How can business reduce poverty?

The New Statesman ran an essay competition last autumn, challenging us to write an essay answering the question: “How can business reduce poverty?” The winning entry was to be published in The New Statesman. Mine wasn’t the winning entry, so I’m publishing it here.

How would you answer the question? Do you agree with me?

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Many businesses justify their existence in terms of creating jobs. Jobs, they argue, mean prosperity. But with inequality rising fast, this looks like more and more of a smokescreen. We must take a more critical view of whether business – especially neoliberalism – is a strategy that will ever genuinely eliminate poverty.

Many would argue that business reduces poverty simply by existing. After all, surely a boring, badly-paid job is better than no job? Rich nations like Britain would not be where they are  today without the industrial revolution. From hard, dirty and dangerous labour, we gained the 35-hour working week, fanatical health and safety legislation, and 20 days of paid leave a year.

This is what is happening in the developing world, we are told. In rich countries, we may thank our lucky stars that we personally do not have to toil in factories for 19-hour days, doing repetitive work for starvation wages, but for developing countries, it is an inevitable step on the road to riches. For the average worker during the Industrial Revolution, things got worse before they got better.

Comforting as this sounds, we are not comparing like with like. In many ways, our own economic growth has ultimately gone hand in hand with poverty reduction, but we are slamming the door on those who would do the same. Globalisation and neoliberal economics mean we cannot expect the development of the UK to serve as a simple model for the vast diversity of the world at large.

Enclave economies

One example of this is the enclave economies of Central America’s plantation agriculture industry. It’s a fantastic business model for them: hyper-efficient monoculture tended by low-paid workers means that Americans and Europeans can sate themselves with all the bananas, sugar and coffee they can lay their hands on.

Less well-off are the host countries themselves. Tax breaks mean that local economies get nothing approaching their fair share of the wealth created by these companies: instead, it is spirited out, straight into the coffers of head office or offshore. Most workers do not earn enough to lift them from poverty. While they may make national minimum wage, they have no disposable income to speak of. They cannot stimulate the local economy by spending their money with burgeoning local businesses. After paying for the most basic necessities, there is simply nothing left.

Guatemalan folk leader and Nobel Peace Prize laureate, Rigoberta Menchú, described it thus in her autobiography:

“Every finca has a cantina, owned by the landowner, where the workers get drunk … and pile up debts. They spend most of their wages… My mother and my brothers and sisters often had to bear all our household costs when the month on the finca was over because my father owed all his wages to the cantina… He used to drink to forget. But he hurt himself twice over, because the money went back to the landowner. ”

This personal account is from the sixties, but NGOs and the media continue to reveal such practice in agricultural practice with alarming regularity today.

In 2013, a report by Christliche Initiative Romero and Ver.di found serious failures to meet workers’ basic rights in the Brazilian orange juice industry were still commonplace. Unpaid overtime, very long hours, and inadequate safety gear were commonplace. If businesses are really committed to poverty reduction, why does this still happen?

When working in these conditions, it is difficult to get a vibrant local economy going. How can you open an independent shop where locals sell local products when you spend every cent you earn and have no access to credit? Even if you could, those around you are only able to afford the essentials. Of course, there are independent shops in places where people have no disposable income, but it will be a while before the pop-up concept restaurants arrive. This is not the route to growth. Many businesses could afford to pay their workers more – but they don’t.

It should be noted that while some workers can but scrape by on their wages, there are also many developing world factories which are models of good practice. Some now have clinics and childcare programmes for their workers, or subsidise local schools. Unfortunately, in a world of greenwashing, defamation and confidential contracts, there is little way of knowing for sure what goes on in many workplaces.

Certifications such as ISO26000 and Fairtrade are ways for companies to show that they go the extra mile. However, ethical certifications are often fraught with problems. Research published by SOAS this year found that wages on Fairtrade farms were often lower than those in non-certified farms, and that some of the projects built with the premiums were not reaching workers – such as toilets which were only for the use of senior management.

Many companies could improve living standards faster if they placed less emphasis on box ticking and proactively tried to create the best possible working environment for their employees. We would do well to break down the business culture in which it is acceptable to openly talk of cheap labour as an advantage, because “cheap labour” is really another way of saying “low wages”. It is degrading to employees’ humanity to refer to them as “cheap labour” or “labour costs”.

Of course, when looking at ourselves, we aren’t “cheap” or “expensive” labour. We are skilled, experienced, talented businesses of one. We receive a “compensation package”. The cheap labour mind-set turns people’s livelihoods into a commodity whose sole defining feature is price. To view our staff as a cost is to say that while we employ them, we can never be their equals. A company’s employees are its lifeblood. Businesses should be asking how much they can give, rather than how much they can take.

Executive excess

Top executives, on the other hand, are paid far too much. Data from Equilar recently showed that there was little connection between a CEO’s salary and the company’s stock market performance – they found only 1% correlation between 200 companies’ stock returns and their CEOs’ salaries. The economist Ha-Joon Chang, in his book 23 Things they Don’t Tell you About Capitalism, points out that American CEOs earned 30-40 times more than an average worker in the 1960s. This has risen to around 300-400 times more in the 2000s – even though companies are often performing worse than they were then.

Surely this money could be more justly given to employees who cannot afford to make ends meet? We are routinely told that executive jobs are a market like any other, and if we want top notch executives, we have to pay top dollar. But, since in reality the former does not go with the latter, this seems increasingly like a convenient myth perpetuated by the super-rich for their own convenience.

The National Union of Journalists reported in June that the BBC had offered a pay rise to its staff of just 1%. In a motion which received unanimous support, BBC NUJ members noted that director general Tony Hall earns £450,000 a year, managing director Anne Bulford £395,000, and director, strategy and digital, James Purnell earns £295,000.

“The NUJ demand for a cap on salaries of £150,000 would release £20million into the BBC’s budget, each and every year,” the motion noted.

One also has to ask what sort of person can justify paying themselves a seven-figure sum and their labourers starvation wages – and whether this is the sort of person who will make decisions in a way that benefits society.

Moreover, many executives earn more than they could possibly spend, which does little for the economy. Seattle entrepreneur, Nick Hanauer, made this clear in his ultra-rich man’s letter:

“I earn about 1,000 times the median American annually, but I don’t buy thousands of times more stuff… I bought two pairs of the fancy wool pants I am wearing as I write, what my partner Mike calls my ‘manager pants’. I guess I could have bought 1,000 pairs. But why would I? Instead, I sock my extra money away in savings, where it doesn’t do the country much good.”

Executives will say that they are paid for decades of experience, knowledge, education, and long, stressful hours with lots of responsibility – but if $400,000 is enough for the President of the United States, this starts to ring hollow.

Companies could introduce voluntary regulations regarding the pay ratio of highest to lowest earners. The more likely scenario is that such legislation would come down from government, but faced with the pernicious neoliberalism vogue, even that seems like a pipe dream.

Taxes

Despite the fiasco that ensued when it emerged that corporations such as Google, Amazon, Starbucks and Apple had used “creative” accounting solutions to keep millions of pounds out  of the coffers of HMRC, the Conservative party still prides itself on low taxes.

George Osborne told this year’s Tory party conference: “In a modern global economy where people can move their investment from one country to another at the touch of a button – and companies can relocate jobs overnight – the economics of high taxation are the economics of the past.” Surely this should be an incentive to co-operate internationally to solve the problem, rather than to throw our hands in the air and say that the poor will just have to suck it up?

Man cannot live by closing tax loopholes alone. But it would be a good start. Richard Wilkinson and Kate Pickett note in The Spirit Level that the many benefits of living in a more equal society can be observed whether that equality comes through smaller income differences or greater taxation.

There is, of course, more to poverty than money. The word “wealth” comes from the Middle English “wele”, meaning wellbeing. If we define poverty reduction as the improvement of human wellbeing, we open the field to a vast new array of complex parameters: social support networks, marginalisation, mental health, social mobility. While these can be difficult to measure, they may merit more attention than misleading average GDPs.

Dame Carol Black has investigated the relationship between work and health. She explained to Resurgence and The Ecologist’s Festival of Wellbeing in October that good work should be demanding, safe and stable, in an environment where the individual has control over their own work. Employees should be employed fairly, with some flexibility, opportunities, and the possibility to look after their psychological health. A good workplace should have visible senior leadership, accountable managers, monitoring and measurement of work, attention to mental and physical health, fairness, and empowerment for employees to care for their own health. Factors such as commuting time and days of paid holiday are also important considerations.

Imagine an American with just five days of leave, who drives for two hours to reach her stressful job where she works long hours and has little chance for career progression. She may have plenty of money, but what of her quality of life?

This said, we should approach the wellbeing school of thought with care. Elise Klein, a fellow at the Center for Aboriginal Economic Policy Research, notes on Column F:

“Sure, some poor people are happy, but if we just focus on this, we miss the injustice of their poverty. At a national or international policy level, happiness risks overlooking and undervaluing the need to change the objective reality of structural oppression and deprivation. Or worse still, the focus on happiness actually becomes a strategy of policy to overlook structural injustice and oppression.”

Unfortunately, in many places, we favour policies which do little to reduce poverty, in terms of money or happiness. What we have is growing neoliberalism, which panders to the ugliest in humanity. It legitimises the worst in us: greed, ruthlessness, aggressive pursuit of capital. So if poverty reduction is what we want, what are the options?

Although trade unions are powerful counterweights to corporate interests, membership in the UK is falling. Members are disproportionately likely to be older. Could this reflect the fact that awareness of unions’ importance is falling? Many of my own friends seem to regard unions as some kind of club for placard-wavers and tube drivers. They ask what they “get” for their membership fee, as though it were a smartphone contract.

If businesses are genuinely interested in protecting the interests of their workers, they should encourage them to organise. However, since many corporations seem to regard unions as their sworn enemies, we should not hold our breath.

On a more positive note, companies are launching schemes allowing their employees to invest in company shares. This gives staff greater ownership of the companies where they sell their labour. If enough staff took such schemes up, it could – theoretically – mark a shift towards something closer to a workers’ co-operative. This is preferable to a company being owned by faceless, flighty stocks traders. As Ha-Joon Chang has argued, it is in shareholders’ interests to maximise short-term profit, irrespective of how this is achieved.

Companies often justify their actions by saying that they have to act in the interests of their shareholders. If a substantial chunk of their shareholders are the very people who work there, employee and shareholder interests suddenly align. Moreover, shareholders are allowed to attend a company’s AGM.

While such motions undoubtedly help, more radical changes will be necessary if we are to make real strides towards poverty reduction in the developing and developed world alike. In a nutshell, we need an alternative to modern capitalism. Perhaps the most credible alternative at the moment is 21st century Latin American socialism. Bolivian president Evo Morales made headlines in October with his landslide election victory. As Morales nationalised industries such as oil and gas and ploughed the proceeds into education, construction and welfare, inequality and poverty in the country fell dramatically.

In a sense, this is the extrapolation of the finding that a fair workplace is a good workplace; that visible leadership (a national government as opposed to unknown foreigners secreting profits offshore) is a key component of workplace wellbeing.

However, the region is not without its difficulties. Hugo Chávez was heavily criticised for corruption and backfiring food policies. Widespread protests at corruption, violence and basic food shortages have erupted in Venezuela this year. While corruption is neither inherently bound up with these policies nor particular to socialist countries, it can easily be enlisted to discredit and downplay the country’s other achievements.

On a more practical note, these governments are more or less diametrically opposed to the world view of the US, although it is significant that socialism is enjoying a resurgence after the US-sponsored coups in the region in the second half of the 20th century.

If profit were measured in wellbeing, poverty would disappear overnight. But for now, we walk a longer road. Inequality is gradually being recognised as a problem at an international level, and alternatives to rampant neoliberalism are making their mark.

However, some major changes will be needed before businesses value living standards over profit.

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