What happens when people in lower income brackets find themselves aggressively courted by the corporate elite while simultaneously being dismissed by that very elite’s political representation? The nation’s poor finds itself in a dichotomous predicament as both a target consumer and the target of restrictive political policies. The following is an empirically based framework to demonstrate the imprudence of conservative lawmakers, who view social welfare programs as inhibitors of economic growth. Students, many of whom will enter the corporate sector or politics, may want to keep the inconsistencies in conservative economic beliefs in mind as they eventually move into the job market.
The nation’s most prominent corporations are developing increasingly lower-end production models by replacing costly parts with cheaper surrogates. It’s the dogma of profit: Cut costs and preach to a larger audience. The ideal result is an initial increase in revenue through cheaper production and increased demand across a broader audience.
Unfortunately, business success is neither guaranteed nor straightforward in a society with endless competition and human error. As Vikram Damodrana, director of health care innovations at Wipro GE Healthcare told the New York Times, “You can’t take a product and simply strip it down and replace expensive parts with cheaper ones. … It has to come from the ground up, with a lot of input from the people who might actually use it.”
After a failed first attempt at engineering a more affordable baby warmer for India’s smaller, private hospitals, General Electric may want to ruminate on Damodrana’s seemingly obvious insight.
While multinational companies used to hold little interest in the lower-end consumer markets in less affluent nations, they have realized that “99” is far greater than “1.” Though macroeconomics favors these companies’ efforts, at the micro-level, these firms face challenges. General Electric, for example, has experienced difficulty both in manufacturing a safe product and in distributing goods to tiny, isolated shops in India. Furthermore, an entirely new problem arises once the goods are distributed, as the technology available in these shops is often outdated or absent.
The inspiration to court lower-income consumers may not have a morally grounded framework, but it holds merit if evaluated on the basis of its consequences.
This disparity between corporate action and intent leads to an interesting discussion about economic theory. Tensions between libertarian economics and left-leaning politicians can be generalized as a difference in priorities. Should we fight to reduce inequality at the bottom or promote growth at the top? The push-pull arguments in this policy debate have created a partisan impasse.
So what happens when the lower-income population simultaneously becomes both the ideal consumer and a detractor of economic growth? If the trend that multinational companies have begun to adopt continues to burgeon, libertarians and conservative economics may no longer be able to victimize the lower-income population as a growth inhibitor.
In a recent op-ed in the New York Times, Paul Krugman defended a “trickle-up” theorem, where he concedes that some inequality may be necessary for market economics to function. The “up” aspect of this theorem emphasizes how American inequality has become so extreme that wealth redistribution to help the poor may very well increase, instead of inhibit, our economy’s growth rate. Krugman considers food stamp distribution an issue “perennially targeted by conservatives who claim they reduce the incentive to work.” While increasing food stamp distribution has historically undercut work effort, access to food stamps has long-term positive implications. These implications are centralized on children, who have a greater opportunity to become healthy, productive adults due to food stamp access. Extending and increasing food stamp distribution may induce short-term lethargy, but it has the promise to inspire a generation of children.
Krugman believes “incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial.” As empirical support, Krugman includes a report from Standard and Poor’s that finds the current status of American inequality to be an impediment to growth. This report held that income imbalances tend to dampen social mobility and result in a less motivated and less educated workforce, thus diminishing future income prospects. The complete report, “How Increasing Income Inequality is Dampening U.S. Economic Growth, And Possible Ways To Change the Tide,” is on the S&P Global Credit Portal webpage.
While “action” is ordinarily second in chronology to “thought,” the American economic situation may find it fiscally responsible to conversely translate the actions of multinational companies into ideology.
Diana Bai ’16 may be reached at Diana_Bai@brown.edu
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