Success is where preparation and opportunity meet. — Bobby Unser
In my last post, I looked at poverty through the lens of community resilience. I laid out my vision of what an ecosystem that would enable the poor to rise above poverty might look like. Education is an important part of that “enabling ecosystem” – it’s the preparation side of Bobby Unser’s quote. For the poor, economic growth – a thriving economy – is the key to opening the aperture of opportunity. In this post, I want to look a little deeper at opportunity, again from a community perspective.
Politicians and pundits too often use the term “opportunity” glibly and gloss over what it really means for those trying to escape poverty. Very simply, opportunity for those mired in poverty simply means the chance to make their lives better. New school clothes for the kids, real presents at Christmas, time to think about the future rather than worrying about the present. That implies having discretionary resources, especially some savings. The poor can’t improve their lot – they can’t become less dependent – unless they can earn more than what’s needed to survive. There are several things a community can do to increase opportunities for those who need them.
Understand what opportunity is – and isn’t. Opportunity is the chance for someone to improve their lot in life. Increasing opportunities means things like encouraging job growth; or finding creative ways to get people of different social, economic and educational strata to get to know each other. More generally, increasing opportunity means increasing the number of situations that people can use to better themselves (for physical scientists, it is akin to increasing entropy).
Seattle WA offers a good example of what opportunity isn’t. The city raised its minimum wage to $15/hr. It clearly helped some but it also caused some smaller businesses to close. And lots of low wage jobs were automated away. In a similar vein, the Congressional Budget Office recently looked at a House bill that mandated a federal $15/hr minimum wage. The CBO concluded that the increased wages would help about 1.3M of the working poor, but would also eliminate a similar number of jobs. It would put another 3.7M jobs in jeopardy and increase the prices of the things we buy by $24B (assuming employers passed on the increased labor costs to their customers).
She-who-must-be obeyed and I occasionally buy subs from Subway. Our local store has this amazing black kid – Zion – who has the quickest hands in the East. If I were to try to do what he does, I’d end up a bloody mess in the ER inside of an hour! He is a student at our local college working to reduce the burden of his education on his family. He is always pleasant and seems to have a great work ethic. I’m not sure what he’s making an hour, but increasing the minimum wage would make it more likely that Zion’s job would be automated away. A well-intended but poorly thought out increase in the minimum wage could put his education and his future in jeopardy. And let’s not forget that there are hundreds of thousands if not millions of good kids like Zion. Is this the best policy choice we can make – help a few and close the door on many others? Let us hope not!
Help – don’t hinder – entrepreneurs. These are the men and women who are risking their capital to create new businesses, which are the real engines of our economic growth and vitality. In most communities, they are the prime creators of new jobs – they make up about 90% of all businesses.. They are the ones most likely to hire from within the community – giving kids a chance to get real world experience and hiring those who’ve been laid off or who have lost their jobs because a big company left town. Small businesses are thus perhaps the most important conduits for opportunities.
Communities can help small businesses in several ways. Encouraging community-based financial institutions is one way. The Mary Queen of Viet Nam Community Development Corporation (CDC) in east New Orleans demonstrates the power of CDCs. Formed in 2006, this CDC is working to provide health care, housing and social services to all of the residents of east NOLA – Vietnamese, African-Americans and Hispanics. An interesting current project is re-development of of the Alcee Fortier Boulevard business corridor. Community Development financial Institutions are able to provide the small loans needed to provide operating capital for a small business.
Many communities have one or more Opportunity Zones (OZs). These potentially can be a powerful means to provide opportunities to businesses and individuals and to improve the community itself. But community involvement is almost a necessity. Several communities have facilitated investments in OZs by participating in “capital stacks” – multiplying the power of private investment through public debt and philanthropic contributions.
Excessive regulation has a huge negative impact on small businesses. Depending on the community, complying with state and local regulations may cost small businesses about $10,000 per employee, and a similar amount for federal compliance. As we’ve noted in previous posts, permitting requirements – and built-in delays – can also deter the formation of small businesses. A classic example is the warping of the permitting process for new transmission lines in California which has prevented wider use of renewable energy, and ironically increased the state’s dependence on generation plants in Mexico that use fossil fuels. And let’s not even get started on business taxes! Of course, you in California can have an even bigger problem – your state government is doing all it can to impair all businesses, but small businesses are the ones hardest hit. It should not be a surprise that California has the highest poverty rate when cost of living is taken into account.
As George Gilder* has observed,
Those most acutely threatened by the abuse of American entrepreneurs are the poor. If the rich are stultified by socialism and crony capitalism, the lower economic classes will suffer the most as the horizons of opportunity close. High tax rates and oppressive regulations do not keep anyone from being rich. They prevent poor people from becoming rich. High tax rates do not redistribute incomes or wealth; they redistribute taxpayers—out of productive investment into overseas tax havens and out of offices and factories into beach resorts and municipal bonds.
Resilient communities recognize the importance of building what Hasan calls an enabling ecosystem for all of their citizens, but especially the poor. Preparing them to recognize and seize opportunities is a necessary part of that ecosystem – but it’s not sufficient. Communities must also provide opportunities for the poor to seize and use to advance themselves. Thus, as Unser says, success requires both preparation and opportunity – our communities have both a moral obligation and practical incentives to help the poor to help themselves.
* George Gilder is a little bit like Scotch whisky – an acquired taste. However, he is an outstanding intellectual provocateur, well worth reading.