The Social Investing New Think
In the Stanford Social Innovation Review, Bridgespan's Jeri Eckhart-Queenan, Michael Etzel and Sridhar Prasad discuss why nonprofits need money for indirect costs in order to be impactful:
The advantage of a pay-what-it-takes policy is that it eliminates the need for the shadow economy in which funders and grantees purposely obscure financial data and quietly craft end runs around the arbitrary indirect cost spending caps imposed by most foundations. Foundation program officers, for example, often team up with grantees to recategorize underfunded indirect costs as direct costs that the funder covers. Other times, funders approve capacity-building or general operating grants to close the indirect cost gap. As a result, we do not know as a sector what it really costs to achieve impact.
In this podcast, Heron's Rodney Christopher discusses why unrestricted revenue is important for nonprofits. Also in SSIR, Kate Ruff and Sara Olsen discuss "the next frontier" in social impact measurement:
Accepted wisdom is that we can solve the comparison problem with better impact measures (methods, definitions, and standards). This works on a small scale; many grant making foundations and impact-investing firms solve their comparison problems by mandating common measures across their portfolios. But on a larger scale—when initiatives and enterprises differ in mission; theory of change; or socio-economic, cultural or geographic context—common measures don’t work as well. Those closest to the impact sound a familiar refrain: Common measures ask the wrong questions, measure the wrong things, and miss the real impact. Context affects how we ought to measure impact. The definition of “job,” for example, might specify a living wage and full-time hours in some contexts, but allow entrepreneurial self-employment in others. The more contexts vary, the more likely it is that a rigid approach displaces a more insightful one. In other words, the more we rely on common measures to solve the comparison problem, the more we end up compromising the meaningfulness of social impact measures themselves. This is why measurement alone cannot solve the comparison problem.
We can, however, achieve comparability by focusing on the analytical skills needed to compare social impacts without mandating a rigid set of required metrics. The premise is that efficient capital markets demand analysts who are capable of interpreting and comparing apples and oranges. Why? Because they understand fruit. The market is best served when each organization can measure its social impact in the way that is most meaningful and insightful to its aim and operations, as long as it follows common principles for good measurement.
Meanwhile, in this Medium post Caprock's Matthew Weatherly-White discusses what he sees as the limits of ESG investing:
Change through concerted action seems plausible, perhaps even possible. Even if it isn’t possible, it is profoundly tribal. And, from what I’ve seen over the nearly 30 years I’ve been orbiting the SRI/ESG/Impact world, that is the rub: the feeling of tribal connectedness in a financial services ecosystem that at times seems engineered to depersonalize and transactionalize the activity that defines it. All one need do is spend a day at SRI in the Rockies to get a sense of “the movement”, the tribalism that sits in the liminal space between rational arguments for incorporating ESG factors into investment decisions and emotional calls for action.
But let’s be honest with ourselves: the scope of the mass alignment required to steer corporate behavior defies comprehension. US public equity market capitalization is around $20 trillion. Global public market capitalization is just north of $70 trillion. To put that in perspective, US GDP — the largest economy in the world — is around $12 trillion.
In the Guardian, Marc Gunther looks at the Acumen fund's U.S. investing strategy to address inequality after more than a decade of focusing on developing nations:
Acumen America is much smaller with just $7m to invest, funded by grants from the Hitachi Foundation, the Robert Wood Johnson Foundation and Barclays. While it wants its investments to create jobs, its broader purpose is to support businesses that deliver goods and services to low income customers. It will make early stage investments across three sectors – health, workforce development and financial services.
You might also be interested in this video from Community Capital Management on why place-based investing is a good idea.
In the New York Times, the American Enterprise Institute's Arthur Brooks discusses why migration may be the key to improving economic mobility:
Mobility is more than just a metaphor for getting ahead. In America, it has been a solution to economic and social barriers. If you descended from immigrants, I’m betting your ancestors didn’t come to this country for the fine cuisine. More likely they came in search of the opportunity to work hard and get ahead...
Curiously, some of the Americans who would seem poised to gain the most from moving appear to be among the most stuck. We might expect movement from a high-unemployment state like Mississippi (unemployment rate: 6.3 percent) to low-unemployment states like New Hampshire (2.6 percent) or North Dakota (3.1 percent). Instead, Mississippians are even less likely to migrate out of the state today than they were before the Great Recession hit.
What explains the decrease in American mobility? It isn’t simply an aging population. The mobility decline since the Great Recession has actually been the most pronounced among millennials. As the first rungs of the economic ladder became more slippery, young adults began to delay major steps into adulthood and became less likely to relocate for college or careers.
Also in the NYT, Robert Frank says that being successful is as much luck as it is skill:
[T]alent and effort are not enough. Luck also matters. Even the most able, industrious people in South Sudan have little chance at success. Success is not guaranteed for deserving people in wealthy countries with highly developed legal and educational institutions and other infrastructure, but it’s substantially more likely.
Being born in a good environment is one of the few dimensions of luck we can control — that is, at least we can decide how lucky our children will be. But as a nation, we’ve been doing a bad job of it for at least a generation. The luckiest are getting luckier even as their numbers shrink. The unlucky population is growing, and its luck is getting worse.
Over at Al Jazeera America, Sean McElwee argues that unions do important things for Americans economically:
In a country where few politicians come from a blue collar background, unions have often been a conduit for workers to enter politics. Political scientist Nicholas Carnes found that “a 10-point increase in the percentage of the state that belonged to labor unions was associated with a 1-point increase in the percentage of state lawmakers from the working class.” Given that politicians’ occupational background and wealth influences their voting behavior, this is another important way unions can promote policies beneficial to the working and middle classes....
The importance of these studies is clear: Unions are the most important institution in the fight against inequality. But for too long, many liberals seemed happy to watch unions disappear. Part of the problem is that they misunderstood unions as primarily economic institutions, interested in parochially negotiating wages and benefits for their members. In reality, unions are far more important as political actors promoting policies that benefit the working class and middle class as a whole.
Similarly, over at FiveThirtyEight, Ben Casselman argues Americans don't miss manufacturing, they miss unions:
Why do factory workers make more in Michigan? In a word: unions. The Midwest was, at least until recently, a bastion of union strength. Southern states, by contrast, are mostly “right-to-work” states where unions never gained a strong foothold. Private-sector unions have been shrinking across the country for decades, but they are stronger in the Midwest than in most other parts of the country. In Michigan, 23 percent of manufacturing production workers were union members in 2015; in South Carolina, less than 2 percent were...
For all of the glow that surrounds manufacturing jobs in political rhetoric, there is nothing inherently special about them. Some pay well; others don’t. They are not immune from the forces that have led to slow wage growth in other sectors of the economy. When politicians pledge to protect manufacturing jobs, they really mean a certain kind of job: well-paid, long-lasting, with opportunities for advancement. Those aren’t qualities associated with working on a factory floor; they’re qualities associated with being a member of a union.
In the Wall Street Journal, James Payne contends that even Franklin Delano Roosevelt knew welfare has its limitations:
One problem with handouts is that if you offer something for nothing, the numbers lining up for it expand indefinitely. In 1963 the U.S. secretary of agriculture assured lawmakers that federal food stamps “could be expanded over a period of years to about 4 million needy people.” Fifty years later the country’s population had not even doubled, but this handout had grown to 47.6 million recipients—and in a time of economic recovery...
Franklin D. Roosevelt was clear as well. “Continued dependence upon relief,” he said in 1935, “induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.” Yet government programs, being shallow and impersonal, tend to drift into handouts. They are like the superficial giver who drops a dollar into the beggar’s cup and walks on, feeling self-satisfied.
Fernanda Durand argues over at Talk Poverty that for Mother's Day what working moms need is better hours:
[M]oms either work too much or not enough. In both cases, most moms struggle in low-wage hourly jobs riddled with irregular work hours and unpredictable schedules. These moms are the women who serve your food at local restaurants, who are cashiers at the grocery store down the street, or are health care workers at a nursing facility. In fact, 61 percent of all women in the workforce nationwide hold hourly jobs. These jobs are often in low-wage yet fast-growing sectors such as health care, retail, and food service, and usually pay below $15...
What are the problems for moms working low-wage hourly jobs? As if facing inadequate and unaffordable childcare weren’t enough, these women also lack basic legal protections that would ensure they received adequate notice of their work schedules and the right to decline last-minute changes that throw carefully balanced routines into chaos. Unpredictable work hours are particularly challenging for the many moms who need to coordinate multiple part-time positions.
You might also be interested in this story on why Bay Area media is coordinating efforts to call attention to the region's homeless problem.
In TIME, Rana Foroohar looks at the capitalism crisis caused by over financialization:
America’s economic problems go far beyond rich bankers, too-big-to-fail financial institutions, hedge-fund billionaires, offshore tax avoidance or any particular outrage of the moment. In fact, each of these is symptomatic of a more nefarious condition that threatens, in equal measure, the very well-off and the very poor, the red and the blue. The U.S. system of market capitalism itself is broken. That problem, and what to do about it, is at the center of my book Makers and Takers: The Rise of Finance and the Fall of American Business, a three-year research and reporting effort from which this piece is adapted...
Over the past few decades, finance has turned away from this traditional role. Academic research shows that only a fraction of all the money washing around the financial markets these days actually makes it to Main Street businesses. “The intermediation of household savings for productive investment in the business sector—the textbook description of the financial sector—constitutes only a minor share of the business of banking today,” according to academics Oscar Jorda, Alan Taylor and Moritz Schularick, who’ve studied the issue in detail. By their estimates and others, around 15% of capital coming from financial institutions today is used to fund business investments, whereas it would have been the majority of what banks did earlier in the 20th century.
Are hedge funds heading for an apocalypse? Check out this report from Driehaus Credit Commentary on the hedge fund performance problem.