Last year, a number of individuals began speaking out about the role that philanthropy may play in perpetuating economic equality in the United States. This discussion was fueled by meaningful analyses of giving and its role in society, such as Decolonizing Wealth by Edgar Villanueva and Winners Take All by Anand Giridharadas. These authors argue that philanthropy is only made possible by wealth inequality, and that philanthropy actually perpetuates privilege by providing the wealthiest individuals with the power to choose which social issues deserve attention and which do not. In response, others have remarked that philanthropy offers solutions to the economic inequality that makes it possible.
In the United States, wealth distribution has become strikingly clear. The wealthiest one percent of the country controls nearly 40 percent of all wealth, and the situation is not getting better. The richest 500 people saw a net worth growth of 24 percent in 2017, while the poorest 50 percent of the world had no increase in wealth at all. As one astute analyst pointed out, the world’s billionaires collectively control about $762 billion, which is enough to end extreme poverty around the world seven times over.
The situation is particularly bad when one considers the racial aspect of the divide between rich and poor. According to the Institute for Policy Studies and Prosperity Now, the median household income for black Americans will fall to zero by the year 2053 if nothing is done to stop this slide. By then, white Americans will have a median income of $137,000.
Pushing for Philanthropic Change in a Shifting Social Milieu
At the same time, the demographics of the United States are changing, and people of color will constitute the majority within a single generation, despite the fact that these communities often remain marginalized, especially economically. However, philanthropy is also changing and more people with money are seeking ways to address systemic failures and move the needle back toward equality. This shift in attitude is seen in current philanthropic trends, such as the push toward social impact giving. In addition, several organizations are working to create a strategic plan by which philanthropy can help right the global economic imbalance.
One of these organizations is Justice Funders, which created the Resonance Framework to provide clear guidance in addressing what it calls “liberatory philanthropy.” The first step toward liberatory philanthropy asks foundations to take a critical appraisal of their investment and endowment management strategies. Because federal law requires that foundations give away just 5 percent of their endowments, they can invest the remaining 95 percent of their money in Wall Street to maintain their income. In this way, foundations’ investments contribute to inequality. However, the line between investment and giving is starting to blur, and this conflation is exactly what could drive liberatory philanthropy.
The Potential Role of Foundations in Social Impact Investing
Foundations have the ability to invest their assets in a way that addresses the issues they hope to solve. In other words, these institutions could divest from Wall Street altogether and instead invest in local economies, giving money to the people who need it most. Of course, doing this involves a fundamental shift in the philosophical drive behind foundations, most of which aim to accumulate wealth in perpetuity through their investments. Shifting to impact investments is riskier, but it would have greater potential to effect social change and generate lasting results.
Impact investing has generated attention in recent years, but for the most part, the discussion focuses on its potential in the fields of healthcare, housing, and other concrete needs, rather than its potential to transform and liberate whole communities. Philanthropy sits in a unique position to disrupt the status quo and demonstrate the deeper reach that impact investments could have. The Resonance Framework offers a concrete path for moving away from a philosophy that prioritizes wealth preservation to a philosophy that embraces economic democratization and social transformation.
Examples of How This Philosophical Shift Is Already Occurring
While this shift may seem difficult, if not impossible, to make, some foundations are already doing it. One prime example is the Heron Foundation, which has an endowment of $275 million. The foundation realized in 2015 that it was unknowingly investing in a corporation that operates private prisons, which conflicted with its core mission of moving communities out of poverty. Now, the Heron Foundation employs new metrics that show how a potential investment could impact the communities the foundation wants to support, and how the investment could create real social and environmental change. The institution uses this framework to make investment decisions that have the greatest positive impact.
Other foundations are embracing the Resonance Framework from their very start. The Buen Vivir Fund is one such example. This foundation spreads decision-making power equally between investors and people with on-the-ground expertise, shifting risk away from the grassroots groups it funds and onto the shoulders of investors, who are more capable of bearing it. In addition, the fund demands solidarity, which means that recipients of funding are required to donate back to the foundation based on the success of their projects. The foundation can then invest in new projects.