Blue Ridge Labs, a startup incubator focused on economic inequality

The arrival of poverty-fighting tech startups seem to be the turning point that our current society so desperately needs. The United States, literally the richest and most technologically advanced country in the history of mankind, has 40 million people living in poverty. 13% of Americans go to sleep every night hungry and underfed. Wealth inequality is at an all time high — our society is more unequal now than it was in 1774, even when you count slaves. It’s a paradigm shift to hear that wealthy technologists are now willing to devote their life career to building products that exclusively help poor people. Not only that, but these kinds of startups are also raking in millions in funding from top Silicon Valley venture capitalists. Technology has always been touted as the bringer of good to society, and it seems to have finally arrived for the poor.

However, these for-profit, poverty-oriented startups are not the egalitarians that we envision them to be. In fact, not only will they will never achieve the high-minded missions that they broadcast, but they will also detract from the cause of raising people out of poverty. To understand why, one must examine two crucial points. First, they refuse to work directly with the government to establish policy changes that will actually remove institutional barriers preventing people living in poverty from rising to the middle class. Second, the good spirited intentions of the founders (whether real or not) are overshadowed by the need to maintain profitability. This need usually requires these startups to work with institutions that hinder economic mobility for the lower class, thus contradicting the founders’ original mission.

For example, Propel is a for-profit startup that aims to help “stretch (poor families’) food-stamp benefits as far as possible.” Jimmy Chen, the founder of Propel, stated that “our software fights poverty through technology.” At first glance, these claims seem to be very honorable and the software may genuinely help lower income families save money in the short run. Upon deeper inspection, Jimmy Chen’s vision for fighting poverty does not include working with the government, but includes working with store chains and profiting off of poor people’s need to maintain food security. Furthermore, Propel’s profitability is inversely proportional to their alignment with the poor’s needs. When asked what potential cuts to the Supplemental Nutrition Assistance Program (SNAP) might mean for his company, Jimmy responded by saying “we believe we can provide stability at a time of change”. He indirectly admits that cuts to the SNAP program actually benefit Propel, at the expense of low income families, because it would increase their customer base, a primary emphasis of their business model. Propel also hopes to make money through advertising. Targeted advertising has been shown to disproportionately discriminate and disadvantage low-income and low-information people, the exact people who will populate their platform. Thus Propel’s two primary paths to profitability — advertisements and a large consumer base — are both contradictory to their vision to fight poverty with technology. They have used this mantra to raise over $6 million dollars.

Sadly, Propel is not the only example of a well-intentioned startup that will ultimately hurt their target audience. Founder’s Pledge, a well-respected network of successful tech founders who pledge to donate a percentage of their net worth to charity, released a list of “disruptive Fintech (Financial tech) approaches to fighting poverty.” A quick glance shows that many of the startups on this list aim to allow those who live in abject poverty in developing countries to access credit more easily. There have been plenty of studies showing micro credit (or small loans) should not be promoted as a solution for the poorest people. Some have described the influx of microfinance into developing countries to be disastrous and even anti-developmental.

So what is the fix? There are clear systemic issues that are holding back those who live in poverty. Unemployment and jobs that underpay, as well as continual cuts to welfare directly prevent people from having enough to subsist on. The rising cost of education and healthcare restricts economic and social mobility. The resolution of many of these factors are dependent on the government. Many tech startups will have to work with the government to fix these issues, rather than avoid the government entirely. Nonprofits that work with local, state, and even national communities have seen much more success as a result. For-profit startups should look to their non-profit brethren to stay true to their mission.