by Stella Tai

Community development investing is one way that faith-based investors can use their investments to make a real impact on the communities where they live and work. 

Investing in community development finance institutions provides aspiring entrepreneurs with the resources they need to launch businesses and services that many underserved, low-income and minority communities might be lacking. Since generally CDFIs and borrowers are members of the community, they have a better understanding of what would benefit the community than an outsider might. This makes it easier for the most critical needs to be met in the communities where they are based.

The COVID-19 pandemic exposed some of the unique challenges faced by Black, indigenous and entrepreneurs of color in underserved rural and urban areas when it comes to access to capital. This capital is the funding necessary to operate and grow these entrepreneurs’ small businesses. The uneven access to the federal government’s Paycheck Protection Program (PPP) loans and other emergency financial assistance highlighted a clear funding gap that traditional banks have not filled.

To meet these needs, some borrowers have turned to alternative sources of capital such CDFIs, Community Development Credit Unions, community loan funds and other non-predatory lenders who have proven that they can creatively and efficiently deploy capital, tailored technical assistance and other support systems to help them recover, thrive and grow. 

Post-COVID pressures continue

As small businesses — particularly those in underserved, minority and low-income communities — have slowly emerged from the COVID-19 winter, the reality of rising inflation has brought new concerns, but these concerns come without the COVID relief valves available at the height of the crisis.

Many businesses that took big hits during that time now face three major concerns: First, they must grapple with increasing interest rates and the resulting higher costs of borrowing. Second, mounting fears of reduced consumer spending arise as customers adjust to lower disposable incomes due to increased costs of living. Finally, these small businesses face hiring challenges due to the continuing tight job market, when all businesses are fighting to retain employees.

Investors can be part of the solution

It is no surprise that impact investors are particularly interested in small businesses that are important drivers of the economy. These small businesses support neighborhoods and communities by creating meaningful jobs and driving innovation and competition. 

Through investments in CDFIs, investors can support mission-driven alternative lenders that help maintain momentum in the recovery of diverse and low-income entrepreneurs. These institutions are nimble and innovative in reaching minority communities in a way traditional lenders are not. Located in the communities where their borrowers are, these lenders offer funding for businesses and services that are critical to the local community, such as loans to support new affordable housing initiatives, increased access to health care and access to clean water. 

A simple way for individuals or institutions to support businesses in underserved and underrepresented communities is to identify investment products that channel a portion of assets to CDI. For example, at Praxis Mutual Funds®, a fund family of Everence®, we invest 1% of our managed assets to investments in Calvert Impact Capital, an impact-investing institution that helps people across the country and around the world.

Closing thoughts

CDFIs have what it takes to address financial inclusion at scale despite their challenges. They have processes in place to mitigate risk and can deliver capital in a more cost-efficient way, making it a win-win for the investors and the borrowers. Investing in CDFIs can help move us closer to a more equitable and inclusive economy.

Praxis Mutual Funds is a leading faith-based, socially responsible family of mutual funds designed to help people and groups integrate their finances with their values. Praxis is the mutual fund family of Everence Financial, a comprehensive faith-based financial services organization helping individuals, organizations and congregations. To learn more, visit praxismutualfunds.com and everence.com, or call 800-348-7468.

by Shane Enete

Discerning our role in the investment process

I have a beloved tree that I planted in our garden many years ago. It’s called a palo verde tree because of its green bark. My favorite part about the tree is how it adorns a bright, yellow covering of flowers for 2-3 months in late spring. After I planted the tree, I patiently waited for its bloom. But, it never happened. I planted it well. I watered it well. But it never bloomed. I prayed and prayed, and, instead of perking up, all of the leaves of the tree ended up falling off.  

During this planting frustration, I came across a verse written by the Apostle Paul:  

“What then is Apollos? What is Paul? Servants through whom you believed, as the Lord assigned to each.I planted, Apollos watered, but God gave the growth. So neither he who plants nor he who waters is anything, but only God who gives the growth…For we are God’s fellow workers. You are God’s field, God’s building”

1 Corinthians 3:5-9, ESV

As I pondered this verse about how God grows the church, I was overwhelmed by the conviction that, when I try to grow plants, I presume that everything is about me – how I plant and how I water. That is all that really matters to me. I basically assume that the whole growing of the plant only happens because of what I do. When it comes to God, I had essentially narrowed His role to a friendly neighbor who simply walks by to say, “hello” or, maybe, “looks good.” 

I assume that the growing of the plant only happens because of what I do. 

This is the same with my investments. 

When I started work as a professor at Biola University, I came from an investment consulting background. As an investment professional, I was paid to help clients outperform the market using modern asset allocation strategies. As I prepared to contribute into my new retirement account, I put together a great strategic asset allocation. Designing a strategic asset allocation was my “planting.” I then started to contribute a portion of my paycheck into my retirement account and monitor my investment, which was my “watering.”  

After planting and watering my retirement portfolio, I waited to see it grow. As I waited, I began to become more and more frustrated. My portfolio did not perform as well as the market. I was under-performing. Put another way, my portfolio was not blooming! In fact, my under-performance got so ugly that you might say all of the leaves fell off of it too.

As this was happening, my prayers around my portfolio (and my palo verde tree) were desperate prayers for God to bless my planting and watering with growth. While prayer is always a great way to respond to disappointments, the problem with my prayers was that everything was about me and my agency. 

“Lord, bless my amazing planting and my sufficient watering!” or, “Lord, make me get better at planting and watering.” But, Paul speaks of a different way to think about our role in helping things grow:

 “Neither he who plants nor he who waters is anything…For we are God’s fellow workers. You are God’s field, God’s building” 

Although this passage is about the growth of a church, its principles can easily map to the growth of just about anything. In this passage, Paul defines our role in a growing process as one of a servant who belongs to God. “Fellow worker” refers to a table-waiter. So, according to Paul, we are actually table waiters, and it is God who is the owner of the restaurant, and it is He that actually has all of the responsibility for the restaurant’s growth.

As we plant and water, this truth makes God’s role so much larger that our role becomes nothing in comparison.

But, how can this be? My role seems absolutely essential since my investment would not be able to grow if I did not put money into an account, right? While this appears to be sound logic, this way of thinking essentially argues the opposite of what Paul is saying: our planting and watering is everything while God’s growth is contingent on our actions, so it is really nothing. 

For me, in order to get out of my man-centered thinking, I needed to stop and consider what growth is. Growth itself is a miracle! With gardening, God is the one that is multiplying cells and converting the energy from the sun into a productive process while we hold our rusted bucket of water and handful of soil. Likewise, with investing, God gives people creative minds to come up with a capital market process that allows products and services to be financed in a way that produces a net profit for shareholders while we have a flickering computer screen, some pie charts, and a few formulas.

Growth can only be accomplished by God. But, while the growth has everything to do with God, we are asked to participate in God’s growth process through our planting and watering. We are just a small part of a much larger process, all orchestrated by our great King. We are asked to participate as a table-waiter, not as the boss; and we are wholly owned by God.

To illustrate this point further, imagine a waiter is asked by his boss to turn the lights on. No waiter who flips on a light switch would declare to his boss, “I made the illumination happen!” Flipping a light switch does not generate electricity. In the same way, when we instill and maintain our investments, we need humility that we are simply tapping into a growth process that is all about God. God’s role in the process of growth is everything, while our role is nothing in comparison. 

No person who switches on a light switch would claim that they made electricity happen.

God needs the credit for both the growth and the lack of growth of our investments. This can be greatly comforting when our investments languish since the lack of growth is not about us. Instead, because God’s role is everything, we need to act as good table-waiters who continually look towards the boss as the most important person in the room who is in total control over the situation.

Coming back to my story about my poor, languishing palo verde tree, after much research and prayer, I discovered that the problem was that my tree was infested by a certain pest. Once I addressed the pest, the tree instantly perked up and adorned itself with gorgeous yellow blooms (I included a picture of my happy tree).

So, was it my new technique that made my tree grow? It is so easy to fall right back into my old patterns of thought, “I did it! Thank goodness I figured it out. It’s all about what I did!”

Instead, I remembered that all I did was participate in a small way to God’s amazing work. I was the servant who flipped the switch, but God was the master engineer. And my service, while a privilege, was nothing compared to God’s work in putting together all of the pieces needed for a two month long cascade of bright yellow blooms draped across beautiful green bark. 

In the same way, when it comes to our investing, while we do have a small part to play in helping our investments grow, which we should relish and treat seriously, God’s part is truly EVERYTHING.

Article originally hosted and shared with permission by The Christian Economic Forum, a global network of leaders who join together to collaborate and introduce strategic ideas for the spread of God’s economic principles and the goodness of Jesus Christ. This article was from a collection of White Papers compiled for attendees of the CEF’s Global Event.

by David McAlvany

Inflation is now at multi-decade highs globally and is affecting countries that are not accustomed to dealing with it. The implications for the global economy in general and asset prices specifically are of great consequence.

Last year, I argued that inflation would be longer lasting and much more impactful than was commonly thought. On a related note, I made the case that as we pivoted from monetary policy to fiscal policy interventions in the context of Covid, politicians would be hesitant to relinquish the political power gained by distributing cash to constituents. Though I would love to have been wrong, both predictions have turned out to be correct. Clearly, inflation remains an issue and is likely to average well above central bank targets far longer than expected.  

This year, I’d like to look at the consequences of inflation in three areas. First, I’ll consider the impact of inflation on the stock and bond markets. Then, I’ll balance a bullish and bearish case for hard assets including real estate, which is the largest asset for most households. Finally, I’ll consider the political implications of inflation and, by extension, the geopolitical implications that provide a contrast between the WEF versus CEF (World Economic Forum, Christian Economic Forum) vision of global change.

Now that inflation is at 40- to 60-year highs, it might be tempting to consider the worst already behind us. Two arguments militate against that possibility. One, inflation becomes entrenched when consumers see it as an inevitability. They alter their consumption patterns, increasing demand in the present to pay now rather than waiting and seeing what prices will be later (hoarding). Supplies thus remain artificially tight, and prices remain elevated based on excess demand buttressed by this psychological fear of higher costs in the future. Two, bringing inflation down requires a policy-induced slowing of economic activity. Monetary policy has traditionally been the tool of choice, via the hiking of interest rates to trigger recession, cool off demand, and allow for prices to come off the inflationary boil. This is not now an option for the FED as it would sacrifice the current low level of unemployment—a major policy win so far this year.

In the absence of a central bank policy-induced economic squeeze via targeted rate hikes, the bond market may step in to do something comparable. To rationalize a continued investment in fixed income, bond investors will sell until the price of fixed income assets drops and their corresponding yields increase in real terms to a level that is attractive. (By real, I mean adjusted for inflation. Current yield minus the inflation rate gives you a number that is either positive or negative. That is your real yield. Yields should exceed the inflation rate by 1–2% according to the Taylor Rule.)

If fighting inflation is that straightforward, why hesitate to enter the fray and aggressively raise rates? Here we land on our first consideration for this paper—the impact of inflation on the stock and bond markets. Let’s consider three elements: the Fed’s trilemma, the demographics of wealth destruction, and the solvency of banks and other leading financial institutions.

The Fed is required by mandate to 1) control prices (which is one of their core mandates, at which they are now failing with the consumer price index above 8%) and 2) keep the jobs market stable (a current success story with unemployment at 3.6%). But they have a third unofficial mandate to maintain financial market stability. At this point, to regain control of prices and manage inflation rates lower, they would need to raise rates above the level of inflation. That would destroy both the jobs market and cause a bear market in stocks and bonds. Why does a bear market matter so much?

It brings up the second element I mentioned: the demographics of wealth destruction. Retirees from the baby boomer generation are still leaving the work force at a rate of ten thousand per day. Covid accelerated that trend, leaving over 11 million job openings and adding upward pressure to wages. With a huge cohort transitioning to reliance on their portfolios as a supplement to social security and pension incomes, the direction of stock and bond prices is particularly relevant. The US population over the age of 65 (https://www.urban.org/policy-centers/cross-center-initiatives/program-retirement-policy/projects/data-warehouse/what-future-holds/us-population-aging) has exceeded 55 million and is on target for reaching 80 million by 2040. This group has the most to lose in a bond and equity bear market induced by inflation and hardened by increasing interest rates. A bear market for both stocks and bonds simultaneously doubles the damage and impairment. With higher rates of inflation comes the natural rise in interest rates, along with the policy increases in rates that reinforce the downward bear trend in financial assets.  

The third element I mentioned is institutional solvency. Banks and financial institutions maintain highly leveraged balance sheets, typically 95% debt to 5% equity, and significant exposure to the leveraged loan market. Corporations are geared at a much more conservative 50:50 leverage ratio (https://www.bis.org/speeches/sp140226.htm). When considering the impact on institutional solvency, banks and financial firms are particularly at risk with sizeable portfolios of fixed income securities. The conclusion is that raising rates aggressively puts banks and financial institutions at risk from a solvency perspective since their assets are under pressure in the context of rising rates. 

Next, let’s consider the difference between financial assets, which I described above, and hard assets. There is an approach to asset preservation and growth in the context of abiding inflation that is distinct from the traditional 60/40 portfolio blend of stocks and bonds. Let’s begin with the definition of a hard asset: a tangible asset or resource with fundamental value. This could include oil, natural gas, gold, silver, farmland, timber, commercial real estate, or companies that derive their value from producing and selling these resources.  

Now let’s consider why these assets can perform differently than financial assets. An increase in the price of the resources that hard asset companies sell contributes to an increase in margins, all else being equal. In an inflationary environment where the price of goods and services is on the rise, the challenge is for management teams to contain costs effectively and allow the commodity price increase to benefit their bottom line. Wage increases, fuel costs, shipping costs, and many more can mitigate this success. Effective management and quality assets are critical.

A risk factor for some hard assets ties to the possibility of effective inflation management. If rates are in fact raised to a level where demand can be reduced and recession triggered, economically sensitive hard assets take on a unique risk profile. Industrial metals come to mind, along with gasoline and oil. My preference is for the precious metals because they are less economically sensitive (versus copper or iron ore, as an example) and more liquid. They provide inflation protection without stagflation vulnerability. The king of hard assets is gold. Oil is arguably more vital from an economic standpoint, but therein lies its vulnerability. In a period of economic expansion and inflation, oil would be king. In a period of economic stagnation and inflation, gold wears the crown.  

Some hard assets are still at risk in an environment of rising interest rates. Real estate has mild inflation insulation with upward rent mobility. If it’s encumbered, it will benefit from a diminished debt burden due to devaluation. However, those benefits accrue to long-term owners. Buying and selling real estate assets in an inflationary environment can be dangerous due to the repricing of cap rates in lock step with interest rates. So a future sticker price is likely to be lower as cap rates and interest rates move higher together.  

Finally, we look at the political cost of inflation. In a democracy, how people feel matters a great deal. It influences how they vote. Job insecurity, financial and budget insecurity, and feeling threatened or at risk moves the moods of voters. Inflation hits home with the average household whether they can specifically identify the cause of their anxiety of not. Current presidential approval ratings seem to confirm that, despite reasonably strong economic statistics and a very strong jobs market, something is not quite right. Digging into the most recent University of Michigan consumer sentiment numbers, you find a level of desperation and despair that is completely out of step with other economic metrics. The consumer is on the ropes. Why? Inflation. 

History is not all about democracy, and most of the inflationary periods of the past did not take place in democracies. The Roman republic witnessed great upheaval as the empire neared its end, with inflation a hallmark of the period. It is no coincidence that the number of emperors who were killed versus those who died of natural causes rose to 80% between 175 and 300 AD as the Roman currency was devalued.  

The famously misquoted “let them eat cake” came not from Marie Antoinette but from a Royal of the court many decades before, yet it still cost her head. Just as fake news today serves to magnify bias, so too the peasant crowds of Paris in the 1790s were angry, vengeful, and embittered by the scourge of inflation felt most painfully by the poor. Angry mobs in the 1700s and food riots in Tunisia (kicking off the Arab spring in 2011) have in common desperate household budgets unable to provide even the most basic staples.

Another political hallmark of inflationary periods is a rise in populism and national self-interest.  This coincides with the concerns of the WEF over globalization coming to an end and national policy objectives displacing the global cooperation of recent decades. 

CEF was originally conceived as an organization that, like the WEF, would approach the biggest global challenges facing modern society and bring solutions. However, instead of being strictly man-centered, its solutions are Christ-centered, Kingdom-focused, and redemptive both in inspiration and in best practice formation, learning from all God’s people, from every nation and ethnicity. Seeing the world through the lens of God’s redemptive desires and Kingdom identity creates a radically different global agenda. Hearing the voice of God and aligning our actions with a plan that transcends our ingenuity also helps differentiate the CEF vision of the future from that of the WEF.

Globalization, in a single word, captures a process of cooperation between nations, improving terms of trade, facilitating greater capital flows, and working on a variety of public policies across borders. Increased globalization brings about periods of growth characterized by peace and improved prosperity. These episodes are recurrent through thousands of years of recorded history, with enough periodicity to describe them as cyclical. 

Deglobalization, by contrast, is a breakdown of the process. It’s characterized by increased insularity, implementation of capital controls, erection of trade barriers and tariffs, and competitive currency devaluations. National priorities supersede international ones, and cross-border cooperation is constrained by domestic, sometimes populist, politics. Many issues are influencing this shift to deglobalization, but constrained household budgets and the reprioritization around immediate needs, driven by inflation, is a key factor.

When these periods of globalization end, there are always financial market ruptures, currency crises, and war (Harold James explores these themes in his book, The Creation and Destruction of Value). If the current period of globalization is ending, then the peace dividends of the past 50 years will no longer be present, and the world will look and feel quite different. An increase in economic friction and costs will reshape the decisions and planning for business leaders and non-profits for decades to come.  

How does courage relate to the topic of deglobalization and inflation? I Corinthians 15:58 reminds us, 

“Therefore, my beloved brothers, be steadfast, immovable, always abounding in the work of the Lord, knowing that in the Lord your labor is not in vain.”

In God’s economy, the work of redemption is always afoot, and under some circumstances is accelerated. The end of the Roman empire and the trend of deglobalization between the third and fourth centuries AD provided a dynamic backdrop for the spread of the Gospel. There is a spiritual battle afoot in any period of change for what set of values will define the times and the days ahead. Measured by global GDP growth, or in terms of real inflation adjusted wages, the years ahead may seem pressured and strained. Seen through the lens of the Gospel, we have our Roman roads and the means of carrying the good news to all the world.

Could the remnants of globalization and the disillusionment and disorientation of deglobalization provide a profound context for discipleship, Christian charity, and a ratcheting forward of Kingdom works? I believe that they can.

Can the most courageous among us operate without the tailwinds of credit growth, cross-border cooperation, and the hyper economic growth experienced in the late 20th and early 21st centuries? What does Kingdom work look like in an era of financial compression, asset deflation, and currency instability? We are accustomed to a patron model of philanthropy for organizational viability. Is there a complementary mode of operation that is less dependent on concentrations of capital and thus less contingent on prevailing economic and financial market conditions?

Craig Deall and Foundations for Farming stand out as exemplars. Kingdom-rich principles of stewardship do not require the riches of the world to take root and grow. Our willingness to be led by God and obey Him, to serve and love others, and to take our God-given talents and share them with those who are desperately in need of basic resources opens the way to echoing the kerygmatic spirit of the early church.  

The Surprising Resilience of Freedom Businesses Amid COVID-19

by Rachel Rose Nelson, Executive Director of Freedom Business Alliance

Impact investing is on the rise and needed more than ever to accelerate solutions to global challenges created by COVID-19. But how do investors engage with businesses that are high-impact but face high social costs as well? Prior to the outbreak, many faith-driven investors were attracted to the compelling promise of Freedom Businesses with their mission to employ vulnerable survivors of human trafficking. But few ended up actually investing. The reason: many of the businesses have been seen by investors as too reliant on charitable donations. But it turns out this supposed weakness has proven to be a source of strength amid crisis.

Admittedly, businesses that exist to employ survivors seem to operate in an upside down model. Where most businesses seek to hire the best and brightest, Freedom Businesses hire the uneducated and traumatized, resulting in unusually high social costs, even by most social business standards. Freedom Business Alliance has gathered more than 75 of these businesses together, almost all founded by leaders compelled by their faith to offer employment to this vulnerable population in order to reverse the harrowing statistics shared by Thomas Reuters Foundation that show 80% of survivors are re-trafficked absent dignified employment post-rescue. The business model defies worldly wisdom.

“After returning from months in India, I understood lifelong freedom for women trafficked for sex was dependent primarily upon sustainable employment. Business undergirded with holistic care is the key. Yet, a few business leaders advised the risk was simply too great,” reports Ryan Berg, Founder of Aruna, an athleisure-wear company focused on building a community of freedom champions around their brand. “Doing nothing was not an option. So I launched a nonprofit first. And out of the community surrounding the nonprofit, we then launched the business.”

This kind of hybrid model throws investors off, even faith-driven investors, committed as they are to supporting businesses that benefit the vulnerable. Yet it’s a model that has been adopted, in a variety of configurations, among most businesses in our Alliance. This hybrid financial, legal, and operational structure, while somewhat experimental right now, is justified given the extraordinarily high social costs of employing survivors. These businesses offer employee development resources unheard of in most countries, let alone the developing economies in which many of them operate. Services include vocational training, life skills development, trauma counseling, paid sick leave and more, all necessary to accommodate the needs of survivors, and transform them from unemployable to highly valuable team members, even leaders. It’s a transformation that can only be accomplished through dignified work within supportive community. And, as it turns out, people are willing to support that kind of transformation with sizable donations.

When COVID-19 hit, the mission of our organization to scale the Freedom Business movement was under threat of being entirely undone. These businesses are seemingly fragile, many not yet profitable, and all operate according to new rules being written realtime, often as a result of trial and error. And indeed, as our team made the rounds in reaching out to our members, we found more than half saw sales drop by over 75%, with no grants available from Uncle Sam since those they employed were primarily overseas. But in a second round of outreach, much to our surprise, things were looking better not worse. Many had launched their own fundraising campaigns, flexing the nonprofit side of their operations to garner support, and getting it. We shouldn’t have been so surprised. God promises that in our weakness his power is made perfect (2 Cor. 12:9). And the generosity that has risen in support of these intrepid businesses is nothing short of a display of God inspiring the hearts of many to lift the weak to a place of strength.

Where some within our movement have in the past called for abandoning the donation-based structures integrated into so many of our constituents’ businesses for fear it weakens their business discipline and disqualifies them from the game, perhaps we should instead adopt the Apostle Paul’s mindset when he declared his “delight in weaknesses, in insults, in hardships, in persecutions, in difficulties. For when I am weak, then I am strong.” Businesses that some have discounted as weak due to the social costs and extreme challenges of employing at-risk populations have turned out to be surprisingly resilient in crisis. It turns out that solidarity with survivors may just bake survival into their DNA.

While proven structures and models must certainly be defined in this new, hybrid business realm, the values-based investor would do well to allow for people’s generosity to shine forth in a new type of partnership between the invisible hand and the helping hand. Only then will we see just how powerful God is in moving forces for good even when all around us things may seem to go bad.

FOR MORE INFORMATION ON COVID-19, PLEASE SEE OUR PAGE HIGHLIGHTING SOME OF THE BEST RESOURCES OUT THERE FOR FAITH DRIVEN INVESTORS & ENTREPRENEURS IN THIS SEASON.

by Brian Gardner

When Jesus looked up and saw a great crowd coming toward him, he said to Philip, “Where shall we buy bread for these people to eat?”  He asked this only to test him, for he already had in mind what he was going to do.  – John 6:5-6

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I don’t like poverty.  I’m uncomfortable enjoying my abundance alongside others who struggle daily to make ends meet.  The questions sometimes haunt me: Why them, and not me?  Where could we possibly get enough “for these people to eat”?  

I don’t want the poor to disappear, but I do want their poverty to disappear – for them to rise above hand-to-mouth subsistence and enjoy an abundance of their own.  Yet it seems in some ways that we are moving backward.  While significant strides have been made to reduce extreme poverty worldwide in recent (pre-Covid) decades, there is also this: the wealth gap is huge and increasing rapidly (1), underscoring and exacerbating the divisions that exist everywhere to the detriment of us all.

Yet by now we know: giving stuff to the poor doesn’t necessarily make them not poor.  In fact, simplistic efforts at poverty alleviation can make matters worse rather than better if they fail to address the reality that in its many dimensions, poverty is not only about the lack of material resources necessary for human survival, but also the lack of things crucial to human flourishing (2) – including a sense of personal worth (3), contribution to society, and hope for the future.

So, what are we to do?  To that question, I offer this one: What if instead of merely sharing our money, we shared ownership of the means by which we produce it?   

Read that again.  What do I mean?  

Consider: What did God intend when he commanded his people to practice jubilee?  In that arrangement, families who had fallen into hardship, forfeited their land, and become indentured servants would not always remain in that state.  Jubilee offered them not only debt-forgiveness, but also a return to ownership of a productive asset (land).  Servants, whose hard work accrued primarily to the benefit of their masters, became landowners, whose labor and ingenuity could create wealth for themselves and their families, freeing them from perpetual reliance on the charity of others.  

While they were part of an agrarian society, and we are not, I feel compelled to ask: How can we apply the timeless principles of jubilee to our modern economy, contributing to the flourishing of all?  

My answer as an investor to this question is simple: by sharing the success of the company with its employees through well-designed equity or profit-sharing arrangements, offering them tools and encouragement to build strong personal balance sheets.  We’d like to measure the social impact of our investments in part by increases in the net worth of entry-level employees of our portfolio companies. 

I find this answer compelling because:

1. It is generative rather than purely redistributive, offering the chance for everyone to win because it is not a zero-sum game.  Since wealth is the accumulated surplus of production over consumption, increases in production more than consumption creates new wealth.  And when is a man more likely to be industrious and clever and productive: When he is a servant, or a landowner (4)? 

2. It offers people dignity and a sense of agency, satisfying their intrinsic need to engage in meaningful productive work.  I believe everyone can benefit from the opportunity to experience the joy of thinking more like owners than laborers.  

3. It removes barriers. By aligning investors, operators, and employees, this approach might foster a sense of community, providing a welcome counterpoint to fractious forces that characterize all of our interactions as “them or us” power struggles.

4. It is measurable and relatable.  A strong balance sheet typically signals a healthy and resilient company.  It stands to reason that improvements in employee balance sheets will provide a reasonable (though imperfect) proxy measure for improved health and resilience for their households.

I also find this answer disturbing, probably for obvious reasons.  Might our “generous investing” lead to less profitable investments, or benefits for the undeserving?  Maybe.  Yet for members of Christ’s coming-and-now-here kingdom, called to imitate him and participate in his redemptive work in the world, generosity is both par for the course and potentially transformative.  I’m challenged by the compelling definition offered by our friends at Praxis Labs: “Redemption means restoration through sacrifice. (5)”   

But in my disturbance, I’m also comforted by the recognition that God’s economy is quite different than ours.  In it, there is plenty for everyone.  Scripture often emphasizes the reality illustrated in the feeding of the five thousand: God routinely produces abundant returns from small sacrifices, blessing many people, including those making the sacrifices (6).  I’ve found biblical scholar Walter Brueggemann’s observations about the “myth of scarcity” provocative as I think about the redemptive possibilities of this idea.  As he says, “the real issue confronting us is whether the news of God’s abundance can be trusted in the face of the story of scarcity (7).”

So, trusting the news of God’s abundance, we aim to grow profitable companies that increase the net worth of entry-level employees.  This will involve providing them not only with access to living-wage employment, but also tools to build financial fluency and resilience.  For that, our toolkit includes:

• Employee profit sharing, pseudo-equity, or equity: In the pro forma for any potential acquisitions, we’re allocating a line for employee profit sharing (8).  We believe that doing so will not require a concessionary investment hurdle rate, because the overall approach will lead to a more aligned workforce and hence a more profitable company, meaning investors get a smaller slice of a larger pie (9).  While this belief requires making a bet on profit growth, that is a bet I’m personally willing to make because I think it is consistent with God’s nature and design of the world.  

• Open book management: By coupling a basic primer on the company’s financials and key drivers of success with high-level reviews of its goals and performance at all-employee quarterly briefings, we aim to engage them in discovering profitability improvements by helping them see the bottom-line impact to themselves.  Since no one watches the shop like the owner, we want all to think like owners – because they are!

• Personal finance education and tools: By providing elective financial education to employees, and some basic personal finance tools, we hope to equip them for budgeting, saving, and avoiding financial pitfalls.  The aim is to support them on a path to robust financial health.  

• Saving & investing support: As part of their financial education, employees can receive guidance on building personal balance sheets.  With appropriate confidentiality measures, we hope to track growth in their net asset positions, providing one of the key impact metrics for the investment.  Since one consistent challenge to saving for many is the inability to see progress toward long-term financial goals sufficient to motivate adherence to a plan, we hope to make progress in asset-building visible, incremental, and motivating, and are considering the potential relevance of gamification (10) to this challenge. 

• Relevant financial products & services: With sufficient scale (and possibly company subsidy), we hope to negotiate favorable terms with financial services providers that could provide support for appropriate lending products (e.g. car and home loans, sensible emergency loans), savings products (incentivized development accounts, etc.), and insurance products.   

• Generosity support: As it is more blessed to give that receive, we aim to encourage and support employees’ charitable giving.  The surprising results of doing so are but one of many fascinating elements of the story Pete Ochs shares about his work at Seat King (11). 

Will growing companies in this way eliminate the poverty of all of the world’s poor?  No, it won’t.  But I believe it can help, it can scale, and it offers a very practical way for us to live and operate daily in alignment with our own prayers, as Christ taught us to pray: “Thy kingdom come, thy will be done, on earth as it is in heaven.”

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References

1  https://apps.urban.org/features/wealth-inequality-charts/

2  For a helpful exposition of this idea, see Steve Corbett and Brian Fikkert, When Helping Hurts: How to Alleviate Poverty without Hurting the Poor…and Yourself

3  As God exhibits both productive work as well as rest in the creation account, I believe that each is essential to our fulfillment as his image bearers.  In Small is Beautiful: Economics as if People Mattered, E.F. Schumacher expresses it well: “…to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.”

4 The summary of studies available at https://www.nceo.org/article/key-studies-employee-ownership-and-corporate-performance is instructive on this

5  See https://praxislabs.org/mission-and-model.

6 For example, see Proverbs 22:9; Proverbs 28:27; 1 Kings 17:7-16; and Luke 6:38.  

7 Walter Brueggemann, “The Liturgy of Abundance, The Myth of Scarcity” (available at https://www.religion-online.org/article/the-liturgy-of-abundance-the-myth-of-scarcity/ )

8 The implementation will vary based upon circumstances.  Our primary goal is to allow employees to share in the financial success of the company and to give them tools, supports, and incentives to “invest” in it and to think about it more like owners/stewards than hired laborers.  While ESOPs offer a mechanism for sharing wealth with employees, they have their limitations and downsides.  So we are keenly interested in creative alternatives that provide some of the key benefits without all of the baggage.  

9 Even if increases in profitability associated with profit-sharing or employee equity programs are not sufficient to offset the investor “loss” associated with them, I pose the question: How much return is enough for investors?  I find it interesting that, compared to returns typical of a broad public-market investment strategy, the yields available in private equity investments are sufficiently high that investors might do as well holding those investments for a reasonable period, then giving the equity outright to the employees.  This is not intended to be overly simplistic about the unique risks associated with PE investments, but let’s consider that when establishing risk premiums, the “golden rule” applies: Those who have the gold make the rules.  

10 For more on gamification, see  Yu-kai Choo, Actionable Gamification 

11 For more, watch “Pete and Debbie Ochs – Jailhouse Generosity” at https://www.capitaliii.com/impact