Does Business Squeeze the Poor?

BusinessWeek’s cover story of May 21 sounds a tad unusual. Titled The Poverty Business: Inside U.S. Companies’ Audacious Drive to Extract More Profits from the Nation’s Working Poor, it answers in the affirmative.

Unusual for a business magazine—perhaps. But BW’s right—It’s time to strip politics and ideology from the discussion of a serious issue—the dissollution of trust in an increasingly divided society.

If you think the gap between the haves and the have-nots hasn’t increased massively, you may be as lonely as the anti-global warming people. The data are not on your side, and the public increasingly knows it.

From BW:

“It’s not only that the poor are paying more; the poor are paying a lot more,” says Sheila C. Blair, chairman of the FDIC, talking about auto and mortgage loans.

“Having access to credit should be helping low-income individuals. But instead fo becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up,” says Nouriel Roubini of NYU’s Stern School.

BW describes a growing range of companies selling high-priced products to the working poor. You can yourself look up stats about the growing income gap; the growing wealth gap; the increasing employment gap; the CEO to average worker gap; and the declining rates of upward social mobility that exist in this country.

There is, of course, no shortage of ideologues who want to invoke Milton Friedman and a strict constructionist view of Adam Smith.
Their arguments have the sound of 18th century English political theorists writing about natural law. Free markets are god’s blessing upon us—they work only when producers are free to produce what consumers freely choose. Anything else is an abridgment of freedom for producer and consumer alike. And so on.

We have heard this logic applied to tobacco, and watched people die. To fast food, and watched a national epidemic of morbid obseity among children. To CEO compensation, and seen vodka-peeing ice statues. To credit card and subprime mortgagers, and watched people sign themselves into servitude and bankruptcy. Then we made bankruptcy harder to get.

The gospel of capitalism has been hijacked by frenetic ideologues who never outgrew their adolescent delight with Nietzsche and Ayn Rand. It’s time to take it back. We need a new, healthy, spirited, mature version of capitalism, one that doesn’t enslave society’s weakest to overly reward shareholders.

Laissez faire is not natural law. It was given by lawmakers, who themselves crudely approximated the will of society. It is not guaranteed by anyone.

Here’s what Daniel Yankelovich—a highly respected veteran of opinion research—had to say recently in McKinsey Quarterly (subscription only);

"Business doctrines have to change. Ideologies like shareholder value are being abused to rationalize and justify outrageous behavior. One of the tests for whether companies are aligning themselves with a broader social engagement is the extent to which the doctrine of shareholder value loses credibility.

"I don’t think it’s going to be openly repudiated, but I suspect that, gtadually, executives will stop making as much reference to it to justify their actions. It privileges one group, one constituency, over all the others, and it carries so much baggage now becaused it’s been so perverted and linked to short-term profits.

The social fabric depends on trust. Our ideologues don’t talk about that. We must take back the conversation.

BW is not alone. Consider this, from the NYTimes Dealbook blog:

John C. Whitehead, who retired as co-chairman of Goldman Sachs in 1984, called current compensation levels at the giant securities firm “shocking” and said he was “appalled” at Wall Street pay in general.

One healthy sign: my 30th reunion at Harvard Business School last fall. The most heavily attended lecture was by Professor Bruce Scott, who spoke about the global trend toward concentration of wealth. We’re moving toward looking like Rio de Janeiro—armed gated communities surrounded by violent gangs.

Scott’s lecture got a standing ovation—both in his lecture room, and in the audio-connected overflow room, hastily put together to accommodate the crowd.

This from the old school crowd at HBS—the West Point of capitalism. There is hope.