Do we need more anti-poverty shareholders?
Anti-poverty organizations in America have been working tirelessly for half a century to provide a path to prosperity for low-income people, yet poverty rates have remained unchanged since the 1960s. This is despite numerous economic cycles, the upsides of which have consistently promised new job opportunities and career pathways that would be the answer to sustainable economic independence for those who persistently occupy the bottom rungs of the socio-economic ladder.
This lack of meaningful success is not for lack of goodwill or effort. So why can’t anti-poverty organizations move the needle on poverty? There isn’t a simple answer. But one reason reflects a growing concern about the inherent dysfunction of corporations in America: that shareholder returns are prioritized over creating value for, and satisfaction of, the consumer.
How does this relate to anti-poverty organizations, most of whom are non-profits?
Anti-poverty organizations are not beholden to shareholders, but they are beholden to the government agencies and foundations that pay for their services. And these “investors” in anti-poverty programs demand “returns” in the form of services provided and program outcomes that are often misaligned with the needs and goals of the consumers of anti-poverty programs, similar to how few consumers of corporate products buy those products with the goal of putting cash in the pockets of shareholders. This is sometimes because the funders’ goals are truly misaligned with those of people living in poverty, but more often it’s a result of the funders being too far removed from the needs and values of people living in poverty, or that they feel pressure to demonstrate returns on an annual basis to justify their investment (sound familiar?). Short of winning the lottery, there’s not much a person can do to go from poverty to self sufficiency in a year.
The result is that anti-poverty organizations optimize their operations, management structure, and program delivery to achieve funder-determined outcomes rather than the help consumers desire when they seek services from a human service provider. This misalignment is magnified by the lack of true supply/demand forces in human services. People living in poverty by definition don’t have money to pay for the services they seek, and due to resource limitations poor communities often have few providers to choose from. So consumers accept what is available, unable to exercise the buyer’s choice that is available in competitive for-profit markets.
New York City recently concluded a pilot of a human services funding mechanism that is gaining in popularity abroad called “Social Impact Bonds” or “Pay for Success”. The idea is that private investors, in this case Goldman Sachs (backed by Bloomberg Philanthropies), put up the funding for social programs. They only get their investment returned (with interest), if the program is successful in achieving pre-determined social outcomes that result in government agencies saving money on safety net or public safety services (in this case, the goal was to reduce the number of young men who go back to jail after being released from Riker’s Island, which would save the City on the cost of jail beds).
We all know that government budgets can’t keep up with society’s needs, and Social Impact Bonds appear to be a promising model to leverage private capital in an attempt to save taxpayer dollars and (in this case) improve public safety. But are we missing the bigger picture? By applying the for-profit sector’s drive to return short-term shareholder value to the non-profit sector’s drive to demonstrate short-term funder value, are we getting closer to solutions that will create long term improvements in the lives of consumers of these services? Or are we doubling down on a fundamental flaw shared by the nonprofit sector and our corporate economy?
