The gap between rich and poor is by some measures as wide as its been in nearly a century. According to tax data tracked by Emmanuel Saez, an economics professor at the University of California, Berkeley, the average income for the top 1% of households in the U.S. climbed 7.7% last year to $1.36 million. That group saw pay climb at almost twice the rate of income growth for the other 99% whose pay averaged a mere $48,768. Pretty stunning, no?
The implications are certainly being felt politically with polarized elections here and around the globe and economically as well with companies for instance changing up what they sell and where they operate.
Many people think that income and wealth inequality is a problem that can only be solved by government. Not Darren Walker, president of the Ford Foundation. Under Walker the Ford Foundation— with some $12.6 billion in assets, making it the nation’s second largest foundation after the Bill & Melinda Gates Foundation—has shifted its focus to addressing and alleviating income inequality around the world.
Walker believes that NGOs like Ford need to pay particular attention to this most pressing issue, but refreshingly perhaps for the head of a nonprofit, he believes the private sector can play a significant and positive role too.
First he says we should acknowledge that a focus on short-termism in business (a focus on only the next quarter’s profit for instance) has implications for income inequality. “Short-termism is a challenge for our culture writ large. And it certainly manifests in the markets in ways that distort the behaviors of corporate leaders, of corporations and business in general. Short-termism favors incumbents. It favors those who are already privileged and it compounds that privilege.
“As Larry Fink [CEO of Blackrock] says in his most recent letter, short-termism is a problem in our economy and we as market makers and market leaders need to take the action to acknowledge this. And I think consumers and investors should be working towards long-term investment. And that our policies should incent long-term and disincentivize short-termism.”
Walker brings a number of perspectives to the debate. As a poor African American boy raised by a single mother in Texas who benefited from Head Start and a Pell Grant, Walker understands the value of investing in deserving individuals. “My background has given me an understanding of the need for investment in human capital and the centrality of private philanthropy making a difference in the lives of people,” he said in a 2013 interview.
After graduating from the University of Texas undergraduate and from UT law school, Walker went to work as lawyer at Cleary Gottlieb. He later worked at UBS for seven years, so he understands the world of Wall Street and business from a practitioner’s prospective.
I asked Walker if it’s just a matter of companies raising wages to address inequality. “Well, I think we have to look at the question of wages,” he said. “I think we also have to look at how business operates. Business actually is essential to solving the problems of our societies today, wherever they operate in the world. And so I’d like to think that the best businesses see themselves, of course, first and foremost committed to shareholder value, to their customers, to their employees, to their communities, and that they see themselves as part of the problem-solving ecosystem in American and the world. The capacity of a business to solve big problems is infinite. And the most visionary of those business leaders we see today, they’re out there doing that. They’re solving problems. They’re generating ideas and solutions to major, major challenges.
Another way businesses can participate in battling social ills in a productive way is through impact investing. I asked Walker about that as well.
“Impact investing is an exciting frontier, Walker says. “Impact investing is what I call double-bottom-line investing. Some call triple-bottom-line investing. And that is getting a financial return, a social return, and an environmental return. And through a strategy that seeks all three objectives, it’s possible to return money to your investor, to help the planet, and to have a good social outcome and build sustainability into your business model.
“Because ultimately, businesses have two balance sheets. They have the published balance sheet, but then there’s a phantom balance sheet. And that phantom balance sheet is really a set of externalities that we all pay for. And so what I’m hoping is that we can have a balance sheet that actually reflects the material impacts of the business they happen to be in.
“But the good news is, we’ve got policies now. We’ve got policies that can encourage and incent us to do more impact investing. We have structures like B-corps, for example, that allow us to think about businesses in different ways. So the exciting thing is that we’re in this moment of experimentation and innovation that I am really quite enthusiastic about.”
Sounds like Walker believes there’s room for government, NGOs and businesses as well to play a part here.
Andy Serwer is editor-in-chief at Yahoo Finance.