich, a firebrand leader in South Africa’s union movement: “We would rather that workers remain unemployed than be exploited by capitalist corporations who only seek profits.”

Striking for jobs; marching for poverty

It is the South African union movement who came up with a unique mechanism for job creation. They strike for jobs.

Millions of people across the country march and toi-toi (a peculiar dance-form unique to here) for employment opportunities.

Striking for jobs is like fucking for virginity.

Maybe you think that this is silly and a meaningless comparison to the idea of charity and supporting the poor.

Is striking for jobs any different than marching to end poverty? Marching to end poverty? And this achieves what exactly? Raises the profile of the poor?

What is poverty? Is it a lack of stuff, or a lack of opportunity?

Perhaps you believe that the poor lack things like televisions, microwave ovens, cars, or even computers. If you believe that having these things ends poverty then, by all means, donate. I don’t.

Most laws relating to poverty are the equivalent of moving the furniture around. Do you believe in minimum wage? How minimum? What about minimum benefits? Minimum standards of employment? In and of themselves do any of these laws act to end poverty?

Notice that no-one ever tries to set minimum wages for accountants or lawyers or computer programmers. The only jobs ever encumbered with minimum conditions of employment are ones accessible to the poor.

Why don’t the jobs taken by the rich and educated need this type of protection? Because there is competition for these people and companies respond by offering competitive benefits.

This happens even in markets filled with unskilled people. Chinese wages are rising dramatically as the population of unemployed urban poor has dropped dramatically in the past decade. Now factories are popping up in the Philippines and Vietnam to take advantage of cheap labour there.

The unintended consequences of minimum wage

South Africa is a country of 45 million people of whom 30 – 40% are unemployed. Some 8 million people of working age are looking for jobs. Surely when they find them it is only fair that the pay be good?

The South African Department of Labour recently announced a minimum wage for all restaurant staff. It sounds like a fantastic idea. The poor have their poverty and desperation turned against them by ruthless business owners.

The thing about poverty is that it is compounded by a lack of formative education. There aren’t many jobs open to you if you can’t read or write. Working in a restaurant may be high-pressure work but it doesn’t require much education to waiter or wash dishes. It is a very simple way for a person to enter the job market without proving their capabilities. Restaurant owners take in anyone without question and, in exchange, pay as little as possible.

Everything in a restaurant is carefully worked out. The food will be 15% of the bill, rent 10%, labour 10%, taxes, utilities, wastage, cleaning … everything carefully done. These relationships can’t change. If individual wages are put up by an act of parliament then the number of workers must go down.

But restaurants must operate. How to do so with less staff being paid at higher wages? Only one solution: they must have more skills.

Suddenly the people being hired must have minimum experience and references must be checked.

Not only is the absolute number of people employed in the industry reduced, but the barrier to entry has been raised by requiring experience and talent.

At the same time, all over South Africa (and the world) people stand by the side of the road waiting for you to park. Then they guard your car. Whythawk Ratings is busy researching the car-guarding industry. Working entirely for tips (the vague hope that, arriving back at a car miraculously undamaged, the owner will pay the guard) a person may earn R 10 (US$ 1.40) per day.

People are prepared to do this. Clearly the alternatives are worse.

The tragedy of charity

Perhaps you think we should raise taxes on the rich, keep our high-standards in place protected by strict rules, and redistribute the wealth to the poor? Governments are famously bad at redistributing wealth. The US spends far more on state-sponsored education than do the Europeans, yet for far less benefit.

In South Africa the barriers to entering the formal market have become so high that the informal / extra-legal economy is now growing faster than the legal one.

The same is happening all over the world. Where protectionist measures in the developed world (subsidies to local businesses, demands for high labour standards in poor countries) deprive the poor of an opportunity to help themselves and trade their way into wealth.

At the same time images of poverty have resulted in massive relief efforts by charities. Another famous stereotype of Africa is the relief worker driving in their luxury four-wheel drive vehicles distributing largess from on high. The relationship – at once patronising and insincere – is part of the problem that sees the west as preaching economic and social values that are not practised. No wonder African countries relate more to China.

This has also lead to the alienation of countries like Cuba, Iran and Venezuela and the attraction they have for other marginalised people.

The limitations of capitalism

Capitalism can only go so far. It is not a functional ideology. It is simply like gravity. It is a way that people interact through trade. Socialism is a particular capitalist strategy. So is communism. Capitalism can assist those people who know the ideology and rules of that society to become wealthy.

What happens to those who have no such capacity? If you are healthy and able then there is no excuse for you to sit at home on welfare, and be paid to drink and be bored, by the state. If you are too old to work, or too unhealthy to be productive, what of you?

That is where taxes come in. Capitalism generates wealth. How that wealth is spent is a decision for that society. But, whatever we do, we must ensure that our subsidies do not create their own distortions.

South Africa has more than 5 million people who suffer from AIDS. The highest national AIDS infection rate in the world. One of the few social benefits our government provides is one of health incapacity benefits. If you’re too sick to work then you get an allowance. Around US$ 100 per month.

Many people are refusing to go on to anti-retrovirals to control their AIDS for fear of losing their disability grants. There are no jobs, so there is no point to becoming healthy.

It is a terrible problem.

The simplest way to deal with the moral hazard of unemployment benefits is to say that the state will, through taxes, provide everyone with a minimum wage. If you earn more than that then it is a wonderful top-up. And the very rich subsidise everyone, but they still get that minimum wage as well. Notice there is now no incentive to lie. Everyone gets the same benefit.

Creating opportunities

During the past two years I ran a project I created called the Thousand Rand Challenge. We had a budget of US$ 7 million provided by the state and the mandate to create as many businesses as we could for US$ 140 each. With payment for consultants and support that would translate to around 1 000 businesses. We fell short. We created 670 businesses and 1 540 jobs.

It wasn’t charity. It was opportunity.

There is a difference.

18 replies »

  1. “Now, before you judge me, let me ask you this: do you believe in charity, or in opportunity?”

    Both. Charity is sometimes necessary but there is a very established saying in my country “As cold as charity…”.

    Do I believe in a “safety net” should an individual fall upon hard times? Of course. But this is Britain and we are not poor.

    When living in S.A. my mother was alone one day (we lived in the bush that was being developed on the outskirts of P.E.). We had recently moved and although Father had purchased our Doberman, Brutus, he had not yet arranged for the fencing to be installed.

    In the early weeks we had many a visitor to our door. My mother was in the kitchen and it had a stable door, the bottom was closed the top half open. She turned around and there stood a very tall black man. He asked for bread and jam and my mother said, “Yes.” He thanked her and walked away.

    Charity sometimes comes before opportunity.

  2. And I have no problem with a social safety-net either. Just as long as it is fairly distributed. I recognise that I am not capable of ensuring fairness and so I entrust this to government.

    I don’t want to be the one answering all the knocks on the door. That really is the task of government. I would not take away their responsibility. And I don’t want the poor to get the impression that government is not there to help them directly. The more they demand of government the more they’ll get.

    But, like charity, if I give directly then they stop asking government. And then government stops delivering. Just like we have now.

  3. I really do not agree that it is either one or the other. The UK is very big on charity and much worthy work is done all round.

    I donate to the Royal Theatrical Fund and am very happy to do so. Also Children In Need. I do not consider myself some fluffy, airhead who has little or no grasp of world affairs, politics, corrupt government but I like to give…so I do.

  4. Gavin,

    I remember our conversation when I did my piece on the US Congress members who were trying to live on the amount of money ($21 US per week) that people living on food stamps (our current form of federal food assistance for the poor).

    I remember at that time you mentioned in a comment that: “Oh, and I

  5. Our last check on the businesses was only two months ago and they were doing fine.

    I agree about “the working poor” which is why I suggested the basic income grant that all can receive. Then there is no concern about moral hazard of people not getting work to continue receiving benefits. You could say, “Well, that just means businesses will pay lower wages because of the grant top-up.” Maybe, but the top-up is their money too since they pay it through higher taxes.

    The thing about unionisation is that many of the core issues of the original unions are now government policy anyway. Something like a minimum benefit that all should get through taxes is another

    And stop being so flagrantly Americo-centric ;p When US companies off-shore they’re still employing previously unemployed people that happen to be other Earthlings. Why are the American poor so important? At least you have some form of welfare. The employment of any one person anywhere in the world is of benefit to everyone. No matter who does the hiring.

    Plenty of research (most notably by the UN) has demonstrated that off-shoring / outsourcing creates much less unemployment (if any) than popularised and that the joblessness in the US is caused mainly by seasonal churn.

    Besides which the US is currently at one of the lowest unemployment rates in quite some time.

  6. Gavin wrote: ‘Why are the American poor so important? At least you have some form of welfare. The employment of any one person anywhere in the world is of benefit to everyone. No matter who does the hiring.”

    You may be missing one seemingly minor but important point, Gavin. This is not about just American poor – or rather, American working poor. It’s about the willingness of American corporations to make working poor out of people anywhere on the planet. If there’s improvement right now, you can bet that things will turn if workers across the world were to demand better wages, benefits, and treatment.

    The reason so many of the things unions fought for are now part of US law or government policies regulating employers is because unions forced the government to address these issues. We’ve fought battles for workers’ rights in America that workers around the world will end up fighting in their individual countries – if they’re allowed to. You can bet that corporations will choose to do business with countries who take their side against workers if such behavior benefits those corporations’ execs and stock holders. As I said, they hold no loyalty except to their corporations. They are loyal only to the profit motive. Be forewarned.

    So I’m not being just Americo-centric. I’m being people-centric. And what we’ve found corporations to be in America is money-centric.

  7. The thing about being “working poor” is that it sure beats being unemployed and destitute. And it gives a platform to becoming “working ordinary”.

    All corporations, not just US ones, are going to act in their self-interest. As do all Unions, Politicians, Environmental Pressure Groups, and Liberals.

    Self-interest is the overwhelming human characteristic. It is a good thing. But just as important is a balance of power. Offsetting Corporate self-interest must be the right to the expression of self-interest in others. Which is why we have the right to organise (even if people don’t go the whole hog and form a union) or simply to press legal charges through an impartial legal system to enforce their rights.

    Imagine that companies didn’t pursue profits? Then there would be no pursuit of increasing profits, no investment in productive plant and equipment, no hiring of new staff and – ultimately – no-one to complain that they’re being exploited as “working poor”.

    Just – as we have across the whole continent of Africa – people complaining that no-one finds them interesting at all, and them remaining impoverishing, uneducated and destitute.

  8. And another thing. It is possible to hold multinational corporations (like Shell, BP or Verizon – none of them US-based corporations) responsible for their actions in countries with poor rule of law in their own countries (look what happened to Nike and Reebok).

    However, the exploitation by home-based businesses in developing countries is infinitely worse than anything any US company would ever contemplate.

    Have you ever heard of lock-in? Happens in some textiles factories even here in South Africa, but most especially in places like Laos and Cambodia. Bosses lock their staff inside their factories overnight and go home, demanding a level of production during the dark hours.

    The only electricity available is for the machines. So they light lanterns. Accidents. Happen. Then no-one can get out.

    Honestly, no multi-national corporation can be exposed to that sort of risk. People in developing countries WANT to work for foreign corporations. They know their working conditions will be better.

    Times change: what used to be an astonishingly good job at Walmart 20 years ago is now, relatively speaking, a terrible one that humiliates you. Well, then, outsource it to a country where a job of that nature is still a source of pride.

  9. What I was getting at is that businesses are designed to pursue profits. Nothing else. Asking a business to pursue social issues is liking asking a snail to pursue a bicycle; wrong issue.

    Governments are there to prevent force and fraud, and to ensure that everyone gets a fair shake and a soothing cup of tea when they don’t.

    To continue your sports analogy: a football team is tasked with playing football to the best of their abilities and to win matches; the referee is there to prevent force or fraud. We assume, in sports, that a referee is necessary for the same reason businesses require contracts and courts; because everyone will try to give themselves an unfair advantage. It’s part of the game.

    Suddenly asking the teams to drop down and produce macram

  10. If I buy your reasoning, then you seem to be justifying ATTEMPTS to cheat. It’s the ref’s job to make sure we don’t cheat, so we should do anything we can think of and if we get away with it, it was fair.

    Sorry, but I believe in things like ethics and sportsmanship, and it’s NOT okay to pursue victory at all costs. Not in football, not in business, not in government. Yeah, you’re right that the government plays that role, and it needs to play it well, but there are simply too many examples in the world of people who have succeeded ethically for us to tolerate the Cheat2Win crowd.

  11. I knew a kid who broke another kid’s leg playing soccer. It was a slide tackle, and I was appalled when he described it and how he though it was cool because he helped his team win by tacking out an opposing player. His response to my shock? “It was a perfectly legal slide tackle.”

    Just to continue the sports analogy, just because it’s a “fair” or legal tactic doesn’t mean it’s ethical. Too few business programs (and science or engineering programs too) at universities teach courses on what is and is not ethical. Something else that probably ought to change in higher education.

  12. This example doesn’t really bother me – aside from the apparent taking of pleasure in hurting someone. I’ve been an athlete my whole life and have hurt others with clean, legal plays and been hurt by same badly enough myself that it required hospitalization. Part of the game.
    That’s different from hurting somebody with a cheap shot. I’ve been on the receiving end of those, too.
    So my issue here is that clean and legal = ethical, for the most part. Hey – there are perfectly ethical business practices that hurt people. You fire somebody, even for good cause, you’ve hurt them (and maybe their families, who are completely innocent).
    Cheap shot, dirty play, though, that’s something that shouldn’t be tolerated. Period. Legally, morally, ethically, or otherwise. I’m a huge fan of fair play and sportsmanship in all walks of life.

  13. Thing is, even if no-one actively cheats it’s always useful to have an impartial observer to ensure that, when accidents happen, someone is there to mediate and make sure steam gets let out harmlessly.

    Again, the rolls need to be clearly defined. Business makes profits, along the way creates jobs. Profits are taxed by government and redistributed on social programs. Government doesn’t get involved in business. Business doesn’t get involved in social programs. Government remains impartial and ensures that everyone is treated equally, even if they don’t have equal resources. Business doesn’t try to game the system by influencing the judges (i.e. campaign finance reform).

  14. I couldn’t agree more that we need the referees. No argument at all. But I’m saying that isn’t enough. The players have to respect the game as well. They have to understand that they are also responsible for the integrity of the sport, as it were.

    We all know, from experience, that if everybody on both teams is determined to cheat, there’s only so much the ref can do. I’ve BEEN the ref in that match, in fact, and when I have to red card half of the players to keep them from crippling each other it’s time for the teams to have a hard look at themselves.

    Ideally, they’ll have time for that hard look as they serve hefty suspensions.

    As in sports, so also in business and government….

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