Acton Commentary

From Poverty to Property


The reauthorization of the 1996 Welfare Reform law has been put on hold over a dispute about raising the minimum wage from $5.15 to $7 an hour. How quickly we forget. The proposed minimum wage boost would hurt the very ones who are most needful of jobs - the poor.

If the nation learned anything from the 1996 welfare reforms, it was that productive employment moves welfare recipients off government assistance and puts them on the road to self-sufficiency. And self-sufficiency leads inevitably to home ownership and the accumulation of private property assets that are the surest road to long-term economic security.

Behind this minimum wage debate are two major philosophical differences about justice and income. For some, justice is viewed as an outcome - people get more. And for this same school, poverty is understood principally as a measure of income. In reality, however, a just policy aimed at alleviating poverty is one that assures equal access to the job market. We might even go so far as to encourage people to enter the job market.

Senator Barbara Boxer (D-Calif.) has argued that increasing the minimum wage is the logical next step in welfare reform. The logic here, of course, is aimed at increasing incomes (outcomes) by mandating that business owners and shareholders pay more. Apparently, we missed the lesson that was so forcefully brought home during the recent economic downturn: Businesses have limited resources and are extremely reluctant to hire people when conditions are adverse.

Government is a regulator not a producer. Government can contribute positively or negatively to those economic and financial conditions that are important to the creation of capital and business formation. And, because half of American private non-farm output and employment is from small firms with 500 or fewer employees, the minimum wage will have the greatest impact on the firms that create the most jobs.

So what does this lesson from Economics 101 have to do with welfare policy? Everything, really. If we seek justice in reforming our government welfare system, we should challenge the conventional income-based approach to fighting poverty. We should be developing programs that further the asset-based approach - moving people from poverty to property. Individual Development Accounts (IDAs), authorized by the Assets for Independence Act and Savings for Working Families Act, are a capstone to this approach. IDAs were created to enable working poor families to save for an asset, build wealth, and enter the financial mainstream. ( http://www.cfed.org/individual_assets/Assets_Policy/AFIA105-285.pdf . A 2002 Corporation for Enterprise Development (CFED) survey reported that 200 IDA programs nationwide had leveraged $168 million in asset purchases.

IDA money is matched by the state, or by a private sector entity such as a local bank, credit union, business, community group, or foundation. These funds are then used for homeownership, higher education, or to capitalize an enterprise. All three are considered assets because they have the potential to create wealth.

Of course, some of the best wealth creators are entrepreneurs, another group that should be encouraged by policy makers. A recent evaluation project of the CFED and W. K. Kellogg Foundation investigated entrepreneurship in rural America, where poverty is persistent and often unacknowledged. “There is urgent need for rural people and communities to define the future they want for themselves and their children,” the report said. “ This will take vision, innovation, and risk-taking—the work of the entrepreneur.” CFED and Kellogg concluded that a poverty-fighting program in rural America should be community driven, regionally oriented, entrepreneur-focused and one that promotes continuous learning. These recommendations make perfect sense and shouldn’t be limited to our rural areas.

Theologically speaking, the Lord tells us that the poor will always be with us (Mark 14:7). But that doesn’t mean a permanent class of poor, ill equipped to compete in our economy. It means that though some of us will experience poverty, all should be shown how to rise out of it. Asset-based approaches are key in addressing long term sustained anti-poverty policies. Real justice on behalf of the poor means showing them the path to self-sufficiency. For in the heart of the human spirit lies the desire to be set free. Our policies of justice must always take this into account.

Building a culture of saving among the poor and showing them how to turn savings into assets are what our policies should be designed to do. Low-skilled and low-wage earners are the ‘first to go’ when an increase in the minimum wage creates fewer minimum wage job opportunities. A federally mandated minimum wage of $7 an hour is irrelevant to the worker with no job at all.