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What Funders Can Learn From the New Deal for Recovery in Our Time

Date: December 7, 2021

Dr. Angela Jackson

Managing Partner, New Profit

Micah McElroy

Associate Director of Research, Effective Philanthropy Learning Initiative at the Stanford Center on Philanthropy and Civil Society (PACS)

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As we confront the many inequities exposed by the COVID-19 pandemic, The New Deal, the Roosevelt administration’s sweeping policy response to the Great Depression of the 1930s, should be an inspiration. Its policies demonstrate that in mending the economy — the work of recovery — we can also expand the rights of American citizens. More than an attempt to restore markets laid low by the Great Depression, New Dealers fought to ensure that Americans had access to their basic material needs, from work to housing, unemployment insurance, and education.

But the New Deal’s failures are also informative, especially for philanthropists and the nonprofit sector. Some of the New Deal’s most important efforts at expanding the economic rights of Americans were far from universal. Women, people of color, and other vulnerable workers were locked out from the full enjoyment of these rights. When we look back, it’s clear that all too often private sector interests influenced the design of the New Deal, which perpetuated inequity even after the Depression passed.

As the Biden administration’s proposals make their way through Congress and spark a national conversation about rebuilding our economy, philanthropy has a unique moment of opportunity to bridge public and private sector concerns in service of real equity, transparency, and systemic change. By learning from the intended and unintended consequences of the New Deal, philanthropy can ensure America builds a more just economy in its recovery.

Closing the Gap with Purposeful Funding

The signature policy of the New Deal was the Social Security Act, which, in addition to other provisions, provided unemployment and old-age insurance to millions of Americans. In return for their payroll contributions, wage-earning Americans no longer depended so heavily on their employers or charity to survive hard-times.

While the Social Security Act committed the government to addressing some of the worst instances of poverty in the United States, it rested on assumptions about women and men that did not create a more equitable nation. The policy’s architects primarily wished to restore men as breadwinners in order to salvage the economy, but women and the work many of them performed outside the wage economy factored almost not at all in their debates about Social Security. Whereas wage-earning men gained the right to the Act’s most generous programs — unemployment and old-age insurance — the programs that primarily benefitted women were not only stingier but often required invasive scrutiny and needs testing.

In addition, Congress exempted many women, Black Americans, and already poor workers from its most generous programs. Bowing to the opposition of employers and southern Democrats, who viewed Social Security as a threat to their control over workers, Congress excluded domestic and agricultural workers from old age and unemployment insurance. By acquiescing to their demands, Congress denied the women and Black Americans who were a disproportionate part of either industry’s workforce the greatest benefits of Social Security. In total, the exemptions — later amended — affected 11.4 million Americans.

If our recovery is to achieve the equity that eluded the New Deal, then philanthropists must ensure that those most in need have greater influence over policy. A key priority for philanthropy should be supporting leaders from underinvested communities whose work is grounded in deep understanding and experience of their communities’ needs. Only four percent of philanthropic dollars in the U.S. go to organizations led by people of color, and nonprofits in rural parts of the country are funded at a much lower rate than urban nonprofits. With less access to start-up capital and resources, these leaders have less access to public funding and less influence over policy. Philanthropists have an opportunity to increase the political power of underinvested communities by investing in leaders of color and building their capacity for growth at a critical moment that will chart the course of America’s growth for decades to come.

Fostering Transparency

Through the Homeowner’s Loan Corporation (HOLC) and the Federal Housing Authority (FHA), the New Deal’s housing policies helped millions of Americans become homeowners. They made it easier for banks to lend and for Americans to acquire mortgages and, as a result, led to a post-WWII boom in home building. While we associate these policies with housing, the Roosevelt administration’s first priority was to stabilize the real estate and construction industries — both of which had collapsed during the depression. And it was those industries’ needs, rather than housing reformers, interracial housing activists, or civil rights advocates, that influenced the creation of the HOLC and the FHA.

Like the Social Security Act, allowing the interests of the private sector to shape policy contributed to inequitable results. The HOLC, for example, helped mortgage lenders determine the credit worthiness of neighborhoods by creating now infamous residential security maps. Adopting then-standard assumptions of the real estate industry, the HOLC categorized neighborhoods in which Black people resided to be the highest risk for lenders. By making business practice into national policy, the federal government helped institutionalize the denial of credit for homes and construction for segregated neighborhoods.

While the HOLC gave government sanction to racist lending practices, the FHA effectively subsidized the segregation of suburbs and cities by underwriting mortgages in largely white neighborhoods under the assumption that Black people devalued property values, while privileging construction of new homes rather than the rehabilitation of older housing. By the late 1950s, only 2 percent of the homes built with FHA support since World War II were occupied by Black Americans.

While public-private collaboration is critical to the mission of recovery, FHA and HOLC offer a cautionary tale about what happens when private sector interests tip the scales too far in one direction. Philanthropists can help level the playing field for activists and progressive organizations that wish to shape policy by funding watchdog organizations. Nonprofits such as Allied Progress, American Oversight, Restore Public Trust, and the Western Values Project each work to make government more transparent. They help voters understand when their representatives prioritize private sector interests that may endanger racial and class equity in the United States.

Foundations’ Role in Informing Systemic Solutions

The large-scale impact of the FHA and HOLC offer another instructive moment for philanthropists aiming to advance systemic change. Together, the FHA and HOLC helped create all-white suburbs and largely Black cities. In doing so, policies first created under the New Deal also facilitated a movement of tax revenue from cities to suburbs, diminishing the ability of cities to pay for schools, infrastructure, and other public services. During the 1960s and onwards, cities suffered what historians call the “urban crisis,” as both white residents and businesses relocated to suburbs, driven by New Deal policy, creating impoverished cities that Black activists increasingly compared to colonies.

Philanthropists can assist policymakers in ensuring a just recovery by funding research into the inequities exposed by the COVID-19 pandemic. Foundations once were at the cutting-edge of supporting purposeful research on labor, poverty, and racism, which helped policymakers understand challenges on a systemic scale. Much of this work was self-consciously aimed at social justice. The Russell Sage Foundation, for example, sponsored Mary van Kleeck’s work on social insurance as well as John R. Commons’ studies of labor, both of which influenced how New Deal policymakers understood the problems before them — and their solutions. As Linsey McGoey has argued, donors need to fund “heterodox economic thinktanks or public universities” to inspire policy that can make our economy more just.

However flawed, the New Deal ensured the economic security of millions of Americans as a right. However, because the government acquiesced to the preferences of the private sector, the New Deal also created inequalities in economic opportunity, denying women and people of color many of its most generous benefits. Our response to the COVID-19 pandemic should be as ambitious as Roosevelt’s landmark reforms — and careful not to repeat its mistakes.

Dr. Angela Jackson is a Managing Partner at New Profit and Micah McElroy is the Associate Director of Research at the Effective Philanthropy Learning Initiative at the Stanford Center on Philanthropy and Civil Society (PACS).

Editor’s Note: CEP publishes a range of perspectives. The views expressed here are those of the authors, not necessarily those of CEP.

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