Hello Everyone,
In 2013, India issued an interesting form of
legislation designed to help the country’s poor. The Companies Act requires
firms that make at least $130 million in revenue to give at least 2 percent of
that revenue to charity. “Corporate Social Responsibility” was enacted in
response to an increase in the wealth gap between the country’s rich, known as
“the millionaire club,” and the rest of society. The theory behind the law was
to not only increase the economic well-being of those living in poverty, but to
also decrease the large gap between the social classes. This law is the first
of its kind across the globe, and it remains to be seen how it has actually
affected the nation.
A
large wealth gap is a phenomenon that can also be seen in the United States. The
difference between our country and India, however, is that we have the largest
wealth gap of any nation in the world. As of 2017 the top 1 percent of
Americans owned 40 percent of the country’s wealth. This is 15 percent higher
than the top 1 percent of any other industrialized nation. If you consider the
top 20 percent of Americans, they control 90 percent of the country’s wealth.
While those are staggering statistics, the worst part is that the gap is
getting bigger and could potentially have negative effects on the economy in
the future.
Not
only does a large wealth gap represent income inequality, but it also causes
inequality in the opportunities available based on income. Basically, the
country’s poor have less opportunity than the rich because of the lack of
resources, and therefore have decreased social mobility. This is a means for
the rich to continue getting richer while the poor are socioeconomically stuck,
and could potentially fall into deeper levels of poverty.
Now,
as the problem continues to get worse, it is obvious that neither the
government nor philanthropists have been able to make a drastic change in the
overpowering inequality of society. Unfortunately, the government’s new tax
plan will effectively help the rich continue to get richer, and widen the gap
even further. On the other hand, the actions of philanthropists, while helpful,
will not create the necessary nationwide change in the near future. If we want
to help our poor now, is it necessary for the two entities to combine in a
manner similar to what was done in India? I would argue that they do, as we’ve
seen that collective impact has the potential to create better, and more
effective solutions.
The only problem with following India’s plan is that it resembles a tax on large businesses. Anyone who understands economics would know that implementing higher taxes on those businesses will cause inefficiencies in the market, as well as a possible increase in poverty in the long run. What I think would be an interesting policy in America, related to Jack’s post last week about incentives, is the possibility of providing additional positive incentives for big businesses‒and even the country’s rich‒to donate to the poor. For example, what if the government provided tax breaks or subsidies to corporations that donated a specific percentage of their revenue to those affected by poverty? This reduction in taxes would be in addition to what is already offered by the government to those who donate to charity. These donations do not have to be money, but could be in the form of products or even new training programs and internships that teach new skills to those in need.
The goal of such a system is not for every member of society to have equal shares of the country’s wealth, as that destroys the incentive to produce in a capitalistic economy. The best result would be a society where the economy’s poor gain the means to create the same opportunities as the rest of society‒or at least, more opportunities than what are currently available to them. While it is possible that such a plan will not be enough, and may not even make a difference, I think it would be interesting to see how society would respond. Do you think such a policy would make a difference? Or do you think more of an incentive needed to make big corporations give to those in need?
Links and Sources:
Companies Act:
- https://nonprofitquarterly.org/2017/02/17/mandatory-corporate-social-responsibility-india-working/
Wealth Gap:
Poverty:
This comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHi Sarah,
ReplyDeleteI think the idea of providing incentives to corporations that donate to charity is excellent. It is horrible to see how little corporations today donate in proportion to their overall profits. In fact, in an article on slate.com, it is reported that over the past 30 years, giving as a proportion of corporate profits has decreased (even though the overall amount of donations has increased). What I do not understand is that throughout the decades, there have been people (even prominent leaders) who firmly believe that businesses should not give away money to philanthropy. For example, the same article states that in 1970, Chicago economist Milton Friedman 'famously' wrote, "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Franklin Roosevelt initially opposed legislation permitting charitable contributions to be deducted as business expenses, because he too believed that charitable corporate giving was wrongly diverting funds that belonged to the business and its shareholders. I think these attitudes are still present today, and are reflected in the government's new tax laws.
Although the United States government will probably never implement such a law as India's government did, I think providing benefits to companies that do donate to philanthropic efforts would be the next best thing. I am confident that society overall would respond positively to this and would have more respect for corporations that donate more of their profits. Building respect and a better reputation in the community would ultimately benefit the companies since support for these communities would increase. Even though this initiative might not completely solve issues such as the inequality gap, I believe giving more money from those who do not need it to those who do (even if it's a small increase) is worth it.
Link to article: http://www.slate.com/articles/business/moneybox/2013/08/corporations_don_t_give_to_charity_why_the_most_profitable_companies_are.html
Dear Sarah,
ReplyDeleteThank you for your interesting post. Whenever I read anything about incentives or benefits for big companies I feel it comes with a bitter taste to it. Ideally, I would like people (in thus case the people in charge in big businesses) to give because they understand the danger that a constantly widening gap between the rich and poor presents. Their reason to give should be their understanding that a countries wealth must and should always be centered in a solid middle class and thus donating large sums is their responsibility within society. Yet, I still wait for the day that such an idealistic situation becomes reality. While I would welcome a different motive for their giving, I do feel like a law similar to the one in India could definitely result in a positive impact for society.
Furthermore, I feel like corporate social responsibility is not only a question of company’s large sums of money. “CSR goes hand-in-hand with a smart brand strategy. Consumers vote with their wallets, supporting companies that demonstrate concern for employee welfare, community development, environmental sustainability, and human rights.” (1)
When reading your blog post I though about how as individuals play into this cycle of social and also economic responsibility. According to a 2014 Nielsen survey, “more than half of online consumers around the world surveyed (55 percent) said they would pay more for products and services from companies that are socially and environmentally responsible.” (2) One could thus ask if CSR can actually be seen as a sign of transforming consumer demands. We often think about changing our societies on a big scale, which I definitely think should ultimately be the goal. However, we should start to participate in our own way towards creating this change. As consumers, we have the possibility to choose between companies and products. We have the possibility to support companies that take their social responsibility seriously and should be aware of these choices that we make and how they contribute to the bigger picture.
1. https://www.huffingtonpost.com/brian-hughes/why-corporate-social-resp_b_9282246.html
2. https://www.entrepreneur.com/article/269665
Dear Sarah,
ReplyDeleteI appreciated you taking the time to write about a serious issue we face. Income inequality is a major problem, both in the United States and globally. Finding a way to get major corporations to donate to charity, on paper, seems to be a great thing. I do agree that there need to be major changes in corporate taxation to help fix economic inequality. However, I am hesitant to say that the government should give tax breaks to corporations that donate to charity. Earlier in the semester, we read an article that criticized giving tax breaks to wealthy philanthropists. This is because, by deciding where to donate instead of giving that money to the government, wealthy philanthropists are skipping over the democratic process and deciding how billions of dollars are allocated annually. It is always hard to criticize philanthropists but incentivizing corporations to donate instead of paying taxes could give them too much power. Maybe a solution could be that donations can cover only a certain percentage of your taxes instead of 100%. I agree with all the commenters that the first step to fighting income inequality is finding a way to make the wealthy donate more of their wealth. I wanted to show the counterpoint of how giving the wealthy too many incentives to donate can have a negative impact. Thanks for your post. If anyone is interested in how big philanthropy might be undemocratic, you can read more here: https://www.insidephilanthropy.com/home/2017/9/11/sean-parnell-david-callahan-debate-the-givers.
Thanks, David G.
Sarah,
ReplyDeleteI am not sure if the idea of economic disparity being worse in the US than India because of the bigger difference in income between the US’s 1% and the rest. India is one of the most impoverished and overpopulated countries in the world. Where most of their population lives on less than what we would consider humane. In our country we are a pillar in the global economy and such wealth moving through our country we are going to have hyper rich people. People unreasonably rich who couldn't spend all their money in their lifetime. So comparing the poorest people to the absolute richest people in our country will obviously result in a huge gap. When in fact the lowest percent person in our country has it better than a lot more people in other countries. Countries like India where the poorest people here would be considered well off compared to India's poorest people. Don’t get me wrong, I am a big fan of higher taxes on companies who make a lot of money. They should give back to the other members of society. But the dynamics of enacting this in the US and enacting this in India. India's massive amounts of poor have a much bigger impact and need to be supported more than in the US.
Sarah,
ReplyDeleteThank you for a very interesting post. I will first say I really do love the giving initiative coming out of India. While I know it is not the case, I would love to assume that those super-wealthy are already giving to causes at such a rate, but it is nice to see that a government is pushing to make sure that becomes a reality.
In the last few years, especially around election and primary time, we heard the national discourse often shift to take about the wage and wealth gap. It is refreshing to see a government try to work to bridge the divide, slowly but surely. I think it should be absolutely mandatory for these large, profitable corporations to give in the first place.
Income and wealth inequality is an institutionalized problem in the US and in most countries in general. The super-rich often make the argument against giving "handouts" because it breeds laziness and they believe that somehow the super poor are in their situation due to a lack of hard work and effort, when really it is our society that has disenfranchised groups of people for so long. To remind large corporations to look out for their fellow humans that just need a bit of help to stay afloat is a valiant effort made by a government to begin to level the playing field. Perhaps maybe some of those tax break dollars can go to good use.
Great post.
Dear Sarah,
ReplyDeleteThis was a very informative and interesting post, and thanks for the shout out! I do believe that the gap of income and dispersion of wealth within the United States is an issue, and the class seems to think so as well. The topic is complicated due to the massive scale of the US, India, and other world economic leaders. Solving an issue that incorporates millions of people world wide and that would relocate billions of dollars is a daunting task that I feel India's progressive policies have lots of promise to work towards.
I feel that the concept of providing appropriate, sufficient, and sustainable incentives to big businesses to generate greater charitable donations is a plausible solution in an economy such as the US's. As India's government implemented policy to eliminate the socioeconomic division (likely still due to the post-caste system society) a US legislation similar in design would provide more opportunities for the poor in the country to gain the skills needed to equalize the wealth classes. I don't believe this would necessarily be a hand out or a break to the wealthy because if those corporations practice effective altruism as well as work WITH the government and not independently, there is a chance for real growth in this nation. That being said that's a big "IF".
Philanthropy is actively working towards this goal. Billions are being provided to ensure more positive changes and greater promotion of social welfare. The reason why I think your post is convincing is because the involvement of the government in the process with its greater access to resources that could truly change the dispersion of wealth in the US.
-Jack