Each year, companies throughout the U.S. and across the globe donate billions of dollars to causes with the goal of making the world a better place. While philanthropic acts like making a financial contribution to a cause are thoughtful, they are not something that can or will truly solve current economic and wealth inequities. Simply put, while donations may help a cause, society can’t donate its way out of problems.
To put it into perspective, U.S. companies gave away more than $21 billion in donations in 2021, while data from Statista reveals they made $2.77 trillion that same year., While $21 billion is a lot of money, it is not enough to fund the resources needed to fix economic inequities. The good news is that there is a solution — The 2% Solution.
What Is The 2% Solution?
The 2% Solution is the idea that many economic inequities can be fixed if large organizations, such as companies and banks, donate just 2% of their yearly profits over the course of 10 years to institutions that serve communities of color, which are often the most underserved communities. The idea for The 2% Solution stems from the fact that, on average, U.S. families donate 2% of their income to charity each year, indicating that companies of great wealth could do the same and make a great impact.
The real wealth needed to fix these issues lies in corporations and not private individuals, and The 2% Solution provides companies with a roadmap to create lasting and meaningful change.
How Can The 2% Solution Help Fix Economic Inequities?
Rather than acts of charity, a company’s commitment to allocate 2% of its profits to underrepresented communities is an investment in critical areas of focus. For example, a company’s commitment to The 2% Solution could help improve Black healthcare, education and finance, which can help to narrow the racial wealth gap, which is currently still growing.
Data from the Fed shows that the racial wealth gap has expanded considerably over the last few decades. Currently, the average Black, Hispanic and Latino American households make half of what those in white households make. The data also shows that these groups own just between 15 – 20% as much net wealth as their white peers.
Closing the wealth gap in underserved communities can help to improve the economy and the financial futures of all Americans — the numbers prove it. According to data from the McKinsey Global Institute, closing the racial wealth gap would create $1.5 trillion in gross domestic product (GDP).
Robert F. Smith and The 2% Solution
Philanthropist and entrepreneur Robert F. Smith, the Founder, Chairman and CEO of Vista Equity Partners (Vista), is a staunch advocate of The 2% Solution. Over the course of his career, the Solution has greatly inspired Smith and some of his greatest ideas, including the 2021 launch of Southern Communities Initiative. The Initiative is dedicated to improving racial parity in six Southern U.S. communities where the majority of Black Americans reside.
In 2020, The 2% Solution was named “Most Intriguing Idea” by the Forbes Diversity & Inclusion Awards. Later, in 2022, Smith was honored by theGrio, receiving the inaugural Philanthropy Icon Award for his efforts, including supporting The 2% Solution.
Learn more about Smith’s philanthropic efforts, including his six philanthropic pillars.