Towards A Good Samaritan World

Wednesday, January 24, 2007


My latest article at Tech Central Station:

Last night, President Bush's State of the Union address and Senator James Webb's Democratic response provided a useful juxtaposition of views. Among other things, it showed how the parties' positions on poverty have changed.

To wit, President Bush's proposals tend to target various aspects of what might be called absolute poverty. By contrast, Sen. Webb is interested in relative poverty.

Themes from President Bush's speech that relate to poverty include:

Health care. President Bush's discussion of health care was the wonkiest part of the speech, but his proposals are an effort to expand the net of health insurance to cover some of the 45 million people without health insurance, while encouraging cost savings. His first proposal was a change in the tax code, providing tax breaks to those with health insurance, thus making it more affordable and increasing the incentive to acquire it. Second, he proposed federal aid to "states that make basic private health insurance available to all their citizens," such as Massachusetts. If health insurance becomes more widespread, the poor, who are more likely to lack insurance, will benefit disproportionally.

Immigration. One demographic in America with especially high poverty incidence is illegal immigrants. Their lack of legal status puts them in fear of capture and deportation, and makes it harder for them to switch jobs. Last night, Bush called once again for "resolv[ing] the status of the illegal immigrants who are already in our country... [through] comprehensive immigration reform."

An immigration reform bill along the lines of the Comprehensive Immigration Reform Act passed by the Senate (but not the House) last May would be of immediate benefit to millions of the poorest people in America. The temporary worker program that President Bush proposed would benefit the US economy, but would also directly benefit those, probably from poor countries, who would get to come to America under the program, boosting their incomes and broadening their horizons. As a poverty alleviation policy, a temporary worker program is especially meritorious.

AIDS. In 2004, I had the opportunity to spend a few weeks in one of the poorest countries in sub-Saharan Africa. I was immediately struck by the tremendous number of children there. It seemed that the median age was about 15. Why? Part of the explanation is that 25% of the population had AIDS, and life expectancy had dropped to 40 or less. The pandemic left hundreds of thousands of orphans in its wake. In schools, upwards of 100 children would crowd into some classrooms, because the teachers were dying. Coffins became a major item in school districts' budgets. Along the roads, with alarming frequency, were the advertisements of coffin makers.

Thanks to anti-retroviral drugs, AIDS no longer has to be a death sentence. In rich countries, people like Andrew Sullivan can have AIDS and still lead highly successful careers and carry on fulfilling personal lives. But only a tiny proportion of AIDS victims in sub-Saharan Africa have access to these drugs. Bush has already tripled aid spending to fight the AIDS pandemic, to $15 billion, and last night he asked Congress to continue funding these efforts.

Malaria. Economist Jeffrey Sachs has argued, based on transnational research on the statistical determinants of economic development, that "the economic burden of malaria" is one of the major reasons that sub-Saharan Africa is the poorest region of the world. Because they are so poor, sub-Saharan Africans are not a lucrative prospective market, so profit-oriented pharmaceutical companies prefer to research drugs for the ailments of rich-world clients, even if these ailments have a far smaller human toll. President Bush called on Congress "to provide $1.2 billion over five years so we can combat malaria in 15 African countries."

I would argue that the Iraq War is at least as important as the other initiatives in the long-run fight against world poverty. If we see development as freedom, then people living in totalitarian prison-states are ipso facto among the world's poorest people, destitute of "substantive freedoms" even if they have some material comforts. Anyway, oppressive, corrupt, kleptocratic, unaccountable, and dictatorial states are a major hindrance to development even in the narrowly economic sense. The overthrow of one tyrant is a valuable precedent, because now no dictator can take his impunity for granted, and the ignominious downfall and death of Saddam Hussein stands as a warning to other rulers to serve their people rather than repress them.

If the Iraq War is the stick of encouraging better governance, the Millennium Challenge Account is the carrot. This new foreign aid program provides large tranches of money to selected countries. But in order to apply, countries have to achieve demonstrable progress in "ruling justly," "investing in people," and economic freedom.

President Bush has proposed an array of policies that confront different aspects of real deprivation as experienced by the poor here and abroad: bad education, lack of legal status and fear of deportation, lack of health care and disease. Of course, also critical to poverty alleviation is the ongoing success of the US economy, which, as the president mentioned, has created 7.2 million jobs since the beginning of the current expansion. Jobs are both the best way out of poverty and, as presidential aspirant John Edwards has said , a source of "dignity and self-respect." By calling for a balanced budget in five years, without raising taxes, President Bush made a bid to preserve a business climate in which prosperity will continue.

While the president is interested in dealing with specific aspects of poverty and deprivation, he is not interested in the position of poor people relative to others. Senator Webb is. "When I graduated from college," remarks Senator Webb, "the average corporate CEO made 20 times what the average worker did; today, it¹s nearly 400 times." Or again, "Wages and salaries for our workers are at all-time lows as a percentage of national wealth." In each case, the statistic he cites is a ratio: the average worker's wages compared to those of the CEO; wages and salaries compared to national wealth. That the average worker is much wealthier in absolute terms than he was thirty years ago does not seem to interest Webb much: what matters is that his relative wealth has decreased.

There is probably, in fact, a link between those soaring CEO paychecks that Webb is so indignant about and the rising living standards of the average worker. In a survey of executive pay offered last week in The Economist, Edward Carr reports that "executives have enjoyed an astonishing pay bonanza," and "explains why most of them deserve it." The rise in executive pay, reports Carr, probably reflects an improvement of corporate governance: the accountability of executives to corporate boards improved, and CEOs' positions became more precarious, which helped to make maximizing shareholder value paramount in corporate strategy. Then executive pay was bid up by the market for managerial talent. Better management led to productivity growth, and to job creation and higher pay for workers. So it matters whether you care about your wealth in absolute terms or relative terms. If you're interested in absolute wealth and poverty, recent trends are good. If you're interested in relative wealth and poverty, recent trends are bad.

The irony is that Sen. Webb calls for "measure[ing] the health of our society not at its apex, but at its base. Not with the numbers that come out of Wall Street, but with the living conditions that exist on Main Street." Quite right. But President Bush said not a word about Wall Street. He is interested in job creation, health care, and foreign aid. It is Sen. Webb who thinks the state of the nation depends on how the elite are faring.

Corresponding to the emphasis on absolute poverty and relative poverty are feelings of altruism and envy, respectively.

President Bush seeks to inspire altruism by encouraging Americans to compare themselves with those who have less:

"American foreign policy is more than a matter of war and diplomacy. Our work in the world is also based on a timeless truth: To whom much is given, much is required. We hear the call to take on the challenges of hunger and poverty and disease."

Sen. Webb, by contrast, encourages Americans to compare themselves to those who have more, and feel envy. Although Sen. Webb borrows John Edwards' "two nations" theme ("it's almost like we were living in two different countries"), unlike Edwards, Webb makes no mention of helping the poor. Sen. Webb's message is that "the middle class of this country, our historic backbone and our best hope for a strong society in the future, is losing its place at the table."

Whereas President Bush supports policies that would help the poor abroad, especially his call for "expanded trade and debt relief that are the best hope for lifting lives and eliminating poverty," Sen. Webb hints at policies that would harm them. When he complains about jobs going overseas, he is complaining about the very process that is now giving tens of millions of people a chance to lift themselves out of poverty. (James Webb also attacked illegal immigrants in a recent Wall Street Journal op-ed.)

None of this is to say whether it's a good thing that President Bush cares so much about the poor. Some of his ideas are good, others may not work out so well. Laurie Garrett, in the most recent Foreign Affairs, reports on the serous problems facing the donors' drive to promote global health. President Bush's willingness to spend taxpayer money on the poor (and not-so-poor) is one of the things about him that makes a lot of conservatives uneasy.

The point is, rather, that this is a good time to notice how the parties' ideologies have evolved, and in one respect have leap-frogged one another. Democrats are no longer the ones who care about the poor. President Bush is.

George Bush wants us to be fed, clothed, healthy, educated, employed, and free. James Webb wants us to keep up with the Joneses.


  • A note about executive compensation:

    Labor unions can exploit from companies more than the added value their laborers provide by relying on inflexibilities and frictions of the labor market to make replacing those laborers far more damaging than the mere loss of the laborer's work. While that layer of production stalls, other layers stall, and the total expense of a strike rises toward the added value of *all* company labor and much of its capital. There's nothing surprising about this analysis to any regular reader of this blog, I presume.

    But does not a CEO hold a similar ability to extort more than her individual worth? If a fool heads a company, the worth of all those below gets wasted (to some extent), so the board bids up CEO salaries based not (only) on the added value a good CEO brings, but on the probability that she will not destroy the value everyone else adds. Though CEOs are easier to replace in a sense - if the entire CEO level of one's enterprise quits, it means replacing one person instead of, say, three thousand welders - but a company with high CEO turnover (or an interim CEO) is likely to suffer serious credibility problems in the marketplace.

    This is not to say it's irrational for corporations to pay the extortion any more than it's irrational to overpay unions to avert crippling strikes. It just means that CEOs are naturally going to be overpaid relative to their worth qua corporate officers.

    I think it's somewhere between the market for athletes and actors. In one sense it's ridiculous that the people get paid as much as they do and as such can be expected to cause resentment, but in another sense it's hard to see how it could be any other way. Further, people do naturally judge their own success by that of those they see around them, and the modern world makes the success of others highly visible. Also, CEOs don't have the saving grace of making all their money by directly entertaining those in whom they're liable to inspire resentment.

    What is the solution here? Tax the crap out of them because in some sense they didn't really "earn" the money? Besides the fact that much of the motivation seems to be vindictive rather than actually "corrective", there's some virtue to highly rewarding non-foolishness in those who have a great deal of power. Further, the without possibility of lucking onto scarce but exalted state of CEOdom, many managers might choose inert security over dynamism and (risky) improvement.

    So, it's not really "fair", but neither is the Universe that makes some beautiful and some homely, some brilliant and some dull, some energetic and others inclined to lethargy. Whether it's fair would seem to only have normative weight if we have a fairer alternative that's at least as efficient.

    So, I accept Webb's implied premise that the market has allocated CEOs rewards beyond their worth without presuming that this fact calls for legislation.

    By Blogger Nato, at 11:14 AM  

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