The Great Divide: Government and Finance Face Cultural Chasms to Address Poverty Together
This is part 2 in a 3-part series on financial health, and how local governments and financial organizations must work together for broader impact. Part 1 lays out the current roles government and finance play in tackling financial stress and poverty. Part 2 details the operational and cultural challenges they face in working more closely together. Part 3 discusses strategies to improve.
By Paul Hoffman, Senior Engagement Manager
The national conversation between governments and technology companies is about trust, innovation, transparency, and the ability to serve constituents and users. Technology monopolies and a far off federal government wrestle these topics in Congressional testimony and 24-hour news cycles. But city governments and financial technology companies (“fintechs”) have a chance to talk more productively and make a difference for financially stressed people who need it most.
As I work with city governments and look at my fellow fintech companies, I’ve been thinking a lot about this conversation. As I concluded in my previous post about improving financial health, it is an exciting time to bring cities and socially conscious businesses together in this dialogue. Beyond marketing messages, political wins, or one-off programs, cities and fintechs can create better outcomes for those who need them most—improvement in their lives, financial health, or resilience. Bringing these groups together in a meaningful way is very hard. We will need to overcome significant cultural and structural barriers. But we must join together in this effort, because in all this talk, outcomes are the only things that matter.
Broad outcomes, not narrow metrics
Measuring outcomes for the financially stressed and poor is more complicated than it might seem. Some organizations use metrics including income, purchasing power, ability to cover basic needs, financial resilience, or participation in markets. Not surprisingly, this discussion often gets more difficult by expanding to related indicators like health, access to services, community strength, housing, or education. Even the terms we use to talk about these topics are nuanced. (For our purposes, we use the terms “financial stress” and “financial health” as a broad category as defined by CFSI. We consider terms like “poverty” or “poor people” as the sub-set which is most intensely financially stressed.) No matter the exact metrics or the precise language, it is the outcomes that matter.
Outcomes-based impact is not new. Businesses, governments, and nonprofits have developed frameworks to understand problems, design solutions with the end in mind, and measure outcomes instead of inputs. Each have created positive impact by targeting outcomes in their organizational scope. Fintech companies track consumer savings increases that result from small behavioral nudges, cities save constituents time when accessing essential services because of more streamlined processes. These scopes are in the right direction, but we can push further. The players have assumed most things can’t be changed. From city policy or technology stacks, to fintechs’ short-term profit motives, each side sees things they can’t change and have contented themselves with small steps. They have limited their thinking because trust, transparency, innovation, an ability to serve, and even political risk, have erected barriers.
Prestigious finance companies look for trust
Mastercard, Propel, Paypal, Dave.com, and JP Morgan Chase—big financial institutions and innovative fintech startups—are all working on reducing peoples’ financial stress. While they each have particular motivations, many have outlined the business and moral case for companies to do good while doing well. In a broad sense, Larry Fink wrote a letter to the entire BlackRock portfolio, making clear that he would only fund companies that consider societal impact. On financial stress more particularly, the financial services industry is recovering from an incredible blow to public trust. Perceptions of bailouts during the recession, data breaches, and stories of consumer fraud have eroded the public trust the financial services industry once enjoyed. The market includes a growing variety of banking and payment tools, and customers increasingly demand a sense of mission. Improving peoples’ financial health.
As organizations, these companies share basic components of operational culture, and they are often perceived similarly. These components and perceptions exist in their day-to-day business and especially in their social impact work. Spurred on by startups, even the biggest financial services companies extol the virtues of failing fast, and the necessity of constant innovation. They employ flashy techniques to quickly scope difficult problems, identify areas of greatest return, and focus their best and brightest on the problems they can fix. And they are celebrated for doing it. These companies aren’t expected to give back, so each good act is a major win. Each narrowly scoped program is the work of a visionary leader and a team of uber-achieving rock stars. These marginal wins matter and are cause for some celebration, but they aren’t enough.
Operating in the public trust comes with public scrutiny
City governments are diverse. They range from enormous organizations governing millions of people to employing tiny staffs with part-time leadership. They include a great variety of citywide elected positions, district elected and at-large elected officials, appointed leaders, city departments, quasi-departments, special authorities, transit authorities, and independent districts. They vary in their authority to levy taxes, dictate spending, hire, fire, and set programming. They are the center of their own politics, they can dominate their states’ politics, and they drive national political divisions.
City governments are motivated by their constituents’ desires: clean streets, low crime, prosperity, equity, and community. Every one of these desires includes consideration of financial stress, and every potential constituent has choices of where to live or work. Cities compete fiercely with one another on business climate, efficiency, the quality of public goods, policy choices, and budget health. Metro sections across the country will likely include stories of Amazon’s HQ2, news on public parks or schools, and a review of municipal budget shortfalls.
City governments face a unique and enormous transparency burden. Being employed as a public servant comes with potential Freedom of Information Act requests for your electronic communications and/or other pertinent government documents and records. It means every technology contract or award decision is public record, and every choice has the potential to be front page news. These constraints may create understandable risk aversion and slow innovation.
Instead of fail fast, city governments try to fail never. This high transparency is matched by high expectations. But, wins for city governments are treated as exceptions rather than cause for celebration. City workforces are perceived as selfless servants, but not as frequently as uber-achieving rock stars. Yet, city governments maintain a unique position of public trust despite a perception of missteps. Cities can rally the best in their constituents, and they tackle the problems no one else will. It’s perhaps this sense of hope and community that preserves trust even among criticism.
Bridging cultures and expanding our scope is hard, but necessary
Given the enormous differences in organizational culture and structural constraints, it’s no surprise that businesses and city governments don’t work more closely together more often. I’ve seen business people complain about the slow pace of government decision making. I’ve witnessed cities’ frustration with company leaders who don’t appreciate the high expectations they face everyday. For the sake of better outcomes, it’s essential that we overcome these hurdles to work together.
Financial stress and poverty do not care about a city’s challenges or companies’ marketing campaigns. These problems require attention, focus, and collaboration, and the solutions are not simple. The structural constraints are not moving. To deliver better outcomes, we need innovative models to bridge cultures. We need governments, technology companies, and anyone else who’s willing to join in a conversation. We need to expand the scope of our solutions.