Addressing Inequality with a New Business Architecture

by David Levy

Last week, Bill de Blasio was sworn in as the Mayor of New York, and in a ceremony replete with references to sharp class and racial divides in the city, de Blasio pledged to devote his energies to “put an end to economic and social inequalities.” So what can a new administration with a solid mandate for progressive policies do to encourage shared prosperity in a major urban region? Even large cities have limited power and resources, and they are tightly integrated into the wider national and global economy. Inequality is largely a function of more structural economic forces, from the dominance of the financial sector to the pressures created by immigration, globalization, and technological change.

De Blasio’s plans for addressing inequality remain rather unclear. His most substantive proposals include building more affordable housing and raising taxes on the wealthiest New Yorkers to pay for universal kindergarten. His wide margin of victory indicates some appetite for redistribution, but higher taxes are often perceived as “anti-business”, deterring mobile investment and hurting employment. Indeed, De Blasio is proposing to raise taxes by less than $1000 on those earning between $500,000 and $1 million a year. De Blasio has also supported raising the minimum wage, but the city is powerless to act on this without support from the state legislature.  Other proposed measures, such as helping people enroll for food stamps and other benefits to which they are entitled, are important steps but their limited scope means they won’t have much of a systemic impact.

Ken Livingstone faced a similar challenge as leader of the Greater London Council from 1981 to 1986. Though he had some success in challenging racism and raising political participation by women and minorities, his efforts to reduce inequality, for example, by lowering the cost of school meals and bus and train fares, foundered amidst legal challenges and strong opposition from business and Margaret Thatcher’s national government, who accused “Red Ken” of pursuing a radical left agenda. When Livingstone returned to power as Mayor of the new Greater London Authority from 2000 to 2008, he appeared to abandon progressive ideals in favor of promoting competitiveness and investment, initiating the revitalization of the East End and Docklands, and securing London’s bid for the 2012 Olympics.

An intriguing alternative path forwards would be to nurture and leverage a plethora of initiatives and experiments underway to develop more sustainable, equitable, and community-based businesses and local economies. The concept of the ‘New Economy’ is increasingly inspiring thought-leaders from business, academia, the non-profit world, and government as a model for regional economic growth that is environmentally sustainable, resilient, and locally responsive. The Sustainable Business Network of Massachusetts, for example, holds a summit each year on the campus of the University of Massachusetts, Boston, bringing together more than a one hundred people from a wide range of backgrounds and organizations, from clean tech entrepreneurs to activists. Some participants bring a commitment to small community-embedded business that sources locally, others to high-tech approaches to environmental sustainability. Some organizations are experimenting with hybrid structures and legal forms, such as B and L3C corporations, that attempt to combine a social and economic mission, while being more responsive and accountable to multiple stakeholders. These businesses can have a hard time securing capital, inspiring local – and patient – capital sources such as the Cooperative Fund of New England and the Slow Money movement to begin to fill the gap. Networks such as the American Independent Business Alliance, the American Sustainable Business Council and BALLE are emerging to support these fledgling efforts and lobby for progressive policies to promote the New Economy. These diverse groups and initiatives bring a palpable energy to these gatherings; there is a sense of excitement, but also uncertainty and even bewilderment about what it all means and where it’s going.

This new approach to sustainable and shared prosperity requires a new architecture of business. The New Economy is not just warmed over Corporate Social Responsibility or Shared Value, but a more fundamental rewiring of business governance, management, and processes. Business schools, through their education and research, can play a key role here by studying these initial experiments to see what’s working and why, and by stimulating organizational and financial innovation. The College of Management at UMass Boston, in collaboration with the Tellus Institute and other partners, is initiating a regional effort to examine this sector’s potential and train a new generation of professionals for the challenges of reshaping the economy.  Entrepreneurs need creative business models that integrate economic and social value, and management needs new styles of collaborative leadership. Training and career paths for unskilled and semi-skilled workers need to be rethought. There is much to be learned from earlier efforts, for example, how co-ops and the Mondragon system in Spain have adapted to a more globalized and technologically sophisticated world.

Business schools can also play a role in understanding how the disparate businesses and initiatives add up to systemic phenomenon that is greater than the sum of the parts, a New Economy with an organic vibrancy. One approach is to view this as an emerging regional cluster of related and mutually reinforcing economic activities. It will be important to understand the impact of this new type of cluster on regional economic development, not just in conventional terms of investment and employment, but also using metrics that include the quality and durability of jobs, stakeholder participation and environmental measures. Business schools can collaborate with cities and other governmental agencies to develop the policy and regulatory infrastructure for the New Economy, such as new legal forms and financial structures. This sector needs sources of capital willing to accept more modest returns and take a longer term view than conventional financial vehicles; this goes beyond existing socially responsible investment funds, which merely apply various screens to portfolios. One idea would be to copy the affordable housing model and work with pension funds and other large institutional investors to set aside a proportion of capital for community investment funds or similar vehicles.

New Yorkers have voted for a sharp change in direction, and many others across the world are also seeking a path toward more sustainable, prosperous and fair economy. There is no simple blueprint for this transformation and it would be naïve to think that Wall Street will be an early adopter. The evolving businesses and organizations comprising the New Economy do, however, offer the innovative energy needed to begin to move our economic system in a new direction.