The Few, the Proud, the Super Rich
Let's start with a cartoon:
Davos' World Economic Forum happened again, where the uber capitalists show as much economic anxiety as everyone else, says Bourree Lam in the Atlantic:
Since the financial crisis, there’s been a renewed, more urgent focus on inequality at Davos. The PwC survey, in which CEOs expressed pessimism about global growth, also found that corporate leaders are increasingly pressured by both customers and their own employees to address social issues. For those who are not the economic elite, that might be reason for some optimism: The pessimism at Davos is at least a sign that the those at the top of the world are getting a sense of the view from the bottom.
For all the supposed glitterati, Davos has a place, argues David Rothkopf in Foreign Policy magazine:
People watch it closely; it attracts the skeptical views it draws precisely because it actually makes a difference, whether it is regarding how a leader or policy initiative is viewed by markets or how a particular threat (from climate to regional unrest) might be assessed or addressed. What is more, if it were to change, it could actually make an even bigger difference. No other single event is in position to do as much were it to evolve to be more of a 21st-century global summit. And that is the Davos story you won’t be reading this year.
And in light of Davos, Oxfam is back to remind us again that the wealth gap is widening, reports the Guardian:
Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (£350bn) to $1.76tn.
Oxfam said a three-pronged approach was needed: a crackdown on tax dodging; higher investment in public services; and higher wages for the low paid. It said a priority should be to close down tax havens, increasingly used by rich individuals and companies to avoid paying tax and which had deprived governments of the resources needed to tackle poverty and inequality.
Three years ago, David Cameron told the WEF that the UK would spearhead a global effort to end aggressive tax avoidance in the UK and in poor countries, but Oxfam said promised measures to increase transparency in British Overseas Territories and Crown Dependencies, such as the Cayman Islands and British Virgin Islands, had not been implemented.
The New York Times has hosted a debate on what a Michael Bloomberg run might mean for the presidential race and what it has to do with his billions. Here is what Harvard professor Leah Wright Rigueur had to say:
The problem with Bloomberg’s approach is not that he’s a good or terrible candidate, but instead, that he’s relying on the concept of immense power and wealth to bypass the democratic process – as flawed as it may be. That’s a slippery slope. What does it say about our democracy that one of the wealthiest men in the world can buy a ticket to the presidential finish line, avoiding “We the People”?
Meanwhile, the Eurasia Group's Ian Bremmer says, if it takes a billionaire so be it:
Bloomberg proved as mayor that he need not pander to anyone. We saw that in his defense of construction of the “Ground Zero Mosque” at a time when a majority of New Yorkers opposed it. Agree or disagree with his opinion, his political courage speaks for itself. At this moment in our history, that’s exactly what the country needs.
Too bad that only a billionaire could even hope to make this run. Maybe it’s time for a president who can afford to ignore the absurd extremes of left and right and call them for what they are and let millions of voters show their enthusiasm for effective, sensible government.
Wounded Warriors—which helps "veterans readjust to society, attend school, find work and participate in athletics"—is facing a brand crisis following recent national attention on its overhead, reports Timothy Sandoval in the Chronicle of Philanthropy:
Wounded Warrior took a one-two punch from major media this week, starting Tuesday with a CBS Evening News reportthat quoted former employees complaining of irresponsible spending on lavish parties, including a four-day conference in Colorado for about 500 employees that cost $3 million. The charity’s spending on events soared from $1.7 million in 2010 to $26 million in 2014, CBS reported, citing to tax filings.
On Wednesday The New York Times posted a similar story with additional allegations, including complaints that Wounded Warrior fired staff members who criticized the organization’s priorities.
All of this, of course, leads to more discussion of the overhead question and why it matters. Over at Nonprofit Quarterly, Claire Knowlton argues that overhead can be a distraction:
Many foundation leaders now understand that overhead is part of the real, necessary costs of delivering quality programs. Funders large and small have shifted grant strategies to fund overhead. In 2013, Charity Navigator, GuideStar, and the BBB Wise Giving Alliance spoke out against the myth that overhead spending is a meaningful way to evaluate nonprofit performance.1 Even the federal government, at the end of 2014, began requiring federal grants to cover nonprofit overhead costs.
Yet, it seems practice is lagging behind public discourse: In Nonprofit Finance Fund’s Annual State of the Nonprofit Sector Survey 2015, only 7 percent of nonprofits report that foundations always cover the full cost of the projects they fund; while decrying the overhead ratio as a “poor measure of a charity’s performance,” Charity Navigator still includes the overhead ratio as the very first financial performance metric in its evaluation; and the federal government set a pitifully low default overhead reimbursement rate of 10 percent...
As the sector moves toward outcomes-based measurement, we have to move away from compliance measures like overhead ratios and restricted budgets. The nonprofit sector can’t “live above the bowling alley” and be expected to achieve results for its communities. To meet outcomes, organizations must be flexible and make a healthy investment of funds and staff capacity in the systems that allow organizations to track their impact over time. Outcomes-driven decision making requires organizations to pivot and shift quickly as the environment around them moves or as new information becomes available; compliance-driven decision making requires adherence to rigid rules, even in the face of changing needs. The two are incompatible.
You might also be interested in this piece in the Chronicle of Philanthropy on Charity Navigator and whether it adds anything to the conversation:
Charity Navigator dumbs down the conversation about the real impact charities have, or should have, on our society. As a result, the news media, donors, and the rest of the public too often needlessly focus on irrelevant information, such as the share of budget spent on salaries or overhead. The site is full of meaningless statistics, disguised — or promoted — as relevant data under the illusion of helping donors support solutions to the world’s persistent challenges...
Charity Navigator sends the message that it has expertise and authority when it has neither. It takes work — the kind of work that Charity Navigator seems to have eschewed — to convey truly relevant and comprehensive information about a charity’s impact and importance to society. When we should be taking a calculus class to solve a complex mathematical problem, Charity Navigator insists that simple arithmetic will suffice. It essentially takes a few figures off the information returns and compares them — say, spending on a charity’s salaries compared with donations raised — and then posts them. That tells a donor nothing.
Over at Third Sector, Peter Stanford discusses the uneven relationship between the nonprofit sector and traditional business:
Perhaps we could have got over that with time and effort, but the biggest problem was the assumption that charities and private businesses, big and small, are essentially the same. It is, in some respects, the same logic that underpins the whole social enterprise experiment in our world, but - and forgive me if this is blindingly obvious to everyone else - we are not the same. Boards of trustees, for example, are not all about the bottom line. And their core inspiration, when it comes to a really tough decision, is not dictated by balance sheets, commercial advantage, bonuses or policy documents, but rather by social justice.
There are, of course, plenty of overlaps, lots to learn and an abundance of benefits, but we can't just brush the differences under the carpet, as I feel we do now. We need to stop seeing ourselves as second-rate, soft or too emotional when it comes to making the big decisions.
Over at McKinsey, we have a discussion on global youth unemployment and why it is a market failure that might be interesting. You also might be interested in this Fiscal Times story that shows that Walmart closure might provide a boost to some towns.
President Obama, in another move to show lame ducks still have kick, has proposed a new rule to require companies with more than 100 employees to disclose pay data. Interestingly, the gender gap tends to widen among higher paying jobs reports planet money. You might also be interested to know that migrant workers participating in the U.S. guest worker program are not all that free.
Meanwhile, the SEC is being criticized for not doing enough on reporting on the disclosure of climate risk. And California officials are calling for divestment from coal. According to a recent report from the Economic Policy Institute, states that depend on the energy sector had a tough year:
Over at the New York Times, Paul Krugman reviews a new book on "the rise and fall of American growth," where the author looks at all the progress we have made but predicts:
Gordon suggests that the future is all too likely to be marked by stagnant living standards for most Americans, because the effects of slowing technological progress will be reinforced by a set of “headwinds”: rising inequality, a plateau in education levels, an aging population and more.
It’s a shocking prediction for a society whose self-image, arguably its very identity, is bound up with the expectation of constant progress. And you have to wonder about the social and political consequences of another generation of stagnation or decline in working-class incomes.
We also have another entrant into the corporate profit hoarding debate, courtesy of our colleague Bryan Walsh. Over at the New York Times magazine, Adam Davidson looks at why corporations are saving so much:
In the 1990s, when companies saved far less of their profits, they built new factories, bought new buildings. In part because of all that corporate spending, the 1990s were a period of low unemployment and high growth. Remarkably, the United States government was able to tax all that productive corporate behavior so much that it came close to paying off all its debts for the first time in 160 years...
Companies like Google and GM are holding on to far more cash — many times more — than could possibly be explained by emergency funds and tax efficiencies and M.&A. intimidation put together. Lee Pinkowitz, a professor at Georgetown, told me that finance economists agree that there is a puzzle here but break into two distinct camps over the cause. One camp believes that a large cash hoard is a sign of an unhealthy company. Maybe its whole industry is doing so poorly that there is nothing worth investing in; maybe it’s because executives are up to something shady, stockpiling cash as a personal war chest to mask poor decision-making and protect their jobs (cash in the bank, suddenly deployed, can make a firm seem more profitable than it actually is). The other camp doubts that the free market could be allowing executives to hold all that cash if it were purely for their own benefit.