Tim Hanstad, CEO of the Chandler Foundation, explores the intersection of inequality, social mobility, and good government.
It is said that some things can only be learned in a storm. When tensions reach fever pitch, anomaly events batter our certainty and comfort, and mitigating damage and preventing recurrences become urgent priorities, we innovate and evolve.
Over the past year the world has endured what appears to be a perfect storm. The pandemic shook our sense of invulnerability. We saw growing economic inequality, systemic racism, increasing corruption, state-sponsored cyberterrorism, populist threats to democracy, the most significant economic shock since the Great Depression, the growing existential threat of climate change, and inadequate government responses to all these threats.
The heady concurrence of events made us increasingly aware of the structural forces and flaws that contribute to global inequities: in income, wealth, race, gender, power, generations, and access to health.
As the waters grow calmer, we must chart a new, resilient course. We must mobilize for equity.
In the articles that follow in this edition of Social Investor, distinguished colleagues and contributors point to various social fault lines and systemic inequalities, and a diverse range of powerful initiatives working to close the gaps. Intersecting all of the themes is the fading aspiration of upward social mobility.
I have spent much of my 35-year career learning from people low on the economic hierarchy. Few expect a world with equal outcomes for everybody. But virtually all yearn for a world of equal opportunity to go as far as dreams and abilities could conceivably allow.
My father wanted such a world for me. He told me that this world has two kinds of people: those who shower before they go to work each day and those who shower after they come home from a long day’s work. He was solidly in the second camp. His calloused hands, aching joints, and weathered skin told the story of a life spent laboring outdoors. I can still point out some of the houses he built in the valley where I grew up, including the home in which I grew up.
As much as I could see his pride in a job well done, a home that would withstand the elements and protect a family, I longed to escape the hardships of manual labor — to be among those who showered and perhaps even put on a tie before they went to work.
My parents were short on financial resources and higher education, but their love, support, and encouragement helped propel me from a long line of Norwegian farmers, fishermen, and laborers to law school and the ranks of people with morning routines I had been in awe of as a child.
But I’d be naive to think that there weren’t other forces at work. My father benefited from the GI Bill, a government program that provided him with the funds to buy land that gave my family some stability. I was “college material” thanks to a good public education system. I received a government Pell Grant, funding for the poorest students to pay for college. I attended a state law school, where the tuition was minimal, thanks to government and philanthropic support. And when I contracted tuberculosis, I was treated and cured by a robust public health system.
The twin trends of increasing inequality and decreasing upward mobility should alarm us all. ... A comparison of global data reveals a close and powerful relationship between a country’s social mobility and its income inequality. They feed each other.
I also had demographic tailwinds. I was born white, male, and in one of the richest countries in the world. Take away any one of those accidents of birth, and my prospects for upward mobility — the defining feature of the American dream — would have been lower.
It turns out that it is a lot easier to “pull yourself up with your bootstraps” and become upwardly mobile with the wind at your back. No one is entirely self-made — neither those at the top economically, nor those at the bottom. We might think of these favorable conditions like the weather — something fickle and beyond our control. That would be wrong.
They are, more often than not, the predictable result of government and market systems. Such systems are rarely neutral. They worked for me and put wind in my sails. They put many others at a disadvantage.
Social investors would do well to consider how these systems have helped them as they amassed their wealth. These are precisely the government systems we need to broaden and bolster to grease social mobility for all.
American dream narratives like mine and perhaps yours, are becoming increasingly unlikely in the U.S. and remain too rare across wide swathes of our planet. At the same time, inequality is rising. Not only in the U.S., but also for more than 70% of the global population.
The twin trends of increasing inequality and decreasing upward mobility should alarm us all.
It turns out, the two developments are related. A comparison of global data reveals a close and powerful relationship between a country’s social mobility and its income inequality. They feed each other.
Countries such as Finland and Denmark, at the top right corner of this graphic, have high social mobility and low income inequality. That means there are fewer people at the extremes of income distribution, a large middle class, and those at the lowest income bracket have a good chance of successfully reaching the top income bracket. The determined and ambitious can ascend the social mobility ladder — one which is solid, sturdy, and where helpful hands often proffer support.
Meanwhile, the countries toward the bottom left corner experience the opposite. They have more people at the extremes of income distribution (lots of poor and lots of rich). The disadvantaged face a broken social mobility ladder and are unlikely to ascend to higher income brackets — no matter their talents or hard work.
That’s the tragedy of low social mobility, it traps talented people in their circumstances of birth. Their creativity and brilliance remain untapped. Their potential never realized.
Of course, this graphic isn’t static. Countries are moving up and down all the time. Unfortunately, over the past few decades the countries on the bottom left have mostly stayed there, unable to provide any form of “leg up” for the mass of their citizens.
Some 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 backsliding. Raj Chetty explains this phenomenon for the U.S. in his Social Investor article.
Inequality is growing and equal opportunity is shrinking in much of the world. The result doesn’t simply crush dreams, it crushes economic growth. It even impacts a country’s gross domestic product. The World Economic Forum’s Global Social Mobility Index Report finds that countries could achieve an additional gross domestic product 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 Ivory Coast’s 34.5).
These alarming trends are a call to action for social investors — those using their capital to create a more equitable, just, and prosperous world. But what can social investors do to facilitate real progress — opening up potential to achieve personal outcomes not so closely tied to accidents of birth — country, neighborhood, family, gender, and race?
Social investors take three different approaches to answering this question.
Some pour their resources into programs helping one individual at a time. Think of scholarships or sponsorships. Such efforts, no doubt, have their merit. They can provide the satisfaction of an attributable outcome, accomplish short-term tangible results, and present an opportunity for a social investor to get more proximate to impact. However, such solutions are rarely commensurate with the scale of the problem.
Other social investors protect greater numbers of people against the most relentless headwinds, trying to make the painful outcomes of social immobility more bearable. Think homeless shelters, soup kitchens, and the like. All worthy and important, but focused on ameliorating the painful symptoms of poverty or economic stagnation without addressing the structural causes impeding their journey of upward mobility.
A third approach is likely the most challenging, ambitious, and impactful: systems change. It involves repairing, rebuilding, or fortifying the systems that provide the enabling environment for upward mobility. Drawing upon the articles in this magazine, this might include structural changes to legal systems, market regulatory systems, education systems, health systems, or property systems, to name just a few.
Strategic social investors should recognize that a capable government is our strongest ally in this odyssey.
A systems change approach to advancing equity involves shifting the conditions that hold a problem in place. It is less about scaling a particular solution, and more about shifting a system such that it generates impact at scale. For most social investors, it will require a new paradigm: moving from a short-term perspective to long-term, from symptoms to root causes, and from attribution to contribution.
The amount of capital and know-how required to achieve systemic change should nudge strategic social investors to consider donor collaboratives that offer collective learning and wisdom, varying price points, and operate at a scale and on a timeline capable of achieving meaningful transformation.
It is not easy. But the results will be more durable and impactful — capable of turning inadequate (broken or outdated) and even harmful (corrupt) systems into benevolent agents of change.
Social investors can’t weather the storms of change alone. We need to work alongside the private sector to make markets systems fairer, more vibrant, and to harness their power for goodness. The Chandler Institute of Governance’s 2021 Good Government Index, which measures government capabilities for 104 countries, points us to another crucial partner: government.
The chart below illustrates the powerful relationship between good governance and social mobility. Countries at the top right of this graphic have high social mobility and highly capable governments. Countries at the bottom left, the opposite on both counts. When we consider forging a more optimistic future, governments hold the most powerful tools — in terms of education, health, financial systems and more — for helping to boost social mobility and broaden opportunity at scale. Strategic social investors should recognize that a capable government is our strongest ally in this odyssey.
Social investors can play a catalytic role in helping build the capabilities of governments at all levels and in all geographies, including through strengthening the capacity of public leaders, improving policymaking and policies, raising government transparency and accountability, and supporting a culture of data-driven decision-making.
Recent events have thrust a myriad lessons upon us. We cannot help but emerge from a tempest changed, seeing the world in a different light, grateful for things we took for granted, reinvigorated for progress, and eager to help re-architect improved, more durable and equitable systems.
By supporting equitable systems-changing efforts in partnership with government, social investors can change the narrative, expanding opportunity with renewed systems, robust enough to withstand the wrath of anomaly events. Then when the storm comes, we will not be blown away, but together adjust our sails.