Posted: 04/17/03

I am pleased to have this opportunity to reply to the article Saving Incentives for the Poor by Jared Bernstein in the May 2003 issue of The American Prospect (TAP). I am a long-time fan of Bernstein's studies on poverty and the working poor, and indeed have commissioned him to write a critical chapter on asset-based policy for an edited volume (Inclusion in the American Dream: Assets, Poverty, and Public Policy, Oxford University Press, forthcoming). His article in TAP is based somewhat on this chapter. Notwithstanding my respect for Bernstein's viewpoints, there are areas where his TAP article is a bit misleading.

Bernstein suggests that in Individual Development Account programs (IDAs) "the poor cannot save enough to make much difference." But I wonder if there is there a basis for this statement? For a social scientist like Bernstein, shouldn't this be an empirical question? As of the last data collection point, we knew that one-third of IDA participants had used their accounts to make a home purchase, invest in education or capitalize a small business. In in-depth interviews, many participants detail very positive effects of IDAs in their lives. They talk about being able to see a future and having goals. They talk about having greater control of their lives. Thus there is some reason to believe that IDAs can make a difference. On reflection, it is perhaps understandable that comfortable, middle-class people would think that accumulating a few hundred or a few thousand dollars would not make much of a difference in someone's life. However, for impoverished people who have never before had such accumulations, IDAs can be a genuine and substantial opportunity.

In Assets and the Poor (ME Sharpe, 1991), discussed by Robert Kuttner in a companion article (Sharing America's Wealth,TAP, May 2003), I have pointed out that middle- and upper-class people have substantial opportunities for asset accumulation, subsidized by government through the tax system. These tax expenditures for pension accounts, home ownership and other asset-building purposes today constitute more than $300 billion per year (far more money than all means-tested programs for the poor combined). The poor get almost none of these asset-building subsidies. The primary argument for asset-based policy is that, as a matter of fairness, the poor should be included in asset-building policies.

Bernstein writes about IDAs as targeted toward the poor, which indeed they are. What he does not say is that my original proposal for IDAs was for an inclusive, progressive policy of asset building. We now have IDA demonstrations for the poor because politically that is what has been possible so far. (For the well-off in America, we enact large-scale asset-building policies such as 401(k)s, without any need for a demonstration or research. But for the poor, we can achieve only a small demonstration. Indeed, if it were not for the leadership of philanthropic foundations such as Ford, Charles Stewart Mott and others, we would likely not have even small demonstrations.) The agenda for IDA demonstrations is to show that the poor can also save if provided structures and incentives to do so. The policy goal is to build on this evidence and incorporate the poor into large asset-based policies, whether these are IDAs for everyone, Universal Savings Account (USA) as proposed by President Clinton or a universal, progressive Child Trust Fund (CTF) as recently announced by Prime Minister Blair in the United Kingdom. Do IDAs matter in these larger discussions? Clinton mentioned IDAs in the State of the Union address where he proposed USAs. Our research on IDAs was cited by the White House, and by Her Majesty's Treasury in the CTF proposal. The Corporation for Enterprise Development in Washington and the Center for Social Development at Washington University in St. Louis have advised extensively on these policies on both sides of the Atlantic. Ray Boshara, now with the New America Foundation, who helped draft the first IDA legislation in Congress, has recently proposed a universal $6,000 children's account. Bernstein favorably mentions Boshara's recent proposal but omits the fact that Boshara has been working on IDAs for much of the past decade.

Bernstein ends by suggesting that class dynamics and "highly skewed power relations" are likely to keep IDAs "at token levels." Perhaps so, but this remains to be seen. My view is that the Child Trust Fund precedent in the United Kingdom sets the stage for a universal children's account in the United States within the next 20 years. This is a realistic policy goal that liberals would be wise to support.

Wealth distribution is a deep and overlooked inequality in America. Kuttner cites Melvin Oliver's and Tom Shapiro's landmark book, Black Wealth/White Wealth (Routledge, 1995), which looks at racial inequality from a wealth perspective. Liberals might want to ask what the outcome would be if all children in America, including all children of color, had an account at birth, with progressive deposits into accounts of children from poor families. Liberals might want to ask whether possible reparations for slavery would be more feasible, and perhaps more constructive, if channeled into lifelong asset accounts for all black children.

In closing, let me wholeheartedly endorse Bernstein's statement that asset-based policies should not "pose an either/or choice for liberals." Income-based and asset-based policies are complementary. Proponents of IDAs do not think of asset building as a comprehensive policy. Good jobs, benefits and income support also matter. Social justice has many dimensions. As in the past, we can work on several things at once.

Michael Sherraden is director for the Benjamin E. Youngdahl Professor of Center for Social Development at Washington University in St. Louis.