Monday, October 20, 2014

Network Effects, Compounding Interest and Inequality

I have seen a rash of "the rich are getting richer" stories in recent months, because, well, they are. But most articles I have consumed focus on tax policy and other mechanisms that have for the most part assisted in this shift of wealth over the last few decades.

This one took a different tact, and it got me thinking about the impact of the concepts of network effects and compounding interest on inequality.  This article focuses on the environmental effects of having wealth on a child's development.  Interesting, but there is a larger ecosystem at play that further expands the gap between rich and poor: the network.

I am fortunate in that I grew up in the US in an upper middle-class family.  I did not have a ready-made network for me to access, but I had other assets that have allowed me to develop my own network much more rapidly and effectively than many.  Principally, my network began because I had more flexibility as to how and when to earn an income.  Paying for college was not a worry, and my living expenses were subsidized (thanks Mom & Dad!). affording me to take an unpaid internship at The White House while in college.  This opportunity not only began my career, but also began the development of my network that continues to compound and pay dividends.  I have reconnected with several folks I met during those early years over the last year, as I develop my latest business.

Providing opportunity is one component of a much larger ecosystem.  Those in need also must have the means and flexibility to fully exploit opportunities.  Policy, philanthropy and other initiatives that attempt to address inequality have to look at the entire ecosystem.  Failing to do so may lead to exponentially less potent effects.

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