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Wednesday, January 27, 2021

The limits of philanthropy

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Beginning last year, some of Indy’s largest philanthropic institutions started to designate what now totals more than $100 million toward improving the lives of low-income African Americans. The funds will be distributed primarily through African American nonprofit organizations.

This becomes even more significant when one knows that Black-run nonprofit organizations historically have received — on average — substantially smaller grants from foundations than have white-run nonprofit organizations. (Notably, white-run nonprofit organizations that primarily serve the Black population tend to receive more dollars than their Black-run counterparts.) 

I am cautiously optimistic that these grant dollars will effect positive change in some of our most distressed Black communities. Housing, food insecurity, health care, youth activities, education and job readiness are all areas that need an immediate influx of substantial financial resources just to bring thousands of people out of dire circumstances (e.g., going hungry, staving off the threat of homelessness, and fighting the effects of COVID-19). To use a well-worn medical analogy, these grant dollars constitute emergency triage. I genuinely applaud our local foundations for stepping up in a major way.

Yet, despite the good that such efforts will undoubtedly bring, the fact remains that philanthropy, by itself, will not bring about that which should be everyone’s ultimate goal: economic, social and political equality between African Americans and whites. This is true because philanthropy is generally designed to address basic needs rather than to close the overall wealth gap. The other major factor is that philanthropic institutions tend to not give money to for-profit businesses. That fact matters because entrepreneurship is a stronger tool than is philanthropy in facilitating African Americans’ drive to achieve economic parity. 

For example, donating to education-focused nonprofits can help youth to prepare themselves for the job market. Yet, decades of doing so has not closed the racial wage gap — much less the wealth gap. The very noble goal of “keeping kids out of trouble” should be a floor rather than a ceiling. If those kids’ parents had greater access to substantial capital to start their own businesses, Black communities would need less philanthropy — or government assistance. 

There is a study from the New School titled “Umbrellas Don’t Make It Rain: Why Studying and Working Hard Isn’t Enough for Black Americans.” It says, in part:

“For Black families and other families of color, studying and working hard is not associated with the same levels of wealth amassed among whites. Black families whose heads graduated from college have about 33 percent less wealth than white families whose heads dropped out of high school…The average black household would have to save 100 percent of their income for three consecutive years to overcome the obstacles to wealth parity by dint of their own savings activity.”

Further, even African Americans who earn graduate degrees make less money than their white counterparts — though greater education leads to greater wage parity. 

Lest some people think that I am naive, I will hasten to add that making startup capital available to African Americans would need to be carefully planned and executed. Business mentorship and coaching, along with rigorous financial and management training, are crucial factors in the success of such endeavors. (This is true irrespective of race.)

Since I believe in action rather than mere advocacy, I will share that I contacted a few friends early this year to ask whether they would join with me to start a real estate development and investment firm. All of them agreed to do so. I had two main goals in mind. One is to build “legacy” Black wealth (i.e., to leave substantial financial resources to my children and their children). Second, I wish to preserve Black homeownership. I am beyond tired of watching Black residents being gentrified out of the homes in which they have lived for decades. I also want to foster homeownership among those who don’t have them.

I want to give fish to people who need to eat today. I also want to teach people to fish so that they may provide for themselves and their families. Most importantly, I want our people to have the means to buy or build their own ponds.

Larry Smith is a community leader. Contact him at larry@leaf-llc.com.

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