This Pandemic Can Lead Us to Build an Economy That Works for All

Imagine this headline: “American business community commits to competing our way out of the COVID-19 pandemic.”

That doesn’t make any sense. How about this one: “American business community collaborates to overcome the COVID-19 pandemic and commits to an economy that works for all.” That hints at a real solution: building solidarity and mobilizing our talents and capital in a way that not only helps us mitigate the current catastrophe but also starts building a far more resilient next economy.

This is not about volunteerism or individual corporate responses to communities in crisis. Those things are wonderful and we need them—but the limits of the unilateral approach are well demonstrated. The times call for a much deeper, systemic approach. When this pandemic abates, we will still face the crises we began this year with: climate change, gaping inequality, homelessness, lack of affordable education and healthcare, and limited access to capital come immediately to mind.

While the planet can temporarily breathe a little more freely now that billions of people are restricted in their movement, the pandemic is devastating from both a health and an economic perspective—especially for lower-income people and communities of color. In a society where healthcare is treated as a privilege rather than a universal right, a crisis like the one we’re experiencing exacerbates the underlying inequities of an economy that doesn’t work for everyone.

To address this crisis and build the resilience we need to meet the next one, we must do more than tinker around the edges: we need new economic models that move us away from extracting value for the few toward a regenerative approach to human and ecological resources that is inherently adaptive and favors collaboration in the interest of the whole. 

Major players in the finance sector and elsewhere should be taking this on—and I hope they will—but we don’t have to wait for them to lead. Smaller, nimbler enterprises are developing and demonstrating better ways right now. RSF Social Finance can contribute three capital-flow models we have refined over the past decade that we believe can be modified to scale.

Community pricing: thinking bigger than self-interest

We abandoned LIBOR in 2009 and began setting our own rate for the RSF Social Investment Fund through a collaborative process of face-to-face quarterly meetings involving investors, borrowers and RSF staff. These Community Pricing Gatherings play a significant role in determining the interest rates investors receive and borrowers pay, as well as RSF’s share of the revenue.

The heart of these meetings is asking borrowers to detail the business consequences of a rate change and investors to share what a higher (or lower) interest rate would mean for them. Conventional economic theory tells us that investors will always want a higher return and borrowers will always want to pay a lower rate. Community Pricing Gatherings show that is not the case—money and the price of money can be in service to goals larger than self-interest. We’ve heard investors say, “I don’t need more if it has that consequence for you.” And we’ve heard borrowers say, “We could afford to pay more” if that increases the pool of money available to everyone.

This model allowed us to do something pretty extraordinary things to help our social enterprise borrowers weather COVID-19. Investors at our March 19 gathering unanimously decided to cut their interest payments in half so that borrowers could pay less and RSF could create an emergency fund to help those enterprises most at risk of collapse. Their action demonstrates how we can mobilize solidarity on a community level in a crisis.

The fundamental principle at work here could be applied to many situations involving two sides perceived as having opposing interests and habituated to maximizing their own narrowly defined advantage. The magic lies in having an honest and full discussion that reveals costs and benefits to everyone. Seeing how a decision affects a whole system creates a real shift in perspective about what our true needs are.

Integrated capital: flipping to a demand-driven approach

Our integrated capital approach bundles financial, social and intellectual capital for social entrepreneurs who are solving complex social and environmental problems. The financing tools—including loans, loan guarantees, investments and grants—are familiar to impact investors as “blended” or “full stack” capital. But the human elements, such as network connections and advisory support, are just as important.

Integrated capital addresses the funding challenges social enterprises face in a number of ways: It allows for longer development times by including some types of investment that don’t need to make a return, such as grants. It gets enterprises through the “valley of death,” where they have a promising business model, technology, product or service, but need more capital to realize its potential and don’t qualify for traditional financing. It provides the technical expertise they need to build a platform for growth. And when community foundations and local investors participate, integrated capital creates a community commitment to the enterprise’s success.

The key concept here is to provide capital based on what the needs are, rather than forcing entrepreneurs to fit their vision to the capital being offered—which often distorts the vision and reduces chances for success. It’s a demand-driven rather than a supply-driven approach. (See examples here and here.)

Shared gifting: shifting the power dynamic

Foundations are sitting on an estimated $1.5 trillion pot of money, and they’re under increasing pressure to invest more of it for impact as well as to grant more of it out—especially in response to the current crisis. How it is mobilized may be as important as how much. We don’t even know what the economic impact of COVID-19 is going to be or what it’s going to do to communities. Listening to what communities say is needed is likely to deliver a better result than applying the same old tools.

The Shared Gifting model is one way this can happen. The typical spectrum of grantmaking practices runs from unilateral (we’ll just tell you about our grant decisions) to consultative (soliciting community advice and concerns) to involving (two-way communication that leads to joint decision-making). Shared Gifting practice is beyond all that. It shifts the power dynamic.

In our adaptation of the approach, six to 10 local nonprofits (selected through a community nomination process) spend a day together and decide how to divvy up a pot of money among themselves. Each participant gets an equal share of the funds; they keep 20% of their share and distribute the balance according to their own criteria. They review each other’s proposals and ask questions about each other’s work. We encourage participants to be open and honest with the group about how they made their funding decisions. The group also decides how participants will report back on their use of the gift.

The goal of shared gifting is to transform philanthropy by giving nonprofit leaders the power to make decisions about what their community needs—they are the experts on that topic. By shifting grant-making authority from the holders of capital to a circle of peers, we can free up the creative power of communities to find and carry out transformative solutions.

It’s time to mobilize to overcome this pandemic

Tapping community knowledge, solidarity, and resources is central to each of these strategies, and most of us in business and finance are in position to do that—we just need to reach out. The still-unfolding COVID-19 pandemic is challenging all of us in innumerable ways. I hope we can respond by breaking through the mental barriers we put around ourselves and our businesses. A common refrain these days is “We’re all in this together.” Let’s act like it. In collaboration with our communities, we can mobilize our talents and capital to not only weather this crisis, but also start to heal what is broken.

Image credit: Julian Wan/Unsplash