Archive for July, 2011

Madness

Thursday, July 28th, 2011

A recent story in the NYT documents the impact of the recession on different racial and ethnic groups. In percentage terms, Hispanics were hit the hardest, losing 66% of household wealth between 2005 and 2009 – with African-Americans similarly impacted. But the truly shocking numbers are the absolute figures. Black and Latino households have around $10,000 or less in household net worth – even after falling by more than 10% in the recession, white households have on average *ten times* the household wealth, over $100,000.

What the hell?! Even as we’re rapidly moving toward a “majority minority” society, wealth is so unevenly distributed across racial and ethnic groups. Reminds me of a line from an old Chris Rock routine – “we black people need to build wealth. I ain’t talkin’ ’bout rich, I’m talkin’ ’bout *wealthy.* Shaq is rich; the guy who owns the Lakers is wealthy.”

And now these clowns in Washington are falling over each other to drive our country’s future into a ditch. Holden Karnofsky of GiveWell has a really important piece on the SSIR blog about all the groups in line to help people before individual donors:

  • For-profit businesses
  • Governments
  • Local philanthropy and community
  • Big foundations
  • Other donors

It’s a really illuminating perspective. But what’s missing is scale. The groups in that “line” are not created equal – and if one falls, the ones behind it aren’t necessarily capable of filling the gap. So when government, the second in line after private business, shrinks suddenly – do you think those household wealth numbers will go up? Pell grants, funding to help people mitigate vulnerability? The main reason Hispanic household wealth fell so much during the recession is that much of what folks had been able to gain was in their houses – the value of which tanked. Our infrastructure is Third World already; looks like our social safety net is headed the same way, with what are sure to be disastrous consequences.

Madness, I tell you – madness.

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Isn’t It Ironic? On “Democratic Capitalism”

Thursday, July 7th, 2011

Carl Schramm, head of the Ewing Marion Kauffman Foundation, has a piece in Forbes arguing philanthropy exists to advance and perfect democratic capitalism. In response, Albert Ruesga, head of the Greater New Orleans Foundation, laments that if this is why foundations exist, “could there possibly be a better reason for dismantling the private foundation as an institution?” Ooh, CEO throwdown!

Less flippantly, what’s going unexamined here, I think, is the term “democratic capitalism.” My guess is that Schramm sees that adjective, which goes unexplained, as significant. Capitalism within the context of a democratic system presumably is different than unmodified, raw capitalism. But here’s where I think the difference lies. My hunch is that Ruesga’s image of democracy and Schramm’s may be different in one significant way.

As I’ve written about, and I owe this insight to my mentor Jeff Weintraub, in one respect democracy and the “free” market are fundamentally at odds. The invisible hand of the market aggregates the individual pursuit of self-interest into social welfare (or so the story goes). But this aggregation is strangely delicate. Try intentionally to generate social welfare, and the aggregation falls apart. This is some of the thinking behind mistrust of government.

Do you see what’s going on here? To avoid suboptimal outcomes, you have to give up the ability to consciously pursue the collective good. So the free market is really unfree, in an important respect.

And democracy is actually, in one version I happen to like, about a community consciously defining and intentionally pursuing the collective good (what Tocqueville called “self-interest properly understood”). Which is the opposite of letting the free market operate through the individual pursuit of self-interest. So democracy and the market are in one respect fundamentally at odds.

This is if you define democracy as I just have. It’s sometimes called “participatory” democracy, and associated with Isaiah Berlin’s vision of “positive freedom” – the freedom to do X or Y.

But there’s another version of democracy – a “procedural” one, associated with Berlin’s other vision – “negative freedom,” or freedom from X or Y. This version of democracy is not about the outcomes but about the rules and fair play – freedom of expression, and free elections. There’s a lot to recommend this version! And its achievement and sustainment are to be celebrated.

But for many people, I assume Ruesga included, it’s not enough. “Democratic capitalism” based on procedural democracy and negative freedom is sadly perfectly compatible with high levels of inequality and unjust economic outcomes. In fact, it probably encourages them. But for a vision of the good based on positive freedom and participatory democracy – what you might call social justice – “democratic capitalism” would need to look pretty different than it currently does to make that phrase other than a cruel irony.

And whether philanthropy can contribute to that effort – or whether the most it can and should aspire to is supporting “democratic capitalism” as Schramm might have it – is the real question. One of two, you might say.