🔒Ray Dalio and the existential danger of growing inequality

The first day of April is a day when practical jokesters tell you things like, “I know the number you play and guess what, you won the lottery last night,” or “I saw your car was being towed.”

These harmless prevarications are followed by “April fools, I got you.”

But during the first week of April 2019, Ray Dalio, the founder and CEO of Bridgewater Associates and Dalio Philanthropies, announced a $100 million gift to the state of Connecticut — if the state and other philanthropic organizations matched his $100 million pledge, to total $300 million.

This was not an April Fools' Day joke. It was the largest private gift in state history. It was a gift based on Dalio's firm belief and rigorous economic and political analysis that without some significant changes in American capitalism to address growing income and wealth inequality, we are in deep trouble.

The trouble Dalio refers to is both existential and theoretical. His theoretical analysis is consistent with the work of the most famous economist of the 20th century, John Maynard Keynes, who wrote about the impact income inequality had on contributing to the Great Depression.

It is also consistent with the work of the greatest 19th-century economist, Karl Marx, who argued that capitalism is inexorably driven to crisis because ever-increasing concentrations of monopoly power and wealth.

The existential crisis that has the attention of Dalio, one of the nation's wealthiest men, is that if we do not address the growing wealth and income inequality, the support for democratic institutions is at risk.

Any casual reading of the daily news is witness to the erosion of these institutions, including the questioning of whether capitalism is the best way for society to organize resources. If most Americans lose faith in the American dream — of their children leading better lives than their parents — there is the angst of hopelessness that leads to despair.

According to Dalio, when people have nothing to lose, desperation can turn into civil unrest on a scale not witnessed.

We should all applaud the growing number of wealthy Americans who have taken the pledge suggested by billionaires, Warren Buffet and Bill Gates.

The “Giving Pledge” asks wealthy Americans to commit to donating at least half of their fortunes to philanthropic causes during their lifetimes. So far, 200 people have accepted the challenge to donate over $1 trillion.

This vast amount of private wealth distribution is going to admirable and important causes ranging from improvements in health care (Mark Zuckerberg), public education (Bill Gates), the promotion of democracy (George Soros), gun control (Michael Bloomberg) and now Dalio with his interest in reducing income and wealth inequality.

In my humble opinion, there is a cause that deserves more attention than all of these if we are interested in the survival of 21st-century capitalism. And that is business and entrepreneurial formation in low-income communities.

Imagine if the state's and the nation's most-troubled cities had business and innovation cash awards for current students and recent graduates. Eligibility could use Dalio's focus on the percentage of students eligible for free lunches.

What if public schools in Hartford, New Haven, Bridgeport, Chicago, Los Angeles, Houston and Washington, D.C., each had annual business plan and innovation competitions that paid prizes in the millions of dollars.

Not only would this encourage entrepreneurship and innovation in inner cities, it would incentivize education and engagement in ways that we have never seen before. It would create dreamers out of kids, who, if we continue to do nothing, will more likely end up incarcerated than in a home that they own.

Mr. Dalio, thank you. Perhaps some of your funds can be allocated to support entrepreneurship, innovation and capitalism where it is needed most. It might be the most effective way to address growing income and wealth inequality in the long run.

Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business.