The limits of sustainability and opportunities in the social economy.
Social economy (Analysis)
Poole, Dennis L.
|Publication:||Name: Social Work Publisher: Oxford University Press Audience: Academic Format: Magazine/Journal Subject: Sociology and social work Copyright: COPYRIGHT 2012 Oxford University Press ISSN: 0037-8046|
|Issue:||Date: Jan, 2012 Source Volume: 57 Source Issue: 1|
|Geographic:||Geographic Scope: United States Geographic Code: 1USA United States|
Ten years after 9/11, we as a nation have had to address issues of
sustainability that other generations of Americans have not faced in
quite the same way. Considerable attention, and understandably so, has
focused on the security of our borders and threats to our homeland.
Environmental disasters have tested our maturity as well, and this
entire editorial could be devoted to that topic alone.
But here we focus on economic and social sustainability, because the two closely intertwine, and the path we are on is not sustainable from either point of view. We begin with economic sustainability, because that probably weighs most heavily on the minds of Americans at this time, and end with potential opportunities in the social economy.
When Standard & Poor's lowered the U.S. credit rating in August 2011, a deep and profound shudder ran through the hold of our ship. However much we might want to blame political deadlock for the downgrade--and there is plenty of blame to go around--the reality remains that we can no longer sustain the fiscal path we are on.
The federal budget deficit--the difference between actual revenues and budgeted spending-is currently about $1.5 trillion. This is roughly equivalent to 10 percent of the gross domestic product (GDP), the market value of all goods and services produced in the United States. Four years ago, the federal budget deficit was about 3 percent of GDP. Economic recession and war operations aside, the federal government has been running budget deficits every year since 1970 except four, and the additive effect on the national debt is alarming.
The national debt--the cumulative amount the federal spending in excess of revenues--now stands at about $14 trillion. Approximately 70 percent of GDP, the rate is much higher now than historical averages around 40 percent, a reflection of the deep recession and recent tax policy decisions. More than half of the national debt is in the form of debt securities sold to private investors, mostly from other countries, unlike public debt in the past.
Fortunately, current interest rates on the securities are very low. When rates return to historical averages, the national debt will grow exponentially, putting future taxpayers at great risk, not only in having to pay off the debt, but also in owing payments to investors who may not have U.S. interests at heart. Clearly, this is not sustainable; for if sustainability means anything, it means creating preconditions to ensure the economic well-being of future generations.
From a fiscal perspective, we have a revenue problem and a spending problem. The Office of Management and Budget (2012) reports that during fiscal year (FY) 2010, the last completed FY, the federal government collected $2.16 trillion in tax revenue. Forty percent ($865 billion) came from employment taxes for social security and social insurance, 42 percent ($899 billion) from individual income taxes, 9 percent ($191 billion) from corporate income taxes, and the balance ($207 billion) from excise and other taxes. Yet total federal revenues for the FY, relative to GDP, were the lowest in half a century--a mere 14.9 percent.
What contributed to the historic drop in federal tax revenues? Dramatic falloffs in individual and corporate income tax revenues from the recession clearly had the greatest impact. The Bush tax cuts, coupled with other tax policy decisions, had a substantial impact as well, with arguably little payoff for the economy (Pew Charitable Trusts, 2011). A subtle but powerful factor was also at work. The U.S. tax burden was substantially lower than that of other major countries, and it has been for quite some time (Urban Institute-Brookings Institution Tax Policy Center, 2010).
Having noted that, we must quickly cite the nation's daunting spending problem as well. The Office of Management and Budget (2011) reported that the federal government spent $3.5 trillion in FY 2010, including 6 percent ($197 billion) for interest payments on the national debt. Mandatory programs accounted for 53 percent ($1.9 trillion) of the spending. Federal outlays for mandatory programs, as a portion of total expenditures, were 20 percent ($707 billion) for social security, 21 percent ($732 billion) for Medicare, Medicaid and the Children's Health Insurance Program, and 14 percent ($496 billion) for safety net programs (for example, Temporary Assistance for Needy Families, Supplemental Security Income, earned income tax credit, home energy assistance, school meals, child care assistance, food stamps, unemployment insurance).
Discretionary programs, in contrast, accounted only for 37 percent ($1.3 trillion) of total federal outlays in FY 2010. All but a small fraction of this spending went to defense and nonsecurity domestic programs. Specifically, 20 percent ($705 billion) of total federal outlays was spent on defense and security (including Homeland Security and support operations in Iraq and Afghanistan) and nearly 18 percent ($623 billion) on nonsecurity domestic programs. Discretionary domestic spending, it is worth noting, supports the largest number of federal agencies and programs, ranging from science, technology, energy, commerce, and agriculture to health, human services, housing, and justice.
Four decades ago, discretionary spending received the largest share of federal outlays. Its portion, and as a percentage of GDP, has gradually fallen from then onward, despite sharp increases in defense spending over the past decade, along with modest growth in domestic spending. Mandatory spending, especially for social security and the major health programs, has been escalating at such a rapid pace that it could consume nearly all federal revenues in the next 25 years. The Congressional Budget Office (2011) explained as follows:
As we write this column, the White House has submitted its proposed federal budget for FY 2012 (Executive Office of the President, 2011), The plan calls for a small reduction in overall federal spending, a five-year freeze on most "nonsecurity" discretionary spending, cuts in some antipoverty programs, increases for veterans' homeless vouchers and homeless prevention programs, more federal funding for elementary and secondary schools (with incentives to expand preschool education), additional funding for Head Start, and a reduction in the budget of the U.S. Department of Health and Human Services to its FY 2010 level.
Of course, the 2012 budget proposal is the opening salvo from the White House in negotiations with Congress. Still, it is noteworthy that no new significant changes are offered to curb long-term costs in Medicare, Medicaid, and social security, though the president has stated he would consider changes in spending for entitlement programs. Defense funding would increase slightly, but allocations to the Pentagon for the wars in Iraq and Afghanistan are not budgeted. Tax cuts for the middle class, passed in 2001 and extended to December 2010, would continue indefinitely, whereas tax cuts for wealthier Americans would begin to end in 2014. A number of tax breaks for oil and gas companies would end over a 10-year period.
The proposed plan, if adopted, would not likely do much to restore the fiscal health of the nation. In fact, it could make our situation worse if projected savings are not achieved, especially in Medicare and Medicaid, where medical pricing must be reined in and efficiencies in health care delivery systems must be realized. (We hope that health reform legislation enacted in FY 2011 will help.) The situation could also get worse if corporations and wealthier Americans do not soon contribute a greater share of income taxes and other people who can afford it bear more tax burden as well. Double-digit growth in the U.S. economy, for many years, would obviously help too, but this is unlikely given historical growth averages in the single digits and the highly competitive global economy today.
The fiscal wringer between mandatory and discretionary programs is forcing the nation down a path that may not be socially sustainable either. Social safety net programs for vulnerable people are increasingly at risk. In some instances, they are already on the chopping block--for example, low-income home energy assistance, which is striking in light of record-setting energy profits in recent years. The Center on Budget and Policy Priorities (2011) reported that social safety net programs kept an estimated 15 million Americans out of poverty in 2005, reduced poverty for 29 million people, and likely prevented more people from going into poverty during the current recession. The American Recovery and Reinvestment Act (Recovery Act) (P.L. 111-5) provisions alone, enacted in 2009, kept an estimated 6 million people out of poverty.
The Human Development Index (HDI), created by the United Nations Development Programme as a single statistic to measure social and economic development of a country, uses income as one of the three key indicators. During the interval 2005 to 2010, the United States ranked as the fourth "top mover" in the world in HDI terms (United Nations Development Programme, 2011). The question is whether the United States will be able to maintain its status as a "very high human development" nation in the next five-year interval if social safety net programs and "automatic stabilizers" to cyclical downturns in the economy get caught in the fiscal wringer between mandatory entitlement spending and discretionary domestic spending (United Nations Development Programme, 2011).
The fiscal wringer may have already begun to compress the soft infrastructure of the nation. Considerable attention in the Recovery Act was devoted to rebuilding public facilities, bridges, highways, and other hard infrastructure, and justifiably so. Yet it is important to recognize that soft infrastructure of the nation has been withering too, in particular the social "cement" that holds communities together in times of stress.
We have become a nation of strangers, after all, good workers going with the ebb and flow of a market economy in need of highly mobile labor. This unfortunately tends to free us as a people from social obligations to our neighbors, to geographical communities where we happen to live, and from them to us. As with any type of stress, national economic stress can make us more socially mature as a people. We need to be reminded, from time to time, of intransient beliefs about why we "care for the stranger" (Morris, 1986).
Virtually all of us need social support to help us handle stress in life and change in our environment. Boulding (1967) insightfully wrote some years ago that "the objective of social policy is to build the identity of a person around some community" (p. 8) with which he or she is associated. Formal or informal supports can contribute to community building by buffering people from the most malign consequences of stress and by stimulating the development of personal strategies to cope with stress and adapt to change. People without adequate support systems are more susceptible to mental or physical strain, or both, and slower to recover from illness than others. Community attachment or detachment in the stress process can make a difference (Van Gundy, Stracuzzi, Rebellon, Tucker, & Cohn, 2011).
During the early 1990s, for example, Dennis L. Poole was director of a nonprofit community action agency. One day, a local attorney called to inform him that an elderly woman in the community had died and left everything in her will to the agency. She had, on occasion, borrowed $100 or so from the agency's emergency assistance fund, and she paid the "loans" back when and as she could. When the attorney and the director went to the woman's apartment, they found a few pieces of furniture, some books, kitchen utensils, and not much more. The woman had no money--but gave all she had to the agency for being there when she needed a little help.
Thus, policymakers should take great care in freezing or cutting social support programs without having a clear understanding of their importance to the web of relationships in local communities. The proposed cuts in the Community Services Block Grant program, which historically has supported community action agencies in virtually every county and community of the nation, are one example. Proposed reductions in public investments for volunteer-intensive programs such as Senior Corps and AmeriCorps are another. The cost for the social cement these programs provide is miniscule in relation to the total federal budget.
The final main point is this: As funding for government programs continues to downsize at all levels, and taxpayer perceptions of public sector ineffectiveness mount, those of us involved in practice, teaching, and research may wish to focus greater attention on the interrelationships between social values and economic values and, more specifically, on opportunities for new growth through the social economy.
"Social economy," Quarter, Mook, and Armstrong (2009) explained, "is a bridging concept for organizations that have special objectives to their mission and their practice, and either have explicit economic objectives or generate some economic value through the services they provide and purchases they undertake" (p. 4). Major components typically include social economy businesses, community development corporations, social enterprises, and mutual aid associations. Public sector nonprofits are considered part of the social economy. They generate about $1.41 trillion in revenues as "public charities," with three-fourths coming from "earnings" through government fees and contracts (National Center for Charitable Statistics, 2009).
The two central concepts--social mission and economic value--are healthy reminders to assess the social benefit of the goods and services we "produce" and their economic value to current and future generations, whenever possible. We are accustomed to using logic models to assess social benefit but are not adept at using other models to account for economic impact, including nonmonetary volunteer exchanges through the "gift relationship" (Titmuss, 1971). Social accounting tools used in the for-profit sector of the social economy can be used in the nonprofit sector to determine whether organizational structures and processes, goods and services, are socially, economically, and environmentally sustainable (Mook & Sumner, 2010).
The social economy is not a cure-all for the nation's ills in revenue generation, debt reduction, and program spending. Tough policy decisions are needed to avoid compromising the ability of future generations to meet their needs. Being at the nexus between public, for-profit, nonprofit, and informal sectors, the social economy is in a unique position to help the nation grow and mature in ways to meet human needs fitting to the challenges ahead. Understanding and tapping more into what is now called the "informal or gift economy" (Cheal, 1988; Klamer, 2003) will be part of the solution.
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Advance Access Publication May 22, 2012
American Recovery and Reinvestment Act of 2009, P.L. 111-5, 123 Stat. 115 (2009).
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Klamer, A. (2003). Gift economy. In R. Towse (Ed.), A handbook of cultural economics (pp. 243-247). Northampton, MA: Edward Elgar.
Mook, L., & Sumner, J. (2010). Social accountability for sustainability in the social economy. In J. J. McMurtry (Ed.), Living economics: Perspectives on Canada's social economy (pp. 157-178). Toronto: Edmond Montgomery.
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Pew Charitable Trusts. (2011). The great debt shift--April 2011. Retrieved from http://pewtrusts.org/Economic_Policy/ drivers_federal_debt_since_2001.pdf
Quarter, J, Mook, L., & Armstrong, A. (2009). Understanding the social economy. Toronto: University of Toronto Press.
Titmuss, R. (1971). The gift relationship. London: Allen & Unwin.
United Nations Development Programme. (2011). Human development reports. Retrieved from http://hdr.undp.org/en/data/trends/
Urban Institute, & Brookings Institution Tax Policy Center. (2010). The numbers: How do U.S. taxes compare internationally? Retrieved from http://www.taxpolicycenter.org/briefing- book/background/numbers/international.cfm
Van Gundy, K., Stracuzzi, N., Rebellon, C., Tucker, C., & Cohn, E. (2011). Perceived community cohesion and the stress process in youth. Rural Sociology, 76, 293-318.
Dennis L. Poole, PhD, MSW, is professor, College of Social Work, University of South Carolina, and a senior fellow, RGK Center for Philanthropy and Community Service at the LBJ School of Public Affairs, University of Texas at Austin. Durgesh Kumar, MSW, MA, is a doctoral student, College of Social Work, University of South Carolina. Address correspondence to Dennis L. Poole, College of Social Work, University of South Carolina, Columbia, SC 29208; e-mail: firstname.lastname@example.org.
Altogether, the aging of the population and the rising cost of health care would cause spending on the major health programs and Social Security to grow from roughly about 10 percent of GDP today to about 15 percent of GDP 25 years from now. (By comparison, spending on all of the federal government's programs and activities, excluding interest payments on debt, have averaged about 18.5 percent of GDP over the past 40 years.) That combined increase of roughly 5 percentage points for such spending as a share of the economy is equivalent to about $750 billion. If lawmakers ultimately modified some provisions of current law that might be difficult to sustain for a long period, that increase would be even larger. (p. ix)
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