Rethinking Social Justice: Paradoxes of Wealth and Poverty

29 July 2005

The debate around social justice has become stale, and I believe many have stopped listening, despite continued urgency on many fronts.

What has gone wrong?

Statistics tell us that the nature of employment has been radically redefined over the last two generations in North America. We have morphed from a continent of nuclear families supported by male breadwinners and sustained by female homemakers to a continent of either employed or unemployed adults. Those who are employed generally lead hectic and pressured lives.

I will comment briefly here on the status of women.

Women, who have now fully joined the ranks of the employed, are increasingly not only participating in employment, but beginning to dominate its institutions. I do not mean to suggest that wage and income parity have been attained – yet. But in school, girls excel beyond boys, and graduate in substantially higher numbers. In a single generation, women have come to dominate the universities at both the undergraduate and the graduate levels. Based on their superior educational attainment, I do not see much at present that will prevent women from dominating corporate culture as well over the next generation.

So women have “graduated” from the ranks of the unemployed, and face positive prospects with respect to their risk of marginalization, though their primary role in childcare will continue to maintain many women in a vulnerable social state.

The substantial (and usually underestimated) number of us who are unemployed – both male and female – fall into various classes of marginalization – a fair number having quite adequate though often temporary protection via such mechanisms as disability and unemployment insurance payments, a larger number subsisting on various forms of social assistance or “make-work,” and an increasing number seemingly falling off the bottom of the scale, caught up in a web of homelessness, alienation from family, neighbours and peers and/or chemical dependency.

As has been the case since the emergence of the industrial age, no one with hopes and dreams for a better life wants to fall off the edge of the abyss into the web of marginalization. In addition to financial poverty, the social stigma persists that marginalized individuals are somehow responsible for their own fate, leading to a widening gulf between the social roles of those who participate in the desirable but demanding society of the employed and those who do not.

Prior to the industrial revolution, it was very different than this.

Ivan Illich (http://www.cogsci.ed.ac.uk/~ira/illich/) pointed out that in pre-industrial Europe, those who were not able to subsist through craft and labour at home or in their villages were required to leave home to obtain “employment” in the service of others, a slip of step which signalled incapacity and demeaned social status. The employed of this era were actually designated for the welfare rolls, that is for charity, because they were unable to subsist at home. In pre-industrial society, to be employed was to be marginalized.

We seem now to have forgotten the indignity of employment and the preferential status of unemployment in the form of proud and secure subsistence.

Where then do we find dignity in the 21st century? And here I am referring to dignity for the employed as well as for the unemployed.

I do not propose that we roll back the clock to a time when subsistence was attainable and desirable for most. That age will not return. But I do propose that we rethink the concepts of dignity and equity in contemporary society.

For a number of reasons, despite my “left wing” roots, I have become a “convert” to capitalism. What does this mean?

Capitalism has been called the worst of all possible economic systems – except for all the others. What do I like about capitalism? It allows individuals or groups of individuals acting collaboratively to exercise initiative to originate businesses which create products and services that others truly desire – and will thus pay for. This is of course a risky proposition, as people tend to desire things that harm them. Here we return to the fundamental evaluative criterion – though it is indeed a quite profound risk to provide people with what they desire, it is riskier still to create social and economic structures to provide people with things that they do not desire!

In my view, it is this creation of undesired products, services, experiences and social roles that is the simple but pervasive fault of all systems other than capitalism.

From the standpoint of my present thinking, therefore, I would credit entrepreneurial spirit as worthy of dignity in our present world. This is certainly not to exclude other traits and characteristics deserving of dignity, including for example, authenticity, empathy, perseverance and availability, as well as many others.

The next logical question is whether capitalism is subject to misuse or distortion. To that question, I would answer an unqualified yes. In fact, I have come to believe that our present version of capitalism has become so distorted as to contain within it the seeds of possibly catastrophic failure, and certainly of increasing dysfunction and inefficiency.

What is wrong with capitalism as we now practice it? To begin, the gulf of thousands of times which separates the income of many corporate executives from the persons they employ has become a scandal. And I am not speaking of morality here. Such practices as boards stacked with executives awarding excessive pay and bonus packages to compatriot executives have become commonplace. Stock option programs undermine the very profitability of many businesses, particularly in the prestigious high tech sector. The ever so obvious result is that many publicly-traded businesses can no longer pay meaningful dividends to shareholders, because executive waste has so skimmed off the potential earnings of the company that there are no funds remaining to distribute to those who actually own the company through common shares.

Employee pay and benefits are another problem area. Such companies as General Motors, perhaps an extreme example, are so committed to benefit payments to prior employees – as well as still generous incomes for executives and present employees – that they have no reasonable prospect of ever repaying their massive debt obligations or of generating a profit for shareholders – and this has been the case for decades with General Motors, whose stock has been punished accordingly for this most transparent shortcoming. I submit that the case of General Motors is not unique, but in fact characteristic of many of today’s business enterprises.

I would argue that through a conspiracy of excessive self-reward by both organized executives and organized labour, many of our foremost and most respected corporations have today arranged their finances in such a way that there is no reasonable prospective reward for their shareholders for many years to come. I would go further to predict – and this is strictly my own opinion – that we will in future face many years of declining values in the general equity of our largest corporations due to this fact.

The implications are far-reaching, and have been demonstrated by others more articulate than I. In addition to declining share values, we will be facing declining currency values through continued monetary inflation by irresponsible governments and also declining government revenues – as the corporations which can no longer compensate their shareholders will also prove incapable of financing their governments – either through direct payment of taxes, or indirectly, through the ability of their employees to return tax payments.

To be clear, what I am saying is that because of increasing imbalances in business and government practices (and the latter are undertaken in response to the voiced will of the people), the achievement of social justice through the redistribution of wealth is becoming increasingly difficult to accomplish. But this is not because of the accumulation of corporate profits, as has been argued from the left from time immemorial. It is instead because corporations are increasingly unable to generate profits and therefore to distribute them to their shareholders, who are ultimately the taxpayers upon whom the government most depends for its revenues.

David Lewis in Canada coined the phrase “corporate welfare bums” three decades ago. He meant that term differently than I, but I think this is at the heart of the problem. Both executives and labourers have been rewarding themselves with the fat of corporate revenues to the point that the corporations themselves are no longer viable as profit-generating entities. That is – the capitalists have all gone, and we have instituted a program of corporate socialism which is gradually eroding the wealth of our society as a whole.

I will remind the reader, who may think that I have strayed, that my original topic was social justice. Let me return straightaway to that theme.

Social justice at the economic level – and I am defining economics broadly here – is fundamentally a problem of distribution. And here I am referring not only to the distribution of financial resources, but also to the distribution of the "social" resources of all citizens, particularly their available time and their freely-chosen relationships.

I have argued for some period of time that the alternative systems to capitalism have as their fundamental problem that they lack a valid theory of wealth creation. Again, I would define wealth creation simply, and that is “entering into a business venture with the intention of profitably providing members of the public with products and/or services that they truly desire.”

My argument then, has been that our existing corporate ventures have actually abdicated this task. The current problem is not that businesses cannot provide us with what we desire – they certainly can, but that they cannot do so in an economic way that justifies the values that shareholders are presently paying to own shares of these businesses.

As in my view we will now be facing an extended period of economic restraint and retrenchment, how do we go about facing the problem of equitable distribution of our society’s resources?

I can see only one defensible course of action, and that will not be to argue over issues of distribution, as I believe we will surely have less to distribute at some point in the future, and not more. We must instead rethink the issue of wealth creation. How do we create ongoing and new wealth, particularly in products, services and experiences of quality, that will sustain us all and present new opportunities to those who are presently marginalized?

For decades, idealists have argued that our western corporate structures were fundamentally corrupt and unjust. I believe that current developments are quite convincingly proving this view correct, and that if anything, the critics arguing from a perspective of social justice may have underestimated the extent of the problem. The mythology that our western (particularly North American) economic system is efficient and thus a model for the world is well on its way to coming entirely undone.

What then is to take its place?

I believe that the present age is in fact an optimal one for the idealists among us. Further, the demise of our archaic, rigid and unbalanced corporate structures will create a fertile field in which new kinds of entrepreneurial enterprises can be planted. Of course, unstable systems can persist for far longer than we can imagine. Therefore, I caution that we cannot “bank on” the overnight collapse of this moribund system, however dysfunctional it may have become.

The idealists have argued that successful businesses can be started on a shoestring. Muhammad Yunus (http://www.grameen-info.org/book/index.htm), founder of the Grameen Bank, has been demonstrating this reality now with 4 million low income borrowers over the past three decades. Further, cooperative structures can distribute revenue more equitably than our existing unbalanced corporate structures, and these will continue to thrive in the margins of our economy even as we witness the possible failure of some of our great corporations.

Hernando de Soto (http://www.cato.org/special/friedman/desoto/bio.html) has argued convincingly that poor countries remain poor because they lack the social and legal structures that permit the creation of wealth, for example, such basic systems as title registration, which enable the poor to own land and those who have created or acquired anything of value to assure their right to continued ownership of it.

In his 2002 book, "The Other Path (http://www.amazon.ca/exec/obidos/ASIN/0465016103/qid=1122695370/sr=8-4/ref=sr_8_xs_ap_i4_xgl74/701-3573201-7389148)," de Soto has gone so far as to demonstrate that economic empowerment of the poor is an effective strategy to combat and even to eradicate terrorism - in this case the Shining Path movement which had ravaged Peru.

Another innovator, C. K. Prahalad, presently on faculty at the University of Michigan at Ann Arbor (http://www.bus.umich.edu/FacultyBios/FacultyBio.asp?id=000161713), has argued in his recent book, "The Fortune at the Bottom of the Pyramid (http://www.amazon.ca/exec/obidos/ASIN/0131467506/qid=1122695122/sr=8-1/ref=sr_8_xs_ap_i1_xgl/701-3573201-7389148)," and in an article, "Serve the World's Poor, Profitably" in the Harvard Business Review (September 2002) that doing business with people who are poor is not only sound business practice, but also an effective strategy for economic development and poverty alleviation.

David McClelland, the Harvard psychologist, conducted the classic Kakinada Village Project in India in 1964, demonstrating that achievement visualization and other psychological strategies could cultivate the sustained motivation required to initiate an ongoing process of successful new business development in a community that was then impoverished. At the time, McClelland's work was unparalleled in the international development field. Strikingly, McClelland was able to demonstrate that his method - basically the psychological and economic empowerment of poor people - was both less expensive and far more productive than the classic international aid strategies that were dominant then, and which remain dominant even now.

I would argue, then, that our opportunities to advance the cause of social justice continue to lie primarily in the area of wealth creation, rather than wealth redistribution. As I believe that our methods of wealth distribution are beginning to fail, those who adopt innovative ways to create wealth are well-positioned to become the distributors of wealth in the future.

Further, it is precisely at such junctures that maximal opportunities may occur for the re-entry of individuals who have been marginalized into a now disrupted, but potentially far more open, social and business environment. Their re-entry is enabled not by government fiat, but by the openness of fellow citizens who see new or expanded relationships with individuals who have been marginalized as a promising possibility, perhaps even as an entrepreneurial opportunity.

Let me conclude by sketching out a few encouraging possible future scenarios:

1. The busy employed – those who are presently too preoccupied to share their time and their wealth – may, through what I think will be inevitable corporate and government “downsizing,” begin to seize opportunities to create and share time and wealth in their own way and on their own terms through new entrepreneurial ventures. I suggest that many moribund large corporations will be poorly positioned to compete with their efforts.

2. Investors, seeking more efficient ways to deploy their hard-won savings, may be more open to funding small-scale and non-traditional business ventures.

3. Individuals who subsist outside our present employment system may enjoy new opportunities in a more small-scale, diverse entrepreneurial business climate which operates under more flexible rules than our present, more monolithic system.

4. As a point of reflection, there is ample historic precedent for the kind of process I am describing. Following the very painful great depression of the 1930’s and the great war of the 1940’s, the fields of North America, Europe and Japan were stunningly fertile ground for creative small-scale business people with original business-development ideas. The period of the late 1940’s and 1950’s in North America, Europe and Japan became one of the richest and most productive eras of wealth creation in human history. I submit somewhat optimistically that a similar process can happen again, and that we are now nearer to that day than many may presently appreciate.

In summary, wealth creation rather than wealth redistribution, particularly small-scale and innovative wealth creation, is the portal to social justice. Despite present appearances to the contrary, the opportunity to open this very inviting door is in fact now upon us.