By Tim Hanstad
People everywhere, but particularly Americans, love a good rags-to-riches story. Take Oprah Winfrey, who rose from a poor childhood to become a multibillionaire media powerhouse. Or Howard Schultz, the son of a blue-collar worker in a government housing project, who catapulted to success as the CEO of Starbucks. People frequently cite cases like these to argue that, with hard work, anyone can become prosperous in the United States and defy humble roots.
I, too, love these stories. Indeed, I have lived one. Not one that has taken me to immense wealth or power, but upward nonetheless. I grew up in a poor, blue-collar home. My parents were short on financial resources and higher education, but their love, support, and encouragement propelled me to follow my dreams of law school and then follow my passions and values in pursuing a legal career in the social impact sector. Along the way, I have emerged from the bottom fifth of U.S. income levels to the top fifth. For that, I am grateful.
But despite the common “American Dream” narrative, stories like Winfrey and Schultz’s – or even mine – are increasingly unlikely in the United States and remain too rare across a wide swath of our planet. And that has far reaching implications. Because the ease with which the poor can rise to riches is directly related to a lot of other important economic indicators, including inequality.
This decline of social mobility in the United States and elsewhere has corresponded with that troubling increase in inequality. As it turns out, there is a close and powerful relationship between the two. They feed each other.
The World Economic Forum’s 2020 Social Mobility Index explored social mobility and inequality in 82 countries and confirmed a direct relationship between a country’s social mobility and its income inequality.
Countries at the top right corner of this graphic have high social mobility and low inequality. That means someone born at the bottom of the economic ladder in Denmark or Finland doesn’t have as far to climb to get to the top and has a good chance of successfully achieving that goal. The countries toward the bottom left corner, like Brazil, have high inequality and low social mobility. That means a person born poor in Brazil, faces a longer and more unlikely climb to the top of that economic ladder – no matter their talents or hard work.
That’s how low social mobility reduces overall national wealth, and, more importantly, negatively impacts the well-being of individuals, families, and communities. It even impacts a country’s GDP. The 2020 Social Mobility Index Report finds that countries could achieve an additional GDP growth of 4.4% by 2030 by increasing their social mobility index score by 10 points (the scores range from Denmark’s 85.2 to Côte d’Ivoire’s 34.5).
But many countries are moving in the opposite direction. What we’ve seen, over the past few decades, is that countries on the bottom left have mostly stayed there and that several countries that had been at the top right corner of the chart, with vibrant economies that allowed people to innovate, work hard, and get ahead, are sliding down. Inequality is growing and equal opportunity is becoming a scarce commodity.
The Chandler Foundation is working to counter this. We are focused on reducing inequality and increasing social mobility by fixing broken systems – broken government systems and broken market systems – and we encourage other funders and philanthropists to do the same. Our goal is to help government and the market create opportunities more efficiently and effectively so that every person can go as far as their dreams and abilities can take them.
For example, Chandler Foundation partner, Open Contracting Partnership (OCP) is working with governments and the business community to transform public contracting systems – making them more transparent, fair, and efficient. It may sound boring, technical, and unimportant. But governments contract with private companies for US$ 13 trillion each year for goods and services, making it the world’s largest marketplace. Much of that money is lost to corruption and inefficiencies. This constricts opportunity in two key ways. First, corruption means governments have less money available for important social services, education, and healthcare. Second, corruption tilts the playing field and blocks honest businesses from growing.
In Ukraine, Open Contracting Partnership worked with the government to help create a new e-procurement system called Prozorro. The online system allows everyone to monitor government spending and provides opportunities for businesses to bid on contracts they otherwise might not have heard about. The system has already saved the country over US$ 2 billion and counting and significantly increased competition – which, for example, has cut the price of generic medicine by 35% on average. In Uganda, its work has helped communities track spending on projects like new school construction. And in Columbia, its work uncovered a price-fixing scheme that defrauded the school system.
Another Chandler Foundation partner, J-PAL South Asia, similarly helps governments develop smarter, more impactful, education, health, and social protection policies that are informed by data and evidence rather than conjecture. For example, J-PAL partnered with India’s government to evaluate the performance of and make improvements to India’s largest public works programme that provides infrastructure-building employment to more than 70 million people at a cost of about US$ 8 billion per year. Reforms to the programme informed by J-PAL’s work helped the government cut spending on the programme by 24 percent without a detectable decline in programme benefits or impact.
Other Chandler Foundation grantees are similarly helping to improve governance or create a better business-enabling environment – work that addresses inequality by expanding opportunity for all.
And, of course, the Chandler Foundation is proud to be a part of a larger story – the Clermont Group – which recognises the “goodness of business”, pursues purpose and principles above profits, and is seizing the opportunity to lead innovations for cleaner air, stronger health systems, and more accessible and inclusive financial systems.
Each of us has a role to play in addressing inequality and expanding economic opportunity. By helping governments become more effective and impactful, making markets more fair and vibrant, and working with businesses committed to purpose and principles above profits, we can expand access to opportunity. In turn, many more people will have a solid chance to work their way up the social mobility ladder – and make those rags-to-riches stories we all love a bit more likely.