Wealth Building: Multiplication by Division
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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:
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)?
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.
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.
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