Financial Sector Oversight Is Crucial to Tackling Inequality. So Where Is Philanthropy?

Remember the GameStop short squeeze? It’s easy to forget after months and months of a crisis-laden news cycle and endless internecine bickering in Washington. But back in January, just as a newly inaugurated President Joe Biden prepared to launch his push for a domestic spending agenda unprecedented in living memory, neoliberalism found itself prodded from an unfamiliar quarter—its own acolytes.

It started when a group of small-time retail investors (“dumb money” in Wall Street parlance) coalesced on Reddit around the goal of pushing up the price of stocks that institutional investors had bet against, or “shorted.” The most notable was brick-and-mortar video game retailer GameStop, whose business model has been rendered mostly obsolete by digital distribution.

Unlikely though it was, large numbers of amateur investors piled on, causing GameStop and other heavily shorted stocks to skyrocket—dismaying news for the asset managers who had bet against them. Though the moment was short-lived, the strange episode was characterized as a kind of popular uprising against the financial powers that be. A sort of Occupy Wall Street, but from a very different angle.

The GameStop saga, including institutional investors’ initial dumbfoundedness at the gall of these amateurs and the asset managers’ eventual return to dominance, illustrated a key dynamic of the neoliberal market model. However it’s conceived in theory, the lightly regulated “free market” tends to become an insiders’ game in practice, where institutional players set the rules of play in ways that are intentionally obscure to everyday investors and consumers.

But this game has deadly serious consequences. The vast resource disparity between the well-oiled financial industry lobby and what few public interest advocates exist in this space was one big reason why markets were allowed to crash so badly in 2008. And that gap remains a key structural factor in the ever-widening gulf between wealthy elites and everyday Americans. We’ve seen the results: uneven recovery from crisis, whether it be the 2008 recession or the COVID slump, in which the investor class prospers while the working class struggles to get back on its feet.

One might expect philanthropy to be deeply invested in this issue. Helping the less fortunate is an age-old charitable goal, and these days, funders are supposedly forever on the lookout for the most “strategic” ways to do that. But despite many grantmakers’ stated wishes to fight poverty and deprivation, financial reform is an oft-ignored, perennially underfunded cause.

Back in 2019, we heard as much from Michael Masters and Dennis Kelleher, who co-founded the public interest watchdog organization Better Markets in the wake of the 2008 crash. In a Washington, D.C., brimming with financial industry lobbyists and the politicians they court, Better Markets has been one of the few insider groups pushing to preserve elements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which are continually in danger of being whittled away, including in the arcane federal rule-making arena.

Masters, himself a hedge fund manager, has been one of the few philanthropists to back Better Markets in any significant way. And the same sparse funding situation holds for the handful of other nonprofit groups focused on this space. Among them are Americans for Financial Reform (AFR), a loose coalition of progressive organizations interested in Wall Street accountability, and the Center for Responsible Lending (CRL), a think tank and advocacy group focused on abusive and unfair lending practices and financial products.

AFR’s 501(c)(3) education fund has received money from a few big liberal funders like Ford, OSF, Kellogg and the Amalgamated Charitable Foundation. And CRL is one of several progressive organizations bankrolled by the late Herb and Marion Sandler, with further support from a similar group of progressive foundations.

Besides these three groups and a few other left-leaning organizations that devote part of their time to financial reform, the nonprofit sector is startlingly bereft of advocates pushing back against the torrent of money spent to promote financiers’ interests. For instance, AFR has estimated that Wall Street spent $1.9 billion on campaigns and lobbying during the 2017–2018 election cycle alone. Meanwhile, the combined annual revenue of Better Markets, AFR and CRL stands at roughly $10 million. As Kelleher told us last year, “What we really need are 10 more Better Markets or 10 more AFRs.”

So why isn’t philanthropy doing more to close the gap? One reason is that some funders are afraid this work is too “political”—an odd refrain, considering the fact that the structural drivers of poverty will always be intertwined with power and politics. Then there’s the hard fact that many funders may tacitly steer clear of financial reform to avoid hurting their own endowments and bottom lines. Elite cultural dynamics may also be at play: the tendency of wealthy philanthropists and well-compensated philanthropy professionals to feel little personal instinct for financial reform.

The end result is that by ignoring this space, philanthropy is ignoring a critical lever in the fight against wealth inequality and all its associated ills. Doing so imperils hard-won gains at the local level, increasing the chance that financial calamity will wipe out what little wealth lower and middle-class households manage to accumulate—particularly households headed by groups many funders prioritize, like women and people of color.

While we live in hope, this state of affairs is unlikely to change anytime soon. But the good news is that over the longer term, philanthropy, along with American society at large, is growing ever more critical of neoliberal dogma.

No matter the fate of the remaining items on Biden’s ambitious legislative agenda, COVID-era public spending already marks the start of a new era—possibly a post-neoliberal era—in which it’s less taboo to address social crises with the muscular application of public dollars. It’s still unclear whether similar momentum will build for things like worker power, antitrust regulation and financial reform. But we have seen some funders leaning into that conversation, and not just traditionally progressive foundations.

The Hewlett Foundation, a brainy funder that often seeks a cross-ideological path, has tackled the decline of the neoliberal paradigm with its Beyond Neoliberalism program and its successor, the Economy and Society Initiative. And the Omidyar Network, a one-time bastion of “philanthrocapitalism,” has taken a foray into both worker power and financial reform as the eBay founder joins the small handful of billionaires willing to fund against their class interests.

With late-20th-century free market dogma falling further and further out of fashion, we’re likely to see more funders dip their toes into the safer theoretical side of post-neoliberal political economy. But as Better Markets’ Kelleher and others have stressed, financial industry advocates aren’t content to operate on the level of theory or “narrative.” They’re pulling the levers of power however they can. If progressive funders want to mount an effective defense, they’ll have to do the same.

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