Welcome to Big Picture SI’s website, and to Dave’s blog, The Big Picture! BPSI’s mission is to help non-profits maximize their social impact through measurement and continuous improvement.
As the name implies, much of the work Big Picture SI does starts with understanding the big picture, something I feel is critical to ensuring that programs are aimed at high leverage root causes. Although understanding the “big picture” can often seem daunting, if not impossible, I have found that this isn’t really the case — but it does require robust skills in systems thinking, a discipline largely fallen into disuse in recent times.
I’ll start this blog off with an example, and describe how systems thinking led to research I published earlier this year on the economics of poverty in the U.S. This stemmed from a volunteer project with a philanthropy I’m on the board of, an effort to identify the most effective types of poverty interventions.
In many ways, systems thinking works inversely to how analytical thinking works. Rather than start with the area of interest and break it down into analyzable components, systems thinking begins by assessing the system of which the area of interest is a part and identifying the roles, interdependencies and behavior of that system. Identifying those higher level interdependencies is often one of the first ways systems thinking pays off, pointing to influences outside the “area of interest” that can
otherwise be missed.
Early in my research into poverty interventions I discovered that a full half of poor families in the U.S. have at least one full-time worker. This was a “systems flag” for me for a couple of reasons, a stat that highlighed the importance of examining the larger system. First of all, that statistic pretty clearly countered the conventional wisdom in the U.S. that the poor are poor because they are lazy: if half are working, and the remaining half includes retired and disabled people plus those actively looking for work, then only a small fraction of poverty could be attributed to anything resembling “laziness.”
The data also brought into question the next most common view on why the working poor are poor — the notion that these people are poor because they don’t have the skills required to earn more. This view was, and quite possibly still is, the prevailing view amongst poverty resesarchers; there is a correlation between education levels and income, which sets up an easy fallacy of causation — that the primary cause is again an individual failing. But one of the most reliable systems principles comes from W. Edward Deming, the quality guru, who noted that over 80% of an organization’s problems are caused by the system people work in, rather than by individual mistakes or failings. In other words, it is surprising from a systems perspective that the main cause of poverty for such a large portion of poor families would be individual failings. Easy to understand that the much smaller fraction that isn’t working and is not looking for work is attributable to individual failings, but also the 50% that work fulltime?
So with “systems flags” raised, I began examining the enclosing system for that largest group, asking “why are the working poor poor?” The answer to that question turned out to be significantly different than expected, even very different from what most poverty researchers have assumed. There is an unstated economic assumption that underlies the assertion that the working poor simply have inadequate skills: researchers often assume implicitly that our low-wage labor markets are highly competitive markets. This seems unlikely, given that the main industries employing the working poor are fast food and retail trade (e.g. Wal-Mart), industries dominated by very large businesses. And it is a testable assumption (mostly via measurements of labor supply elasticity).
Rather than working poverty being caused by inadequate worker skills, I found that sub-poverty wages are instead due entirely to concentrated low-wage labor markets, where large employers use their monopsony power to suppress wages below their competitive-market rates.
The policy response to such a situation is, at least technically, happily simple: raise the minimum wage to the competitive-market rate, conservatively estimated to be $12/hour. That would bring half of poor families out of poverty and, because monopsonistic markets behave differently than competitive ones, it would maintain or even increase employment. The money to raise these wages comes from (excess) corporate profits, returning to workers wages that were annexed from them via high levels of market power.