Seeking to Rein in Capitalism, Omidyar Is the Rare Funder Taking on Wall Street

It’s been just over a decade since Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Perhaps best known for standing up the Consumer Financial Protection Bureau, the legislation introduced sweeping changes to how the federal government regulates market actors. Though Dodd-Frank’s many rules and provisions have been the subject of debate in the years since, the act is usually credited with, at the very least, curbing the kind of rampant speculation that led to the 2008 crash.

Few predicted that a once-in-a-century pandemic would herald the next economic nosedive. But for financial sector reform advocates, the ongoing erosion of Dodd-Frank’s post-recession regulatory prudence has been all too easy to foresee. One has only to look at the flood of private money flowing from Wall Street and its allies to influence policymaking and rulemaking in Washington, D.C.

Americans for Financial Reform, a nonprofit coalition formed in the wake of 2008, has estimated that Wall Street lavished $1.9 billion on campaigns and lobbying during the 2017-2018 election cycle. That translates to more than $2.5 million a day. AFR and peer nonprofit Better Markets recently received funding from the Omidyar Network for their work to counter this tremendous influence.

“The combined budgets for 30 financial industry trade groups—not including public relations firms, lobbyists, etc.—totals hundreds of millions a year,” said Dennis Kelleher, president and CEO of Better Markets.

Like AFR, Better Markets got its start around the time of the 2008 crash, when Kelleher co-founded the organization alongside Michael Masters, a wealthy hedge fund manager willing to constructively critique his own sector. Also like AFR, Better Markets is one of the only nonprofits standing between that torrent of industry money and the full rollback of post-recession regulatory reforms.

The gross resource differential between Wall Street’s legions of paid advocates and groups like Better Markets and AFR is partly a function of Citizens United and existing lobbying practices, which empower corporate interests to “invest” hundreds of millions in politics so they can make hundreds of billions in profit. But it’s also a failure of philanthropy. Despite the many worthy projects they do support, equity funders have been remarkably inattentive to key drivers of inequality in this country, including a deregulated financial sector.

That’s why it’s heartening to see a major player like Omidyar step up. Even though ON announced its intention to “reimagine capitalism” back in 2018, the organization’s plans are really coming into focus in 2020. Back in May, we reported on Omidyar’s rollout of $35 million to advance worker power—another oft-ignored staple of economic equity funding. And this summer, ON got into the financial reform arena with general support grants of $500,000 to AFR and $250,000 to Better Markets. Here’s why those grants might be an important sign of things to come.

Philanthropy Versus Neoliberalism

Pierre and Pam Omidyar have always been maverick funders, embracing impact investing, micro-finance and LLC-based giving long before those trends took off. The Omidyar Network’s Reimagining Capitalism initiative is another chapter in that story, and it puts the Omidyars in the company of only a handful of super-rich donors willing to fund causes like worker power and financial sector reform. But Reimagining Capitalism didn’t emerge in isolation. It’s one part of an ongoing conversation among ON, the Hewlett Foundation, the Rockefeller Brothers Fund and others about how philanthropy can catalyze alternatives to neoliberalism.

Reimagining Capitalism is also a work in progress. “We’ve just started to explore issues around financial sector reform, corporate governance and the future of business and finance in a reimagined capitalism in the last six to nine months,” said Chris Jurgens, director of Reimagining Capitalism at ON. In a July 16 blog post, Jurgens explained why ON chose to support organizations like Better Markets and AFR. “We believe our financial sector has become too big, too concentrated, too powerful, and too focused on driving profits for itself, rather than serving the real economy,” he wrote.

“This may not be what some expect to hear from Omidyar Network,” Jurgens went on, referencing ON’s history of impact investing and other capital-focused approaches to social problems. But ON has come to believe that philanthropic impact requires curbing the bad along with investing in the good. For the financial sector, that means reforms to “check the concentrated power of Wall Street” and to work toward a financial sector that serves the “real economy” in a more fair and inclusive way.

ON appears to understand that while financial reform isn’t the sexiest of causes, the financial industry “touches every household, every community, every company large and small,” as Jurgens put it. “And the financial sector has been a critical ‘upstream’ driver of behavior and decision making across the entire corporate sector—particularly around notions of ‘shareholder primacy,’” he said. The rising power of shareholders to dictate company policy, by the way, is one factor that drove the banking industry away from a mid-century focus on customers toward the kind of speculative self-dealing that prompted Dodd-Frank’s Volcker Rule.

Encouraging alternatives to ideas like shareholder primacy is one way for funders to approach the general project of reimagining capitalism. At the Hewlett Foundation, for example, an approach favoring cultural and academic projects is shaping up via that foundation’s Beyond Neoliberalism initiative. While ON also acknowledges the need for new ideas to replace neoliberal thinking, its initial grants favor a more nuts-and-bolts approach. Like many of its worker power grantees, Better Markets and AFR engage in direct advocacy and often come right up against the opposition. As Kelleher put it, “Unless you confront corporate power where corporate power is, things aren’t going to change.”

An Inside Game

Financial reform is one area where knowing the nitty-gritty can really make a difference. From the beginning, Better Markets’ focus has been on advancing the public interest in the context of very specific, often arcane policy fights. Those battles often take place in the arena of federal rulemaking rather than in any legislative context. The rulemaking process is where law becomes reality after a bill becomes law, as Kelleher put it—a fact corporate interests are thoroughly aware of.

The rulemaking arena is also where Dodd-Frank has been steadily whittled away over the past decade as industry lobbyists carry on a fight that began the day the act was passed. According to Kelleher, the circumstances of 2020 have accelerated that “deregulatory agenda” in several ways. In the name of pandemic relief, purportedly temporary deregulation has taken place at a fast clip this year. And in the face of a potential Democratic victory in November, Kelleher said, “as an insurance policy, the industry is trying to get as much deregulation done before the election as possible.”

Both Better Markets and AFR are well-placed to counter that trend, even if they’re fighting an uphill battle. As Jurgens notes, both organizations’ early work involved advocating for the public interest as Dodd-Frank was getting hammered out. But while their aims coincide, the two groups differ somewhat in their structure and tactics. Better Markets is a 501(c)(3) that is highly focused on expert advocacy in the halls of power. Meanwhile, AFR is a 501(c)(4) with an affiliated (c)(3) education fund. Its work involves expert advocacy, but there’s also a major coalition-building component.

“In addition to our staff expertise, AFR convenes a large coalition of some 200 entities, including grassroots groups, community-based organizations, labor unions, civil rights groups and consumer advocates,” said AFR’s Executive Director Lisa Donner. “We also engage in lobbying and campaigning to change the laws around finance,” she said. That includes, for instance, developing legislation to counter abuses in private equity and partnering with lawmakers to introduce the bill in Congress.

Better Markets and AFR also differ when it comes to their funding. Co-founder Michael Masters has always been Better Markets’ primary benefactor, while AFR has received significant support over the years from foundations like Ford, OSF and Arca. The Kellogg Foundation recently began supporting AFR’s COVID response work. That involves collaborative advocacy to “draw specific attention to the massive bailout that it is delivering for the investor class and financiers,” over the needs of the larger populace, Donner said.

Power Imbalance

We’ve done a lot of head-scratching over the years trying to figure out why more funders don’t delve into key arenas of political economy like financial, fiscal and labor policy. Potential reasons abound, from hesitation over looking “too political” to more hard-headed concerns over asset preservation and bottom lines. In the end, the biggest reasons may be cultural. Whether we’re referring to foundations or (especially) living donors, philanthropy is run mostly by elites talking to other elites, not to those the current economic order has excluded or left behind.

That’s why it’s so interesting to see an outfit like the Omidyar Network embrace economic justice so openly. Though he’s less well-known, Better Markets’ co-founder Michael Masters is another example. And depending on how her grantmaking plays out, MacKenzie Scott may end up being the biggest example of all.

It’s early to say for certain, but these donors represent an increasing level of awareness among the economy’s winners that the capitalism we have isn’t the capitalism we want. “Slowly, people are realizing that over the past couple decades, we’ve moved back to a laissez-faire, caveat emptor form of capitalism, even an extreme form of capitalism,” Kelleher said. Especially in light of the pandemic economy, “It’s pretty clear that it’s objectively false that what’s good for Wall Street is good for America.”

ON’s plan for the rest of 2020 is to engage with AFR, Better Markets and other field leaders to get a feel for the financial reform landscape. Jurgens referred to these initial grants as “exploratory,” so what’s coming down the pike may be more substantial. Nevertheless, whatever ON ends up doing will only slightly narrow the power imbalance between reform advocates and the financial industry’s influence machine.

“What we really need are 10 more Better Markets or 10 more AFRs,” Kelleher said. “Fundamental change is not going to happen until there’s a counterweight to balance the power of finance. And it’s not going to come from just one organization.”

Donner stressed just how much impact that kind of structural change could have. “So many fundamental decisions about how the economy works, and who it works for, and who is excluded are made through the decisions we make about finance,” she said. “There is a huge opportunity to have a transformative impact.”

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