Shared Responsibility, Shared Prosperity: Advancing Upward Mobility in America
The Kenan Institute’s Conference on Market-Based Solutions for Reducing Wealth Inequality opened April 10 with a clarifying emphasis, one focused not on redistributing wealth but on lifting those at the bottom of the economic ladder. The day’s discussions centered on practical solutions for improving upward mobility for the nation’s poor and underserved individuals and communities.
Framing the conversation around collaboration and emphasizing that solutions must come from both the public and private sectors, LaChaun Banks, professor of the practice at UNC Kenan-Flagler Business School and a Kenan Institute research fellow, said in her opening remarks, “It’s not either/or – it’s a both/and.”
How should private companies, governing bodies and individual households balance the shared responsibilities of wealth creation and management, public service and community building? What programs and policies produce the best results? Which are the most efficient? The most equitable?
The conference’s diverse group of experts from business, government and academia presented and conferred on insights from research and practice to address these questions. Following each session, Q&A discussions involving conference attendees – many of whom were practitioners, researchers and businesspeople, much like the panelists – enriched the day’s conversations with ideas and real-world accounts that pointed out roadblocks to upward mobility as well as useful workarounds to these barriers.
“We come with our own beliefs about the world,” Banks concluded, setting the day’s tone of inclusive dialogue. “My ask of you is to be open to listening and learning, to forming a synthesis, a new way of looking at the world. There is something to be gained in disagreement.”
Among the day’s wide-ranging conversations, the “and” that Banks underscored as foundational for building wealth at the distribution’s low end emerged as a common theme. It requires sustained collaborative effort from private and public sector actors for individuals, households and communities to achieve financial stability and upward mobility.
Support Systems for Individuals
The solutions to financial empowerment for low- and moderate-income households are straightforward concepts. First, people need to earn a living wage. It would seem beyond dispute that to have enough, one needs to make enough. Yet who defines a living wage? And who is responsible for ensuring that every working person’s pay is sufficient to cover their needs with enough remaining to save for the future?
“Institutions matter,” said Mathieu Despard, senior researcher at Washington University in St. Louis’ Center for Social Development, who has spent decades working to advance the financial well-being and economic mobility of low-income Americans.
“We’re not great at saving and building wealth on our own,” he said, citing a consensus observation among researchers and policy practitioners. The aggregate personal savings rate for the US is about 3%. Disaggregated, the upper 40 percent of the income distribution generally save enough, while the savings rate for the bottom half is negative, meaning that, on average, half of American households are in the red. This situation is a “highly inefficient way to build wealth,” Despard concluded.
A living wage is merely a baseline, beyond which individuals need “benefits” – retirement accounts and health insurance that are included in an individual’s pay package. All else being equal, workers with these benefits end up substantially better off than those without. It takes little imagination to see why this discrepancy exists, as a medical emergency would likely mean bankruptcy for someone without health insurance.
Meanwhile, few people have the financial expertise to know their appropriate personal savings rate and the best financial instrument for retirement. In the US, those who earn the least also have the lowest access to benefits and fewer opportunities to build for retirement. The solution to asset poverty is thus a living wage and structured assistance in the form of retirement accounts and health insurance.
How should we provide these benefits to the working poor? Or more to the point of contention, who is to provide them?
“A progressive asset-based federal tax policy,” Despard said, “is a smarter investment in human capital than what we’re doing right now, which is mainly giving tax breaks on retirement contributions and insurance premiums.” These tax carveouts generally miss the mark, Despard asserted, because they don’t incentivize the most cash-strapped Americans, those living paycheck to paycheck who pay little or no income tax. A more efficient and effective use of federal tax dollars, Despard argued, would fund “Baby Bonds.” These asset-based instruments would give every poor child a publicly financed trust account at birth. When these trusts mature, they provide start-up capital to young adults who can then use the money to invest in themselves and begin building wealth.
Baby Bonds have stirred a groundswell of bipartisan support in Congress and statehouses, burnishing their promise as effective policy for increasing economic mobility at the low end of America’s wealth distribution. Yet programs that help the poor earn and save more are not solely the work of governments and individuals. “Even when we’re talking about some sort of transfer of federal dollars,” Despard said, “there is still a really important role for the private sector to institutionally facilitate wealth building.” It is in their best interest for private sector actors to help lift poor Americans, and these institutions are generally able to deploy large amounts of capital more quickly than are governments. Banks, for example, directly benefit from the retirement and investment accounts they hold, so increasing the number of households that are earning, investing and saving more is a clear victory for these financial institutions and the nation’s economy writ large.
Building Inclusive Local Economies: The Three-Way Street
From a national perspective, building wealth for poor households means leveraging public and private funding to increase wages and compel low-income individuals to save for retirement while investing in appreciable assets and themselves. It is a challenging proposition. For a municipality, nurturing a vibrant, inclusive economy is similarly tricky, a task requiring dynamic partnership among local government, businesses, residents and other civic groups.
Drawing from her personal experiences of growing up in and now leading her hometown of Knightdale, NC, conference panelist Mayor Jessica Day described the continuous, collaborative effort needed to foster community and economic health in a rapidly growing American town. From a population of less than 1,000 in 1980, Knightdale is now home to 22,000 residents. Shopping malls and subdivisions replaced farmland and forest, as a bedroom suburb of Raleigh blossomed into a home for businesses and a place where families settled to live, work and play. This welcomed growth came with increasing responsibilities for town government as well as for the new corporate transplants and residents.
The give and take between the mayor’s office and its constituents comprises a three-way street. Town hall offers tax incentives and site development help to businesses looking to build in the area. These businesses supply jobs and contribute to the tax base. Residents provide labor and tax dollars and fuel the local economy, while government provides basic services. Yet, as Day explained, this three-way street involves much more than traditional, transactional relationships. To spur increased prosperity for everyone, local governments and businesses partner to ensure the availability of affordable housing, clean and safe public spaces, robust schools and worker training programs. The mayor’s office is continuously collecting feedback and information from households and businesses, seeking modes of improvement.
People are a town’s lifeblood – there is no community without residents, those whose financial health directly manifests the local economy. Chief among the mayor’s responsibilities is to ensure the economic well-being of those she serves. And as Day points out, business leaders also realize their share of responsibilities involved with building and maintaining an inclusive, vibrant economy. These obligations include investments in worker training and apprenticeship programs, financial backing for public spaces and infrastructure, and providing community support, such as childcare, directly to residents. Businesses recognize the tangible benefits accrued from investing in the community. When government, businesses and residents work together, the resulting rising tide lifts all boats.
Common Goals, Collaborative Work and Shared Success
Broad-based economic prosperity is a goal shared by most stakeholders – nearly everyone wants an economy that is expansive and inclusive, one that produces wealth and bolsters well-being for all communities. The central question is how to foster such an economy, one in which financial stability, upward mobility and opportunities for building wealth extend to every individual across the nation’s wealth distribution.
“The relationship between the private sector and government will evolve over time,” Banks noted, underscoring the conference’s importance for those in the room and the world outside. “We get to decide what kind of society we want to work toward, and to make it a reality, we’re here to bring together innovative, engaged and tenacious business owners, civic leaders, policymakers, researchers and community members to share success stories and discuss the challenges we must overcome.”