Does Hillary Clinton Have a Real Plan for Income Inequality?

Victims of MFIs display their daily payment cards in Visakhapatnam, Andhra Pradesh. The Reserve Bank of India has appointed a sub-committee to look at governance issues. Photo: The Hindu/C.V. Subrahmanyam

Victims of MFIs display their daily payment cards in Visakhapatnam, Andhra Pradesh.  Photo: The Hindu/C.V. Subrahmanyam

Halifax    It’s time to start getting serious now that reality is sinking in and giving us a better look at a possible political future. There’s woe and rage about wage stagnation, the few future prospects of family-supporting jobs, deindustrialization, and millions stuck in grinding poverty while others have been allowed stupendous riches, and while fingers are pointing wildly, if Hillary Clinton is going to be the standard bearer for hope on any of these fronts, does she have a plan? Do we have any hope?

President Obama floated an interesting notion of wage insurance that would provide a cushion for a couple of years by making up a large part of the difference between a former job at higher pay and a new job at whatever was available in order to allow workers a transition and the ability to try to stay on their feet. This is not a guaranteed annual income proposal, which is what we need, but a shot in the right direction, even though it has no current or likely chance of passage. So far Hillary Clinton has danced around the $15 per hour minimum wage fight, arguing that, yes, a raise is needed, but, geez, not that much. She has also concretely argued for an increase in the earned income tax credit, but once again, you have to actually have a low-wage job for EITC to give a worker and her family much of a break. Once again, this doesn’t alleviate poverty.

For all of Clinton’s talk about women and children both domestically and in her recent past as Secretary of State and via the Clinton Foundation, it is still hard for me to believe she has been uncoupled from President Bill Clinton’s bargains with the devils on “ending welfare as we know it” that has put a hammerlock around the necks of many of America’s poorest families, while opening the door on tax breaks that have created an entire new class of the mega-rich. Her constant drumbeating for micro-lending and microfinance in her career is also very disconcerting, since at best microfinance is a job-buying subsistence program, not a poverty reduction scheme. Increasing debt is a guarantee for most families of an accelerated poverty trap, not an escape hatch. The support of microfinance institutions is widely understood now as simply smoothing the path for new markets under the existing financial models, not narrowing the inequality gap.

Thomas Frank in a devastating critique writing in Harper’s recently labeled much of Clinton’s work both in and out of government in the poverty reduction fight as largely a “virtue quest” rather than a serious fight against inequality or a struggle to break ground with workable policy prescriptions. He correctly pulls down the false flag of microfinance, but also gets too close to comfort on what may be the real problem of Clinton’s coziness with elites which is an embrace of what Michael Lewis years ago called “access capitalism.” Access capitalism is a world of head-nodding approval from policy makers, celebrities, philanthropists, foundations, corporate heads, former government officials, and others, which secures the common consensus, through its special access to the cronyism that both provides the infrastructure and the launching pad for “professional liberals” and same-old-story-business-as-usual capitalism and its implicit acceptance of intractable poverty and dream shattering inequality.

If that’s where she has been living, what does it take for Bernie Sanders, young activists, and the progressive forces to push her towards real programs, both domestically and internationally, before the dumbing down of the campaign and the inevitable compromises of government pull us farther away from winning change?

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Studies Find Microfinance Does Not Reduce Poverty, Assets Do

Mega-MicrofinanceHamburg  Several years ago ACORN International did a research report that seemed heresy to many, but started from the simple proposition that since microfinance is debt, debt does not reduce poverty, therefore the value of microfinance was the same as buying a job through an employment agency: work at a steep price. For many the myth of microfinance will endure and millions of dollars will continue to support what are essentially public and philanthropic investments in banking startups, not for the poor, but for the managers of the debt fueled lending agencies themselves, many of which start as nonprofits and if able to prove out their finances at high interest, convert to for-profits.

Standing out on the ledge of prevailing economic development opinion, I took note of an article in the October 2015 Scientific American that looked at the work of a Yale University based nonprofit called Innovations for Poverty Action and its founder Dean Karlan, an economics professor there. He had become suspicious of microloans while working in South Africa decades ago and seeing people constantly returning to renew loans and understanding that it didn’t add up to getting out of poverty, but instead was little more than a debt treadmill.

At some length he says:

“Over the years microloans kept nagging at my colleagues and me. Fifteen years after my first study attempt in South Africa, we now have seven randomized trials completed on traditional microloans and one on consumer lending back in South Africa…These studies found some benefits of microloans, such as helping families weather hard times, pay off goods over time and make small investments in businesses. But there was no average impact on the main financial well-being indicators – income and household and food expenditures.”

In short maybe the loans didn’t hurt them, but neither did they help them, at least enough to get out of poverty. Furthermore, Karlan noted that these microloan programs were not reaching the poorest of the poor or what they term “ultra-poor,” people living on the purchasing power of $1.25 per day.

Not to just be a Debbie Downer, IPA’s experience argues for providing the poor with a “productive asset” to make a living, giving them training on asset utilization, providing them a direct stipend for daily living or what we used to call in welfare rights – More Money Now!, giving them health support and savings tools, and regular coaching like CEOs get.

It would cost money, but at least it would be money well spent, because monitoring has already established that health and hunger were greatly improved and the very poor were making real progress in areas as diverse as Ethiopia, Ghana, India, Pakistan, and Peru.

Sounds like that could be a way to go if we were really trying to get somewhere.

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