Must Reads: In Alliance Magazine, Barry Knight and Jenny Hodgeson discuss the value of traditional philanthropy for social change and asks whether, given movements like impact investing, grantmaking is being "left out in the cold". Heron Fellow Rodney Christopher discusses giving more attention to nonprofits as actual enterprises when seeking to increase the impact of evidence-based programs. You also might be interested in this piece in the Economist last month discussing who got the worst deal in the Detroit settlement, pensioners or bondholders.
We start with this piece from US SIF's Lisa Woll in the Huffington Post discussing the importance of investing endowments as part of a mission strategy (Heron is mentioned):
Foundations, by definition, are designed to "serve the public good." The role of foundation philanthropy in addressing a range of important social, environmental and other issues is part of our societal structure. Yet, foundations have largely addressed these issues with five percent of their endowments, the level of grantmaking required by law... With approximately 80,000 private foundations in the United States, and billions of dollars in these endowments, most foundations are leaving potential impact untapped by not harnessing their endowments to address their mission. Furthermore, by de-linking investments from grantmaking, many foundations unknowingly exacerbate the issues that they are trying to address or that they might otherwise care about. Consequently, up to 95 percent of foundation assets could be invested in companies and sectors that work either at cross purposes to foundations' stated goals, or in ways that do not support companies that are making strides towards overall environmental and social sustainability, as well as good governance practices.
This PBS story from last month from Mark Rosenman discusses the social impact bond for Riker's Island and whether it puts "private profit ahead of public good." This new impact investing directory also may be of interest. Check out this video with Pioneer Post's Matt Black with impact investing star Jed Emerson:
Meanwhile, Fortune writer Daniel Roberts reports on why social entrepreneur Blake Mycoskie is expanding from his successful TOMS shoe business into coffee:
Like the shoes that made TOMS famous, the coffee comes with a built-in plan for doing social good. In this case, the "give," as TOMS employees call it, is water: For every bag of TOMS beans sold, a person in Rwanda, Malawai, Guatemala, Honduras, or Peru -- the areas where TOMS is sourcing beans -- will get clean water for a week; for every cup, someone gets water for a day. As with the shoes, an outside partner will handle the giving -- Water for People, an international charity based in Denver, which is also where TOMS Roasting Co. will be roasting its beans. The coffee company's simple tagline: "Coffee for you, water for all."
And here's this Quartz report on why the news business has garnered major investments from venture capitalists. In the Standford Social Innovation Review, Kevin Starr and Laura Hattendorf caution against viewing direct giving efforts as a proven solution rather than an important experiment:
Choice is a good thing; the notion that poor people must simply take whatever we feel like giving them is odious and wrong. However, a blind belief that “people always know best” ignores the reality that when you don’t have access to high-quality education, information, and products, it can be hard to make optimal decisions and take effective action. The poor don’t spend the cash on stupid things; they just may not have access to great things.
Also in the Standford Social Innovation Review, Paul Breloff and Rishabh Khosla discuss the challenges of measuring the impact of market innovators:
Conventional wisdom insists, “If you can’t measure impact, it doesn’t exist.” The pressure has never been higher on nonprofits, donors, aid organizations, and impact investors to demonstrate that we’re achieving what we’ve promised. Anecdotes, imagery, and faith no longer cut it. Clearly, one big barrier to further investment in market innovators is that folks who do this work can’t readily explain or prove the indirect impacts they’re having. This is a special challenge for a number of reasons. It’s hard to define impact trajectories early in a start-up’s life. It’s also hard to attribute quantifiable impact to the activities of a single company within a sector. Even when these indirect impacts happen, the timeframe over which the impacts become visible often takes years—long enough to outlast the patience and “results frameworks” of most funds and donors. And it’s uniquely difficult to make apples-to-apples comparisons at the level of indirect impacts, even more so than the commensurability challenges of traditional cross-sector impact metrics.
The Wall Street Journal looks at the increase in spend-down foundations. In the New York Times Magazine, Annie Lowrey examines the end of the baby boom generation, inheritance and implications for social mobility. Meanwhile, in the Chronicle of Philanthropy, Ohio State's Brian Mittendorf looks at proposals to overhaul the charitable tax deduction and says things may not be as bad as many nonprofits fear:
After all, the current system isn’t perfect. People who itemize are the only ones who can get a tax break for giving. This leaves a lot of taxpayers without a tax incentive to give. In fact, in 2011 (the most recent year for which IRS data are available), only 32 percent of people who filed tax forms claimed an itemized deduction, meaning the majority of Americans weren’t giving due to tax motivations. Admittedly, many people who don’t itemize have low incomes and thus less of an ability to make donations. However, even just looking at returns for people who earn more than $50,000, one third were not eligible to claim a charitable deduction. And among those taxpayers who do itemize, not all get an equally generous tax benefit from giving. A $100 charitable donation by a taxpayer in the lowest income bracket who pays 10 percent of earnings in taxes can save $10, while the same donation would yield a tax reward of $39.60 for an individual in the highest income (39.6% tax) bracket. With the limited reach and uneven value of the tax break, it’s clear there is room to improve on the current system of incentives for charitable giving.
For more on what'shappening in philanthropy and social investing, check out our blog post from last week.
The National Journal's Catherine Hollander cautions against relying on the headlines when analyzing last week's jobs report. Reuters' Ben Walsh says the job market is still not good enough, mainly due to hiring bias toward the already-employed. Meanwhile, the New York Times' Binyamin Applebaum says there is a lot of slack in the labor market, causing worry:
For the first time in years, some Federal Reserve officials and private-sector economists are talking about the imminence of tighter labor conditions. This may seem remarkable. The economy is still about 11 million jobs short of employment levels before the recession – and it would take a few million more jobs to match levels at the end of the 1990s, the last time that times were good. But these are not good times. There is growing agreement that some of the damage from the Great Recession will endure. The question is basically, how much?
At Economix, Bruce Bartlett looks at two proposals to help low income workers, the minimum wage and the earned income tax credit:
One factor driving continued discussion of this issue is the widespread belief that society owes something to the working poor – that is, those who play by the rules, try to better themselves and are not stereotypical parasites living off welfare. People who work full time ought to at least be able to live decently, most Americans believe, and deserve a little extra help if they can’t. Indeed, many working at the minimum wage in the fast-food industry depend on public welfare to supplement their incomes, according to a study by the Labor Center at the University of California, Berkeley. Some critics charge that taxpayers are, in effect, subsidizing profitable businesses to pay lower wages than they could afford. But the fact is that even with supplementary welfare programs, many workers remain officially poor.
William Dunkelberg at Forbes wrote on myths about the minimum wage, including a prediction that the higher minimum wage will provide an incentive to find ways to reduce the need for workers. Conversely from Economix, Casey Mulligan presents a family perspective on raising the minimum wage: “If two low-wage workers live together and one has his wage doubled by a minimum wage increase while the other finds herself unemployed, household income is the same and is earned with half the effort.” In the Atlantic, James Sherk says that the National Labor Relations Act, which prevents companies from creating their own labor unions, “no longer makes sense”:
The National Labor Relations Act prohibits companies from “dominat[ing] or interfer[ing] with the formation or administration of any labor organization.” Congress wanted to prevent businesses from setting up fake “company unions” to fend off organizing drives. But that broad prohibition also proscribed Electromation’s action committees. In fact, it prohibits almost any formal employee voice on the job outside of collective bargaining with a union. But many companies do want to hear their employees’ concerns. Rank-and-file workers know things that senior management does not. And businesses want to attract and retain quality employees. The entire “human resource” philosophy emphasizes the fact that workers are a company’s most valuable asset. Most employers want to keep their employees happy if they can. Employee participation programs can improve morale and working conditions.
Check this cartoon from Stuart Carlson:
In the New York Times, MIT's Simon Johnson sent an open letter to JP Morgan Chase shareholders following his nomination to the banks board suggesting the bank--hit with a $13 billion settlement over mortgage practices considered at the enter of the 2008 crisis--should break up:
The available independent analysis indicates that smaller financial institutions currently attract substantially higher valuations (e.g., price relative to tangible book value) than do the megabanks. My interpretation is that this is largely because the biggest banks are not run in the full interests of shareholders; the operations of these companies are so complex that no one is fully in control. I would also point out that JPMorgan Chase is operating under an effective size cap; it will not be allowed to grow bigger. And the bank was much better run when it was significantly smaller in the mid- and early 2000s.
In Bloomberg View, Barry Ritholz looks at why there were no prosecutions of "obvious criminality" in mortgage business following the 2008 financial crisis. Meanwhile, according to the Wall Street Journal, Wells Fargo is taking another crack at the subprime lending business. Last month in the New York Times, Binyamin Applebaum reported on efforts by nonprofit lender Bruce Marks, who "wants to redeem the original idea behind subprime lending."
In the Rolling Stone, Sean McElwee argues that the United States resembles a "third world country" in at least six ways including education and inequality. You also might be interested in this New Yorker piece on the growing fight between tenants and landlords in the ever-gentrifying urban landscape.
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