Summary:
In 1964, President Lyndon B. Johnson declared “unconditional war on poverty,” and since then, federal spending on anti-poverty initiatives has grown steadily. However, most of the money does not go directly to the people it’s supposed to help. Instead, it is funneled through private-sector middlemen, creating an assortment of industries that thrive on poverty. These industries, which I call “Poverty Inc.,” include low-income tax-prep companies, real-estate firms, specialty dental practices, and government contractors, all of which benefit from government anti-poverty programs. This setup often takes advantage of the very people they ostensibly serve, diluting the impact of the programs and maintaining the status quo.
What This Means for You:
- Understand how government anti-poverty programs create a lucrative market for private-sector businesses, which may not always have the best interests of low-income individuals at heart.
- Recognize that these industries, despite their profit motive, can hinder the effectiveness of anti-poverty policies by charging high fees and providing subpar services.
- Advocate for more direct assistance to low-income individuals and better oversight of private-sector entities that benefit from government contracts.
- Be aware of the potential for rent-seeking and obstructionism in the tax-prep industry, which has spent millions to block the IRS from offering a free tax-filing option to low-income taxpayers.
Original Post:
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Extra Information:
Learn more about the debate on the role of private-sector entities in public services:
The Role of Private-Sector Actors in the Delivery of Public Services: What Does the Evidence Tell Us? (Brookings Institution, 2020)
Understand the concept of “public-choice theory” and its implications for privatization:
Public-choice theory (Britannica)
Explore the history and performance of Job Corps, a $1.8 billion job-training program for young adults, which has been contracted out since its inception in 1964:
Out of School, Out of Work (Washington Monthly, 2021)
People Also Ask About:
- How do government contractors influence anti-poverty policies? Government contractors, while delivering services on the government’s behalf, can shape anti-poverty policies by advocating for their business interests, which may not align with the best interests of low-income individuals.
- What is rent-seeking, and how does it affect anti-poverty programs? Rent-seeking refers to the use of resources to obtain an economic gain from others without reciprocating any benefits to society. In the context of anti-poverty programs, rent-seeking can manifest in industries seeking to maintain their market position by blocking competition and preventing reforms that could improve the efficiency of the programs.
- How can corporations profit from poverty in the United States? Corporations can profit from poverty in the United States by providing services related to government anti-poverty programs, charging fees for their services, or creating a dependency on their products to access benefits.
- What is the impact of low-income tax-prep companies on EITC recipients? Low-income tax-prep companies can charge high fees for their services, which dilute the impact of EITC refunds and take away funds that could be used for other pressing needs like groceries, rent, or student debt repayment.
Expert Opinion:
The privatization of anti-poverty programs can sometimes lead to unintended consequences, such as entrenching inefficiencies, fostering rent-seeking, and unintentionally preserving the very conditions the programs aim to alleviate. Critical evaluation and oversight are needed to ensure that privatization leads to genuine improvements in service delivery and outcomes for low-income individuals.
Key Terms:
- War on Poverty
- Poverty Inc.
- Privatization of anti-poverty programs
- Public-choice theory
- Government contractors
- Rent-seeking
- Low-income tax-prep companies
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