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Occupational licensing, cronyism, & their effect on the poor | by Kyle Hanby

Occupational licensing, cronyism, and their effect on the poor

“The free market is the greatest producer of wealth in history — it has lifted billions of people out of poverty.” – President Barack Obama at a panel discussion on poverty in May 2015.

The United States ranks as the 11th most economically free country in the world according to the Heritage Freedom Index, and has a history of embracing free-markets yet the rate of poverty still stands at a poignant 14.8 percent.

Why is this the case? While the U.S. has historically embraced free-markets, it has not been able to escape a streak of deep seeded cronyism.  Cronyism is one of the biggest threats to the free-market that nearly every country faces – especially in countries where the regulatory state has grown beyond its intended reach and the federal government exercises nearly unlimited control.

Cronyism is a broad topic that can range from corporate welfare to agricultural subsidies but one form of cronyism that often gets overlooked despite having the biggest impact on the poor is occupational licensing.

Occupational licensing is essentially any form of barrier that prevents someone from entering a certain field of work.

Some forms of occupational licensing make logical sense, such as a medical doctor being required to complete a certain education and pass a rigorous test before being able to prescribe medications or operate on patients.

But, there are other forms of occupational licensing that are created to exclude hard-working individuals from entering into a specific line of work.  This form of cronyism fights the free-market and serves as a barrier to lifting people out of poverty.

One example of occupational licensing that often excludes poor people from earning an honest wage for their work is hair braiding, and more specifically a type of hair braiding that is only passed on from generation to generation within the African-American community.  Although we are beginning to see these restrictions loosened, many states either have or have had laws that forbade people from braiding hair for money without a license.  If one wanted to obtain a license, they would need to attend a cosmetology school (where specific styles of hair braiding are not taught), gain many hours of experience, and usually pass a test.   It’s silly for someone to go to school to obtain a license so that they can practice a certain kind of hair braiding that they were not even taught in that school in order to earn a living.  Check out Melony Armstrong’s story on the Acton PowerBlog.

Often times, when policy makers create occupational licensing laws, they think they are protecting the consumer from purchasing a harmful service.  In this case, the only people that are being protected are those that can afford and have the time to go to cosmetology school.  The opportunity cost to give up whatever work someone has in order to attend school is far greater for individuals living in poverty than those who are well off.  Occupational licensing barriers limit the field of competition so that the poor are excluded from earning an honest wage.

Hair braiding is the most popular example that many turn to in order to show the negative effects of occupational licensing, but this form of cronyism runs rampant in other sectors of the work force.  Take a look at the Institute for Justice’s page of occupational licensing cases that they have taken up and you will see that it’s far more than just hair braiding.

The Illinois Policy Institute recently highlighted the story of a woman who served a year in prison and when she was released she turned her life around but was never able to achieve her dream of becoming a nurse because of her criminal history. Maybe it makes sense to prevent people with certain criminal backgrounds from holding certain jobs but is it prudent to prevent a single mother of three who has turned her life around from pursuing a dignified career as a nurse?

President Obama was correct when he made his comments on poverty and the market.  The power of the free-market is greater than any governmental regulation program.  As Christians, it is imperative that we do not lose the heart of our message.  We are not simply fighting against a regulatory state because we don’t like it or because we think it’s annoying.   We are fighting for the conditions that cultivate human flourishing.  If we care about poverty alleviation then we must care about giving individuals the liberty that empowers them to create value in society.

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Kyle Hanby is a Liberty@Work Associate at the Acton Institute.  He recently graduated with a degree in economics and finance from Bethel College in Mishawaka, Indiana, where he chaired the American Enterprise Institute Executive Council and was the University Relations Intern at the Charles Koch Foundation.

*Photo is CC Image courtesy of John Atherton on Flickr.  This post was originally posted on the Acton Institute Power Blog.

Convening to Flourish | by Jonathan A. Moody

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When was the last time being with a group of other individuals inspired you?  Was it a conference?  At Church?  On the golf course?

PovertyCure values local knowledge. We’d even go so far as to assert that the best way to solve problems is to connect people and ideas in conversations that apply to a local context.

This is why the “freedom of assembly” has intrinsic social value. Societies that don’t enjoy this basic liberty suffer from more than unfulfilled community potential. If people can’t gather and communicate their thoughts on a problem, it’s simply harder to do anything useful about it. Many of us take for granted the ability to convene around what we believe in, whether it’s our faith or our support for principles of freedom and entrepreneurship.

I’m writing this bog post while in Accra, Ghana, where I’m thrilled to convene with leaders in in business, entrepreneurship, academics and the church.  This week I’m at the Africa Liberty Forum – a fantastic conference cohosted by the Atlas Network and IMANI.  Among other things, I’ll get to take part in the Ghanian premier of Poverty, Inc. and co-host dynamic discussions on how the ideas in that tremendous documentary can be applied by development organizations and businesses on the local level. It’s powerful stuff – these are moments that can change the course of communities all over this amazing continent.

The good news is that you don’t need a plane ticket to Africa to be part of the conversation. You can pick up a copy of Poverty Inc. on Amazon.com, the iTunes store, and soon it’ll even be on Netflix!  You can convene your own “think tank” with your own circle of influence – and we’ve got some great tips on how to start right here: www.PovertyInc.org.

Next week I will join nearly 1,000 people from 60+ countries at Acton University – or as we like to call it, AU – in Grand Rapids, MI. Nearly 70 of the world’s foremost scholars in the fields of economics, theology, philosophy, sociology and much more, will be present. Attendees will gain a better understanding of the connection between their faith and economics. Many will leave with both charged hearts and changed minds.

In fact, I’m sure many of you will be there – please find me and say hello! If you’ve never been to AU, you may want to sign up now for next year. It always fills up fast – so it’s never too early to make plans. You can find out how to register here: www.university.acton.org.

It’s true that the digital age offers incredible opportunities to learn from almost anywhere. Still, there’s an invaluable benefit from interacting with others in-person. While Acton University boasts more than 200 different courses, for me the greatest inspiration comes from hanging out with the nearly 1,000 people from across the globe – all of whom want to see more humans in more places, flourish. I’m grateful for the example the Acton Institute sets.  They put their money where their mouth is and gather individuals from around the world to connect, in person, around the truth.

We recognize that the global movement around free and virtuous societies and enterprise solutions to poverty requires individuals to connect, share local knowledge and agree on ways to make an even greater impact. So, this year PovertyCure will to convene a special series of breakout sessions that will include guest speakers Bob Lupton, Magatte Wade, Joel Hammernick, and Chris Horst.  And we’re blessed to scholarship 35 PovertyCure Fellows from 4 different countries 17 American states.

And we want to hear from you!  Please share in the comments below – what gatherings have inspired you?  What problems are you helping to solve in your community?  Will you be at AU? Let us know!

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Jonathan A. Moody is the Managing Director of PovertyCure, an Acton Institute Initiative.  

A Letter to the SMEs I’ve Always Known | by Chad Jordan

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Dear SMEs –

Looking back just 2-3 years ago, I didn’t understand SMEs (small- and medium-sized enterprises), their role in the global economy, or their importance in global development.  It’s sort of ironic, though; I’d grown up in a family of entrepreneurs who owned small businesses, which maybe made me take for granted how important they are in helping build economies – local, national, and global.  The impact they have was apparently too close for me to see.

It wasn’t until I’d been out in the world for a while, running my own small business and hearing from entrepreneurial souls around the globe, that I started to connect the dots that had been right in front of my eyes.

Below is an excerpt from the still-in-progress but soon-to-be-released book, Three Jobs.  This excerpt details my revelation of the economic void caused when small (but growing) businesses don’t receive appropriate financial access, an understanding of which came as my sister, Tara, and I worked with organizations through our consulting firm, Cornerstone International.

It’s doubtful Tara nor I understood how influential the conversations we had with global entrepreneurs would be in shaping our own path.  We’d heard quite a lot about the lack of appropriate banking services many businesses were facing in emerging market nations.  Rates too high, collateral requirements too burdensome, and fears about certain sectors preventing access.  We took it all in, but had no real framework to process it all.  We kept going, working on different projects.  We were pretty immersed in some microfinance projects, which we saw as our own contribution to the lack of financial access many were facing – and it really was.

The full picture came into view later, though.  Toward the latter part of 2012, Shut Up & Give? was released, and I went on a speaking tour of sorts to a number of different conferences and universities around the U.S.  I got to meet, serve on panels, and share meals with some amazing people.  I’d written the book, always keeping some of the conversations we had in the back of my mind.  I talked about microfinance and how I believed – and still do – that it’s a vital tool to help lift people out of extreme poverty.

Somewhere along the way, though – and I’m not sure I can even pinpoint when or where – my eyes were opened.  I’d been traveling a lot, working on some projects, but entering a time when there was maybe a little more margin than usual.  I had time to process.  I think it was the summer of 2013.  All at once, I understood the basic problem people had been telling Tara and myself about.  The finer points would come later, but I saw the root.

The entrepreneurs we’d heard from hadn’t been discussing personal banking challenges or microfinance level issues; they’d been talking about the hurdles associated with small business banking.  They were part of the “missing middle,” a term I’d heard but never – until that moment – understood.  The issue wasn’t that these entrepreneurs were “unbankable” as we might think – they had established businesses, revenue, and employees – but the banks weren’t and aren’t yet comfortable with most small- and medium-sized enterprises (SMEs).  The sector is not well understood.

Microfinance has captured much of the attention and focus of financial institutions over the last couple decades, and rightfully so, as it’s been booming.  What hasn’t received as much attention, however, is SME finance, or that sector nuzzled in between microfinance and full commercial finance.  As such, the sector’s banking capacity isn’t very highly developed – rates and collateral requirements are high, while trust is low.  Very few entrepreneurs stuck in this missing middle finance gap can gain appropriate access to the growth capital they need.

This may seem like a revelation I should have been swept away with long before, but the margin hadn’t been there to process what I’d seen, what I’d heard.  And maybe I needed all those conversations, all those panels, all those meals to have the framework necessary to understand, to grasp the challenges faced by the now-obvious missing middle.

What this newfound understanding did was connect me back to my own roots.  I’d been around entrepreneurs all my life; that was the world and the language I knew.  When I was finally able to connect that awareness of entrepreneurship to the economic growth that SMEs are capable of driving, my world would change forever.  I became like a sponge, learning everything I could about SMEs, their successes, their challenges, and their financing needs.  And it turns out, small businesses in emerging markets aren’t all that different from the small businesses I’d grown up around here in the States.  Something clicked for me.

All the research, articles, academics, and thought leaders pointed in one direction: if SMEs could receive access to fair, patient capital coupled with appropriate business coaching and mentoring, the sky is the limit.  That one intervention could reshape local, national, and global economies.

The next thing I knew, my team and I had built a new financial model focused on supporting emerging market SMEs in their quest for growth and scale.  Arrow Global Capital was born.

Entrepreneurs are my people, and I’m so humbled and honored that through our work I get to interact with different types across the globe – different sectors, different ages, different genders, different races, and different ideologies.  Small businesses have been a consistent presence in my life, but it took me a little while to connect those local and global dots.  Now I’m back home, though, and I’m here to stay.  Thank you for remaining patient as I went on a journey of discovery and found my way back to the SMEs I’ve apparently always known.

Reconnected to my roots,

Chad

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Chad Jordan is the author of Shut Up & Give?, ReThink Missions, and the soon-to-be-released Three Jobs.  He is the co-founder & CEO of Arrow Global Capital, a impact investing platform focused on mobilizing idle capital in support of emerging market entrepreneurs, as well as the founder and Chief Consultant of Cornerstone International, a boutique consulting firm specializing in business development and income creation around the globe.  Chad holds a master’s degree in international development from The George Washington University in Washington, D.C.

Antonio, A Focus on What Works | by Patrick Oetting

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What causes wealth?

The tendency is to focus on the factors that create poverty. The results are often solutions that undermine the dignity of the individual – solutions imposed from a “higher-authority” on people that we deem “poor.” Conversely, when we look at the factors that cause wealth, we begin to see individuals in a new light – as the heroes of their own stories.

This is precisely the scenario I witnessed this past week in San Juan Comolapa, Guatemala – a pueblo located about two hours drive outside of Guatemala City.

Five years ago, Antonio heard the message of personal liberty and the power of enterprise while listening to a radio feed hosted by the Universidad Francisco Marroquin. Soon after, he discovered the PovertyCure DVD series, which he and his son used to learn English! These core messages have drastically changed Antonio’s outlook on life and helped him cultivate an entrepreneurial mindset that has affected the entire San Juan Comolapa community.

In those 5 short years Antonio founded a microenterprise firm, a childhood learning center, and a think-tank devoted to seeing increased freedom in San Juan Comolapa. At Antonio’s learning center I witnessed firsthand the innovative approach that he has taken to educate hundreds of children, mostly from a background of poverty.

This small learning center operates with a for-profit business model. In a town that seemingly has little to offer, Antonio has provided such a great curriculum that parents are willing to pay a fee for the children to learn. The reasonable costs involved motivate parents to both stay involved in their children’s education and hold the educators responsible. This self-sustaining model also allows Antonio to continue scaling his business and thus reach more and more children throughout San Juan Comolapa. As I heard Antonio’s vision, I was inspired. He plans to spread this model, and the skills it offers children, throughout Guatemala.

When you couple the effect of the school with the impact that his micro-loan business is having on local vendors, there’s no question that Antonio has used the PovertyCure principles to dramatically improve life for many in San Juan Comolapa.

Antonio’s entrepreneurial mindset has also rubbed off on his family. His 13-year-old son, Jimmy, who served as our translator for the trip, is already a high-level computer programmer and his video-blog is a YouTube sensation in Guatemala. Antonio’s brothers have formed a band that now travels the world, recently opening for Jennifer Lopez in Las Vegas.

Antonio, who once asked for help, has seen his family rise out of poverty through entrepreneurship.  His businesses now serve hundreds of families in his community, giving them the same chance to move from dependence to independence.

When communities have access to economic tools and the freedom and knowhow to use them, they will inevitably succeed. We have found this to be true not only in Antonio’s case, but in hundreds of stories that we have captured from our partner network. They show us that it is high time that society at large begin to look at the factors that cause wealth, rather than focusing on negative attributes of individuals and communities that harm dignity and perpetuate cycles of poverty.

 

Patrick Oetting is the Strategy and Engagement Manager of PovertyCure, an Acton Institute Initiative.