Poverty does not belong in civilized human society. Its proper place is in a museum. That’s where it will be.
A NATION OF CONTRASTS
Like most Western democracies, the United States is a rich nation. Measured by gross domestic product (GDP), overall wealth, standards of living, asset ownership, and a number of other indicators, America is pretty well off. According to the US Census Bureau (2016), median income is about $56000. Approximately 63 percent of families own homes (and close to 12 percent own a second one), the typical household owns 1.8 cars, 64 percent own a full set of working appliances, and 35 percent take a family vacation each year at least 50 miles or more away from home (American Automobile Association, 2016). The Better Life Index developed by the Organisation for Economic Co-operation and Development, which considers 11 dimensions of well-being, places the US seventh among developed nations (OECD, 2016). The US performs better than all countries on the housing, income, and wealth dimensions, and better than most on health, jobs, education and skills, social connections, personal security, subjective well-being, environmental quality, and civic engagement.
Unfortunately, data such as this only tell part of the story. When considering how a society is doing, we tend to think in terms of averages, such as median income, or GDP per capita. Yet, if we consider the distribution of income or wealth, a striking and troubling picture emerges. One might imagine a small group of wealthy people at the top, a very large middle class, and then a moderately sized group at the bottom. The reality is quite different. As Figure 1.1 makes clear, the distribution is highly skewed, with the top quintile of households accounting for 51.1 percent of income and the bottom two quintiles accounting for 11.3 percent (US Census Bureau, 2015 and 2016). Over 43 million Americans, or about 14 percent of the population, live in poverty, and many more experience low income in absolute terms.
Source: US Census Bureau (2015, 2016).
Figure 1.1 Distribution of household income, US, 2015
Poverty is not a characteristic of a person, but rather, of their situation. It can be defined in absolute or relative terms. Absolute poverty measures poverty in relation to the amount of money necessary to meet basic needs such as food, clothing, and shelter. The individual or family struggles simply to survive and faces a severely limited set of choices. In the USA, the poverty level is designated by the federal government based on the size of a household. So, as of 2017, the federal government designated a family of four that earns less than $24600 as living in poverty. Clearly, this number only paints part of the picture, as the real costs and abilities to meet a family’s needs depend upon geographic location and a host of personal circumstances that define a family’s needs (e.g., severe illnesses or disabilities, people outside the household one is trying to care for).
Alternatively, relative poverty considers the bigger picture within a society. While absolute poverty is concerned with meeting basic survival requirements, it does not consider a person’s quality of life or how they compare to the way most people live. Recognition of the importance of non-economic needs for a person’s well-being led to the creation of the concept of relative poverty. Here, a person is thought to be poor if they do not have the income to maintain the average standard of living in a society. Hence in Britain, a household that does not earn at least 60 percent of the median household income is deemed to be in poverty. As income levels increase in a country, the relative poverty level also increases, which means relative poverty will always be there.
Another perspective is provided by the Human Poverty Index, a multidimensional indicator created by the United Nations to assess levels of deprivation in different countries. The HPI considers not only the percentage of the population living below the poverty line (in this case 50 percent of the median household disposable income), but also how long people live (the probability at birth of not living past age 60) and knowledge, as reflected in the percentage of adults lacking functional literacy skills. The data demonstrate significant variations among developed countries, with nations such as Ireland, Italy, Spain, Great Britain, the United States, and Australia demonstrating markedly poorer scores on the combined indicator.
A distinction can also be drawn between generational and situational poverty. Where an individual is part of a family that has experienced ongoing poverty for two generations or more, it is termed generational poverty. Situational poverty occurs when circumstances such as divorce, health problems, loss of a job, bankruptcy, being a victim of serious crime, or some other sort of life crisis leave a person destitute or without sufficient resources to cover necessities. Generational poverty is argued to have its own culture, hidden rules, and belief systems (Payne, DeVol and Smith, 2001).
What becomes evident from this discussion is that poverty is both simple and complex. It is simple in the sense that it indicates a person or family does not have enough in the way of financial resources to meet basic needs. It does not take much to understand that someone cannot afford to pay for rent, transportation, health insurance, child care, or their children’s education. At the same time, poverty is complex because it involves direct and indirect interactions among an array of factors that are not just economic in nature. We will explore these factors in further detail, as they have important implications for entrepreneurial behavior.
WHO ARE THE POOR?
Who are these people? One out of every seven citizens in the United States, or 44 million people, lives in poverty. Just under half of them are in deep poverty, defined as living on half or less the official poverty income level. About 10 percent have been labeled the “underclass” based on being permanently poor, welfare dependent, socially isolated, without training or skills, and largely unaffected by economic conditions or social programs (Gans, 1995). Almost 13 percent of US households will experience hunger and food insecurity at some point during a given year.
These numbers break down in some interesting ways (see also Table 1.1). Of those in poverty, 42 percent are White, 28 percent Hispanic, and 23 percent Black (Proctor, Semega and Kollar, 2016). However, Whites constitute a much bigger percentage of the total population. Again, the distribution is skewed, with disproportionate numbers of Hispanics and Blacks experiencing poverty. Women make up 56 percent, and those between the ages of 20 and 40 years old account for 35 percent (and those under 18 represent 33 percent) of the impoverished. Families headed by a single mother tend to be the poorest (if about 10 percent of all families are in poverty, the figure is over 28 percent of those headed by a single mother) (Institute for Research on Poverty, 2017). The poverty rate among children is 19.7 percent, and for those with disabilities it is just under 30 percent. Among adults, 28 percent of those in poverty do not have a high school diploma and 35 percent finished high school but went no further with their education. Just over 16 percent have a disability. Most are native born (83 percent) and live in metropolitan statistical areas (82 percent), while the largest amount of persistent poverty is in non-metro areas (Proctor et al., 2016; US Department of Agriculture, 2018). The poor also tend to be concentrated in regions, counties, and individual neighborhoods. One study shows that those in high-poverty neighborhoods have, on average, only $800 in accumulated wealth (Pew Charitable Trusts, 2016).
|Group||Percentage in Poverty|
|Adults having a college degree or higher||4.5|
|Adults with no high school diploma||31.0|
|Full-time working adults||2.0|
|Part-time working adults||15.5|
|Adults with disabilities||28.5|
|People living in metropolitan statistical areas||13.0|
|People living outside metropolitan statistical areas||16.7|
Source: Adapted from Federal Safety Net (2016).
It appears, then, that poverty disproportionately affects certain groups and regions, but that its impact is also pervasive. The poor are both old and young, men and women, immigrants and long-term citizens, less and more educated, based in urban and rural communities, and from all racial groups. For many of these individuals, poverty is not a temporary thing. It persists over years and sometimes over generations. Among the poor at a given point in time, close to one-fourth are still in poverty three years later (US Census Bureau, 2011). Even for those who technically move out of poverty, more than half do not achieve incomes that are much above the poverty level. A multi-year study by Pew Charitable Trusts (2013) found that 70 percent of those born into low-income families will never move into the middle class.
Another indicator is the receipt of welfare benefits. While most families who turn to the welfare system are on it for a relatively short period of time, over half the recipients at any given point in time will be on welfare for ten or more years. Keeping in mind the high number of single women who head households and live in poverty, the average number of years a woman receives Aid to Families with Dependent Children benefits is 12 (Acton Institute, 2010). And a large number of poor people tend to move back and forth over time, entering, leaving and then re-entering the welfare system. We see similar patterns in other developed countries. Persistent poverty is experienced by 7.3 percent of the population in Britain and close to 12 percent in Germany.
THE COMPLEXITIES OF POVERTY
Poverty is not just about an inability to afford necessities. It often involves the complex interplay between a number of variables. Consider just a few of these. Those in poverty tend to be less educated and have access to lower-quality educational resources. They experience more crime, have higher teen birth rates, endure more serious health challenges, and have more difficulty finding and getting jobs. They frequently come from single-parent households. They tend to suffer more in economic downturns, must deal with more discrimination, are less socially integrated into society, and have personal networks that offer them less access to opportunity.
Consider how any two of these variables affect and are affected by one another. If a person has low income and yet must also endure more crime, and then the crime results in physical injury and so loss of work time, or it results in theft of one’s limited resources, the person with little is left with even less. They certainly cannot afford expensive security systems, making them even more vulnerable to crime. Alternatively, the desperate need for money might find the person tempted to pursue better-paying criminal activities. As another example, consider the interplay between needs and debt. Those who are poor often must rely upon higher-cost forms of credit to pay their bills, such as payday loans, automobile title loans, rent-to-own schemes, tax refund loans, and the pawning of goods. Yet paying the relatively higher interest or related costs of such credit means they have even less ability to pay for things over time. Or how about teen birth rates? While these rates are generally falling in developed countries, they continue to be high among teens coming from poor families. Poverty, not promiscuity, is also seen as a driver (and consequence) of teen births (Kearney and Levine, 2012). In fact, two-thirds of young unmarried mothers in the US are poor (National Conference of State Legislatures, 2018). Having a baby at 15 years old can impact whether and how well they finish school, how much they are able to work, and the kinds of jobs they find. The costs of raising the child further add to their economic pressures, and they struggle to provide for its basic needs.
This complex interplay of variables can result in what has been termed the “cycle of poverty” when applied to families (and the “poverty trap” when applied to communities or countries). Payne (2005) has distinguished situational from generational poverty. The former finds particular incidents or sets of developments in life pushing an individual or family into poverty. Examples might include loss of a job, conviction for a crime, bankruptcy, a serious health problem, theft, or being a victim of violence. The latter involves a cycle that passes from generation to generation, where family members find it extremely difficult if not impossible to escape from poor circumstances over three or more generations. Corak (2006) notes that almost half of the children born to low-income parents in the United States become low-income adults, while the number approximates 40 percent in Britain, and 34 percent in Canada.
Ironically, then, while many factors can contribute to poverty (from lack of education and overwhelming debt to discrimination, single parenthood, addictions and a criminal record), one of the biggest causes is simply being born into a poor family. An example of such a cycle is illustrated in Figure 1.2. Here, we see how the environmental constraints that come with poverty can be self-reinforcing, such that poverty can result in an array of physical, psychological, and behavioral challenges or problems over time, which affect one’s development of skills and capabilities, and limit one’s economic opportunities or ability to get ahead, impacting one’s economic choices and decisions, and perhaps one’s affective state, keeping one in poverty. While not all of the developments in Figure 1.2 necessarily come into play with a given household, it is likely that many of them do.
The evidence suggests that long-term poverty tends to have a cumulative impact on the individual (Lynch, Kaplan and Shema, 1997; Wagmiller and Adelman, 2009). Children experiencing long-term poverty tend to have lower cognitive abilities and perform worse in school, while suffering from poorer physical and mental health (Blair et al., 2013; Korenman and Miller, 1997; Smith, Brooks-Gunn and Klebanov, 1997). They subsequently achieve lower job status and earnings in adulthood (Hauser and Sweeney, 1997) and even if they achieve higher income, the effects of poverty persist. As the Richmond Vale Academy (2017) concludes, “Poverty places people at a disadvantage that is not only environmental, but also physical and psychological. It affects people’s health, how they interact with each other and how they react to external stimuli. It even affects how and why they prioritize certain things, and their academic performance.”
Some believe that persistent poverty can also result in a type of “learned helplessness.” Here, as they experience the kinds of factors illustrated in Figure 1.2 over a number of years, people come to believe they do not have control over their lives, and thus that success is beyond their control (Rabow, Berkman and Kessler, 1983). Such a sense of helplessness can give rise to living only in the moment, irresponsible spending, not saving even if one could, and not responding to incentives when they are offered. The bottom line is that the person loses hope.
Figure 1.2 Factors trapping people in poverty
Others speak of a culture of poverty. For instance, Payne (2005) concludes that generational poverty has its own distinct culture and beliefs. This notion derives from the work of Lewis (1959) and has produced considerable controversy over the years. Here it is argued that poverty is perpetuated by a set of values and norms that derive from one’s lack of material goods and the experiences of those around oneself. Wilson (2012) describes this as basing decisions on a shared understanding of how the world works. While it is doubtful there is one monolithic culture of poverty, it seems likely that a given poverty setting can give rise to shared values, perceptions, and outlooks, and that these can differ meaningfully from those held by those not in poverty. Yet, such a culture need not be deterministic, such that any outcomes based on these values or perceptions are predetermined.
Less clear is any standard specification of the relevant values or norms that constitute a culture of poverty. The empirical evidence here is mixed and limited. There are some misguided stereotypes that have been discounted by the evidence, such as the notions that the poor do not value hard work, education, or marriage (Gorski, 2008; Kohut and Dimock, 2013; Trail and Karney, 2012). They may, at the same time, be less likely than those with high incomes to believe that hard work offers any guarantee of success. Importantly, as Kohut and Dimock (2013, p.3) conclude based on an extensive values study, “among poor Americans specifically, there is little evidence that they feel sorry for themselves, or see themselves as economically doomed or morally adrift.”
But what sort of (potentially negative) values might a continued experience of poverty tend to reinforce? According to some observers, they could include moral cynicism, or a belief that rules and laws were made to be broken or ignored; or acceptance of disorder, whether it relates to graffiti or the conduct of public meetings (Sampson, 2012). Another value might be one’s time orientation, and specifically living in the moment versus planning for the future (Payne, 2005). At the individual level, the sense of being marginalized and not belonging, feeling dependent and not in control of one’s destiny, or believing that one is unworthy might be prevalent (Blacksher, 2002).
Whether or not such values become commonly held among the poor, they certainly can exist and may make the journey out of poverty a greater challenge. The challenge is greater to the extent that such values are in conflict with those critical for economic success (and in our case, critical for success through entrepreneurship). Yet, there is little evidence that values associated with living in poverty inherently suggest that the poor will not pursue opportunity if it is available.
WHY POVERTY MATTERS FOR COMMUNITIES AND NATIONS
Why should we care about poverty? Left to their own devices, some will find their way out of poverty and some will not. But the impacts on society of ignoring poverty are significant, and they exist at multiple levels (Box 1.1).
Clearly, absent any intervention, some of the poor will die from starvation, severe health problems, exposure to the elements, or abuse from others, among other causes. Most will live shorter lives. Poor nutrition, housing, and living conditions produce health problems that not only undermine the productivity of those afflicted, with a cost to society, but can also drive up health care costs, particular for medical services for those who have no insurance and cannot afford to pay. Alcohol and substance abuse among the poor further exacerbate a host of other problems, from health problems, spousal and child abuse, divorce, and single-parent households, to job loss and criminal activity.
Among the many economic, social, psychological, political, and ethical reasons for addressing poverty, ten pragmatic considerations include the following:
Poverty affects more people than we think. Forty-four million Americans (14 percent) live below the poverty line, and almost one-third of the population cycles in and out of poverty. A much larger group (100 million) are classified as low income and struggle to get by.
Poverty among children is particularly harmful to society. One in five children live below the poverty line and half of all children will be on food stamps before age 20. Poverty can lead to lower cognitive development and educational attainment, and higher rates of incarceration and reliance on public benefits. These children end up with lower lifetime earnings.
Poverty increases health risks. Poor children are likely to have lower birth weights, experience higher rates of food insecurity, and as adults experience higher rates of illness, disease, disabilities, including chronic problems with hypertension and elevated cholesterol. Those in poverty have significantly shorter life expectancies.
Poverty weakens families. The pressure placed on the family from an inability to pay bills or meet needs can result in psychological distress, depression, more hostile family relations, and withdrawal, which in turn can lead to job losses, poor parenting, and high rates of divorce.
Poverty traps people and decreases mobility. People born to poverty are more likely to be poor as adults, undermining the American Dream. Only 6 percent of children born to poor parents eventually become high-income earners.
Poverty costs our economy billions of dollars. All citizens are impacted by poverty, as money that could be used for infrastructure or economic growth supports the poor and externalities created by poverty, such as crime. Child poverty alone is estimated to cost over $500 billion annually in lost productivity and increased health care and criminal justice costs.
Poverty weakens the middle class. The strength of the economy is tied to a stable middle class with strong purchasing power and valuable workforce contributions. As more people slip from the middle class into poverty, consumer spending, saving rates and tax revenues fall. There are downward effects on human capital development and productivity, and more underemployment.
Poverty weakens communities. Long-term, concentrated poverty leads to an increasing income and wealth gap. Children in neighborhoods that experience a 10 percent decline in poverty experience a $7000 increase in family income as adults compared to those in neighborhoods where there is no reduction. Generations of individuals become trapped in economically isolated communities with declining infrastructure, high crime, and limited opportunity.
Poverty lowers the competitiveness of the nation. Poverty dramatically harms long-term human capital development, a critical component of the nation’s global competitiveness. Those who grow up in poverty underperform in school, have limited access to higher education, and are less likely to be prepared for high-skill jobs of the future.
Poverty weakens a democracy. Disparities in income, wealth, and access to opportunity are becoming greater, resulting in a system of unequal voices where millions of low-income citizens do not fully exercise their rights. Values of the poor are under-represented in policy prescriptions, which can heighten inequities and conflicts with ideals of equal representation and political equality.
Source: Adapted from Brown (2011).
Poverty also places huge pressure on, and can weaken, the family unit. Children are especially affected, with detrimental impacts on their cognitive development, school performance, self-esteem, socialization abilities, and employment prospects. A critical result is the lower lifetime earnings of children born into poverty. A major study by Holzer et al. (2008) found that the total cost of childhood poverty in the United States was about $500 billion annually.
Crime rates tend to be consistently higher in low-income communities. Criminal activity heightens the stress experienced by poor families, while also undermining their ability to escape from poverty. The cost to society in terms of loss of life, property loss, law enforcement, the judicial process, and prison systems is enormous.
Beyond this, at a community level or neighborhood level, pervasive poverty can result in a hopeless, downward spiral where less money is spent (or remains) within the community, property values and tax revenues tumble, infrastructure declines, businesses leave, opportunities become fewer, and any sort of safety net disappears. The evidence suggests that momentum is everything. Where there is a sense of progress and new possibility, it fosters optimism that feeds on itself, with community members becoming more engaged, trying new things, pursuing more opportunity, and attracting more resources from outside the community (Morris et al., 2011).
If we consider society as a whole, the reduction of poverty offers potentially dramatic benefits. In a fascinating study on the economics of poverty, Duncan, Kalil and Ziol-Guest (2008) demonstrate how investments in specific initiatives targeting children could increase the aggregate lifetime earnings of the poor by up to $36 billion, reduce government spending by up to $500 million, and increase tax revenues by up to $20000 per child assisted.
Beyond this, the global competitiveness of a nation is harmed to the extent that large numbers of people live in poverty. Those who grow up poor tend to underperform in school, are often unable to pursue higher education, and are less likely to develop the kinds of skills required as the economy evolves. As such, poverty dramatically harms long-term human capital development, lowers productivity, and results in higher underemployment within the labor force. Moreover, the economy is dependent upon a strong middle class. Movement of people from the middle class into or towards poverty leads to a decline in consumer spending, saving rates, investment, and tax revenues.
As disparities in income, wealth, and access to opportunity become greater, the fabric of society is threatened. There is a greater sense of the haves and have nots, leading to more social strife and conflict. Core institutions are questioned. Tensions can result in protests, riots, and destruction of property – and in low-income communities, such properties frequently are not redeveloped, further exacerbating the problem.
ESCAPE FROM POVERTY
The unemployment rate is high among the poor, representing about 37 percent of those eligible to work (Gould, Davis and Kimball, 2015). Yet, this also indicates that almost two-thirds are working, and about 44 percent work full-time. Many tend to move into and out of employment. Unfortunately, the jobs at which they work tend to be among the lowestpaying occupations, with the lowest skill requirements. Jobs themselves tend to be unstable. Leading areas of employment include food service, cleaning and housekeeping, retail sales clerks, laborers, production workers, nursing/personal care aids, groundskeepers/landscaping, child care workers, office secretaries/assistants, and transportation/truck drivers.
Three key problems that hinder a worker’s ability to earn an income above the poverty level are low pay rates, periods of unemployment, and involuntary part-time employment. It appears that 85 percent of the working poor who usually worked full-time experience at least one of these problems (US Bureau of Labor Statistics, 2015). Health problems are often a contributor. Unaffordable child care is another major issue among the working poor, especially given the large number of single-parent households.
Yet, poverty does not have to be forever. There are dynamics involved in terms of people moving into and out of poverty over time. Large numbers of people are able to escape poverty in a given year, and the rate at which they do so is relatively stable. Shorter-term or situational poverty is usually driven by some triggering event, such as job loss, reduction in or loss of a source of income, divorce, changes in family structure, or a health crisis in one’s family. A study by Stevens (2012b) found that 56 percent exit from poverty within just one year, but the longer one is in poverty the lower the likelihood of exiting. She found the average time in poverty to be 2.8 years. These rates also vary by subgroup, with minorities and female-headed households generally experiencing lower exit rates. There is also a disturbing tendency for the exit to be temporary, with 36 percent of those who escape subsequently returning to poverty within four years.
Research suggests that exit is more likely where the individual is able to stay in a job for at least 30 weeks of the year, maintain his or her level of real wages, and reside in a stable or improving local economy (particularly in terms of the unemployment rate) (Stevens, 2012a). Arguably, the area receiving the greatest attention as a contributor to moving out of poverty is education. Graduating from high school is clearly important, but so too are exposure to quality pre-school programs and access to post-secondary education and skills training (Abner et al., 2015). Waiting until marriage to have children in also an important factor, especially when combined with effective parenting. Transportation is another issue. In areas with long commute times, the availability of dependable public transport (or other forms of transportation) can meaningfully impact the rate at which individuals move up the economic ladder (Chetty and Hendren, 2015). Conversely, limited research on the impact of social psychological variables such as the individual’s locus of control or level of personal initiative has not produced significant results in terms of explaining the movement of people out of poverty (Caputo, 1997).
SOLUTIONS TO POVERTY
While many would argue that it has not received enough attention, the reality is that poverty has been a focus of public policy for many decades. In the US, the so-called “War on Poverty” was launched by President Lyndon Johnson in 1964, and in the first few years produced a meaningful decline (about 30 percent) in poverty. Subsequently there has been relatively little change (although the gap between rich and poor has increased). Today, the government spends over $1 trillion annually in cash, food, housing, and medical care to low-income Americans. At the federal level, spending per person is over $13000. Total spending has increased almost every year for over half a century, and has more than tripled since 1980 on a per person basis (Chetty and Hendren, 2015).
There are conflicting views regarding how successful these efforts have been. The poverty rate has hovered at around 14 percent of the population, with variations above and below, for 50 years. President Ronald Reagan famously noted how it appeared that, in the war on poverty, poverty had won. On the one side, using a more comprehensive measure of poverty, Haskins (2014) concludes that government spending focused on low-income households cuts the poverty rate by about half, and was a major factor in holding down the poverty rate during the great recession of 2008–10 (see also Fox et al., 2015). In a cross-national study involving the US and other developed countries, Smeeding, Rainwater and Burtless (2000) found a significant correlation between social spending and reduction in poverty, but suggest effectiveness is tied to the design of properly targeted assistance programs (e.g., programs that provide child care assistance to single mothers). On the other side, critics argue that the impact of government spending in actually reducing poverty (as opposed to helping the poor survive) has been nominal, and may actually serve to increase dependency and reduce the desire to work (Cato Institute, 2017; Muhlhausen, 2013; Tanner, 2003). The answer is likely somewhere in between and varies by subsector. For instance, poverty among the elderly has been significantly reduced, while there has been a negligible decline among children.
Poverty assistance programs take a number of forms. Chief among these are:
● Earned Income Tax Credits: federal and state programs that reduce tax liabilities and provide a wage supplement work like a negative income tax for low-income people;
● Temporary Assistance for Needy Families: cash disbursements for up to five years with the aim of transitioning someone from welfare to work;
● Child Tax Credit: helps offset the cost of raising children;
● Head Start: provides early childhood education, health, nutrition, and parent involvement services;
● Supplemental Nutrition Assistance Program: known as food stamps, provides a monthly supplement for purchasing nutritious food;
● Women, Infants, and Children (WIC): helps eligible pregnant women, new mothers, babies and young children eat well, learn about nutrition, and stay healthy;
● child nutrition programs: provide breakfast, lunch, and after-school assistance;
● housing assistance: provides rental housing for low-income households, the elderly, and those with disabilities;
● Medicaid: a federal health insurance program for low-income and needy individuals;
● Supplemental Security Income: pays cash to low-income people over 65 years of age and those under 65 if blind or disabled;
● Pell Grants: grants for students from low-income household to attend college and trade schools;
● job training: a variety of programs through the Department of Labor that provide training, displacement, and employment services targeting low-income citizens;
● Child Care: block grant program to states and local agencies who provide child care for low-income families.
Increasingly, many of the key programs and proposals that address poverty reduction focus on employment – creating more jobs for the poor, better equipping them for these jobs, and incentivizing them to pursue jobs (e.g., Abner et al., 2015). And a wide range of new proposals continue to appear. These include: stronger work requirements tied to housing and food stamp programs; payments that subsidize jobs; a higher minimum wage; more programs to reduce teen pregnancy, support family planning, and encourage proper parenting; skill and apprenticeship programs in high schools attended by low-income individuals; changes to mandatory sentencing laws for non-violent offenses; extending the earned income tax credit to single adults; more support for preschool programs; various approaches to reducing the stigmas attached to programs such as food stamps; and simply spending more on particular programs, among others. The general trend appears to be towards programs that target particular problems and groups, a greater focus on evidence-based program design, and better tracking of program outcomes.
Missing from most of these discussions is the potential for poor people to create their own jobs, and how this can be supported. Our purpose in this book is to explore entrepreneurship as an alternative (although certainly not the exclusive) path out of poverty. While far too many discussions of entrepreneurship focus on high-tech, high-growth start-ups, the vast majority of new ventures do not involve leading-edge, complex technologies, are not funded by venture capital, do not seek to achieve exponential growth, and never go public. As we shall discuss in Chapter 4, most are simple lifestyle and survival ventures. Yet they provide a living, and potentially a very good living, for those who launch these ventures.
Entrepreneurship is inherently democratic. One’s age, gender, race, ethnicity, creed, sexual orientation, or disability status do not matter. And as we shall argue in the chapters ahead, neither should one’s poverty status matter. The issue is to make entrepreneurship an option for the poor, and to demonstrate how those in adverse circumstances can successfully pursue the entrepreneurial path.
Three of the great myths in entrepreneurship become important here. The first myth is that only certain people can be entrepreneurs. The inference is that entrepreneurship is somehow in one’s DNA, that entrepreneurs are born. This is simply not supported based on over 50 years of research on the entrepreneurial persona. In fact, there is no evidence to support the idea that entrepreneurship is only for a few genetically predestined people. It is not tied to a specific set of personality traits that indicate, should you not have them, that you have no business starting a venture. The second myth concerns resource requirements – that it takes a lot of money to start a business. An advantage of the twenty-first century and the technology revolution is that it is easier than ever to start a venture, and one can do so with very little in the way of one’s own resources. The third myth concerns risk and failure. Wildly speculative numbers are thrown around concerning new venture failure – with some suggesting that over 95 percent of new ventures fail. In reality, failure rates are much lower, vary by industry or business type, and go down significantly if one can achieve certain thresholds. More importantly, the associated risks can be mitigated. The reality, then, is that anyone can start a business, that resources can be leveraged when one does not have much money, and that risks can be managed to minimize the likelihood and costs of failure.
Ultimately, entrepreneurship is about empowerment and transformation. Through venture creation, people are empowered to create their own jobs, futures, income, wealth, and contributions to the community and society. They discover and act on opportunity in the environment, and they do so regardless of resources under their control. As they do so, they transform themselves, families, markets, and communities. These are the themes of this book.
In the chapters ahead, we approach entrepreneurship as a process and as a journey. The nature of this process, and what one can expect in terms of the journey, are examined from the vantage point of a person in adverse circumstances. The kinds of ventures created by entrepreneurs, and their underlying implications for someone in poverty, are explored. We look at a typical low-income start-up, identify the kinds of liabilities these ventures confront, and investigate how these liabilities can be overcome. The available infrastructure within and beyond low-income communities available to support entrepreneurial activity is assessed, as are the challenges of literacy rates, technological literacy, and limited educational backgrounds. Creative approaches to bootstrapping, leveraging resources, and engaging in guerrilla behaviors when one has no resources are introduced. Attention is devoted to common mistakes in terms of economics and financial decision-making, and how they can be better addressed by the low-income entrepreneur. Finally, we identify priorities in terms of how those involved with economic development and public policy can do more to support low-income entrepreneurship.