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How the Poor Can Save Capitalism

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John Hope Bryant, successful self-made businessman and founder of the nonprofit Operation HOPE, says business and political leaders are ignoring the one force that could truly re-energize the stalled American economy: the poor. If we give poor communities the right tools, policies, and inspiration, he argues, they will be able to lift themselves up into the middle class and become a new generation of customers and entrepreneurs.

Raised in poverty-stricken, gang-infested South Central Los Angeles, Bryant saw firsthand how our institutions have abandoned the poor. He details how business loans, home loans, and financial investments have vanished from their communities. After decades of deprivation, the poor lack bank accounts, decent credit scores, and any real firsthand experience of how a healthy free enterprise system functions.

Bryant radically redefines the meaning of poverty and wealth. (It's not just a question of finances; it's values too.) He exposes why attempts to aid the poor so far have fallen short and offers a way forward: the HOPE Plan, a series of straightforward, actionable steps to build financial literacy and expand opportunity so that the poor can join the middle class.

Fully 70 percent of the American economy is driven by consumer spending, but more and more people have too much month at the end of their money. John Hope Bryant aspires to “expand the philosophy of free enterprise to include all of God's children” and create a thriving economy that works not just for the 1 percent or even the 99 percent but for the 100 percent. This is a free enterprise approach to solving the problem of poverty and raising up a new America.

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One Separate, Unequal America

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CHAPTER ONE

I am aiming to turn upside down some “truths” about the economy, jobs, where wealth comes from, and who stands to gain the most if we tap the armies of ignored and “inconvenient” poor and working poor who are presently left on the sidelines. We have some big problems and challenges to address, but despite what we might hear on the evening news, the United States remains the largest economy in the world, at approximately $16 trillion in annual gross domestic product.1 Our best years are not behind us. We have enormous human resources of wealth creation and opportunity just waiting to be unleashed.

The future of our economic story fully depends on overturning these powerful myths about how the economy works for the rich, the poor, the middle class, and everyone in between. We are all called to leave our comfortable assumptions and to arrest the crumbling of the American dream that built this country in the first place.

For instance, consumers—not businesses or governments—power the bulk of our massive economy, with fully 70 percent of the economy dependent on consumer spending.2 This means that you and I are driving the largest economy in the world, by purchasing everything from iced cappuccinos to ice shovels, from gas to put in our cars to the cars themselves. Sustained economic growth and the fortunes of the other 30 percent of the economy represented by businesses and governments, therefore, depends on the economic vibrancy of ordinary consumers, most of whom are not wealthy.

 

Two A New Look at Income Disparity

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CHAPTER TWO

The poor are not who we might think they are. The traditional government method of gauging poverty is understandably financial and almost strictly fiscal, measured in what’s called “absolute terms.” The federal government defines the poor in America as those who make approximately $23,050 a year for a family of four.1 The U.S. Census Bureau reports that 16 percent of the American population lives in poverty, including 20 percent of our children. And all the numbers have gotten worse in the past twenty years. In fact, between the ages of twenty-five and seventy-five, 58.4 percent of Americans will spend at least one year below the government-defined poverty line.2

However, the federal government’s poverty statistics, accurate though they may be, do not in any way define the absolute state of the American experience of poverty. The real poverty we must battle is a state of being rather than a simple statement of financial condition. It is much more connected to aspiration, emotions, psychology, and hope than it is to financial or material analysis. Therefore, my approach reflects behavioral rather than traditional economics. I believe that we define poverty in America too narrowly. Because we don’t really understand poverty, we mislabel it, disassociate ourselves from it, and then, ashamed that we have any of it at all as part of our pristine American experience, lock it away in a sort of a repressed psychological box labeled, “Not me; not us.”

 

Three Cracking the Code of Finance

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CHAPTER THREE

When I was growing up in the inner cities of South Central Los Angeles and Compton, I didn’t have a clue about free enterprise or capitalism. How did it work? How were its winners and losers picked, and who did the picking? Most important, how could I participate? Forget about it. There was no manual for poor people. We never got the memo.

All I knew was that some folks in a world far, far away were rich and well-to-do and did as they liked, wearing suits and going in and out of high-rise buildings. Meanwhile, other folks—folks I knew in my neighborhood, folks like me—struggled to understand how these rich folks achieved any of that. There was no building above three floors in my entire neighborhood, and the only dress suit these families owned were considered Sunday best or reserved for funeral services. Most everyone who owned or ran a business or a major corporate store like Thrifty’s (now replaced by the likes of CVS or Walgreens in most communities) didn’t actually live in our neighborhood. They made their money and by sundown they were gone.

 

Four Banking and Financial Services

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CHAPTER FOUR

A large goal of empowering people with financial literacy is to teach them how the banking system works and how to access it. Banking today is largely dominated by a few large players, most of which are focused on clients with resources already on hand. It’s an understandable strategy, but it’s limited by the same parameters that make it attractive: its known and preestablished nature. Today there are banks on almost every corner of mainstream upper- and upper-middle-class neighborhoods, essentially trading known customers back and forth. What I am proposing is new customer acquisition. Some major banks are involved in legitimate financial literacy efforts, a few of them very substantively, but much more needs to be done. This activity cannot simply be viewed as part of public relations or even of public and government affairs. It must be viewed as what it is: the lifeblood of any business or industry with the word financial in its name. This is nothing less than enlightened self-interest.

 

Five The Working Family’s Hedge Fund

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CHAPTER FIVE

Since the founding of America, real estate has always been the working family’s hedge fund—a hedge against being dead broke at the end of a life of hard work. Real estate has been an absolute savior for the poor, and responsible subprime lending has done more to lift poor people out of poverty than anything else over the past fifty years. The equity these families built up funded college educations and provided collateral and start-up capital for small businesses, which are in turn the job fuel for cities and America.

The recent crisis of irresponsible, fraudulent, and speculative subprime lending did irreparable damage to these families’ hedge funds, but the crisis wasn’t the fault of so-called ignorant poor people. Because upper-class or wealthy neighborhoods have more than enough banks, banks often are simply trading the same customers back and forth. Oddly enough, therefore, the global subprime mortgage crisis was in some ways caused by shortsighted capitalists trying to create or manufacture clients. They did this by taking many wholly appropriate financial products and pawning them off on some innocent and possibly financially illiterate consumers who thought they were getting the deal of the century.

 

Six 700 Credit Score Communities

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CHAPTER SIX

We have seen that in the half century since the civil rights movement and Dr. King’s dream, one problem (racism) has been replaced or at least matched by another—class and poverty. This is a problem that cuts across the color line and that affects urban and rural communities alike.

We’ve also seen what these 500 credit score communities look like in urban areas. Call it Misery Row: those predatory check cashers next to rent-to-own stores next to payday lenders next to liquor stores. One group takes advantage of a person’s financial problems and misfortune while another group benefits by helping them to forget they actually have any financial problems.

But there is something we can do to change the landscape of blight in our underserved urban and rural communities: we can improve the credit scores of the people who live there. Although credit score requirements depend on the particular lender, most people with a “good” credit score of between 650 and 750 will qualify for a loan at the most preferred rates. Scores in the 500s and low 600s, on the other hand, put borrowers in the worst risk category, from a lender’s perspective.

 

Seven The Power of Small Business and Entrepreneurship

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CHAPTER SEVEN

Beginning in 2011, Gallup and Operation HOPE partnered on the first national poll of young people’s behavioral economics, examining the interests of thirty million young people in fifth through twelfth grades. Among other things, the poll found that 77 percent of youth want to be their own boss, 45 percent want to own their own business, and 42 percent believe they will create something that changes the world. Ninety-one percent said they are not afraid to take risks and 91 percent said their minds never stopped. But only 5 percent of young people in the largest economy in the world are engaged in a business internship, and only about one-third of respondents had a parent or guardian who had ever started a business.1

In addition to economic literacy and access to credit and banking, America needs good jobs to foster a stable economic system, and we need to get on about the business of creating those. But these jobs are not going to come from traditional sources. Instead, we need a massive nationwide focus on entrepreneurship and small business creation, and a focus on the active development of what I call self-employment projects. Even when this focus does not in fact create entrepreneurs, it might succeed in creating something even more valuable in poor communities: an entrepreneurial, can-do, glass-is-half-full, let’s-figure-out-what-we-are-for mind-set. Such a focus on empowerment rather than entitlement would be transformational in and of itself.

 

Eight The Hope Plan

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CHAPTER EIGHT

Following World War II, the United States put together an initiative to provide economic and technical support to help Europe rebuild its cities and economies. Called the European Recovery Program but popularly known as the Marshall Plan, after Secretary of State George Marshall, the plan was designed to modernize European industry and remove trade barriers, in addition to revitalizing destroyed cities and putting people back to work.

The program began in April 1948, ran for four years, and was an unqualified success. Those four years of American technical and financial assistance may not have been solely responsible for Europe’s recovery, but it certainly helped, and most leaders today would probably agree that this not only was the right thing to do at the time but also was smart politics and even smarter economics. We are still benefiting from the effects of the Marshall Plan, and our former enemy Germany is today one of the world’s largest, most vital economies as well as one of our principal allies and largest trading partners. (The same is true of Japan, to whom the United States also offered assistance.)

 

Nine Project 5117

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CHAPTER NINE

Project 5117 is Operation HOPE’s revolutionary four-pronged approach to combating economic inequality. Project 5117 programs improve financial literacy, increase the ratio of business role models and business internships from today’s national average of 5 percent to 20 percent, and stabilize the American dream by empowering adults and families to become involved in the banking system and to help to raise their credit scores.1 This project is being rolled out throughout America in 2014 and by 2020 will reach the following benchmarks:

   We must begin by empowering five million youth with a new level of financial literacy through unique financial dignity education programs that already have been successfully taught in 3,500 schools across the country. The program ensures basic consumer protection education for a generation, while making smart cool so kids stay in school.

   Next, we must help one million of these students become future entrepreneurs and local job creators through HOPE Business in a Box academies, sponsored by a one hundred–year partnership with Gallup Inc. This effort powerfully reconnects education with aspiration in the lives of our youth. Two thousand HOPE Business in a Box academies are planned across the nation, in both urban and rural communities.

 

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