Philanthropies Should Address Inequality, Seriously
In the last few months, the world of philanthropy has been abuzz over a new focus given to inequality by many private foundations. Most prominently, the Ford Foundation declared that the entirety of its grantmaking would be reorganized to focus on inequality. Several other foundations have made similar pronouncements or funding commitments.
In many respects, this is a welcome shift: income inequality has worsened over the past few decades and, if current trends continue, could grow even larger. Private foundations give away millions of dollars each year across a wide variety of causes, and a focus on inequality could further sharpen a big chunk of this giving.
Yet the announced efforts of foundations appear to be based on a misdiagnosis of the challenge at hand. This misdiagnosis could end up channeling resources into programs and activities that do little to advance the stated objective of reducing inequality. Inequality is not a one-dimensional issue, and foundations need to think carefully about how they approach it.
For starters, there is little agreement even on what language should be used to discuss the topic. To some people, "economic mobility" and its attendant effects matter more than the absolute level of inequality. To others, "equal opportunity" is the real challenge. As Pablo Eisenberg wrote in the Chronicle of Philanthropy, for many Americans the "problem is the lack of jobs-not inequality writ large." Even "inequality" itself carries different connotations: it could refer to income inequality, wealth inequality, access inequality, and even intergenerational inequality, which has been found to be rising.
Linguistic differences are compounded by geographic differences. Harvard professor Raj Chetty has found dramatic variation across American cities in the probability of a child born in the lowest income quintile rising to higher income quintiles. The reasons for such variation differ by place: in some cities, unaffordable housing and strict land use policy might be a major cause; elsewhere, perhaps public education is to blame.
Place-by-place differences in inequality and mobility have been exacerbated over the past few decades by a steep and steady fall in American geographic mobility. Americans do not move to different states and counties at the same rate as they used to. This leads to people being "stuck" in economically stagnant locations, worsening inequality.
Arguments rage over changes in inequality and their causes. A recent Brookings Institution analysis looked at "income bands" and found that most of the increase in inequality has been driven by a pulling apart of the top and bottom of the distribution. That is, ever-increasing incomes at the top and shrinking incomes at the bottom look like the central story of inequality, while the middle-class income bands have been mostly stable for many years. This is sure to spark still more argument.
If foundations can overcome challenges of definition and diagnosis, how will they define success? Addressing inequality is complicated by different ways of measuring it, and how foundations choose to measure inequality will determine how they approach it. That begs the question of what "success" means. Will it be pulling the top down by a certain amount? Lifting the bottom up? Narrowing the income distribution by some percentage?
Philanthropic foundations thus need to be very specific about what exactly they're going to address and how they will measure progress. Doing so will require that foundations forego their conventional rhetoric about "systems change" and focus on discrete and tractable actions. Laudably, some foundations, such as the F.B. Heron Foundation, have identified very specific dimensions of inequality they will address. In Heron's case, the foundation has devoted all of its resources-both grants and investments-to activities such as supporting growth companies that create jobs for low-income or formerly unemployed individuals.
Foundations must also reconcile their relationship with capitalism. Too often, philanthropic discussions of inequality devolve into blanket indictments of the "free market system," even though foundations are indeed products of capitalism. Such superficial lamentations don't help anybody, and they ignore the undeniable benefits that a free market economy brings for the poor. In some cases, perhaps more capitalism is what's needed to reduce inequality.
Answering these questions requires hard thinking about evidence and normative judgments on what can be achieved within the limits of foundation resources. A concern with inequality is not new for private foundations, but the scale of what might be done is enormous. Seriously addressing inequality with philanthropic resources will require honesty and clarity about aims, activities, and beliefs.
