Exploitation of the Poor: 4 Ways the Rich Keep Them Down

This article is an excerpt from the Shortform book guide to "Poverty, by America" by Matthew Desmond. Shortform has the world's best summaries and analyses of books you should be reading.

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Why are some people poor? Are they keeping themselves down, or are they victims of others who don’t want them to succeed?

In Poverty, by America, social scientist Matthew Desmond explores how and why the commonly cited explanations for poverty fall flat. Then he turns his attention to what he believes does explain the persistence of poverty in America.

Read on to learn why Desmond thinks the exploitation of the poor is a reality in the US.

Exploitation of the Poor

Desmond writes that the primary force perpetuating poverty is the non-poor Americans who benefit from keeping their fellow Americans poor. According to Desmond, it’s a story of appropriation and exploitation of the poor, where choices made by individuals and society at large contribute to the immiseration of millions.

Does Wealth Cause Poverty?

Desmond argues that the wealth of some Americans comes at the expense of the poverty of others. But is this analysis oversimplified? Some argue that the true relationship between wealth and poverty is more complicated. According to this argument, increased wealth among the world’s richest individuals does not necessarily come at the expense of the poor: As the super-rich accumulate wealth, it’s often a result of creating new businesses, innovations, and jobs that can help alleviate poverty.

Notably, there’s a distinction between wealth created through innovation and entrepreneurial activities and wealth accumulated through exploitation and corruption. While there’s a problem with wealth inequality in cases of crony capitalism or economic rent-seeking, critics of the “wealth causes poverty” argument say that attacking the existence of wealth itself is misguided. Instead, the focus should be on addressing the root causes of poverty, such as corruption, lack of access to education and healthcare, and barriers to economic opportunity.

We’ll explore the choices we make to create the poverty of others, including our demands as consumers for cheap goods and convenient services, how and where we invest our money, and where we choose to live. We’ll also explore some of the more specific modes of exploitation, including rent gouging by unscrupulous landlords, the predatory shadow banking system, and housing discrimination.

#1: The Consequences of Our Consumer Choices

Desmond writes that the choices we make as consumers contribute to the poverty of others.

Many of these choices are related to our demands for cheap goods and our expectations of instantaneous service and deliveries of those goods. The low prices and same-day deliveries offered by e-commerce giants like Amazon or food delivery services like Seamless aren’t possible solely because of technological innovation. Rather, writes Desmond, behind these conveniences is a vast underclass of underpaid drivers, exploited kitchen workers, and un-unionized warehouse employees. Their poverty and exploitation are the hidden costs of our material comfort.

Are Consumers Willing to Pay More for Products Made Under Fair Labor Conditions?

Although Desmond asserts that consumer demand for cheap goods fuels labor exploitation, some research suggests that there is a substantial demand for products made under fair labor conditions.

Many consumers are willing to pay a premium for such products. However, this demand is not uniform across all consumers but is influenced by various factors, including income, education, and political ideology. Consumers with higher incomes, more education, and left-leaning political views are more likely to value fair labor practices and express a willingness to pay extra for ethically produced goods. Further, preferences for fair labor practices have a more significant impact on certain industries, such as clothing and electronics, which are more labor-intensive and likely to face labor rights concerns.

#2: Investment Decisions and Privilege

According to Desmond, we also contribute to poverty through our investment decisions.

The most profitable companies to invest in and buy stock in are often those that boost their profit margins by keeping workers underpaid, without union representation, and laboring under poor and unsafe conditions. When you invest in those companies—whether you’re an active stock trader or are just passively and indirectly investing in them through a retirement account like a 401k—you’re both rewarding those companies for exploiting their workers and profiting off that exploitation.

Does It Make a Difference to Divest From Irresponsible Corporations?

Although Desmond chastises individuals for investing in companies that exploit their labor forces, some scholars contend that divestment campaigns, wherein individual shareholders dump the stock of such companies, have little effect on those companies’ financial performance. In some cases, it may even benefit them, as other investors who don’t share the same concerns may see an opportunity to buy undervalued shares—potentially stabilizing or even increasing the stock price.

These critics write that divestment is often a form of symbolic protest and moral expression, and the actual economic consequences for the targeted companies can be limited. Instead, shareholder engagement can be an alternative strategy to divestment, where investors use their leverage as shareholders to engage with companies to encourage positive change in their practices. This approach can be more effective in driving sustainable corporate change.