The 2% Solution: Driving Action for Real Change
The 2% Solution grew from the idea that lasting, generational change is possible only through a major investment in economic justice for Black communities.
The Solution builds from the tradition that American families on average allocate 2% of their income for charity, and asks U.S. companies to do the same by investing 2% of their profits over the next 10 years into communities that have been systematically held back by the racial wealth gap. These are not acts of charity, but investments with real, tangible areas of focus, including Black healthcare, education, infrastructure and finance.
The Groundbreaking Idea
The 2% Solution, while encouraging support for underserved communities, is actually an economic catalyst that can change the financial futures of all Americans. A 2019 McKinsey Global Institute analysis found that eliminating the racial wealth gap would generate $1.5 trillion in GDP, and we can use The 2% Solution to help close the gap between Black and white households — a gap that continues to widen. In an article published by Bloomberg citing 2019 data from a report published by the National Bureau of Economic Research, the wealth gap between Black and white families has grown from under 5 to 1 in the 1980’s to 6 to 1. Current projections estimate that the gap will reach over 8 to 1 by 2200.
The 2% Solution aims to encourage a comprehensive group of stakeholders across all major sectors to address historical injustices facing African Americans through a significant infusion of capital into our communities. These stakeholders include representatives of our core pillars of focus, such as the leaders in the healthcare and telecommunications industries, top bank and lending institutions, as well as top governmental programs that would work together with private industry to address issues such as student loan debt, racial disparities in lending, and more. Perhaps more than ever before, we have an opportunity to galvanize multiple segments of the private and public sectors to address these injustices in a truly distinctive and enduring way.
One report by Boston Consulting Group, the nonprofit Common Sense and the Southern Education Foundation, titled: “Looking Back, Looking Forward: What it will take to permanently close the K–12 digital divide,” explores the existing tech gap between K-12 students and broadband internet access, and highlights a specific connectivity gaps in the nation. Efforts to bridge that divide could be made by organizations in the tech industry to make big differences in the most populous states where a digital divide is evident, or could be taken on by organizations that are on the ground in those communities as a location-based investment.
Opportunities for Location-Based Investment
An example of areas where location-based impact could be made are cities with the highest concentration of Black residents. An April 2021 study on racial equity from Boston Consulting Group found that approximately half of all African Americans live in just six cities and surrounding communities: Atlanta, Memphis, New Orleans, Birmingham, Houston and Charlotte. Impactful initiatives in these communities could serve as a replicable starting place for many other cities and communities across the country.
Industry-Based Investment in Communities
By aligning these types of investments to proposed industry partners, the location of the corporation is not a limiting factor. It can include investment that supports the broader Black community and connect those communities to various growth areas, such as:
- Allocate Tier 1 capital for CDFIs and MDIs
- Digitize both lenders and borrowers
- Invest in entrepreneurs and the systems that entrepreneurs need
Location-based organizations are uniquely positioned to pinpoint where investments would best be utilized in their communities. Place-based initiatives would include high-impact projects, such as:
- Provide financial support for K-12 schools in underserved areas
- Deliver broadband access and devices for minority communities
- Expand preventative care programs for medical conditions that disproportionately impact minority communities
Data and Demographics
Data supports major racial gaps in the U.S. The 2% Solution focuses on four main areas where an investment’s impact would be long-lasting and broadly felt within the Black community. These main pillars are:
- Supporting CDFIs & MDIs
- Technology and the Digital Divide
Only 53% of Black households are properly banked, compared to 80% of white households.
Only 1.3% of the investment industries’ $69 trillion in assets is owned by minority and women-owned private investment firms.
There is a $23 billion funding gap of nonwhite school districts vs. white ones, despite having the same number of students.
Black families have more student debt, and are more likely to default compared to other ethnicities.
Studies show 36% of Black households have no internet or no broadband, versus only 21% of white households.
Black Americans represent only 6% of all physicians (despite making up 13.5% of the U.S. population) and are underrepresented in every physician specialty.
63% of Black families have access to computers at home compared to 78% of white families.
Black patients are 1.5-1.6 times more likely to have diabetes and hypertension compared to their white counterparts.
The Four Pillars of The 2% Solution
Through stakeholder support, The 2% Solution has the ability to make lasting change in Black communities with a focus on four main pillars of action. These main areas are not only where the racial divide is most keenly felt, but are also areas where stakeholder corporations already have a vested interest to get involved. As we’ve noted before, The 2% Solution is not about charity, but is instead a direct investment in location-based and solutions-based areas of need in the Black community.
Supporting CDFIs & MDIs
Business support, such as government support programs like PPP loans, are designed to pass through banks to reach small businesses, but in Black communities, a disparity of major financial institutions have created a banking desert. Community Development Financial Institutions (CDFIs) can be the primary vehicle to infuse capital into Black businesses and Black communities. Since 1973, CDFIs have been bringing opportunity to low-income, low-wealth communities left behind by mainstream finance.
A three-part plan for supporting these community financial institutions includes:
1. Investing capital in Minority Depository Institutions (MDIs) and CDFIs,
2. Modernizing their systems so they can more effectively deploy that capital, and
3. Enhancing their human resources including through mentorships and partnerships with larger banks.
Praise for The 2% Solution
Recent News About The 2% Solution
The 2% Solution Stakeholders
The 2% Solution works because of the commitments made by a growing list of corporate and government stakeholders. These partners span across many of the country’s top industries, from financial services to telecommunications and from healthcare to professional sports, education, technology, and even media and entertainment.