Capitalism And Its Economic Effects On Low Income Communities

Introduction

The political climate of the United States has recently seen a shift in the increasing divide over socialistic ideologies that contradict capitalist ideals. With the 2020 election just around the corner, new ideas have arisen such as Bernie Sanders’ “College for All” which is a national loan forgiveness program and “Medicare for All” which provides all Americans with national health insurance. Although some applaud his efforts, others say that it goes against the United States’ capitalist economy. The International Monetary Fund defines capitalism as “an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society” (Jahan). Capitalism favors the private for-profit ownership of property, freedom of choice, and competition. This economic system has raised debates as to its effectiveness and effects. This paper will examine the economic effects of capitalism on low-income communities in the United States in the past 50 years. Understanding this issue would provide clarity for future political and economic policy while providing awareness into the lives of 18.5 million people in the United States.

Income Inequality

Income inequality describes the gap between the highest income earners and the lowest. Many attribute the phrase “the poor get poorer while the rich get richer” to describe the economic effects of capitalism on society, however, it does not reflect the whole story. Economist Max O. Lorenz created a graphical representation of the distribution of income per household called the Lorenz Curve. Analysis of a country’s graph allows us to see and calculate the income distribution in each country using the GINI index. The higher the number, the higher the inequality within a nation. The World Bank estimates the United States’ GINI index to be 41.5 in 2016, the highest of any developed country (The World Bank). This shows that the United States has a great disparity between the income of its wealthiest and poorest citizens. This evidence is furthered by the data of income distribution from the United States Census Bureau (United States Census Bureau): The Census Bureau’s Selected Measures of Household Income Dispersion represents how much wealth each quintile of the American population holds. In 2018, the lowest quintile holds 3.1% of income while the highest quintile holds 52%. This shows the skewed income distribution in the United States. Furthermore, since 1978, the percentage of wealth for each quintile has decreased while the highest has increased. This shows that the issue of income inequality is not recent in the American economy but instead has intensified over the years.

However, some argue that welfare policies serve to close the effects of the gap. For instance, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) was passed which devolved welfare from the federal to the state governments. It also replaced the Aid to Families with Dependent Children (AFDC) program with Temporary Assistance for Needy Families (TANF), “a block grant is designed to provide temporary financial assistance to poor families, primarily those with no other means to meet basic needs” (Floyd et al 1). However, states and local governments will sometimes either limit the amount of funding towards these benefits to avoid becoming “welfare magnets”, or will create requirements that will prevent certain people from obtaining the aid (Sheely 323). Therefore, although welfare aids in decreasing the disparity, its present state not a viable solution.

Targeted Marketing

Capitalism revolves around companies competing against other companies to earn a larger profit. Therefore, marketing is crucial as it establishes a link between the company and its market. Furthermore, capitalism enables businesses to advertise to their target market with little government interference. However, this practice leads companies to heavily target low-income communities with harmful products. When studying the amount of cigarette advertising in a low-income minority neighborhood (Dorchester) and a high-income nonminority neighborhood (Brookline), the National Institutes of Health reports that “the percentage of retailers displaying storefront cigarette advertisements was significantly higher in Dorchester (86%) than Brookline (43%)” (Seidenberg et al. 6). In addition, “compared with Brookline, Dorchester had a greater proportion of large and medium advertisements, as well as an increased proportion of menthol brand advertising” (Seidenberg et al 5). Furthermore, “the mean advertised cigarette pack price was $0.39 less in Dorchester than in Brookline” (Seidenberg et al 5). This information illustrates the racial inequality present in cigarette advertising in low-income neighborhoods.

Furthermore, the issue extends to fast food advertisements. “Food advertising coverage was greatest in low-income Latino neighborhoods, and fast-food advertisement coverage differed by neighborhood income” (Yancey et al. 180). Food advertisements in low-income neighborhoods contain more unhealthy food options including sugary beverages and fast food. In addition, “Low-income Latino zip code areas had the highest prevalence of advertisements featuring high-calorie/low-nutrient products, which included ads for fast foods, alcoholic beverages, and sugary beverages like sodas and sweetened juices” (Yancey et al 178). In addition, Hispanic and African-American youth have a greater response to advertising that depicts their ethnicity. For instance, the use of famous actors or athletes of color resonates more with this demographic and convinces them to buy the product (Kramer 2).

However, the issue has extended to companies creating targeted products. Corporations seek to profit off the unhealthy habits of these low-income communities. For instance, “in 1995, R.J. Reynolds Tobacco came under fire from the Health and Human Services Secretary Louis W. Sullivan for developing Uptown, a mentholated cigarette brand to be marketed to Black Americans despite their higher rates of tobacco-related illness and death” (Petty et al 352). This illustrates how businesses target the vices of low-income communities where alcohol, cigarettes, and fast food are mostly consumed.

Working Poor

The Center for Poverty Research defines the working poor as “people who spend 27 weeks or more in a year in the labor force either working or looking for work but whose incomes fall below the poverty level”. With this description in mind, the U.S Bureau of Labor Statistics reports that there are about 9.5 million working poor in the United States (BLS 1). Blacks and Hispanics are more than twice as likely to be part of the working poor than Whites (BLS 3). In addition, the main causes for the working poor are: “low earnings, periods of unemployment, and involuntary part-time employment” (BLS 5). In addition, this worsens their situation since long stretches of unemployment serve as a barrier to re-entering the job market. This leads the working poor to overlook certain necessities such as health. “Nearly one-half (48.4%) of the working poor have no insurance from any kind whatsoever, compared to only 9.1 percent of persons with incomes above 200 percent of the poverty level” (Seccombe 174). “The working poor were significantly less likely to receive preventive care” including the use of cervical, breast, and prostate cancer screening or serum cholesterol screening and influenza vaccinations (Ross et al. 257). This lack of preventative care coupled with unhealthy targeted marketing serve to increase health problems within these communities.

Conclusion

The principles and trends of capitalism serve to limit the progress of low-income communities. The income disparity in the United States demonstrates that the American form of capitalism serves to favor the concentration of wealth in the highest income brackets. In addition, targeted marketing systematically manipulates these communities into falling and continuing these vices, costing them in the long run. Furthermore, the working poor and its effects illustrate how the cycle of poverty continues even when these individuals are working. Therefore, more research into the top would lead to a greater understanding of a significant portion of the American economy.

Works Cited

1. BLS, U. ‘A Profile of the Working Poor, 2014.’ US Department of Labor. US (2015).
2. Floyd, Ife, Ladonna Pavetti, and Liz Schott. ‘TANF reaching few poor families.’ Washington, DC: Center on Budget and Policy Priorities. Accessed November 17 (2017): 2017.
3. “GINI Index (World Bank Estimate) – United States.” The World Bank, The World Bank, 2016, data.worldbank.org/indicator/SI.POV.GINI?locations=US&name_desc=true.
4. Kramer, Karen, et al. ‘Targeted marketing of junk food to ethnic minority youth: fighting back with legal advocacy and community engagement.’ Advances in communication research to reduce childhood obesity. Springer, New York, NY, 2013. 389-405.
5. Jahan, Sarwat, and Ahmed Saber Mahmud. “What Is Capitalism?” International Monetary Fund, International Monetary Fund, June 2015, www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm.
6. Petty, Ross D., et al. ‘Regulating Target Marketing and Other Race-Related Advertising Practices.’ Mich. J. Race & L. 8 (2002): 335.
7. Ross, Joseph S., et al. ‘Use of preventive care by the working poor in the United States.’ Preventive medicine 44.3 (2007): 254-259.
8. Seccombe, Karen, and Cheryl Amey. ‘Playing by the rules and losing: Health insurance and the working poor.’ Journal of Health and Social Behavior (1995): 168-181.
9. Seidenberg, Andrew B., et al. ‘Storefront cigarette advertising differs by community demographic profile.’ American Journal of Health Promotion 24.6 (2010): e26-e31.
10. Sheely, Amanda. ‘Devolution and welfare reform: Re-evaluating “success”.’ Social Work 57.4 (2012): 321-331.
11. United States Census Bureau. ‘Historical income tables: Income inequality.’ (2018)
12. Yancey, Antronette K., et al. ‘A cross‐sectional prevalence study of ethnically targeted and general audience outdoor obesity‐related advertising.’ The Milbank Quarterly 87.1 (2009): 155-184.