Over the last 30 years, the American Dream has drifted further out of reach for lower income individuals and families. Nearly 70 percent of children born to parents in the bottom 40 percent of incomes remain in the economy’s basement—regardless of whether they “work hard and play by the rules,” as so many have been taught. For hardworking black families who have climbed to the middle rung, it’s still more likely than not that their children will slide back down the ladder. Furthermore, nearly seven out of 10 African Americans born into middle-income families will fall into the bottom two-fifths as adults.
Among the factors that contribute to this discouraging picture: failing school systems, mass incarceration in communities of color, and the inability of employers to fill jobs. By conservative estimates, closing the achievement gap between US schoolchildren from different socioeconomic backgrounds would add $4 trillion in GDP (10%) growth to the US economy by 2050.
A team at The Bridgespan Group recently conducted research that highlights the critical role of philanthropy in reviving the American Dream. We identified $1 billion investments that could spark upward mobility for people trapped at the bottom—and have the potential to deliver powerful returns, informed by estimates from the Urban Institute of direct economic impact on affected individuals.
Several of these “high-ROI” big bets rely on market incentives to make a difference:
- Use technology to improve early childhood outcomes: Programs like Text4baby (a text advice program for mothers and mothers-to-be), UPSTART (a PC-based pre-school program from the Waterford Institute), and Ready4K (a text program for "kindergarten readiness" skills) are designed with the user in mind. Moreover, they are actually improving outcomes. With American education technology companies raising $1.36 billion last year, philanthropy can play a critical role in backing ventures that specifically target low-income populations. By tipping the scales this way, philanthropy can meet the demand of a vulnerable population while creating a supply that has incentives to be consumer- and user-driven.
- Use market incentives to encourage government to reduce mass incarceration: The US currently spends over $80 billion locking up nearly 12 million people each year. Many of them will be barred from employment when they get out due to felony records, raising the societal cost even more. Philanthropists can incentivize the government to do better. The MacArthur Foundation recently launched the $75 million Safety and Justice Challenge to find alternatives to the national incarceration problem and support a system focused instead on rehabilitation. That amount alone was enough to draw applications from 200 jurisdictions in 45 states. Just imagine what greater amounts of funding could do to shift government behavior—and eventually release millions of people into America’s workforce.
- Connecting people with careers that pay sustainable wages: In today’s economy, the needs of employers are shifting at a rate faster than our colleges and universities can match. And many prospective employees don’t know enough about potential jobs or what kind of skills they will need to land them. This is a classic supply and demand challenge, worsened by misinformation. Philanthropists who have accumulated wealth in a 21st-century economy have a unique opportunity to help employers effectively communicate needs to potential employees, and to support skill-based boot camps, like Operation Spark/Hack Reactor, and alternative credentialing programs, like Year Up, that can help put people—especially low-income people—on the path to decent jobs.
Each of these potential investments holds very real opportunities for philanthropists. Philanthropic capital is uniquely flexible, comfortable with risk, and welcoming of returns in the form of social benefit. Today’s new generation of philanthropists, which is largely fluent in the language of markets, is positioned to help create new markets for social good, supporting the growth of ideas and organizations until they can reach self-sustaining scale.
Each of these bets is built on innovations that are producing verifiable results. While state and federal funding may be needed to help bring some of them to scale, philanthropy can point the way—and help restore the promise of the American Dream.
