VA£U€$ (The Blog)
January 26th, 2012
Earlier this week former British prime minister Gordon Brown emerged from hibernation to lobby for a bold new plan to push education up the global agenda. The world has made progress in recent years but, Mr Brown reports, 68 million kids still get no education. Worse, he warns, cuts to aid budgets mean that we are now going backwards and the number of children out of school could rise to 72 million by 2015 without renewed investment.
The answer, Mr Brown argues, is a new Global Fund for Education to mobilise resources from private as well as public donors to plug the funding gap. (This idea has already won the backing of the British parliamentary select committee on international development, in their report on private foundations, to which we submitted evidence.) But is more money the answer? Mr Brown was a habitual spender when in government and is still locked into the idea that the more money thrown at a problem the better. If you only have a hammer, as the old saying goes, you see every problem as a nail. We fully agree with the argument that education really matters. The question is whether education is a nail that needs hammering with more money from Mr Brown’s proposed fund.
Mr Brown’s report is a remarkable testament to the way that philanthrocapitalism is changing how the world tackles problems. Ten years ago, inspired and influenced by Bill Gates, the world launched the Global Fund to fight AIDS, TB and Malaria as a unique partnership between public and private donors. Over the last decade, the Global Fund has disbursed $22 billion in 150 countries and innovated in the way that these diseases are fought. As a result, we are seeing real progress, against malaria in particular. Compare this to the Fast Track Initiative, which was launched by governmental aid agencies alone in the same year, with equally ambitious goals on education. Mr Brown’s report is an admission that Fast Track, which he says has been dogged by “systemic problems”, has not been as successful as the Global Fund.
Mr Brown’s analysis of the comparative performance of the Fast Track and the Global Fund makes fascinating reading. The Fast Track, which is managed by the World Bank, has been bureaucratic, has struggled to innovate and has failed to mobilise much public or political support. The Global Fund, on the other hand, was based on partnership with private actors from the outset and has its own governance structure that gives developing countries a much bigger say. Though denounced by some global health experts when it was created, as a classic piece of philanthrocapitalist partnering with government, the Global Fund has proven its worth.
So why not a Global Fund for Education? First of all, the Global Fund for Aids, Tuberculosis and Malaria is but part of a wider mobilisation around these diseases. The Malaria No More campaign, in particular, has built up a grand coalition (what we call a posse) around ending this disease that has leveraged resources both to support the Global Fund and to work alongside it. Perhaps more importantly, the Global Fund is focused on ambitious but specific and doable goals. Indeed, one of the commonest criticisms of it is that it is a ‘vertical’ intervention to tackle specific diseases rather than develop the health systems of developing countries. What Mr Brown’s report shows is that, rather than a weakness, this may be its strength.
Ending malaria is a finite task that can be achieved even where governments are weak. It is also a problem that only needs to be solved once. Educating the children of the world will need sustained investment indefinitely, which relies on the will of developing country governments to invest in education over the long term. This is a point that Mr Brown’s review brushes over. One of the biggest laggards in providing education is Pakistan, where the literacy rate is a miserable 55.5%. This is not because Pakistan is poor per se, as other poorer countries such as Malawi do much better, but the result of a lack of political will. By framing the problem of global education as one of aid resources alone, Mr Brown is only telling half (if that) of the story.
Mr Brown also misses the point on the role that private sector could play. Yes, he wants businesses to be part of his Global Fund for Education, but only in a limited way: as providers of e-textbooks, as financiers and as advocates. None of these suggestions are bad ideas. But more radical thinking is needed. If developing country governments cannot or will not invest in education, then maybe the real potential of the private sector is to develop innovative alternative ways to deliver schooling. That suggestion is anathema to many development experts, who want to replicate the public service education models of the rich world and shudder at thought of the ‘privatisation’ of basic services like education. We understand why they worry in principle, but achieving real innovation may mean sacrificing such development holy cows.
The crisis in financing for development is, at last, getting the aid community to take philanthrocapitalism seriously. Yet Mr Brown and his peers still tend to see private donors and businesses simply as deep pockets that can be picked to make up for the increasing shortfall in government spending on aid. The much greater implication of philanthrocapitalism is that unleashing the creativity of the private sector, both for profit and philanthropic, will be crucial if humanity is to develop the full range of tools needed to tackle big global problems such as how to educate properly all the world’s children.
Tags: Aids, Fast Track Initiative, GFATM, Global Fund, Gordon Brown, HIV, malaria, Malaria No More, Malawi, Pakistan, privatisation, TB, World Bank
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January 1st, 2012
Having had some success with our predictions for 2011, we decided to put our necks on the line for 2012. What do we see in the philanthrocrystal ball? Giving becoming more dangerous, more controversial and more political, among other things, as philanthrocapitalists find themselves at the centre of some of the year’s biggest news stories.
Here are our ten predictions for the coming year:
1. Greater scrutiny of the 1%. The role of the rich in setting the political agenda is going to be one of the big stories in the run-up to the US presidential election in November. Philanthrocapitalists hungry for impact are increasingly looking to get leverage by influencing government policy and this election will set the policy agenda for the next four years at a time when America (and along with it the world) faces some tough choices. We have, of course, been here before with George Soros’s support for the ‘Move On’ campaign in 2004, which was ultimately unsuccessful in unseating the incumbent president, George W. Bush. The influence of the Koch brothers on the right is already on the media’s radar, but there are plenty more to be discovered. Expect donors of the left and the right to pitch in to this contest using political donations and philanthropic giving to support policy thinking on issues like budget priorities and healthcare and school reform. Is this philanthropy or plutocracy? We will all be talking about that this year.
2. Nation building is back. Politics will also be a big theme of philanthropy around the world, which may bring with it genuine danger for those involved. From the nations involved in the Arab Spring to Vladimir Putin’s (for now) Russia, and maybe even North Korea, philanthropists are going to be getting involved far more than in recent years in supporting civic movements and even political movements in countries where there is a real opportunity to change the political balance, hopefully in a more democratic and just direction. As the year-end crackdown on various American backed non-profits by Egypt’s military government should remind everyone involved, those threatened by this philanthropy are unilkely to take foreign interference in their countries lying down.
3. Crunch time for Muslim philanthropy. On a related point, 2012 is going to be a year of decision for Muslim philanthropists. There is a huge opportunity for them to strengthen civil society in the Arab Spring countries and work with the emerging entrepreneurs and social entrepreneurs there. Pakistan and Afghanistan are both in need of high-impact philanthropy. Yet, with the honourable exception of the Aga Khan Foundation, too much of the giving from Muslim donors, including by some of the multi-billion dollar foundations set up by the rulers of Gulf countries and their leading businesses, is still focused on traditional welfare and charity rather than social change. Yet change seems likely to happen with or without them, and if they do not help it along, it may well be at the expense of the Muslim wealthy. Perhaps this is an area where Turkey’s emerging philanthrocapitalists will show a lead to the rest of the Muslim world.
4. Occupy Philanthropy. One of the big questions of the year will be whether the global Occupy movement will evolve from a necessary voice of protest into an effective force for change. There is an opportunity, and we believe an obligation, for philanthrocapitalists to help reform capitalism, so that it genuinely works in the interest of the population as a whole, not just a small subset of it. Andrew Carnegie understood the vulnerability of capitalism to the perception of it being inherently unfair; it is time today’s successful capitalists did so too. The gradually increasing pack of CEOs who get it, such as Indra Nooyi of PepsiCo, Paul Polman of Unilever and Sir Richard Branson of Virgin, have a huge opportunity to set the agenda for their peers, as long as they back up their words with serious action.
5. Steve Jobs, Philanthropist. After spending his life being fairly dismissive of philanthropy, the late co-founder of Apple is likely to be one of the most prominent additions to the mega-giving scene in 2012. His widow, Laurene Powell Jobs, has long been involved in giving, having founded an organisation to get students from poor backgrounds into college, participating in the Clinton Global Initiative and Global Philanthropy Forum, and visiting Africa on a trip for philanthropists led by Ben Affleck. Now she controls her late husband’s fortune, expect her to start putting it to good use.
We can also look forward to some weird and wacky philanthropy from new donors from the social media generation. The Facebook IPO is going to make a lot of people very rich and, since its founder Mark Zuckerberg has already signed up to the Giving Pledge, we are hopeful that the new cohort of wealthy will turn to philanthropy as a priority. The most entertaining philanthropist of 2011 was Silicon Valley venture capitalist Peter Thiel, who famously/notoriously offered $100,000 grants to get people to drop out of college and start a business, as well as supporting efforts to create new floating countries in international waters (“sea steading”) and launching a science fund closed to university academics, a large proportion of the people we normally think of as scientists. Plenty of people think Thiel is nuts, which is great. Too much philanthropy today talks about risk-taking without being willing to court controversy. Expect the donors of the social network generation to have no such fears.
6. Celanthropy’s new stars. Ben Affleck will become more prominent on the Hollywood philanthropy scene, though probably still lagging behind the likes of Brangelina, George Clooney and Matt Damon. The celanthropist to watch, though, will be Lady Gaga, who we expect to take a big step forward in her giving, probably with a cause dear to the hearts of her “Little Monsters” (as she calls her young fans). Another celanthropist worth watching will be Ashton Kutcher, to see if he can recover as a force for good following a messy divorce and some unfortunate tweeting in 2011. Despite his and other bad celebrity experiences, the use of Twitter and other social media in philanthropy will continue to increase – which should mean even more celebrity mishaps this year.
Some giving dynasties will also move more clearly into the limelight. Will Chelsea Clinton, as well as championing social causes in her new tv job, take a bigger role at the Clinton Global Initiative? Expect greater interest to be taken in Barbara Bush, daughter of George W, and her health care non-profit, Global Health Corps. And, now he is focusing on philanthropy, expect some bold initiatives from Howard Bufffett, grandson of Warren Buffett. Also watch out for the House of Windsor, as Britain’s Brangelina, “Wills’n'Kate”, make a serious effort to build a celanthropic brand, hopefully learning from the ability of Princess Diana to draw attention to an issue and the under-rated skills of Prince Charles as a social entrepreneur.
7. Deep Impact. This will be a big year for “impact investing”, which explicitly seeks both financial and social/environmental returns. So far, there has been much more talk than action, but the time has come for the money to back the ideas. The Omidyar Network has already taken a lead, but some other big philanthrocapitalists will join it this year. Enter the Gates Foundation?
8. The Great Extinction. Alas, it is going to be a tough year for many non-profits. We are braced for more scandals about inspiring narratives unsupported by facts, along the lines of the 2011 Greg Mortenson expose. The pain of government spending cuts will be felt widely, both directly, as many non-profits rely on money from government, and indirectly, as cuts to government services will lead to greater demand pressure on non-government alternatives. We think that many non-profits will be faced with serious shrinkage, and in many cases extinction. Our hope is that smart donors will grasp the nettle and try to manage this culling process, encouraging mergers wherever possible, so that the best of the non-profit sector is preserved or, better still, made stronger.
9. Philanthrocapitalism the Chinese way. There was some schadenfreude when the Gates-Buffett visit to China in 2010 failed to drum up new signatories to their Giving Pledge, although that was not the immediate goal of their mission. We expect philanthrocapitalism to become an increasingly important force in China in 2012, though it will have a distinctive local flavour. Instead of traditional American-style foundation-oriented philanthropy, we expect a wave of stories about corporates playing a key role in solving social and environmental problems through a version of “social investment”. China is now hitting a difficult stage of economic development when it needs to manage its use of natural resources, stop competing on low labour costs alone, start tackling potential drags on its competitiveness such as its rapidly ageing population, and deal with rising expectations among the populations. All of this requires a wave of innovation, which China’s philanthrocapitalists are well placed to lead.
10. Some good news. We are hopeful of some big breakthroughs that will prove that philanthrocapitalism works. Will some of the few remaining countries still hit by polio announce they are free of the disease? Will the death toll from malaria plunge even further and faster? We think so, and that as it does it will validate the “posse” approach to solving the world’s problems at the heart of philanthrocapitalism. Expect more new posse partnerships to be announced, similar to the Malaria No More campaign led by Ray Chambers, which has galvanised a powerful coalition of the willing. This is a time of growing scepticism about the effectiveness of government, international aid, and even of giving. Yet clear evidence of results may start to change the mood and persuade a growing number of people that philanthrocapitalism is worth the risk.
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December 28th, 2011
If you need proof that philanthrocapitalism matters more than ever, look no further than the large number of books touching on effective giving and social change that have been published this year. Excluding our own contribution, The Road From Ruin (published in paperback this year in both Britain and America), here in no particular order is our Top Ten:
1. Giving 2.0 by Laura Arrillaga-Andreessen. “A philanthropist is anyone who gives anything – time, money, experience, skills and networks – in any amount to create a better world.” Thus begins a book that is at once inspirational, full of great examples, and full of practical advice for philanthropists great and small. The author, Laura Arrillaga-Andreesson, is the daughter of philanthropists (her father is one of the biggest donors to Stanford University), married to one of the new generation of Silicon Valley entrepreneurs who are turning to giving (Marc Andreessen, who started Netscape), and an innovative philanthrocapitalist in her own right, as the founder of SV2, a sort of venture philanthropy training organisation that we write about in Philanthrocapitalism. She has used her insights from the front line to write a compelling book.
2. Impact Investing, by Anthony Bugg-Levine and Jed Emerson. One of the hottest trends in philanthrocapitalism is to invest money in a way that consciously aims simultaneously to improve society and generate a financial return. Two authors who have pioneered this so-called “impact investment” have written a terrific book that serves both as a highly readable introduction to the field and an agenda-setting guide to how it should develop if it is to fulfill its considerable potential.
3. Three Cups of Deceit, by John Krakauer. A remarkable expose of the incompetence and deceptions of Greg Mortenson, a social entrepreneur and best-selling author of ‘Three Cups of Tea’, a book that inspired many to support Mortenson’s work to build schools in Pakistan. Anyone involved in funding, overseeing or running a non-profit (or, indeed, any mission-driven organisation) should read this book, and learn how good intentions and good anecdotes are not enough to ensure good results, without good management and good governance.
4. Give Smart, by Joel Fleishman and Tom Tierney. Two of America’s leading thinkers about effective philanthropy, and advisors to philanthropists, share their wisdom. As Matthew noted in a review in The Economist, the authors rightly argue that biggest problem for philanthropists may be that “they are essentially accountable to no one but themselves.” To avoid being tempted into a self-deluded belief in their own success, philanthropists should create systems that force them to hear what may at times be unpleasant truths about the ineffectiveness of their work, and to be constantly challenged to improve. Wise advice, as is much else in this book.
5. KaBOOM! by Darell Hammond. Social entrepreneurs who have both a vision and an understanding of how to execute it on a large scale are at the heart of philanthrocapitalism. Hammond, who fights for the right for children to play and to have playgrounds to play in, is one of the best, including through his innovative partnerships with organisations such as Home Depot and the Omidyar Network. He tells his story well.
6. Leap of Reason, by Mario Morino. Any list of effective venture philanthropists should include Mario Morino, the entrepreneurial force and conscience behind Venture Philanthropy Partners. This short book struck a chord because it wrestles honestly with the need that any responsible giver faces to measure impact and the difficulty of doing that right. As Matthew put it in a review in The Economist, Morino feels no need to “wrap his iron fist in a velvet glove” and tells it straight: his book includes a stark warning that government spending cuts are about to cause a crisis in the social sector that “will have an impact on almost every non-profit [organisation] in America, whether or not it receives government funds.”
7. Adapt, by Tim Harford. Not primarily about philanthropy, but about innovation and the necessary role that failure plays in it – yet including several great historical examples from philanthropy. One of our favourites tells of how a philanthropist bailed out the project to build the Spitfire fighter, later so important in winning the Battle of Britain in World War Two, when government funding dried up.
8. Screw Business As Usual, by Richard Branson and Jean Olewang. Actually a good read, with lots of good stories (not all of them about the bearded wonder himself), from one of the philanthrocapitalists we write about in our book. As Matthew noted in a review in The Economist, “the subplot of the book is about the growing influence in tackling the world’s problems of a small group of wealthy philanthropists and business leaders, and how Sir Richard has become a catalyst among them.” The book is a rallying cry for businesses to see the opportunity to ‘do well by doing good’ (although we doubt whether publicly-owned companies have the freedom to use shareholders’ money to take on the diverse range of causes that Sir Richard can as the owner of the Virgin Group of companies). An important and provocative read for business leaders nonetheless.
9. Do More Than Give, by Leslie Crutchfield, John Kania and Mark Kramer. “Catalytic philanthropy” is what these authors call philanthrocapitalism, and they provide some useful case studies of best practice. As Matthew put it in Stanford Social Innovation Review, despite a few quibbles, “this is an inspiring book, full of nuggets of wisdom and compelling stories of success, that should be read by every philanthropist who is serious about trying to change the world.”
10. Poor Economics, by Abhijit Banerjee and Esther Duflo. Quite simply the best book written on the practicalities of helping people in the developing world, and a powerful expose of the dangers of simplistic thinking. As we have noted before on this blog, “it is a fascinating, at times depressing, but ultimately thoroughly inspiring read.” If you haven’t read it, do so soon. If you have read it, read it again in 2012!
Tags: Abhijit Banerjee, Anthony Bugg-Levine, Darell Hammond, Esther Duflo, Greg Mortenson, Home Depot, Jean Olewang, Jed Emerson, Joel Fleishman, John Kania, John Krakauer, Laura Arrillaga-Andreessen, Leslie Crutchfield, Mario Morino, Mark Kramer, Omidyar Network, Richard Branson, Stanford Social Innovation Review, The Economist, Three Cups of Tea, Tim Harford, Tom Tierney, Venture Philanthropy Partners
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December 21st, 2011
‘The Year of Fighting Over What Works’ was our headline prediction for 2011. So how did we do? Let’s take a look at the 10 scenarios we saw when we peered into our philanthrocrystal ball back in January.
1) “A battle is going to rage over the relationship between profit and philanthropy.” And some. Within days of making this prediction, Muhammad Yunus launched a swingeing attack on the microfinance movement that he inspired, accusing many of thosewho have followed in his footsteps of charging extortionate interest rates to their clients to satisfy their for-profit shareholders. We thought that this attack, which we likened to devouring his own children, was unworthy of the Nobel Peace Prize winner and has if anything helped the politically-motivated attacks on microfinance institutions like SKS in India. (We were also saddened and angered by the Bangladeshi Government’s attacks on Professor Yunus and the Grameen Bank that he founded.)
2) We predicted a “growing trend towards the privatisation of aid”, as the fiscal problems of the rich world made cuts in official aid budgets almost inevitable. With the honourable exception of Britain, which (to our surprise) is sticking to its plan to increase aid to 0.7% of national income, those cuts have started to happen. That’s why ‘innovative financing for development’ has been a buzz-phrase of the year. For many campaigners this means the Robin Hood Tax, an idea that we think is well-intentioned but wrong, which was half-endorsed by Bill Gates in a special report for the G20 summit meeting in November where he offered a set of ideas on how to plug the global aid funding gap. Yet what was most interesting in the Gates report was not his ideas for fiscal policy but a set of suggestions about how a third of the money needed could be raised from private rather than public sources. We thought the proposals needed more work but the fact that the governments of world’s biggest economic powers need help from private citizens marks a significant shift in how the world tackles problems. Earlier in the year we had argued that the new public-private partnerships formed around causes like eradicating malaria represent the rise of the posse as the new organisational form in international relations. That analysis was reinforced by a new intergovernmental declaration on aid effectiveness made in Busan, South Korea, in November which officially put private actors centre-stage in global development for the first time.
3) “Quality of giving will become just important an issue as quantity”. That has been true of the aid world in general, where one of the highlights of the year was Esther Duflo and Abhijit Banerjee’s book ‘Poor Economics’. We hope that the conversion of some of our past critics, like Phil Buchanan at the Center for Effective Philanthropy, to the idea that philanthropic (and, indeed, public) investments should be based on rigorous evidence is a sign that the battle is now won. We were also heartened this year that both ‘Alliance’ magazine and the development boffins at the Institute of Development Studies have finally joined us in taking seriously questions about the effectiveness of foundations, and of Gates Foundation in particular.
4) We thought that the ‘hot topics’ for 2011 would be “school reform” in the US and “maternal and child health”. Our American prediction was spot on, where Diane Ravitch has been leading a backlash against the involvement of philanthrocapitalists in school reform. This is a sometimes ugly battle and one that involves getting stuck into politics, which is a sweetspot where effective philanthropy can make a big difference. On the global front we have to admit that, although there has been some progress, there has not been as big a push as we had hoped on maternal and child health, which is a tough problem linked to health systems and, crucially, the political will of developing countries’ own leaders.
5) “The most interesting country to watch in 2011 is going to be Britain,” we thought, because of David Cameron’s ‘Big Society’ agenda. Though this idea has left voters largely underwhelmed, Britain’s experiments with social investment are genuinely world-leading, from the social impact bond pilots to the new Big Society Capital social investment fund (which has just received a green light from the European Commission that could have blocked the deal on competition grounds as an illegal state subsidy). So far, however, the debate on giving in the UK has been rather disappointing, with a rather mediocre government White Paper as the main action. We are still optimistic, however, that Prime Minister Cameron’s foundering flagship idea has helped to spark a wave of innovation in philanthropy that will bear fruit in the next year.
6) “The relationship between taxation and philanthropy is also going to be pushed front of stage in 2011.” This has certainly been the case in the US, where a cut to the federal tax deduction for charitable gifts is still part of draft legislation to balance the budget. We oppose such a cut, but we do think that a serious debate is needed about how to ensure that any tax subsidy increases effective giving. Most of the nonprofit community looks at any talk about changing the tax subsidy to philanthropy, apart from increasing it, with horror. We think that this is a mistake. In this age of fiscal austerity, no part of society can simply ask for more subsidy. Nor is there much evidence that more tax breaks will lead directly to more (or, perish the thought, better) philanthropy. We have certainly tried to get the debate going in Britain that the generous tax treatment now available for philanthropy should come, at least, with a requirement that foundations should make a minimum payout each year of 5% of the value of their endowments. That the US already applies such a rule is, we believe, an argument that this is practical and possible.
7) Our call for more philanthropy to help tackle the deprivation and injustice that feeds extremism in the Muslim world was inspired by the then forthcoming 10th anniversary of the 9/11 attacks. It was offered more in a spirit of hope than optimism, since philanthropy has all too often found working in Arab countries or Pakistan to be ‘too difficult’. So we have been surprised and heartened by the events of 2011. And we are not talking about the killing of Osama bin-Laden. Rather it is the unfinished revolutions of the Arab Spring that have brought unexpected change to North Africa and the Gulf, popular movements in which social media has played an important contributory role. Philanthrocapitalists, especially local ones, played a role, and need to play a yet bigger one, to ensure that these revolutions achieve their full potential.
“Celebrity philanthropy will continue to boom.” Yes, it did. There is still no sign of Tiger Woods turning in a big way to philanthropy to redeem his tattered reputation, as we had predicted for 2010. Ashton Kutcher took a step or two backwards. But the year saw some big advances by some new kids in celanthropy, including Lady Gaga and Edward Norton, whilst experienced hands such as Bono, Angelina Jolie and Shakira each continued to develop their impressive philanthrocapitalistic brands.
9) “Mass philanthrocapitalism will increasingly turn to politics.” The most inspiring movement of the year, in the developed world, was the #Occupy protests that challenged the titans of Wall Street and the City of London to prove that capitalism should serve the 99% of humanity, not just the wealthy 1%. Agreed, #Occupy has been better at channelling anger than coming up with programmes of reform. Yet, as we argue in The Road From Ruin, real change in how our economy is run is only going to come if citizens exercise their power as savers and investors to demand a version of capitalism that focuses on creating long term value, not merely a fast buck. To continue to porogress, #Occupy needs a clearer agenda, which we believe should be philanthrocapitalism.
10) We finished with a provocation that “maybe, just maybe, 2011 will be the year when social enterprise jumps the shark.” Not that we had anything against social entrepreneurs, it was just that the term had become “so ubiquitous and now seems to cover everything from for-profit businesses that claim to have a conscience to old-school charities that you have to ask if it means anything at all.” Certainly social enterprise was overtaken in 2011 by a new range of buzzwords that tried to get a bit more granular about the process of social innovation and scaling. “Impact investing” was probably the hottest idea of the year, as everyone got excited about the potential of what JP Morgan at the end of 2010 had said would be a trillion dollar market in for-profit investing with significant and measurable social or environmental side effects. 2011 did not, however, see tens of billions of dollars of impact investing deals. Whether this new type of business really will fulfil its potential is still to be proven and, we believe, it will only really take off when it moves out of the ghetto of the existing responsible investing community and into mainstream finance. Indeed, the need for big financial institutions to take impact investing seriously was one of our reflections on the other big idea of the year – management guru Michael Porter’s ‘shared value’ concept. Porter, with his partner Mark Kramer, put forward this new terminology to describe how profit and social impact are not in conflict, even for big businesses. Similar ideas have been heard before about how for-profit businesses can ‘do well by doing good’ (including Jed Emerson’s ‘blended value’, and indeed in our chapter on ‘The Good Company’ in ‘Philanthrocapitalism’) but the endorsement of a big hitter like Porter marked a step forward and the idea did seem to be taken seriously by, at least, some business leaders.
So, not a bad year for us as seers. How will we do in 2012? Our predictions, we predict, will appear here shortly.
Tags: Alliance Magazine, Angelina Jolie, Ashton Kutcher, Big Society, Bill Gates, Bono, David Cameron, Diane Ravitch, Edward Norton, Esther Duflo, Institute of Development Studies, Jed Emerson, Lady Gaga, Mark Kramer, Michael Porter, Muhammad Yunus, Occupy, Osama bin-Laden, Phil Buchanan, Shakira, shared value, social impact bonds, Tiger Woods
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December 20th, 2011
Is philanthrocapitalism a force for social change? That is the theme of a debate we are having with Kavita Ramdas, the former CEO of the Global Fund for Women, on the website of the consistently excellent Stanford Social Innovation Review. She says, no it isn’t. We say, yes it is!
Introducing the debate, the SSIR observes that philanthrocapitalism is “a term that came into common parlance in 2006″ – when Matthew invented it in The Economist – “to describe the need for philanthropy to become more like for-profit markets with ‘investors’ and ‘social returns’, is becoming a social sector wedge issue. The reason? The increasingly uneasy relationship between markets, democracy, and economic inequality.” We are delighted that philanthrocapitalism is now getting the attention it deserves, though stimulating a debate about the role that philanthrocapitalism can play in briging about the right relationship between markets, democracy and economic inequality was why we wrote the book. The last chapter is all about the need for the rich to operate, in their wealth creation, consumption, political activism and philanthropy, within the context of a new social contract that urgently needed to be redefined.
We won’t rehearse at length here the arguments in the debate, as you would do better to read them for yourself. Suffice it to say, we think there is an urgent need for a debate on how to make philanthropy more effective, but “that debate must be based on real issues, not tired old dichotomies.” We raise four topics that we think should be top of the agenda. 1) How do we start a conversation about failure in philanthropy? 2) How can government change to work better in partnership with philanthropy? 3) How can businesses add to social value – not through PR-driven corporate social responsibility projects, but through their core business activities? 4) How can we get a greater focus on improving nonprofit performance and impact?
The debate is generating some interesting responses on the SSIR website, and we would be delighted if you want to continue it by commenting on this blog, too. These issues are too important not to debate them properly!
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December 13th, 2011
How new is the new philanthropy? This is the question posed by a new BBC Radio series (sorry, UK only) that is looking back at the history of philanthropy. Most discussions about philanthropists of the past go back little more than a century to the founders of ‘modern’ strategic philanthropy, Andrew Carnegie and John D. Rockefeller. The programme’s presenter, the British historian Hugh Cunningham, takes us back another 150 years to the first man described as a ‘philanthropist’, the prison reformer John Howard (whose legacy lives on through the charity the Howard League for Penal Reform).
Howard’s is a great story. A devout Calvinist, Howard became interested in the state of Britain’s prisons when he took on the public office of high sheriff of Bedfordshire, which made him aware of the appalling suffering of inmates. With his inherited wealth from an upholstery business, Howard set about reforming the penal system not by giving money to the inmates but by lobbying for legislative change. This is an important lesson for those who think that there is anything new or different about today’s donors getting stuck into policy questions – influencing government has often been the highest impact way to use limited philanthropic resources.
Professor Cunningham rightly points out that this is a good example of how, in the world of philanthropy, there is nothing new under the sun. Yet he goes even further, arguing that Howard’s willingness to commit his own time and energy to the cause of prison reform around the world (Howard died of typhus, contracted during a visit to a Russian military prison) is not matched by today’s donors. This seems a rather odd assertion, given that philanthrocapitalists like Bill Gates and Ray Chambers are now committed full time to the causes they support. (Or will they only qualify as “committed” by Professor Cunningham’s standards if they die from malaria, which they are working hard to eradicate? By that measure, George Clooney is more committed than they are.)
Our more fundamental problem with Professor Cunningham’s analysis is that he does not, so far at least, use the history of previous golden ages of philanthropy to tell us about why philanthropy is booming today. Without such a theory it is hard to explain the similarities and differences between philanthropy past and present. We, on the other hand, do.
In a set of online bonus chapters to the book we describe how today’s philanthrocapitalism is the fifth golden age of modern philanthropy. Charity and philanthropy have existed since the dawn of humanity. Indeed, the first reference to philanthropy is in Greek mythology, when the titan Prometheus gives the gift of fire to mankind. (That earned a punishment from Zeus of being chained to a mountain in the Caucasus, where an eagle eats his liver on a daily basis. Until he was freed by Hercules.)
Yet it was only relatively recently that strategic philanthropy that is aimed at solving social problems rather than as a duty of faith emerged. This great transition took place in Renaissance Europe, an era when microfinance was invented and the idea of creating endowed foundations for perpetuity caught on. Why then? The drivers of this first golden age were the new, entrepreneurial wealth creators of the new capitalist system. These early philanthrocapitalists were members of the merchant classes, independent of old church and feudal structures and based in the new expanding cities that were on the front line of social change.
Professor Cunningham misses this part of the story, starting instead with what we see as the second golden age of philanthropy in the 18th century. Much of the energy of this movement, as he acknowledges, was the adaptation of the new organisational form in business, the joint stock company, to philanthropy. Hence many of the great philanthropic initiatives of this age, from the creation of hospitals in Britain’s major cities to the campaign against the slave trade led by William Wilberforce, were run as ‘joint stock philanthropy’ whereby groups of donors would collaborate by ‘subscribing’ to a cause with a donation. Again like today, 18th century philanthrocapitalists adapted the tools of business to achieve impact with their giving.
In the next programme in the series Professor Cunningham will look at what we call the third golden age of philanthropy, the Victorian era of enlightened businessmen when many of today’s biggest charities were created. Presumably the final show in the three part series will then turn to the fourth golden age of giving of Carnegie and Rockefeller (whose great innovation, the endowed foundation, was pinched from their 16th century English predecessors), and hopefully to the “new philanthropy” of the fifth golden age now under way.
We talk about these historical precedents and their lessons for today’s philanthropists in some detail in the book for two reasons. First, it shows how modern philanthropy has for centuries been driven by ideas from the business world. Second, it shows that golden ages of entrepreneurial wealth creation are typically accompanied by golden ages of philanthropy. Looking at the expansion of entrepreneur-led businesses not just in America but around the world, if history repeats itself again, the current golden age of philanthrocapitalism is only in its infancy, and may prove to be the most golden of them all.
Tags: Andrew Carnegie, BBC Radio 4, George Clooney, Howard League, Hugh Cunningham, John D. Rockefeller, John Howard, joint-stock philanthropy, philanthro-policymaking, Tudor philanthropy, Victorian philanthropy, William Wilberforce
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December 1st, 2011
Want to raise a lot of money from the public? The answer, according to Sir Stuart Etherington the chief of Britain’s voluntary sector trade body, the NCVO, speaking at a conference in London on Thursday morning, is to set up a charity featuring “a Labrador driving a life boat”. Most giving, he argued, is not the “rational behaviour” of homo economicus but something more personal and emotional, what he calls ‘homo civicus’.
Sir Stuart was on fine baronial form, teasing an audience gathered for the launch of a new global organisation designed to champion rational enquiry into charity performance, The Social Impact Analysts Association (SIAA). Is their effort to bring reason to giving doomed to failure? We hope not.
The idea that metrics of performance can and should be applied to philanthropy certainly provokes extreme reactions. Some in the charity sector grumble about the ‘Taleban’ of measurement zealots, led by New Philanthropy Capital (NPC), which was created in 2002 by a bunch of City types to do for the nonprofit sector what investment analysts have done for the financial sector. You get the irony. Since the catastrophic failure of the financiers in the crisis of 2008, it has been easy for charity sector types to argue that they have nothing to learn from the financial sector.
NPC has also found it harder than expected to gain traction with donors with its analytical reports and is now refocusing the business on helping charities rather than donors, a point that Sir Stuaart raised with some impish relish. (Yet there are also signs that the divide is slowly being bridged. Sir Stuart was also generous in his praise of NPC and, with caveats, wished SIAA well.)
There is an obvious fear from nonprofits that measurement means that the work of all charities will be boiled down to some single metric of impact or a place on a league table. But that is an argument for the proper, rigorous impact measurement that SIAA is trying to develop, not a reason for resistance. It is simply not good enough for nonprofits to say that they ‘believe’ or even ‘know’ they are having impact. In the past leading physicians would have sworn blind that leeches or ground up human body parts were miracle cures for diseases. Modern medicine grew out of scientific rigour and techniques such as randomised control trials that cut through subjective analysis to provide hard data on what does and does not work. Without hard evidence, how do we know that today’s nonprofits are not doing the equivalent of applying leeches to social problems? Sir Stuart’s argument that people are happy with such witch medicine is not an argument in its favour.
So we are fans of the SIAA and applaud the Bertelsmann Foundation that has been willing to back a cause that is both controversial and unsexy. But better metrics about nonprofit performance alone are not going to drive a much-needed productivity revolution in how we solve social problems.
Statistics will only have an impact if someone is willing to use them. Nonprofit boards should be the target customers for SIAA’s analysis. Yet too many of these boards are happy to be supine cheerleaders rather than playing a role as committed, challenging non-executives. This needs to change. (Maybe paying them would help – though as they are often chosen because of their capacity to donate, maybe not.)
Donors also need to change. Yes, that is happening already as philanthrocapitalist donors play a more active and challenging role in their grant-making but it is a transformation that still has a long way to go. Ordinary donors too are increasingly, through what we call mass philanthrocapitalism, being given the tools to drill down into what their money is achieving. Yes, Labradors and lifeboats still exert their pull but, with the right tools, we hope that it is starting to change. Also, what about beneficiaries? Organisations like Keystone Accountability are doing pioneering work to put the voice of nonprofits’ customers into the mix – a development that could really shake things up.
The SIAA also needs to think wider than just nonprofit performance metrics. Creating common impact measures in tandem with government could have massive leverage in helping to improve the allocation of public money. Government can also help social impact analysis by making sure that high quality public statistics are accessible, accurate and up to date. This is particularly important in developing countries. Statistics are a classic public good – it is in no one donor’s interest to fund the boring work of gathering data, yet that data is an essential tool for all donors to understand problems and measure their impact. We welcome that this week’s OECD High Level Forum on Aid Effectivness in Busan drew particular attention to the question of building statistical capacity (see paragraph 35 of the communique). We also hope that the recently-launched Open Government Partnership will help to drive a revolution in data transparency in rich and poor countries alike.
The final piece of the jigsaw is the private sector. And we are not talking about measuring the impact of corporate philanthropy. Businesses have massive social and environmental impacts, some good and some bad, through the resources they consume, who they employ, how they source and distribute their products, and so on. Though Corporate Social Responsibility (CSR) reporting is getting better thanks to mechanisms such as the UN Global Compact, we have a long way to go before corporate reporting really tells us the ‘total impact’ of a business’s operations. The SIAA should be building a common language with the corporate reporting gang (and the big accounting firms should be working with SIAA) to try to bridge this gap.
The SIAA is fledgling organisation with a potentially big agenda. We urge it to be bold, for there is a lot at stake.
Tags: Bertelsmann Foundation, Big Society Network, Busan, Keystone Accountability, NCVO, New Philanthropy Capital, OECD, Open Government Partnership, SIAA, Sir Stuart Etherington, Social Impact Analysts Association, UN Global Compact
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November 25th, 2011
We were cheered and intrigued to learn that the trustees of one of Britain’s oddest foundations are looking at changing its mission. The National Fund was created in the 1920s with a donation of £500,000 by an anonymous donor with the purpose of paying off Britain’s national debt. For more than 80 years it has been investing and squirrelling away the profits in the hope that the miracle of compound interest would grow a big enough pile to make this big patriotic gesture.
They have done well: the Fund is now worth more than £300 million (at today’s prices the original gift would be worth about £24 million) and has grown at a faster rate even than the national debt. The bad news is that it is still a very long way off achieving its goal: the original gift would have paid off 0.007% of the national debt in 1927; today it would make a 0.04% dent in what the nation owes its creditors.
Hmmm. Given that the National Fund is not going to meet its goal within any meaningful timeframe we applaud the decision by Barclays Fiduciary Services, which took over the trusteeship in 2009, to re-examine its mission.
Unsurprisingly the voluntary sector has been getting rather excited at the prospect of some new cash. But how should it be used? Even if the National Fund paid out, say, 5% of its assets each year, that would amount to little more than £15 million a year of new grantmaking. So there would be no funding bonanza. Also, without a founder’s vision for its grant-making role, there is a risk that all the money would be handed out through mushy-thinking “spray and pray”, or would merely by used to prop up uncontroversial ‘national treasure’ type causes. So how the National Fund should spend its money is an important and interesting debate.
We believe that philanthrocapitalism means that donor intent does matter – both morally, since it was an individual’s decision to give the money away, and practically, since the donor can provide focus to the giving strategy. For the National Fund, this suggests that its giving should contribute to the goal of reducing Britain’s indebtedness. So here are five ideas that spring to our minds:
1) In America, Pete Peterson has endowed a foundation to work to put the country’s government finances on a sustainable footing, through a mixture of research, lobbying and supporting mass activism. Perhaps the National Fund could play a similar role in Britain?
2) Debt is as much a private problem as it is a worry for government. Total private household debt is around 100% of GDP. Reckless lending and high interest charges are also particular burdensome for the poorest. So perhaps the National Fund could play a strategic role in boosting financial literacy and improving credit services to the poor.
3) The burden of debt is dependent on how much you are earning. As we are seeing in the Eurozone at the moment, slow or negative growth makes debts much harder to pay off. Britain desperately needs growth. Even splurging the whole endowment of the National Fund would have a negligible real impact on the UK economy. Yet maybe some strategic giving could stimulate innovation that boosts future competitiveness. In America, the Kauffman Foundation has become an influential backer of policies that favour entrepreneurship, which again might be imitated in Britain.
4) More boldly, how about funding more blue sky research by science boffins? There is quite a lot of public and private money going into technology at the moment but less into ‘pure’ scientific research. Philanthropists looking for measurable results can be shy of funding unpredictable blue sky science. Yet it is from such discoveries that the next technological breakthroughs will come. One of the interesting stories in Tim Harford’s excellent book ‘Adapt’, which we reviewed earlier this year, is about how philanthropic donors, willing to back researchers for the long term, generated more impact than short-term public funders. So how about a National Fund for Science?
5) The donor who created the National Fund seemingly did not want to do grants. So why do grants? Instead, turn the National Fund into a pioneer social investor. This is a new market in which many hopes are pinned on Britain’s newly-created Big Society Capital. Turning the National Fund into a competitor in doing wholesale funding surely would spur innovation and increase the chances of social impact investing taking off. Doing this would (if all went to plan) preserve the original donor’s capital (albeit probably with a lower rate of growth than if it were invested simply for profit) and put private money into tackling social problems that would otherwise cost the government money to solve. It might also help the UK financial sector to develop a new area of expertise for the City that is not only socially useful but potentially a source of global competitive advantage in the future.
Those are our ideas. What are yours?
Tags: Barclays, Big Society Capital, debt, financial literacy, impact investing, Kauffman Foundation, National Fund, Peterson Institute, philanthroscience, Tim Harford
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November 25th, 2011
The 2011 edition of ‘Family Foundation Giving Trends’ is out, produced by the Cass Business School with support from the Pears Foundation. Now in its fourth year, the report is invaluable as a source of data on giving by the 100 largest family foundations in the UK, which together account for 7% of all charitable giving in the country, or £1.3 billion ($2 billion) in cash terms. Like a curate’s egg, it contains a mixture of good and bad.
The bad news was that giving by this group fell 8.7% in real terms, resulting from a drop in foundation asset values of 5.3% in 2008/09 (largely due to the financial market meltdown). The (maybe) good news is that endowment values bounced back by 7.8% in real terms in 2009/10, which the report says “will hopefully drive an increase in giving in 2010/11.”
Whether it has depends on the decisions of the foundations’ trustees alone. Unlike their counterparts in the United States, where foundations are required by the tax code to pay out a minimum 5% of their endowment value each year (based on a rolling average), UK foundations face no such constraint. We have argued that Britain needs a similar payout rule to America’s, a position that has earned us a few brickbats and snide comments from philanthrocrats happy with the status quo. We had hoped to see some action on this issue in the coalition government’s Giving White Paper published this year. Alas, we were to be disappointed.
This year’s ‘Family Foundation Giving Report’ offers ample demonstration of why the payout rule opportunity needs to be seized. Using the data in the report, we analysed the payout performance of the 30 largest foundations, which account for £1.1 billion, more than 80% of the total sample. We found that:
1) The payout rate for this group as a whole fell from 4.9% in 2008/09 to 4.3% in 2009/10. Foundations have decreased their giving faster than the fall in their endowment values, at a time when their giving is needed more than ever.
2) The average was somewhat misleading, as it was raised by a few foundations run by living donors, which gave away a significantly higher proportion of their endowments’ value.
3) Twelve of the thirty foundations paid out less than the 5% American norm, including five out of the top ten: Leverhulme Trust (3.2%), Garfield Weston Foundation (0.8%), Esmee Fairbairn Foundation (3.4%), Wolfson Foundation (4.3%), and Children’s Investment Fund Foundation (1.6%).
4) If all of the top 30 foundations had each paid out a minimum of 5% (and those already paying out more continued their current strategies), from this group alone there would have been an extra £300 million in donations to the voluntary sector – not a small sum.
We admit that this analysis based on a snapshot is a bit crude. Grantmaking can go up and down over time at a particular foundation for perfectly good reasons, like ending an old strategy or starting a new one. (That said, 11 of the 12 foundations that paid out less than 5% in 2009/10 also did so in 2008/09 -though the Gannochy Foundation increased its payout to 5.4% this year, whilst Wolfson slipped to 4.3%.) Nor does volume of giving necessarily say much about the effectiveness of the giving. The Esmee Fairbairn Foundation, for example, has done good work in building up the nascent social investment market. We also have some sympathy with the Children’s Investment Fund Foundation’s argument that, as a relatively recent creation, its grantmaking, which is evidence led, will take time to responsibly scale up – though we don’t think it should use that excuse for much longer.
One foundation sticks out like a sore thumb as a candidate for Britain’s worst big philanthropy – the Garfield Weston Foundation. It is the second largest endowed foundation in Britain, after the giant Wellcome Trust, with assets of £4 billion (in excess of $6 billion – larger than the Packard or MacArthur Foundations in the U.S.) It has the lowest payout rate in our sample at 0.8% (down from 0.9% in 2008/09, and up to just 1.0% based on its recently filed 2010/11 annual report). For this one foundation, the gap between its current grantmaking and what it would be under a 5% payout rule is £170 million. Its grantmaking is also a case study in unstrategic ‘spray and pray’ philanthropy: in 2010 it gave away £34 million through more than separate 1,500 grants, averaging £22,000 apiece.
It is also a foundation that has courted controversy over its founding parent’s tax affairs, drawing the ire of the UK Uncut protest group that staged a sit-in at one of its flagship investments, the Fortnum & Mason grocery store on Piccadilly. (Whether it has done anything wrong is moot – here is one analysis.) The Foundation also had its wrists slapped by Charity Commission in 2010 for some political donations to the Conservative Party. (There is, we trust, no connection between this and the government’s unwillingness to talk about a payout rule.)
In Philanthrocapitalism we argue that giving has the potential to be a powerful force for positive social change. It is also an integral part of the social contract between the rich and the rest of society. The law allows donors to create tax-subsidised foundations as an encouragement for socially beneficial philanthropy. Does the British taxpayer get much value from its tax breaks to Garfield Weston Foundation, or indeed many other big British foundations?
Tags: Cass Business School, Charity Commission, CIFF, Esmee Fairbairn Foundation, Gannochy Foundation, Garfield Weston Foundation, Giving White Paper, Leverhulme Trust, payout rule, Pears Foundation, UK Uncut, Wolfson Foundation
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November 21st, 2011
“Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall,
All the King’s horses and all the King’s men,
Couldn’t put Humpty together again.”
This children’s rhyme should be going through the minds of the 2,000 aid bureaucrats who are going to descend on the South Korean city of Busan next week for the OECD’s High Level Forum on Aid Effectiveness. The Busan meeting will confront the fact that the system the world’s official aid agencies created six years ago to manage development assistance to the poor has been shattered by events. Their aim is to try to patch it up and put it together again. They would be better admitting that, like Humpty, it is broken beyond repair.
The Busan event builds on a landmark meeting of the OECD’s Development Assistance Committee (DAC) in Paris back in 2005, when the world seemed a very different place. Rich countries were gearing up for the G8 Gleneagles summit, where they were to make big new aid commitments (ahem, egged on by the chair of the summit, the then British Prime Minister Tony Blair, and millions of citizens who had rallied behind the ‘Make Poverty History’ campaign). The Paris meeting of the DAC created a framework for how this new money would be spent. Known as the Paris Agenda, these new guidelines urged donors to co-ordinate their strategies around developing countries’ own plans and cut out the duplication of effort in the system. All laudable stuff.
Jump forward to 2011 and the world looks much more complicated. The Paris agreement described a development landscape that was dominated by governments of rich countries (and their agents, the multilateral development institutions like the World Bank and UN that get their money from rich countries) helping the governments of poor countries. Since then, the global financial crisis has stifled much of the generosity of the rich world. Emerging countries like China and philanthrocapitalists like Bill Gates have also entered this space as new, significant players. The host of the Busan meeting, DAC Chairman Brian Attwood, acknowledged the significance of these new actors in a recent article. But the development establishment is still reluctant to accept the implications.
The message from the aid aristocracy who designed the Paris Agenda seems to be that philanthrocapitalists need to get in line and behave like government donors. For some time now this argument has been used by some global health experts, who complain that ‘vertical’ interventions like GAVI on vaccination, or the Global Fund for AIDS, TB and Malaria, distract from the country-led, planned approach to development set out by the Paris Agenda.
That theme is echoed by a number of the papers commissioned for the Bellagio Initiative, a project funded by the Rockefeller Foundation but managed by the Institute of Development Studies to figure out the role that private foundations should play in development. In one paper, Robert Picciotto (a former head of evaluation at the World Bank) advises that “philanthropic organisations should sign up to the Paris Declaration on Aid Effectiveness and adopt the policies and practices that it implies.” In another, Kevin Watkins (a campaigner on education) warns: “Too much of the limited philanthropic support for education is delivered outside of government systems.”
You cannot blame them really. Donor and recipient governments have invested a lot of energy in creating this planning based Paris system of managing development financing. They are understandably reluctant to accept that the entry of new actors means that their plans have to go out of the window. But they should not try to put Humpty back together again.
The Paris Agenda has brought some benefits by reducing ‘project-itis’ by donors (a focus on funding specific projects, often carried out as ‘tied aid’ by a firm from the donor country), but it has also been behind the push towards simply writing cheques to developing country governments, known in the business as budget support. Donors like budget support because it is an easy way to shift large sums of money and is supposed to help to strengthen countries’ public financial management. There is also evidence that budget support does not do much good because developing countries’ cash the cheque but do not use the money to increase spending on the things that the donors care about like health and education, recipient government ministers often using it instead to fatten their own bank balances. (Budget support is also really unpopular with the taxpayers of developed countries that are financing these cheques, which worries the aid experts little but is a big problem when trying to persuade voters that this is a good use of their money.)
Telling philanthropists that they should behave like government also misses the important point about philanthropy’s comparative advantage – taking risks to do things governments cannot. For the aid establishment worrying about whether government largesse is going to dry up, philanthropy looks like a good way to plug some of the funding gaps. But to limit its role to that would be a waste. Better to let philanthropy take risks to drive innovation. (Michael horrified the Bellagio Initiative team with one suggestion about what type of risks philanthropists should take.)
Admittedly, too much philanthropy is still too risk averse. But that is all the more reason to be clear about the proper division of labour between governments and philanthropy rather than trying to get foundations to be even more conservative.
(One point on which we agree with the Paris gang is on transparency. Many official donors have signed up to being open about where and what they are doing, under pressure from the International Aid Transparency Initiative. Only one philanthropic organisation, the Hewlett Foundation, has joined them. This is a huge missed opportunity. Why not be transparent? We hope that other foundations will see the opportunity and sign up soon.)
An even bigger problem is that the aid technocrats are apparently blind to a potentially enormous shift in how the world tackles problems – impact investing. The aid system of the past half century that the DAC meeting is supposed to manage is essentially a rather rickety and under-funded global welfare state, where taxpayers in rich countries subsidise public services like education and health for taxpayers in poor countries. There are respectable moral arguments for this approach, but rich citizens do not want to pay for it and the governments of developing countries are all too often unwilling or incapable of using the money in this way.
This system is also based on some rather out-dated maths that a transfer of 0.7% of the national income of the rich world would be sufficient to lift people in the poor world out of poverty. Rich countries, as a group, have never come anywhere near this target, even in the boom times, and anyway it probably would be woefully inadequate in the face of new challenges like climate change.
Impact investing is the idea that a lot of the financing needed to help the poor could actually come not from governments but from private investors putting their money into schemes that generate social as well as financial returns. So far this idea has been most developed in microfinance, where for-profit investors are now providing financial services to millions of poor people in developing countries. Similar opportunities are opening up in water supply, sanitation, healthcare, education and energy supply. Yet as private capital seeking a financial return, the impact investment market lies outside the aid-based vision of the development orthodoxy.
Many development experts are hostile to such private-sector led approaches because they fear that it undermines their project of building state welfare systems akin to those of developed countries. Though we understand and sympathise with the sentiment, is this really the best way to serve the poor? Rather than dogmatically defending rich countries’ 20th century welfare models, development thinkers need to be ready to figure out what the most effective models will be for the 21st century. Sadly, such issues are not on the table at Busan. As we were saying, “All the king’s horses…”
Tags: Bellagio Initiative, budget support, Busan, China, DAC, GAVI, Gleneagles, Global Fund, Hewlett Foundation, Humpty Dumpty, IDS, impact investing, International Aid Transparency Initiative, Kevin Watkins, Make Poverty History, microfinance, OECD, Paris Agenda, Robert Picciotto, Rockefeller Foundation, Tony Blair, World Bank
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November 17th, 2011
Is aid a blessing or a curse for developing countries? For Imran Khan, a former cricketer turned politician, the answer for his country, Pakistan, is clear. “If we don’t have aid we will be forced to make reforms and stand on our own feet,” he told the BBC recently. This was a message that he repeated at a mass rally in Lahore at the end of October, which launched his Movement for Justice party as a serious political force in the country. “Pakistan is losing over Rs3,000 billion [£21 billion] a year in tax corruption”, he told the crowd of 100,000 people. If this lost money “can be tapped, the country does not need foreign aid.”
Something certainly needs to change in Pakistan. The country is not the poorest of the poor – national income per head is $2,550 (at purchasing power parity), which makes it a lower middle income country – and it has managed to fund the development of nuclear weapons. But on human development it is seriously underperforming. More than 20% of the population (about 40 million people) lives in absolute poverty on less than $1.25 a day. Adult literacy is 55.5%, which is shocking low (Malawi, for example, has a national income one quarter of Pakistan’s and a literacy rate of 73.7%.) Pakistan has the dubious distinction of being one of just four countries in the world where polio is still endemic (the other three are India, Afghanistan and Nigeria).
Blame for the sufferings of the people of Pakistan rests firmly with its government. Public spending on education and health is miserably low – just 2.6% of national income on each (even Nigeria, another not-that-poor country that serves its citizens badly, spends twice as much as a proportion of national income). And even those figures are probably an over-estimate as so much of the money that should go to schools and hospitals leaks out in corruption.
It is this nonperformance of the government that makes aid so important to Pakistan. It receives total development (non-military) aid of about $1.7 billion per year, which is about 1% of national income. This is not a lot in absolute terms but significant in comparison to how little the government does. So, if taxes were collected and corruption squeezed out of the system, Mr Khan argues, there would be plenty of cash for a big push to drive Pakistan up the rankings of human development without foreign assistance.
Well, maybe. Mr Khan is certainly well-intentioned and represents a break from the, ahem, old-style sort of politicians who have dominated the country. But Pakistan is a hard country, as Anatol Lieven subtitles his brilliant new book. Mr Khan has a long way to go merely to win power. Turning around the country would be an even more difficult, and perilous, task. So what role should public and private aid play? Would it be best just to leave Pakistan to sort out its own problems?
Leaving Pakistan to its own devices would be problematic for two reasons. First, it would fall foul of the realpolitik of the ‘war on terror’ that, sadly, frames Pakistan’s relationship with donor countries like the US and UK, since aid is part of the West’s leverage over President Zardari and Prime Minister Gilani. That, Mr Khan would say, is the point. He wants foreign powers to stop messing around with the drone strikes on militants and so on that, he believes, are making the country more rather than less unstable.
The West is not going to buy this argument any time soon and, even if his logic was impeccable, it would be a high-risk gamble to do so. That would be a gamble not just with the security of Pakistan, the region and, maybe, the rest of the world. And, besides the security question, it would certainly be a gamble with the wellbeing of the people of Pakistan. Cutting aid might precipitate the crisis Mr Khan wants but it could mean cutting off education, healthcare and humanitarian aid to millions.
A better option would be to reform aid to Pakistan in a way that enables the country to provide help to the needy while supporting (or at least not undermining) the longer-term goal of reform that Mr Khan yearns for. That would represent a tricky challenge for official aid agencies. As arms of foreign governments or as multilateral aid agencies of which Pakistan is a member, it is hard to channel money to the needy without going through Pakistan’s government systems. (This is particularly true for agencies like the World Bank whose mandate is to lend to sovereign governments.) The current fashion in aid ideology also leans strongly against any radical departure from working with the government of Pakistan, even if that means knowingly pouring money into a leaky bucket.
Philanthrocapitalists in the private sector face no such constraints and have an opportunity to break this logjam by directly funding solutions to Pakistan’s education and health emergencies at a scale that meet the needs of the people of Pakistan (and, in so doing, put pressure on the government to improve on its miserable performance), use their business know-how to finance wealth-creation, and to use their risk-taking ability to support domestic citizens’ movements that are working for change.
This would require a significant scaling of philanthropic resources for a country that is all too often seen by private donors as not just ‘hard’ but ‘too difficult’. Yet there is a significant opportunity for philanthrocapitalists to forge new partnerships with the Pakistani diaspora. As Bill Gates pointed out in his recent report to the G20 on innovative financing mechanisms for development, globally remittances from diasporas now far exceed total aid flows from governments. Remittances to Pakistan are running at about $10 billion a year, about the same as the Pakistani government spends on health and education combined. Of course, not even a majority of this money currently goes directly into poverty reduction. Yet if some of this cash, together with domestic giving (which runs at around 1.5% of national income), could be used for high impact philanthropy there would be a chance of making a real difference, especially if official donors could be persuaded to match fund these private efforts.
So here is our four point plan for philanthrocapitalism in Pakistan (some of which Michael discussed at a recent debate on aid and Pakistan in London, organised by The Samosa, an online British Pakistani newspaper):
1) Accountability, accountability, accountability: getting the government to effectively collect taxes and ensuring that the money is used for the benefit of the people of Pakistan has to be the number one goal. The Omidyar Network is funding a wide range of transparency initiatives around the world, which harness the power that the internet and mobile phones put in the hands of ordinary citizens to hold government to account. Donors should be looking to fund Pakistan’s tech entrepreneurs to learn from these models and create a whirlwind of innovation in this area, ideally working with the local media.
2) Entrepreneurship: Pakistan needs wealth creators not just to generate economic growth but as a bulwark against the rent-seeking crony capitalism that dominates so much of commercial life. Yes, microfinance and other tools to support the poorest are important. But so too (as global entrepreneurship guru Elmira Bayrasli argues) is supporting businesses that can grow into economic powerhouses. One of Mr Gates’ suggestions for boosting diasporas’ contributions to development is for more countries to follow the example of India and Israel and issue ‘diaspora bonds’. For Pakistan, why not raise a diaspora venture capital fund that seeks commercial returns by investing in the country’s high-potential entrepreneurs.
3) Eradicate polio: this is not a significant killer in Pakistan nowadays, but eliminating it is an eminently achieveable goal and would be an important global good. The Global Polio Eradication Initiative thinks that endemic polio can be wiped from the planet within a couple of years, if the funding is made available (there’s a $700 million global shortfall at the moment). The Pakistani diaspora could own this problem and, by solving it, prove that they are important players in the development of Pakistan. The way to achieve this would be through leverage. If, say, the Pakistani diaspora could pledge to raise $25 million, they could approach the Gates Foundation to match this (as Gates has done already through a partnership with Rotary International) and then, armed with these commitments, lobby the governments of the countries they now call home (the US, UK and so on) to match this.
4) Improve education: everyone knows that Pakistan’s education system is in terrible shape and official donors are trying to do something about it. The UK, for example, has pledged $1 billion over the next four years to get 4 million kids into school. We wish them luck in trying to reform the state school system to deliver these results.
Philanthrocapitalists can bypass the public sector and put some scaling capital into the privately run school system. This approach has had a bad press as a result of the expose of Greg ‘Three Cups of Tea’ Mortenson’s work on education. But there are good, local nonprofits running successful schools that reach some of the the poorest and remotest parts of Pakistan. One of the most respected, The Citizens Foundation, already has 100,000 kids in school and claims that it can educate a child for a year for around $100. Philanthrocapitalists, working with the diaspora and leveraging official aid money, could fund an ambitious scaling programme (why not 1 million kids in school?) to meet the immediate needs of Pakistan’s children, which would generate long term benefits for the country and, again, further show up how the government system for failing to deliver.
Experts in Pakistan will no doubt find holes in this plan. But the fact is that old aid models have failed in Pakistan. New solutions are needed. Who better to step up than philanthrocapitalists?
Tags: Aid, Anatol Lieven, Bill Gates, diaspora bonds, Elmira Bayrasli, Gates Foundation, Gilani, Global Polio Eradication Initiative, Greg Mortenson, Imran Khan, India, Israel, Malawi, Movement for Justice, Nigeria, Omidyar Network, Pakistan, polio, Rotary International, The Citizens Foundation, Three Cups of Tea, World Bank, Zardari
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November 10th, 2011
Should private donors back-fill for cuts in official aid to the developing world? Should private actors be integrated into aid co-0rdination mechanisms so far dominated by governmental agencies? Do governments need to change how they work to partner with philanthropists? These questions, prompted by the rise of philanthrocapitalism, are in the spotlight at the moment. The Bellagio Initiative, a project of the Rockefeller Foundation, is bringing together a range of experts to probe these questions with the help of the Institute of Development Studies. Britain’s parliamentary committee on international development is running its own inquiry.
The attention to these issues is welcome. One of the reasons we wrote the book was because we believe that the rise of philanthrocapitalism raises important questions not just for philanthropists and CEOs but for public policy. Government needs to change the way they work to make the most of the potential of partnerships with private actors. In our evidence to the International Development Select Committee, below, we offer some suggestions about what this change should look like.
International Development Select Committee inquiry into private foundations: written evidence submitted by Matthew Bishop and Michael Green
1. Overview
1.1. This is a timely and important enquiry. Over the past forty years the fight against poverty has been dominated by governments acting through national aid agencies or multilateral organisations like the United Nations and World Bank. In the past decade this model has been challenged by the emergence of agenda-setting private actors, such as the Bill and Melinda Gates Foundation, and the rise of new donors from emerging countries. In the past three years this transformation has been accelerated by renewed pressure on the aid budgets of the traditional donor countries. The crisis has also led to greater public scepticism about aid, more political pressure on the aid budget and, as a result, growing demand for a clearer demonstration of results.
1.2. There is an urgent imperative for the UK Government and other official donors to work with these new private actors[1]. Yet most foundations and other private actors still find the UK Government unreceptive to partnership and even impenetrable. A more strategic approach to working with foundations and business is urgently needed. In this submission we make recommendations on:
- How to promote more and better UK philanthropy to support international development.
- How to stimulate more and better business engagement in the fight against global poverty as part of wider Government efforts to reform UK capitalism.
- How to improve partnership working between DFID and private actors.
2. Who we are
2.1. Matthew Bishop and Michael Green are the co-authors of Philanthrocapitalism: how giving can save the world. Among other praise, this was described as the “definitive guide to a new generation of philanthropists” by Michael Bloomberg and as “important” by Bill Clinton, in his foreword to the paperback edition.
2.2. Matthew Bishop is the US Business Editor and New York Bureau Chief of The Economist. He was previously the magazine’s London-based Business Editor. Before joining The Economist, Matthew was on the faculty of London Business School, where he co-authored three books for the Oxford University Press. He has served as a member of the Sykes Commission on the investment system in the 21st century. Matthew was also on the Advisors Group of the United Nations International Year of Microcredit 2005. He has chaired the World Economic Forum’s Council on Philanthropy and Social Innovation.
2.3. Michael Green is an economist and writer. He worked at DFID for 12 years, serving as head of the Information and Civil Society Department, with responsibility for the Department’s external communication and funding to NGOs, from 2003 to 2007. He had previously managed the DFID aid programmes to Russia and Ukraine and served as an economic adviser. As well as writing, Michael consults around the themes of Philanthrocapitalism for governments, including DFID, multilateral agencies, foundations and firms.
3. Evidence
3.1. Context
3.1.1. Philanthropic giving has enjoyed a renaissance in recent years, starting with Ted Turner’s billion-dollar pledge to support the United Nations in 1997, and reaching a tipping point in 2006, when the second richest man in the world, Warren Buffett, announced that his entire fortune would go to support the work of the foundation of the richest man in the world, Bill Gates. Much of the Gates-Buffett money, which is likely to add up to more than $100 billion, will go to international development. The growth of philanthropy is not confined to the United States. In the UK, a new generation of donors has started to emerge that, while not on the scale of Gates, marks a significant new trend. Most notably, the Children’s Investment Fund Foundation has already received more than £1 billion from its founder Christopher Cooper-Hohn, to work exclusively on improving the lives of children in the developing world. Philanthropy is also growing in the developing world: Carlos Slim, the Mexican telecoms tycoon, has pledged $10 billion to fight poverty in Latin America; a number of Indian industrialists, such as IT magnate Azim Premji, have started substantial giving to local causes; the actor Jet Li has begun to popularise giving in China; and, Mo Ibrahim, who earned his fortune spreading mobile phone technology across Africa, has emerged as the leader of philanthropy on that continent. A growing number of multinational companies, especially those operating in developing economies, are explicitly embedding the creation of social value into their core business strategies.[2]
3.1.2. We have described this movement as ‘philanthrocapitalism’[3] because of the way these new donors are applying business thinking and techniques to their giving. (We describe the diverse ways they are doing this in Philanthrocapitalism.) This movement is disruptive because these new actors are willing to work outside the conventional wisdoms and structures of official aid. In some cases they are taking on challenges that official donors cannot, such as the Ibrahim Prize for leadership in Africa. In others they are using their resources to leverage official donors to focus on particular causes, as the Gates Foundation has done with malaria.
3.1.3. Philanthrocapitalism also embraces new approaches to tackling development problems that go beyond traditional charitable giving. Inspired by the work of C.K. Prahalad, author of The Fortune At The Bottom of the Pyramid, organisations such as the Omidyar Network, created by e-Bay founder Pierre Omidyar, and the UK-based Jacana Ventures, are piloting investing in for-profit investments in developing countries in sectors that benefit the poor. This type of investing, which consciously targets social returns and is willing to trade off some financial return, is known as ‘impact investing’. According to research by JP Morgan, there is a potential $1 trillion market for impact investing[4]. This would mark a significant shift in the way development is financed. There is a powerful case, though as yet not heard often enough, for the mainstream investment community to explore impact investing as a business opportunity (see, for example, the Lions on the Move report by McKinsey and Co.[5]) if it is focused on long-term value creation rather than short-term financial returns. We discuss the way in which grant monies and investment capital need to work together in the article ‘A Capital Curve for a Better World’[6].
3.1.4. The win-win where businesses can ‘do well by doing good’ is an important theme in philanthrocapitalism. Corporate giving is the least important aspect of how business can contribute to the fight against poverty. Rather, it is in their core business activities, through their policies on employment, supply chains, branding and resource use that companies can have far the greatest impact on development. We welcome the growing pressure on businesses from consumer and shareholder activism to ensure that their operations are net positive to development. Pioneering companies such as Unilever, PepsiCo and Nike seem to understand this and we welcome recent innovations in disclosure in this area, such as Standard Chartered’s report on its social and economic impact on Ghana[7], to increase transparency and enhance the debate.
3.1.5. Finally, philanthrocapitalists are also trying to mobilise public opinion. This was evident in the support provided by the Gates Foundation and other donors to the Make Poverty History/One campaign around the G8 Gleneagles Summit in 2005 and subsequently. Such campaigns make extensive use of celebrities to raise awareness of issues either to promote giving by the general public or to win popular support for development. It is notable that a recent YouGov poll noting declining UK public support for development showed much stronger support for the UK contribution to the replenishment of GAVI[8]. This suggests that philanthrocapitalists are better at identifying development interventions that resonate with the public and that their advocacy helps to win public support.
3.2. Implications
3.2.1. The aid architecture established by the Paris Declaration of 2005 is creaking and a shift from (western) government-led development assistance is already starting to happen. The Global Fund for AIDS, TB and Malaria has created a governance structure in which private donors have a seat on the board and a formal say in discussions. Unofficial convenors, like the Clinton Global Initiative, are bringing together developing country governments, official donors and private actors (philanthropies, celebrities and non-governmental organisations) to work and plan together. New financing mechanisms, like the Advance Market Commitments programme and the International Finance Facility for Immunisation, have started to lever private capital markets for development. Microfinance, which was tested and proven with aid money but did not reach its full potential due to limitations on the amount of grant funding, is now the most advanced form of impact investing and is scaling up rapidly as it evolves into a mainstream financial product for commercial investors (some recent problems in India notwithstanding). Other innovations, such as ‘incentive prizes’ like those run by the X-Prize Foundation,[9] promise to transform research and innovation for development.
3.2.2. Rather than defending the status quo against these new actors, it is essential that official donors seize the opportunity presented by these changes. Multilateral organisations, like the United Nations, and bilateral aid agencies, like USAID, have already created ‘partnership offices’ to facilitate joint working with private actors. DFID has made some progress in adapting to these changes, for example, as a strong supporter of initiatives like GAVI and the Global Fund and through its partnership with the Nike Foundation’s ‘Girl Effect’ campaign, but could and should be doing much more.
3.2.3. There are a number of reasons why it makes sense to have greater collaboration between private actors and official donors:
- i. Private donors are freer to take controversial risks, since they do not face the same political constraints as official donors. This means that they are better placed to innovate. (They also do not face the same resource constraints on staff time, so may be better adapted to making up-front investments in piloting ideas that are expertise-heavy.)
- ii. Private actors have skills advantages (as well as better networks of contacts) in finance and campaigning.
- iii. In addition to significant legislative and diplomatic clout, official donors often have far greater resources than any philanthropic actor (with the possible exception of the Gates Foundation in some areas of global health) and can provide valuable capital to take solutions to scale.
3.2.4. The UK’s leadership role in the fight against poverty is drawing interest from private actors looking to exploit these opportunities. For example, the Gates Foundation and the Omidyar Network have established offices in London. Yet many foundations and businesses feel that the door to the UK government is closed and that partnership opportunities are being missed because of the continued focus of DFID on working primarily with other official donors. This needs to change. We welcome the creation of DFID’s Private Sector Department but feel that it should be doing much more to lever private capital for international development, a goal that will require much closer working with other Whitehall Departments.
3.3. Recommendations
3.3.1. Recommendation 1: Promote more and better philanthropic giving from the British public by:
- Refocusing the ‘ask’ on financing for development away from 0.7% of national income from government to the original target of 1% by the public and private sectors combined[10].
- Building an alliance with high-profile givers such as Bill Gates to host an international philanthropy conference in London. The aim would be to mobilise Britain’s wealthy to join the Gates-Buffett ‘Giving Pledge’, to raise the profile of giving by all members of society, and to make the case for investing in development.
iii. Introduce a 5% ‘payout rule’ for endowed foundations to ensure that these tax-subsidised vehicles deliver real public benefit rather than being ‘warehouses of wealth’[11]. This is a requirement for U.S. foundations and should be extended to UK and European law.
iv. Change the form of more of DFID’s funding of NGOs into grants to match public donations, creating a greater incentive for the public to give, such as through platforms like globalgiving.org[12].
- Publish performance assessments of the NGOs funded by DFID to better inform private donor choices (perhaps in partnership with philanthropic research firms such as New Philanthropy Capital).
3.3.2. Recommendation 2: Stimulate greater business engagement with the global challenges of climate change and poverty as part of the efforts being led by the Department of Business, Innovation and Skills to promote long-termism in the UK economy. In particular:
- i. Improve national and international sustainability reporting standards, including the UN Principles on Responsible Investment, so that companies more clearly account for the contribution of their core business activities to sustainable development (rather than indulging mostly in PR-driven charitable giving).
- ii. Reform the definition of fiduciary duty for pension fund trustees to allow greater attention to long-term performance in investment decisions[13].
- iii. Use the 5% payout rule described above to incentivise foundations to allocate more of their endowment capital to impact investing.
- iv. DFID should lead the work to adapt the Social Impact Bond methodology as a way to mobilise private capital to fight global poverty through the creation of Development Impact Bonds.
- v. FCO and UKTI should also be tasked with mapping and supporting impact investment opportunities as part of their commercial work.
3.3.3. Recommendation 3: Improve DFID partnership working with private foundations to enhance the effectiveness of public and private aid capital:
- i. Establish a partnerships team to work with private foundations, to improve knowledge-sharing and to act as a “one stop” contact point within DFID.
- ii. Use partnership with non-UK foundations to inform and assist global influencing on development issues.
- iii. Allocate a proportion of DFID country programme budgets for scaling up proven innovations by private actors (foundations, NGOs, bottom of the pyramid businesses, etc).
- iv. Develop a programme of ‘incentive prizes’ with groups such as the X-Prize Foundation as a results-based way to promote innovation in development, particularly in research.
- v. Greater co-operation on measuring results through joint evaluation and by widening membership of the 3ie initiative. DFID should encourage private foundations to sign up with the International Aid Transparency Initiative, perhaps as part of co-financing initiatives.
- vi. DFID country teams should be tasked to map out and build contacts with major local and diaspora donors, particularly in countries such as India, Nigeria and Pakistan. These donors may be useful partners, not only as co-funders but also as political influencers in their own countries. (These partnerships would also be valuable in middle income countries where DFID does not have a bilateral programme and should be explored by FCO.)
[1] http://www.foreignpolicy.com/articles/2009/11/30/the_big_thinkers_of_giving
[2] http://www.brookings.edu/~/media/Files/Programs/Global/brookings_blum_roundtable/2007bishop.pdf
[3] http://www.economist.com/node/5517656
[4] http://www.jpmorgan.com/pages/jpmorgan/investbk/research/impactinvestments
[5] http://www.mckinsey.com/mgi/publications/progress_and_potential_of_african_economies/index.asp
[6] http://www.mitpressjournals.org/userimages/ContentEditor/1265819288419/INNOV-TECH4SOCIETY_025-033_bishop_12-29-09.pdf
[7] http://sustainability.standardchartered.com/contributing-to-the-real-economy/feature-our-social-and-economic-impact-in-ghana.html
[8] http://www.politicshome.com/documents/PoliticsHome_International_Aid_Report.pdf
[9] http://www.xprize.org/prize-development/global-entrepreneurship
[10] http://www.philanthrocapitalism.net/2010/05/one-is-the-magic-number/
[11] http://www.stepjournal.org/journal_archive/2010/step_journal_april_2010/the_five_per_cent_solution.aspx
[12] http://www.philanthrocapitalism.net/2011/07/the-match-game/
[13] This regulatory change and other reforms to promote long-termism are discussed in our book The Road From Ruin: a new capitalism for a big society.
Tags: Bellagio Initiative, DFID, Institute of Development Studies, International Development Select Committee, Rockefeller Foundation
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November 7th, 2011
“What would Jesus do?”. This question, put on one of the banners of the ‘Occupy’ protesters outside London’s St Paul’s Cathedral, is one that the Church of England has been struggling to answer in reaction to the public anger about the flaws in our economic system. What can the Church say and do about the operations of Mammon?
One response has been for church leaders to fall in behind the Robin Hood Tax, as Rowan Williams, the head of the Church of England did last week, following in the steps of the Roman Catholic Church. We have a lot of reservations about this idea. Indeed, Michael debated the merits of the tax at St Paul’s earlier this year. Even leaving aside the merits (or not) of this tax, does the Church have anything more to offer to the debate other than recommendations on tax policy, and (reluctantly) some ground for the protestors to camp out on?
The number two in the Anglican Church, the media savvy Archbishop of York, John Sentamu, choose to take the populist line, blaming greedy bankers. He urged a different kind of state intervention – getting the Queen to withhold honours from avaricious City types. That will have them quaking in their vaults.
In a new contribution to the debate, the St Paul’s Institute (a thinktank associated with the cathedral) today published a survey of ethical attitudes in the City (which was commissioned before the protests put their institution at the centre of the debate). One interesting finding is that City ladies and gents really are more godless than the population as a whole – 38% of those surveyed had no belief in God, compared to 23% for the population as a whole. The report, probably rightly, does not infer much from that statistic, pointing instead to the fact that only 14% knew that the London Stock Exchange’s motto is ‘My word is my bond’ to suggest (rather feebly) that moral standards have declined due to deregulation.
What is most interesting about this survey is that it shows the sense of unease within the City itself about how the financial sector operates, as well as strong support for different ways of working. Two thirds of respondents think bond traders are over-paid and half think the same of bankers. Banker bashers will be surprised to see that there was considerable agreement that the financial sector should be investing more in deprived communities and that bonuses need to reflect long term success, not short term-profit making.
For us, this poll shows the inadequacy of trying to portray what is wrong with the financial sector as a simple morality tale of greedy bankers gone mad. It is also a warning to the Church that merely banging on about ethics may not make much of a difference – respondents rejected the idea that they need to listen to the Church more.
We would not presume to second guess the Church on what Jesus would do. What we do know is that the Church of England alongside other Christian denominations and other faiths represents a large and active constituency that has often been at the forefront of campaigns for global justice. ”There is a strong sense that faith groups are particularly effective in mobilising action, and by engaging them, a campaign can reach out to a more mainstream – less traditionally left of centre – public.” This is one of the findings of a fascinating report ‘Campaigning for International Justice’, written by Brendan Cox, a former aide to Gordon Brown (don’t hold that against him) and now a senior figure at Save the Children. There is an opportunity here for the Church to take the passion of the Occupy movement and build it into a broader coalition for change, if only it can get its message right. But, again, what should that message be?
One of the ironies of the mess that we are in at the moment is that the banks can argue that they were “just obeying orders”. The short-termism that the St Paul’s survey shows is an acknowledged problem that is hard-wired into the City by the demands from the banks’ own shareholders for ever-increasing quarterly profits, irrespective of the long term consequences. Institutional investors, such as pension funds, are increasingly short-term in their investment strategies, preferring to keep swapping their shareholdings to ‘track’ the market rather than thinking about long term success. And those blinkered investors are acting in our name, since it is our savings and pension investments that they are using.
As we argue in our latest book, ‘The Road from Ruin’, transforming this investment culture needs not just regulatory change but active ‘citizen capitalists’ who are willing to ask tough questions about how their money is being used. And citizens can have an impact. The ethical consumer movement, of which faith groups were a key part from the start, is now having a real influence on the way businesses behave environmentally and socially. The ethical investment movement is stunted by comparison. Faith based organisations, many of which are substantial investors in their own right (the Church of England has made some progress in this area), could lead the way in engaging their member to be better stewards of their capital.
Ideas of stewardship and personal responsibility do not just apply to bankers, they apply to all of us. If we want a better capitalism that serves people and planet, we have to be willing to ask for it. This seems a more appropriate message for the Church than looking for a fiscal quick fix or casting the first stone at the sinners of the City.
Tags: Brendan Cox, Church of England, Giles Fraser, John Sentamu, Occupy, Rowan Williams, St Paul's Cathedral
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November 3rd, 2011
The G20 meeting in Cannes has enough on its plate figuring out a way to save the Eurozone, with or without Greece. So it is a credit to the meeting’s host, French President Nicolas Sarkozy, that he booked a slot on the agenda for a discussion of how to finance the fight against poverty based on a report by the world’s biggest private donor, Bill Gates. Amid the gloom about the global economy, Mr Gates’s report is a remarkably cheering document that reflects on past achievement and opportunities for the future and presents a clear vision of how the world of development is changing. It is also curiously understated.
One of the characteristics of Mr Gates’ brand of philanthrocapitalism is its recognition that even a donor of his scale cannot take on the world’s problems alone. When we interviewed him for the book he offered a surprising description of the Bill and Melinda Gates Foundation, which gives away $3 billion a year, calling it a “tiny, tiny organisation”. His point is that there are so many other actors out there – from official aid agencies, to nonprofits, to the private capital markets – that his philanthropy will only have an impact if it can leverage the whole system. One of the most important forms of leverage he has is his celebrity power to take on the pessimism about development of writers such as Dambisa Moyo, author of Dead Aid. That is why he started bankrolling the campaigning organisation One ahead of the G8 Gleneagles summit of 2005, when the rich countries made big new aid commitments, and has been touring with his Living Proof presentation to show that aid does make a difference.
The opening section of the Gates report is about this optimism: what has been achieved in development so far and what more could be achieved in the future. Basic economic development has been good for the poor, he argues, celebrating the fact that global GDP is five times higher than it was in 1960. Growing incomes mean improved nutrition and better public services and, with the help of aid money, real progress on poverty reduction: the lives of a million mothers saved from death in childbirth since 1990, a 20% reduction in mortality from malaria in just the last decade, and so on. There is, he believes, much to celebrate.
Unsurprisingly for a tech entrepreneur Mr Gates credits innovation as the reason for much of this progress and it is innovation that makes him most optimistic for the future. The report breathlessly lays out some of the opportunities available: an affordable vaccine against meningitis A, new ways of growing soyabeans in Africa, new strains of rice, and so on. The four horsemen of apocalypse can, it seems, be engineered away.
It is in this discussion of innovation that the second theme of the Gates report begins to open up – that the old model of aid from the rich world helping the poor world is not disappearing, it is already extinct. Many of the innovations he describes are being led not by the U.S., Europe or Japan, but by emerging powers like Brazil, India and China. Mr Gates hails a new era of ‘triangular partnerships’ between rich, poor and emerging nations to solve the problems of poverty. In doing so, he issues a timely reminder that the fight against poverty is financed largely by poor countries’ own resources. Aid is just the icing on the cake. The success of the economies of poor countries, particularly in Africa, over the last decade and the rise of new economic powers like China, he also points out, has expanded the resources available to the world to fight poverty – with a bit more commitment the world could really can kick on and solve many of the problems facing the poor.
Which takes us to the third element of the report, what is supposed to be the meat, Mr Gates’ ideas on how such a great leap forward in human wellbeing could be financed. What has gone before is his headline message to the G20: don’t let the economic crisis be an excuse for cutting aid budgets. Good luck to him on that one, although we should give him credit for shoring up the commitment of countries like Britain that have agreed (so far) to keep increasing aid despite the world’s economic woes. Mr Gates tots up current aid commitments as $80 billion and then offers ‘options’ to raise a further $85 billion.
More than half of this extra cash ($57 billion) is to come from new taxation. Indeed, the much-trailed recommendation of his report is his support for the Robin Hood Tax, a levy on financial transactions that supporters claim could raise $100-$250 billion globally (and we think is too good to be true). Yet Mr Gates’ plan only assumes a measly $9 billion. This is, in part, due to the fact that he assumes that only Europe would be willing to implement it. What he actually says in his report also suggests some ambivalence about the idea. The drafting is classic bureaucrat-speak: “there has been a lot of discussion”, “[it] has been widely advocated”, “this broadly holds true”, “some modelling suggests”, and so on. There is, ultimately, no hard endorsement of the tax and the fact that it is such a small part of his plan shows that his support is probably tactical only. “For those that choose to adopt it,” he concludes, “I urge you not to use all of the proceeds as general revenue. It is critical that a portion of the money raised be reserved for investments in development.”
Rather than taxing financial transactions, Mr Gates is much more bullish about taxing two other global ‘bads’: smoking and carbon. The World Heath Organisation recommends, he notes, that 70% of the price of a pack of cigarettes should be tax. Since even the EU average is only 55% at the moment, there is headroom to push that up a bit and keep a small slice ringfenced for development (10 cents per pack in rich countries, 6 cents in middle income countries, and 2 cents in poor countries). He estimates that this would raise about $11 billion and cause a lot of smokers to quit. He thinks an even larger sum of $37 billion can be raised by adopting a proposal already made by the World Bank and IMF to tax aviation and shipping fuel.
The remaining $28 billion a year in the Gates plan comes from private sources. No, he is not suggesting a whip-round of his billionaire pals who have signed up for the Giving Pledge. Instead he wants to harness global migration to get diasporas to do more. Remittances, he notes, are now more than $300 billion annually. If the cost of sending money home could be cut to, say, 5%, this would save $15-16 billion and if poor countries issued ‘diaspora bonds’, as Israel and India have tried in the past, this might claw in a further $4 billion a year of additional investment. These ideas around raising maybe $20 billion of development aid from remittances are the shakiest in the report. Yes, remittances are big but this total includes all money sent home, a fair chunk of it from rich people to their rich families, and much of the rest not focused on financing development. Yes, boosting remittances may help the poor a bit and there are lots of interesting things that could be done to try to channel more remittances into investments that support development (like Mexican ‘Hometown Associations’) but Mr Gates is over-claiming.
By contrast, when it comes to opportunities to harness the private sector, the Gates report seriously under-claims. The final building block of his plan is $8 billion a year coming from sovereign wealth funds investing just 1% of their capital in infrastructure in Africa. This is a perfectly good idea but there is so much more he could have said. A year ago, JP Morgan reported that there could be a $1 trillion market for ‘impact investments’ like this, excluding investments in energy and climate change. As Mr Gates recognises in the report, impact investments, though for-profit, can target high-impact development interventions such as sanitation. Other philanthrocapitalists like the Omidyar Network are important innovators in this field, whereas Mr Gates has blown rather hot and cold on the idea. Sadly, this means that he has missed a trick. There is a lot that the G20 could do to stimulate this market: from using some of their budgets as ‘first loss’ risk capital to leverage other investors into this area, or by reforming their own financial regulations in ways that encourage this type of long term investing with high social returns.
The Gates report is not the last word on the future of development financing but it does offer a glimmer of hope that the current economic crisis need not be a catastrophe for the world’s poor.
Tags: Bill Gates, Climate change, diaspora, G20, giving pledge, IMF, impact investing, JP Morgan, Nicolas Sarkozy, Omidyar Network, One Campaign, Oxfam, remittances, Robin Hood tax, smoking, World Bank, World Health Organisation
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November 3rd, 2011
A gaggle of notables from the arts philanthropy world (and Tracey Emin) gathered at London’s Tate Gallery last night to mark the launch of a new campaign, Legacy10, to get Brits to give more. The campaign, set up by “the most influential PR man in the country” Roland Rudd, wants to get people to take advantage of a new tax break for legacy gifts to boost the amount that the dead leave to charity. Chancellor of the Exchequer George Osborne, who carved out a few precious pounds to pay for the new tax subsidy in his last budget, was part of the celebrations.
Legacy10 refers to a new rule, coming into force next year, which means that if you leave at least 10% of your wealth to charity in your will, the government will cut the rate of inheritance tax on the remainder from 40% to 36%. What this means is that a person leaving an estate of, for the sake of simplicity, £100 would, without making a gift, pay £40 to the taxman and leave £60 to their chosen beneficiaries; from next year, if that person leaves £10 to charity, this would cut the taxman’s share to £32.40 (36% of £90) and leave the beneficiaries only slightly worse off with £57.60. In other words it would only cost you £2.40 to give away £10. Sweet!
The purpose of the tax break (and the campaign) is to encourage more dead philanthropy, since only 7% of wills leave anything to charity at the moment (which at least is up from 4% in 1980). According to research commissioned by the campaign, 80% of Brits surveyed had not heard of the tax break and 70% would, on hearing about it, now consider a charitable bequest. Well, maybe. Such PR-driven surveys must always be taken with a pinch of salt. Moreover, only estates worth £325,000 or more are liable for inheritance tax and Mr Osborne has been keen to raise that threshold to £1 million when fiscal circumstances permit. So, rather than boosting mass giving, this tax break looks more of an incentive on the wealthy to give.
Legacy10 has launched a ’10% pledge’ to encourage more bequests, with ten high-profile supporters signed up already, including Sir Richard Branson. Yet this draws rather unfavourable comparison with the Giving Pledge led by Bill Gates and Warren Buffett, which requires a commitment to give away at least 50% of the pledgers’ wealth. Ten percent does seem a bit of a thin commitment from billionaires like Mr Branson and the other multimillionaires on the list.
Legacy10 also sends out a worrying message that giving is what you do when you’re dead. One of the principles of philanthrocapitalism is that effective giving is about more than the money. Living donors engaged in the problems they are trying to solve are much more powerful than cold, dead cash alone.
In defence of Legacy10, some fundraisers think that legacy giving is the way to boost philanthropic support for endowments. Britain’s cultural institutions have tended to rely on public money in the past and few have built up much of a ‘war chest’ of endowed capital. With arts funding among the lowest priorities for taxpayers’ money in these times of austerity, the government is keen to wean galleries and museums off state subsidy and rely more heavily on private donors. To help them on their way, Culture Secretary Jeremy Hunt found £55 million earlier this year to match fund gifts for endowments. Even with such incentives, living donors can be chary about not seeing much immediate impact from their cash. Dead donors are not so picky, since it makes little difference to them whether their money is having an impact in 1, 10 or 100 years. As one museum director told us last night, legacies look like the best way to raise an endowment.
Mr Osborne admits that this tax break is just a small part of the process of building a culture of giving in Britain, which is what his boss, Prime Minister David Cameron hopes will be the legacy of his ‘Big Society’ project. Unfortunately for Mr Cameron, his flagship idea seems to be getting more traction overseas than it is at home. A recent poll of Conservatives says that a whopping 87% of them would like to drop the Big Society slogan and replace it with ‘Family, Education and Work’. Nothing there, we note, about giving.
We think that the debate about promoting giving in Britain is still too fixated on tax subsidy. Mr Osborne can be satisfied with the fact that he has come up with a tax break for giving that is a sop to the charity world but is not going to cost him that much at the moment. Hopefully the debate can now move on. A culture of philanthropy will be built by donors who can speak powerfully about how their giving is having a real impact and, in so doing, encourage others that philanthropy is an important and effective way to use their money. Changing the culture of British philanthropy towards a focus on impact and transparency is the real challenge for the Big Society.
Tags: Big Society, David Cameron, DCMS, George Osborne, giving pledge, Jeremy Hunt, Legacy10, Richard Branson, Roland Rudd, Tate Gallery, Tracey Emin
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November 2nd, 2011
“People should become aware that the difficulties we are confronting are not just the difficulties caused by bad, greedy guys in an otherwise good system”. The Marxist philosopher Slavoj Zizek is musing on the economic crisis and the state of capitalism in an extended interview for Al Jazeera. The recent ‘occupy’ protest that started on Wall Street and have spread across the U.S. and the world, including to the steps of London’s St Paul’s cathedral are a sign, he believes, that “the system has lost its self-evidence, it’s automatic legitimacy”. Zizek relishes his role as the bad boy philosopher, throwing out “provocations” designed to horrify mainstream thinkers (and gardeners). Yet, on this issue at least, we believe he is on to something.
Even though capitalism has suffered a catastrophic failure, the debate it has triggered has become trapped in a sterile shouting match between those who just want to reboot the system and return to ‘business as usual’ as quickly as possible and the banker-bashers who think that the answer is to simply throw around more government red tape. Neither of these solutions addresses the scale of the challenge we face. Capitalism is still the least worst system we have for generating the prosperity we need to feed, clothe and educate seven billion people and counting. But it is a system that, as Zizek says, has lost its legitimacy with what the occupy campaign calls the 99%. “The Berlin Wall fell but there are new walls, new divisions rising up everywhere within most of the states,” Zizek argues, adding a warning: “If we do nothing we will gradually approach a kind of a new, it will not be old, fascism.”
Capitalism should not be rebooted nor booted out; it needs to be reinvented. This is the challenge at the heart of philanthrocapitalism. First, in a narrow sense, it is a recognition that our economic system is based on a social contract, compact, covenant: the winners from the system cannot ignore the consequences of the system for everyone else. This motivation for philanthropy was recognised by Andrew Carnegie, the Bill Gates of his day, more than a century ago, when capitalism faced the existential threat from socialism and Communism. His ‘Gospel of Wealth’ urged the rich to accept their responsibility to tackle the negative impacts on society that threatened to undermine the economic system. In the 21st century, in a world where the rich have got richer and the rest have been left behind, this message is just as urgent. That is why, we believe, today’s philanthrocapitalists are right to use their giving to find solutions to social and environmental problems (and to argue for greater (properly designed) taxation of the rich).
Zizek does not have much truck with this idea. As a Marxist, Zizek thinks that capitalism is necessarily exploitative, so any philanthropy is a contradiction.For him philanthrocapitalism is like a “chocolate laxative” (chocolate makes you constipated, a laxative, on the other hand,…well, you get the point). He launched a blistering attack on the philanthropy of Bill Gates and George Soros in the London Review of Books back in 2006, which we discuss in detail in the book. But you do not have to be a Marxist like him to think that capitalism is on the wrong track. The financial crisis is evidence that much of the profit and growth of the boom years were just a mirage, not real prosperity (nor real capitalism, since what the financial sector did was so catastrophic for its investors and shareholders). Business that makes a quick buck by creating massive social and environmental problems is bad business in the long term.
Redesigning capitalism to better serve humanity is the deeper meaning of what we call philanthrocapitalism: the recognition that business does not operate in a vacuum but is a member of society and a part of our environment. Some businesses get this and are moving away from PR-driven corporate philanthropy to a whole organisation approach to ‘doing well by doing good’. Sadly, most firms still do not. This problem is particularly acute in the financial sector, which has failed to even engage the Occupy movement, let alone show that it is ready to change. What is needed is a fundamental reorientation of capitalism and finance towards real, sustainable value through the sort of reforms that we describe in The Road From Ruin (the updated U.S. paperback edition is coming out at the end of this month).
Getting capitalism to change is, as Zizek points out, not just a matter of blaming the bankers. It also requires a civic renewal where we all play a part in shaping a capitalism that serves society. The Occupy Movement, in our opinion, has the potential to channel some of the current popular anger into the positive engagement that is needed (here’s 10 things we can all do). The world is also crying out for leadership. Politicians seem blinkered by crisis management and partisan bickering. Civic leaders need to step up and help shape this urgent and important debate.
“You know what the Chinese say when the really hate you? ‘May you live in interesting times’. We certainly are approaching interesting times.” There is a twinkle in Zizek’s eye as he relishes the philosophical challenges of a world in turmoil, descending into authoritarianism and maybe fascism. We are more optimistic. Interesting times are an opportunity for new thinking, if we choose to rise to the challenge.
Tags: Andrew Carnegie, CSR, Occupy Wall Street, Slavoj Zizek
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October 31st, 2011
The leaders of the G20 major economies are going to have lots to talk about at their summit meeting in Cannes at the end of this week: saving the Euro, preventing a meltdown in the global economy and, at the request of summit host Nicolas Sarkozy, the thoughts of Bill Gates on how to finance the fight against poverty. In these cash-strapped times as rich countries look likely to take a hatchet to aid budgets, ideas for financing development are welcome and we look forward to Mr Gates’s report with interest. (And some concern, too, if the rumours are true that he is going to come out in favour of the well-intentioned but muddle-headed ‘Robin Hood Tax’.) Yet such is his influence, as a mere private citizen, that some in the worlds of philanthropy and aid are worrying that Mr Gates is getting too big for his boots.
The difference between Mr Gates’ philanthropy and other foundations was well captured by Ed Skloot, director of Duke University’s Center for Strategic Philanthropy and Civil Society, in the latest edition of Alliance magazine. The article makes rather depressing reading, not for what it says about the Gates Foundation, but because of what it says about the rest of the foundation sector. The scale of Mr Gates philanthropy, running at $3 billion a year, is just one of its distinctive characteristics, Mr Skloot argues. “It differs from the institutional norm in almost every way: in size, ambition, high-level connections, proactivity, long-term commitment, operational engagement, and public leadership.” To us, these all seem like laudable features of philanthrocapitalism. Others in the foundation world seem less sure.
One of the mistakes that critics of the Gates Foundation make is to compare its scale and influence with that of other foundations. It is better, we believe, to look at the role that Mr Gates and other philanthropists are playing in the whole system, including government and private sector, where its size is far from remarkable. If philanthropy does not leverage change in public and private decision-making, it is unlikely to have much influence on the world.
Yet it is the Gates Foundation’s influence on the debate about aid and development that worries others most. This was evident last week at the Humanitarian Congress held in Berlin last week, where Michael debated the role of foundations with David McCoy, who has been a major critic of the Gates Foundation’s role in public health because of its focus on tackling communicable diseases, like malaria, through ‘vertical’ interventions like bednets and (hopefully) vaccination, rather than (he claims, somewhat outdatedly) taking on the underlying causes of ill health, like sanitation, and building the capacity of health systems. More fundamentally, Mr McCoy and others at Global Health Watch warn that so much of the global health sector is now dependent on Mr Gates’ money that critical voices are being stifled.
Doctors, as much as lawyers and other professions, will often resist outsiders who want to disrupt and challenge their expert view. But this critique should not be too easily dismissed. Indeed, as we argue in the book, rather than giving the lion’s share of his cash to the Gates Foundation, Warren Buffett might have been better to divide it between two or three foundations to create a bit of competition and diversify his philanthropic portfolio. There are two important issues that are worth debating:
First, what is the right division of labour between public and private actors? The Gates Foundation’s grant-making in global health puts it on a par with government donors like USAID or Britain’s Department for International Development (DFID) but that does not mean that they should all be doing the same things. Government donors will always find it more difficult to fund controversial high-risk projects but are better placed than private donors to support programmes to reform public health systems. Attacking the Gates Foundation for not behaving like, say, the World Health Organisation, is missing the point.
Second, how to ensure the accountability of private donors. One of the benefits that Mr Gates has brought to global health is his celebrity and, as we have seen, quite a lot of criticism. More and better debate is to be welcomed. The Gates Foundation says it welcomes this debate and prides itself on its willingness to learn. Mr Gates has also tried to make his own thinking more transparent.
Just because Mr Gates does not agree with his critics does not mean that he is unaccountable and does not listen. (Indeed, one of the weaknesses of government donors is their tendency to spread the money too thinly across different programmes to satisfy different lobby groups in the name of accountability.) Yet the risk that the scale of his foundation’s funding is stifling debate needs to be taken seriously. The Gates Foundation needs to show that it is ready to participate in the debate with its critics and to demonstrate that it is not just funding yes-men. Given how fearful those who are receiving his money are to be perceived as biting the hand that feeds them, the Gates Foundation probably needs to go out of its way to encourage debate and discover what these folk really say about it in private, to people like us!
Still, this creates a high-leverage opportunity for another foundation to support that debate. To do so would be risky and controversial, which sounds like a good idea. If only Steve Jobs, before his untimely death, had opted to stop sneering at Mr Gates’ philanthropy and instead extended their business rivalry into a full-on competition in giving to public health. But hopefully some other billionaire will rise to the challenge.
Tags: Alliance Magazine, David McCoy, Ed Skloot, G20, Gates Foundation, Global Health Watch, malaria, Nicolas Sarkozy, Robin Hood tax, Steve Jobs, The Lancet, Warren Buffett
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October 18th, 2011
Whatever happened to the Big Society? Once British Prime Minister David Cameron’s flagship idea, it has been so conspicuous by its absence in recent weeks that Third Sector magazine argued last week that it was time to say ‘bye-bye’ to the idea.
Such a judgement by the official organ of the UK charity sector, which yearns still for the days when government was throwing cash at its constituents, needs to be taken with a pinch of salt. Indeed, Mr Cameron should take heart from recent developments in the social investment market that could be a new source of growth capital for nonprofits.
Social investment bridges the gap between charitable giving and for-profit investing through products that offer a financial return and a defined social impact. For philanthropic organisations, social investment is a way to make scarce capital go a lot further, since the capital is protected and can even grow by investing it rather than giving it away. And if the financial returns on social investments can offer risk-adjusted returns high enough to tempt commercial investors then there is an opportunity to leverage substantial quantities of additional cash into fighting poverty, tackling climate change and so on. (The proper balance between financial returns and social impact is sometimes controversial, however, as we have seen in recent controversies about microfinance.)
The foundations for the development of this market were laid ten years ago by the Social Investment Task Force, established by Mr Cameron’s predecessors, Gordon Brown and Tony Blair, the full recommendations of which are now, at long last, being implemented.
The launch of the first social impact bond dealing with rehabilitation of criminals has drawn international attention, not least in America, to the UK as a world leader in social innovation. This socially-useful financial innovation levers private capital into solving social problems and makes government money go further by only paying for results.
A nice idea you might think. But in Britain it has been on the receiving end of some predictable criticism from commentator Polly Toynbee on the left and limited fanfare accompanied the recent launch of some new bonds to help deprived families. It is a surprise and a disappointment that an idea with such a bipartisan heritage is being subjected to full-on partisan criticism.
Another of the Task Force’s ideas has come to fruition in the form of the Big Society Capital fund, a wholesale investor funded with cash from unclaimed bank accounts and loans from mainstream banks (albeit screwed out of the banks under pain of harsher government regulation). So far, it is unclear how Big Society Capital will work out, since it seems to be in listening mode (which is no bad thing). The big question it faces is whether or not social investment can grow from being a government or philanthropy led sector into one that excites mainstream finance.
That evolution is a realistic goal, says a new report Making Good on Social Impact Investment, which argues that if the City of London seizes the opportunity to become a world leader in social investment it would be good both for the City and for society as whole. The report is co-authored by Rupert Evenett, a board member of the Social Investment Business (a quango formerly known as Futurebuilders that is trying to reinvent itself as a pillar of the Big Society), and Karl Richter, one of the creative thinkers in the UK social investment space. Importantly, it also has the backing of TheCityUK, an advocacy and promotion agency for London as a global financial centre.
So is this a sign that social investment is about to go mainstream? The good news, say the authors, is that social investment is “an emerging market that has passed a watershed with sufficient investment track record building to start attracting mainstream investment”. And, they argue, it is an opportunity that the City should take seriously because social investment ”can offer investors sustainable financial return, assessable risk and the potential for diversification.” We hope they are right.
The report makes a welcome appeal to public and philanthropic investors to be bold as seeders of this market, rather than simply as providers of social investment capital. It highlights the need for financial innovation, including more work on securitisation, that is essential for creating scaled, liquid markets. Evenett and Richter also draw helpful lessons from venture capital, which was once an emerging asset class, to argue for a social investment trade body, modelled on the British Venture Capital Association, to share market data and lobby for regulatory obstacles to be cleared away.
The elephant squatting in the middle of the room is whether the lords of finance are ready to take over from the barons of the voluntary sector and the mandarins of Whitehall in leading the social investment revolution. The Royal Bank of Scotland, which was so badly run by Sir Fred “the Shred” Goodwin that it had to be nationalised during the financial crisis, recently announced that it is dipping its toe into the water. But its £5 million fund feels more like corporate do-gooding rather than an attempt to explore a potentially significant new line of business. As we argue in ‘The Road From Ruin’, creating an investment industry that genuinely serves the long-run interests of society is going to require some profound changes in the way the City as a whole operates (the investors, too, not just the banks!), to get capital flowing into projects that yield real long term value rather than, as is all too often the case today, unsustainable short-term profits.
Making Good on Social Impact Investment is not going to rescue the Big Society from its critics, or make it a saleable message to voters. But it does offer practical and sensible steps that need to be taken to grow a social investment market that might make Third Sector say ‘hello again’ to the Big Society.
Tags: Big Society, Big Society Capital, David Cameron, Karl Richter, Polly Toynbee, Royal Bank of Scotland, Rupert Evenett, Social Impact Bond, Social Investment Business, Social Investment Task Force
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September 29th, 2011
“People say we are overstating the importance of technology in giving. I say, you ain’t seen nothin’ yet.” British charity tech guru Steve Bridger was in bullish form this Thursday morning, September 29th, at the Gulbenkian Foundation in London’s trendy Hoxton Square, just around the corner from the British tech hub known as ‘silicon roundabout’. Bridger is here to launch ‘Spring’*, a new project to promote giving online and through mobile phones run by the Big Society Network (a nonprofit that is increasingly the brains trust of British Prime Minister David Cameron’s Big Society project).
“We desperately need new ways to reach out and get people to support charities,” warns Steve Moore, the CEO of the Big Society Network, pointing to the impact of the dire economic circumstances on public spending . Yet the fiscal gloom cannot keep the irrepressible Ulsterman from seeing the bright side. “There’s a vibrant network of people using new technologies to get people to give”, he enthuses. “We are issuing an invitation to join us in this conversation.”
Much of the success of this initiative will depend on the nature of that conversation. We believe that a “mass philanthrocapitalism” which harnesses social media to mobilise and organise ordinary givers has enormous potential, as evidenced by the success of organisations such as Kiva.org and DonorsChoose in the United States. But getting this right is not proving as straightforward as many charities had hoped, as Bridger noted. If Spring is to figure out how to unleash the full potential of online giving, the conversation needs to have three characteristics:
First, it must not shy away from tough topics. There is certainly a lot of experimentation taking place with online giving in the UK (check out local giving, seethediffeence.org and givey, for example). All, no doubt, dream of becoming the eBay or Amazon of giving. But, whereas for-profit dotcoms are the children of a ferociously competitive market in which failure comes thick and fast, donor-backed projects tend to fail slowly. Spring needs to dig out the lessons of what does and, perhaps more importantly, what does not work.
Second, it must be imaginative. A lot of giving websites are just that, using the internet to get the public to give through a new medium, rather than changing the way in which people support good causes. Spring needs to explore completely different ways of raising money for new causes, for example through gaming. Just last week, the PlayMob, one of the tech companies at silicon roundabout, launched a new platform to use online gaming to raise money, not through donations but by getting gamers to buy products that support a good cause. For those of us mystified by the joys of Farmville and bemused that any Old (Apple)MacDonald would pay real money for, say, a digital cow for his digital farm, this all seems pretty odd. Yet gamers are expected to spend more than $2 billion this year on virtual stuff. The PlayMob‘s ‘Giverboard’ platform is there to try to skim off some of that for good causes, starting with selling a Soup Can Hat (price $5.50) in the Parallel Kingdom game to raise money for feeding programmes in Africa run by SOS Children. Easy money? Not at all, says Jude Ower, the CEO of PlayMob: successful fundraising in these virtual worlds must go with the grain of the games and will only work if it enriches the gamers’ experience. But if the forces of fun can be harnessed to doing good, the potential could be enormous.
Finally, Spring must be ready to be disruptive. Kiva and DonorsChoose have been successful because they offer the giver a completely different experience. They connect donor and recipient and help donors see what their gifts have achieved in a way that is not possible when giving to a traditional charity. (Kiva, in particular, has also made a virtue of transparency, which is not always the strong suit of nonprofits.) Maybe the potential of online giving is going to be fulfilled not merely as a fundraising tool for charities but, rather, as a disruptive technology that disintermediates charities and creates new networks for doing good. Spring needs to be ready to ruffle a few feathers. to help that happen.
Here’s to a great conversation!
*Disclosure: Michael will be one of the advisers to this project.
Tags: Big Society, Big Society Network, DonorsChoose, Kiva, PlayMob, Spring, Steve Bridger, Steve Moore
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September 24th, 2011
There has been plenty to be gloomy about in New York, this gridlocked, rainy week of United Nations/Clinton Global Initiative summitry. Yet there have also been plenty of bright spots, especially at the Social Good Summit hosted by the 92nd St Y and Mashable.
The final of the StartUps for Good Challenge was a case in point, featuring eight entrepreneurial young organisations each of which has considerable potential to make the world a better place. Matthew was a member of the panel of judges (gamely trying to impersonate Simon Cowell), along with legendary Israeli venture investor and connector extraordinaire, Yossi Vardi (watch his hilarious Ted talk here), Aaron Sherinian of the UN Foundation and Mashable tech reporter Sarah Kessler.
Yossi spoke for all the judges when he said that the eight finalists were all excellent. Awaaz.de (“give voice”) is a help service for people who are now technologically connected, but primarily through voice not text (which due to illiteracy is a lot).
Catchafire is a service that connects professionals wanting to do pro bono work with non-profits needing their professional skills. The goal is to make volunteerism more useful for those non-profits by tapping into the genuine professional expertise of the volunteers (rather than just have a bunch of volunteering lawyers or accountants paint walls, say, which whilst no doubt fun is probably less valuable to the non-profit than their expertise).
Kopernik is a site where donors can buy innovative life saving products and get them distributed to poor people who need them. These products include the Q-drum, which greatly reduces the burden of carrying water, Drip-Tech micro-irrigation systems and bio-mass stoves.
Em(Power) Energy is a company that helps organise people who live by finding valuable resources on waste dumps into mutual organisations that use waste to create electricity that can be used for schools, clinics and so on.
Prove My Concept is a site where young people can share entrepreneurial ideas with older experts, who can help them figure out how to turn these ideas into reality.
Sparked is a micro-volunteering website where anyone with a few spare minutes can go to carry out useful tasks online for non-profit organisations.
SimpleEnergy aims to use online gaming to motivate people to become more energy efficient. Fun, and effective.
And the winner? SunSaluter, a firm that aims to improve the efficiency of solar panels by moving them during the day through the clever use of weight and metals that naturally expand and contract with changes in temperature. This is the brainchild of a 19 year-old Canadian entrepreneur, Eden Full. She wowed Yossi in particular, who already looks to be a potential investor, by explaining that she built a solar car at the age of nine. But he is not the only superstar tech investor to be impressed: Eden is one of the students enticed to drop out of college (in her case, Princeton) by a $100,000 ’20 Under 20′ grant from Peter Thiel, who has made fortunes from PayPal and Facebook.
These organisations provide an excellent flavour of the best of what is going on currently in social entrepreneurship: a mixture of for-profits and non-profits, with an emphasis on social media and clean energy, some as stand alone operations, some in partnership with existing firms or non-profits, all of them focused on leveraging maximum bang for the buck. We wish them all well. Sure, some will do better than others, but they are all worth a look for anyone in need of some inspiration in these tough times.
Tags: 92nd St Y, Aaron Sherinian, Catchafire, Clinton Global Initiative, Eden Full, Em(power) Energy, Kopernik, Mashable, Peter Thiel, Prove My Concept, Sarah Kessler, SimpleEnergy, Sparked, SunSaluter, UN Foundation, United Nations, Yossi Vardi
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September 19th, 2011
If you want a model for how the world can solve its most pressing problems in the 21st Century, it is the posse. As governance systems go, the Wild West approach of rounding up a few available hands and driving the bad guy out of town is certainly messy, but, if our favourite westerns are any guide, it could be highly effective. Political theorists who can see the potential dress it up in highfalutin’ language as “coalitions of the willing” and governance based on “flexible geometry”, but we prefer to call it what it is: a posse. And this week, in New York, we are going to see plenty of evidence of why, increasingly, solving global problems is all about the art of the posse-able.
This is the time of the year when NewYork’s traffic is gridlocked by two massive events focused on global problems – the General Assembly of the United Nations and the Clinton Global Initiative – and a plethora of smaller events making the most of the influx of world leaders, thinkers and celebrities. (Matthew is participating in two of these “fringe” events, the Creative Leadership Summit hosted by philanthropist Louise Blouin, and the Social Good Summit curated by the 92nd St Y and Mashable.)
Inside the United Nations, there will also be plenty of gridlock, we fear, at least on headline-grabbing topics like the politics of the Middle-East. Such progress that will be made will be on issues where the UN is engaged in a posse with business, non-governmental agencies and philanthrocapitalists, such as on tackling communicable diseases – thanks not least to the Ted Turner-created UN Foundation and its associated UN Office for Partnerships. But the true centre of posse action will be the Clinton Global Initiative, where the sheriff (or cowboy-in-chief – in a good way), Bill Clinton, will preside over updates and new commitments from dozens of posses bringing together people and organisations committed to doing what works across a wide range of global issues, although this year’s three main themes will be job creation, girl power and sustainable consumption.
Michael outlined our theory of the art of the posse-able at a recent discussion on development hosted by the World Bank in London, as blogger Owen Barder has reported. We first started talking about this approach years ago, after reading a rather dense section (starting on page 407) of the influential yet often incomprehensible book, “Empire“, by Michael Hardt and Antonio Negri. They saw the role of the posse as largely about bringing down (in a sort of neo-Marxist way) the established oppressive forms of government: “the name that we want to use to refer to the multitude in its political autonomy and its productive activity is the Latin verb posse – power as a verb, as activity.” We prefer to see the posse as a way that government, business, non-profits, philanthropists, celanthropists and individual citizens can work together more effectively to solve problems that cannot be sorted out by government alone (or any of those other actors alone, for that matter).
Posses, as we all know from cowboy movies, have two key characteristics. First, they are set up to achieve a specific goal that is both necessary and achievable, such as catching the black-hatted cattle-rustlers. Second, they are voluntary, collaborative associations – yes, coalitions of the willing: they may be convened by the town sheriff (doubtless wearing a white hat), but they are based on the active, engaged participation of others irrespective of their job or role.
In her excellent new book on the future of work, “The Shift“, London Business School professor Lynda Gratton talks about how every individual should form a posse to help them succeed professionally. Her thoughts on posse formation for the individual would apply equally well to any organisation meeting this week in New York: “Here is what I think a great posse is and can do: It’s a relatively small group of people [organisations!], who have some of the same expertise that you have – so there is enough overlap for you to really understand each other and add value quickly. Your posse trust you – they have ridden out with you before – you have been there for them in the past. So, these are folks you have known for some time and who like and support you. They come to your rescue [or join your campaign to solve a problem] quickly precisely because they can understand what you are up against and can help without distracting.”
Probably the clearest example so far of the posse approach to global problem solving is in public health. Take the example of the revived campaign to eradicate malaria, led by Ray Chambers, the private equity pioneer and UN Special Envoy on malaria. The Malaria No More campaign has the two key characteristics of a posse.
First, there’s the goal, which is certainly specific – malaria no more. The fact that a child dies every 45 seconds from this preventable disease is also enough to persuade most people that this is a worthwhile necessary goal. It is achievable, since malaria has been eradicated in other countries. Second, it is a coalition. Chambers, blessed by the UN, is the sheriff, but he is not working alone. Indeed, the biggest contribution is coming from the Bill & Melinda Gates Foundation, which has used its own cash to breathe life into malaria research but also, crucially, to leverage others. The Global Fund that Gates seeded is a special purpose vehicle, the posse as an institution, created to pool money from governments, philanthropy and business. Together with the Malaria No More campaign, the Global Fund has mobilised a diverse coalition, from governments to big companies to celebrities, to bring sufficient resources to be bear to solve the problem (The Global Fund is also a unique institution of global governance where the board is made up not just of the usual rich countries but also representatives from developing countries, civil society, philanthropic and the private sector. The World Bank, by contrast, is run by governments alone and controlled by the rich countries, which have the lion’s share of the voting rights because it is their cash.)
Will the malaria posse succeed? Let us hope so – and not just because that will save millions of lives. Its success is crucial if it is to inspire other posses to take on other challenges. Happily, more posses are forming already. The Elders, the Richard Branson inspired and Nelson Madela anointed group of former heads of state and moral leaders, has announced that it wants to end child marriage within a generation. Maybe this is merely a high-minded aspiration (we hope not); if they are serious, they will need to form a serious posse.
A world of posses will appal some people. The posse, they object, is a relic of a lawless, institution-less past. Yet maybe we need to accept that a multi-polar world in which the G7 countries are no longer dominant, and the traditional multilateral agencies such as the UN are clearly limited, is more like the Wild West than, say, Switzerland.
We will return to these crucial topic shortly in a more detailed essay on The Art of the Posse-able, but for now we leave you with the words of John Wayne, “Tomorrow hopes we have learned something from yesterday.”
Tags: 92nd St Y, Antonio Negri, Bill Clinton, child marriage, Clinton Global Initiative, Empire, Gates Foundation, Global Creative Leadership Summit, John Wayne, Louise Blouin, Lynda Gratton, malaria, Malaria No More, Mashable, Michael Hardt, Owen Barder, Ray Chambers, Shift, Social Good Summit, Ted Turner, The Elders, The Global Fund, UN Foundation, United Nations, World Bank
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September 16th, 2011
Naked Sarah Jessica Parker and nude Britney Spears won’t end poverty but the fact that spam offering photos of such delights was clogging up the trending Twitter stream (#giveandtech) of a conference on philanthropy and information technology held in London on September 15th was evidence that the potential of mobile phones to drive a revolution in development is the hot idea in the aid community at the moment. (Spammers tend to target only hashtags that are gettting a lot of attention.)
The conference was a collaboration between the Indigo Trust, the Institute for Philanthropy and Omidyar Network. (Indigo Trust is one of the foundations of the first family of British philanthropy, super-market founders the Sainsburys, set up by tecchie family member Fran Perrin and her husband Will, both of whom were technology advisers to Tony Blair’s government.) Also participating were the aristocracy of the information and communication fo development world, including Ushahidi, Twaweza and Frontline SMS. From holding governments to account to providing health services, the conference buzzed with ideas about how mobile phones are changing the world.
We share much of this enthusiasm. Yet a word of caution is appropriate. A decade or so ago, the development world thrilled at the potential of microfinance to end poverty. Excessive claims were made that were not sufficiently scrutinised and microfinance is now going through a painful period of reflection and restructuring as a result. Could the tech for development crowd be heading for a similar fall?
In a tremendous talk at this year’s Global Philanthropy Forum, Reuben Abraham of the Indian School of Business presented evidence that SMS messaging intended to help fisherman in India is, in fact, benefitting the affluent middlemen who rent out boats rather than the poor fishermen who are the intended beneficiaries. A similar warning was sounded by development blogger Owen Barder at this conference, when he pointed out that the middle classes in developing countries have better access to social media tools than the poor. Is there a danger that this less needy group will make better use than the poor of new technological and social media tools for making governments accountable, and as a result direct public spending to providing things they want, rather than to helping the neediest?
The answer is that we simply don’t know. Yet. Such is the excitement around the potential of mobile technology that government and philanthropic donors are sure to pile in to this hot new sector, seeding new ideas and new technologies. Hopefully a few of them will complement that with some funding for boring old impact evaluation.
Tags: Frontline SMS, Global Philanthropy Forum, ICT4D, Indigo Trust, Institute for Philanthropy, Omidyar Network, Twaweza, Ushahidi
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August 18th, 2011
“How the world failed Haiti” is the title of a gloomily critical article by Janet Reitman in the latest issue of Rolling Stone magazine. The gist of Janet’s argument is that a year and a half after the earthquake that devastated Haiti, the country remains in a mess, and that the efforts of Bill Clinton, the US government, big business, philanthropists and non-profits have failed to achieve their ambition to “build Haiti back better”. Instead, there has been a “disaster of good intentions.”
As we have argued before, the natural disaster in Haiti provided an important test of philanthrocapitalism. In a blog post soon after the quake we outlined a range of things that philanthrocapitalists might do, and concluded that “although this is a terrible tragedy, it is also an opportunity for creative thinking – for doing things much better than before. This has been probably the biggest contribution that the philanthrocapitalists have made to global development – new ideas that challenge orthodoxies and conventional wisdoms.”
The Rolling Stone article quotes Matthew repeating our view that “the hope is that using the private sector will be a lot more efficient. Traditional aid has been extremely wasteful. When it is allowed to take the lead, the private sector is more likely to try something new or entrepreneurial.” It then quotes Matthew saying that “ultimately it all comes down to governance. There was this tremendous outpouring of goodwill after the earthquake, and this idea of ‘build back better’ caught on — but for all their consultations, no one really found out what the Haitian people’s concept of build back better actually was.”
Clearly, things have not gone as well in Haiti as, in our more optimistic moments, we had hoped. Yet the positioning of this second quote in the article means that a reader might easily interpret it as pinning the blame on the trampling of Haitian democracy by what “might be called the ‘New American Plan’” and “the demands of the bottom line”. That is not at all the meaning of Matthew’s quote, which actually was about how difficult it is, with the best will in the world, for philanthrocapitalists to succeed in a country where there is failed political governance and a lack of serious interest by local politicians in delivering what their people want.
A reader might also wrongly interpret Matthew’s quote as a criticism of Denis O’Brien, the Irish philanthrocapitalist boss of Digicel, a mobile phone company. Actually, Mr O’Brien has been one of the more effective supporters of Haiti since the earthquake, showing that a smart philanthrocapitalist can make a positive difference even in the most inauspicious circumstances.
Ultimately, the Rolling Stone article, whilst containing much genuinely disturbing and distressing information, fails to prove its case that the continuing problems in Haiti are due to the bottom line being given too great a role. Nor does it provide any reason to think that an alternative, non-philanthrocapitalistic approach would have worked any better than what was tried. Which is not to deny that mistakes were made by the philanthrocapitalists who have tried to help Haiti; it is just not clear from the article what those were or how they might have been avoided.
Yet although it is flawed, and we still think there is hope that philanthrocapitalism can help build a better Haiti, we welcome Rolling Stone‘s scrutiny of what is happening there, and the debate it will hopefully provoke about what could be done better – a debate that, no doubt, President Clinton will be continuing to lead next month at the Clinton Global Initiative. As we wrote with regard to Haiti in The Daily Beast, “Our giving is an act of the heart, but that should not stop us from thinking hard about how to ensure we are putting our money to the best possible use.”
Tags: Bill Clinton, Clinton Global Initiative, Denis O'Brien, Digicel, Haiti, Janet Reitman, Rolling Stone, The Daily Beast
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July 27th, 2011
In her book last year, “The Death and Life of the Great American School System”, Diane Ravitch dismissively described the wealthy philanthropists who are bankrolling various efforts to improve the otherwise taxpayer funded school system as the “billionaire boys club”. She argues that the likes of Bill Gates, the Walton family (heirs of the founder of Wal-Mart) and Eli Broad have failed to improve America’s schools system, even whilst wielding considerable anti-democratic influence within it. As she put it in one interview, when asked about her thoughts on the role of philanthrocapitalism: “The power and influence of those foundations challenges democratic control of public education. Are their market-based policies working? It all depends on what one means by ‘working.’ If it means raising test scores, the evidence is not conclusive. If it means strengthening public education, the answer is no.”
We profoundly disagree with Ms Ravitch’s analysis, which is delivered with all the zealotry and irrationality of a recent convert; until recently she had been one of the leading advocates in policymaking circles of many of the reforms she now denounces. At times, her criticisms border on the paranoid, such as her likening of Wal-Mart’s reputed habit of driving out small retailers from communities to the Waltons’ funding of small charter schools that take on the entrenched public-sector school monopoly, apparently as part of some sinister capitalist conspiracy.
Where Ms Ravitch has at least half a point is in saying that the philanthrocapitalists have failed so far to deliver the dramatic improvements in educational outcomes to which they aspire. Yet as we have said often, one of the strengths of philanthrocapitalism at its best is the ability to be courageous enough to risk failure, and to learn from things that do not work out as planned, in order to do better. This is exactly what Mr Gates did in his recent interview with the Wall Street Journal, in which he conceded that, with regard to his early initiative to encourage smaller schools: “The overall impact of the intervention, particularly the measure we care most about—whether you go to college—it didn’t move the needle much.” His response? To fess up: “We didn’t see a path to having a big impact, so we did a mea culpa on that.” And to move on, finding other ways, as the article puts it, “to leverage private money in a way that redirects how public education dollars are spent.”
The Walton Family Foundation, meanwhile, is also engaging in leverage by investing in growing one of the best examples of social entrepreneurship in education, Teach for America. On July 27th, it announced a gift of $49.5 million over three years that will help double the size of its corps of recent graduates who spend time teaching in some of America’s toughest schools. Providing core growth capital to successful socially entrepreneurial start-ups is an important trend in philanthrocapitalism, following in the footsteps of examples such as the Omidyar Network’s equity stake in Endeavor and the big multi-year grant by George Soros’s Open Society Institute to Human Rights Watch.
As for Mr Broad, the academy to train school principals in New York that he seed-funded before it was, once proven, taken on by the city, can claim an increasingly impressive list of alumni. One of its graduates – and a former Gates Foundation staffer – is John Deasy, who is now in charge of reforming the school system in Los Angeles – which is about as tough a task as there is. Matthew interviewed him on a panel (view here) at last week’s Imagination Summit at the Lincoln Center, which focused on how to put creativity at the heart of education. He is extremely impressive. How he performs in LA will be a key test not just of whether we or Ms Ravitch is right about philanthrocapitalism, but of whether the ‘Great American School System’ can actually be made fit for purpose.
Anyone doubting how tough a challenge this is should read the recent article on “The Failure of American Schools” by Joel Klein, who until recently oversaw the school system in New York, arguably the most intensive focus of philanthrocapitalistic innovation in American education during the past decade. (We last saw Mr Klein on TV, seated behind his new employer, Rupert Murdoch, as he testified to British MPs about the phone hacking scandal at News Corp; it is testimony to how tough reforming schools is that, compared to when we saw him in his old job, he looked quite relaxed!)
Mr Klein notes that all these efforts in New York did achieve some success: “what Robert Schwartz, the academic dean of Harvard’s education school, has described as ‘the most dramatic and thoughtful set of large-scale reforms going on anywhere in the country,’ resulting in gains such as a nearly 20-point jump in graduation rates.” Yet, he continues, “the city’s school system is still not remotely where it needs to be.”
As Mr Klein concludes, and the “billionaire boys club” seem to understand better than the likes of Ms Ravitch, “Time is running out. Without political leadership willing to take risks and build support for ‘radical reform,’ and without a citizenry willing to insist on those reforms, our schools will continue to decline. And just as it was with Detroit, the global marketplace will be very unforgiving to a populace that doesn’t have the skills it demands.”
Tags: Bill Gates, Diane Ravitch, Eli Broad, Endeavor, George Soros, Harvard, Human Rights Watch, Joel Klein, John Deasy, Lincoln Center, News Corp, Omidyar Network, Open Society Institute, Robert Schwartz, Rupert Murdoch, Teach for America, Wal-Mart, Wall Street Journal, Walton Family Foundation
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July 21st, 2011
We were shocked and saddened to hear of the death of Olga Alexeeva, the director of Philanthropy Bridge Foundation. In the world of giving most of the attention goes to the donor; Olga’s contribution in inspiring and educating emerging market donors should be counted in billions of dollars.
Michael first met Olga a decade ago when he was running the British aid programme to Russia. Olga was one of the grantees, running Charites Aid Foundation Russia with formidable professionalism. It was in that role that she had begun to encourage wealthy Russians to give.
A few years later, by the time we came to write the book, Olga had moved to London to run CAF Global Trustees, widening her scope of clients from Russia to other emerging markets. She was an invaluable source of wisdom, inspiration and challenge for our research.
Olga was the soul of discretion. This may have frustrated us as writers – she never dished the dirt on her oligarchic clients, whilst hinting there were more than a few juicy stories if only she could tell them – but we understood that this was essential to her business. She had won the trust of the new rich in Russia, starting in the paranoid days of cowboy capitalism in the 1990s, through her deft handling of some difficult relationships. (Olga talked recently about her first meeting a Russian oligarch who “arrived with six bodyguards and had the eyes of a killer”.) Through her influence, some of the richest people in the world started on a journey not just to give but to give wisely.
The last time we saw Olga was when Michael spoke earlier this year at the CAF Foundation School, an initiative that Olga had started to train philanthropists and foundation staff from emerging economies. She talked about how, in the Soviet era, she had made the journey from one of the regions of Russia to win a place to study journalism at Moscow State University and then, through journalism, had become engaged in social issues. Throughout her life determination, hard work and generosity had gone hand in hand with her acute intelligence.
She will be widely and deeply missed. Our thoughts are with her family and her son Nikita in particular.
Tags: CAF, Olga Alexeeva, Russia
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July 18th, 2011
How should philanthropy respond to the ‘Hackgate‘ scandal that is gripping Britain at the moment and, perhaps, spreading across the Atlantic?
Supporting journalistic ethics (in the face of the continued business model crisis of the print media) is meat and drink for many foundations. The Knight Foundation, for example, invests considerable resources in community media and training for journalists to help maintain standards. Others have decided that in-depth reporting can no longer be left to the for-profit media, which is why Herb and Marion Sandler created and funded the not for profit investigative news agency ProPublica. Under the leadership of respected former editor of the Wall Street Journal, Paul Steiger, ProPublica has enjoyed some success in rooting out wrongdoing in a way that commercially-squeezed news organisations maybe could not.
This is important stuff but it is hard to see how this would have made much difference to the activities of an organisation like News Corp if, as seems increasingly likely, the orders to illegally gather information through hacking into mobile phones (or, at least to turn a blind eye to such practices) came from senior figures within the group’s businesses.
Hackgate has exposed Rupert Murdoch’s media empire to what seems certain to be a thwacking from both the long arm of the law (especially now the top leadership of London’s Metropolitan police has resigned) and perhaps by onerous new regulations. Yet one of the most disappointing aspects of this whole affair is that the owners of News Corp – at least, the minority of whom that are neither members of the Murdoch family nor their relatives, but regular investment institutions – seem not to have pushed hard enough for reform of the governance of the company, despite the evidence of phone hacking having been public for years (albeit, until recently, evidence seemingly limited to a smallish group of celebrities, politicians and royals).
These institutional owners include charitable foundations – one of which has at least tried to do something about the firm’s governance. The Nathan Cummings Foundation has lobbied News Corp as a shareholder, asking for the company to be far more transparent about, and responsible in making, its political donations. In its latest letter, the foundation points out that, among other things, in 2010 News Corp made a $1m donation to the US Chamber of Commerce, which lobbied against a strengthening of the US Foreign Corrupt Practices Act under which the firm may now be prosecuted over the phone hacking.
It wrote as “long-term shareholders with a continued interest in the success of News Corporation”. If only the firm’s other owners had been as interested: whilst it is far from certain that greater transparency about political donations would have prevented Hackgate, surely a more actively engaged institutional ownership would have brought the sort of governance at the firm that demanded a very different corporate culture to that in which widespread illegal activity thrived.
Philanthrocapitalists will take a pinch of comfort from the attention that Hackgate has brought to the work of the Nathan Cummings Foundation and its role in pioneering shareholder activism in the foundation sector. The story of how the Nathan Cummings Foundation (created by the legacy of the man who started the Sara Lee food company) discovered its power as an investor is well told in the book ‘Do More Than Give’. According to authors Leslie Crutchfield, John Kania and Mark Kramer, the foundation did so by accident: having made various grants to organisations tackling pollution from giant pig farms, in 2003 the foundation serendipitously discovered that it had 32,000 shares in….the largest pork processor in the United States, Smithfield Foods. For foundations operating an ethical screening policy on their investments, the response would have been to dump Smithfield stock. The Nathan Cummings Foundation, on the other hand, held onto its shares and used this influence to get the company to report on its environmental trotter-print.
An important lesson from the Nathan Cummings Foundation’s initial venture into shareholder activism is that persuading other shareholders matters – it was only in 2006, when the foundation had nearly a third of the shareholder vote on its side, that the executives finally listened. (Shareholder rights are also heavily constrained in the United States, a fundamental flaw in American capitalism - that we describe in ‘The Road From Ruin’ - which makes it hard to challenge a firm’s top executive team unless you are prepared to engage in the sort of committed long-term campaigning undertaken by the Nathan Cummings Foundation.)
Could the greatest influence of philanthropic foundations on the media business come not through grant-making but through their role as investors? Possibly, but only if there is a seismic change in the foundation world. For another striking aspect of the Nathan Cummings Foundation’s experience is that it is still all too rare. Yes, organisations like Rockefeller Philanthropy Advisors are pushing foundations to make better use of their shareholder power as a force for good; the More for Mission campaign is trying to get foundations to use more of their endowment capital for what is now known as “impact investing”. But they have so far made little progress, despite plenty of talk. This type of activity still comes a distant second (or last) to what many see as the ‘real’ business of foundations: grantmaking.
If the Nathan Cummings Foundation can come up with a compelling vision for the evidently much-needed overhaul of the journalistic standards at News Corp, maybe it will be able to persuade other foundations to use their shares in the company to join them in some potentially high-leverage philanthrocapitalism? Here’s hoping. But such is the inertia in the foundation world that we won’t hold the front page.
Tags: hackgate, Knight Foundation, More for Mission, Nathan Cummings Foundation, News Corp, ProPublica, Rockefeller Philanthropy Advisors
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July 11th, 2011
Can and should companies be in the business of doing good? This long-running debate was graced earlier this year by a new contribution from Michael Porter, one of the world’s leading management gurus, and his sometime sidekick, philanthropy consultant Mark Kramer. In a headline article in the Harvard Business Review they both took a swipe at traditional corporate social responsibility and proposed a new framework, which they called ‘shared value’. Get the do-gooding out of your PR departments and corporate foundations, they cried, and instead mobilise the whole of your business to find the win-win where what is good for society is also good for the bottom line.
This offering was greeted with enthusiasm in some quarters, such as the World Economic Forum in Davos, yet also encountered some scepticism, both on the grounds that the idea is not particularly novel and that it may not mean anything. So it was with interest that we read a feature in the current edition of the always excellent Stanford Social Innovation Review in which Mr Kramer engaged in what was billed as a “candid” discussion of shared value with the representatives of ten major global corporations.
Do businesses recognise shared value as the next big idea? Well, the corporate folk gathered by Mr Kramer seemed to be lapping it up. Executives from a diverse range of businesses from money transfer giant Western Union to IT powerhouse Cisco happily described how their do-gooding slotted into the shared value worldview. And why not? It’s always nice to be part of the newest big idea.
Yet amid this love-in for shared value there was one jarring note. “I’m probably the only person at the table who’s not part of a corporate affairs organization or a foundation”, observed Beth Schmitt, the director of recycling for North America at metals behemoth Alcoa. Well spotted. That shared value, which is supposed to be at the heart of the business and at odds with traditional CSR, was being celebrated largely by CSR and PR people rather than core business executives strikes us as somewhat contradictory.
This matters because tough questions do need to be asked about the role of business in society. Take the iconic mega-bank Goldman Sachs, for example, which hosted the roundtable discussion and showcased its 10,000 women project and 10,000 businesses initiative (for which Mr Porter co-chairs the advisory board, alongside Warren Buffett ad Goldman CEO Lloyd Blankfein) at the meeting. These are, in our view, good examples of smart, high-leverage corporate philanthropy. Yet, as we argued recently, such projects remain at the margin of Goldman’s business and do nothing to address bigger questions about whether Goldman’s core activity is actually socially useful.
Was the selection of participants at the roundtable actually a tacit admission that even those firms which most fervently champion shared value are really not doing much that wouldn’t qualify as traditional CSR?
“The vast majority of acivity in this area [CSR] is seen as separate from the business,” Mr Porter told a meeting of the Committee for Encouraging Corporate Philanthropy last year, as he mused on why so much corporate giving achieves so little impact: “I firmly believe that now we have to raise the bar”. We agree. But if shared value is going to be about anything more than the status quo, there need to be different people at the table.
Tags: 10000 Businesses, 10000 Women, Alcoa, Beth Schmitt, CECP, Cisco, Committee for Encouraging Corporate Philanthropy, Corporate philanthropy, CSR, Davos, Goldman Sachs, Harvard Business Review, Lloyd Blankfein, Mark Kramer, Michael Porter, shared value, Stanford Social Innovation Review, Warren Buffett, Western Union, World Economic Forum
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July 1st, 2011
We were chuffed to see the recent announcement by the Department for International Development (DFID), the UK’s overseas aid agency, that it has decided to launch a £30 million scheme to ‘match fund’ public donations to charities fighting poverty around the world. We had proposed the idea back in 2009 when, in opposition, the Conservatives were touting a rather ropey scheme to get the public to vote on aid projects. Getting Brits to dip into their own pockets to have an influence on where public money is spent, we argued, will make them more engaged and encourages giving.
DFID is, however, the big exception among UK government departments at the moment. It has not only been protected from cuts under Prime Minister David Cameron’s austerity measures, it is going to be getting several billion more to spend because of the coalition government’s pledge to hit the UN target of spending 0.7% of national income on aid. Are match funding schemes like this a luxury that DFID can afford since it has more money than it knows what to do with, or an important tool that could be used in other areas?
At the end of last year, Arts Minister Jeremy Hunt announced that his department, which has been one of the hardest hit by the public spending axe, would put up £80 million for matching to help museums and galleries build up endowments that would provide a stable financial base for the future. This policy echoed an earlier scheme by the previous government to match fund gifts to universities that expires this year (there is no news on whether it will be renewed, despite positive reviews).
Match funding did get some attention in the recent White Paper on giving but the government’s approach seems to be to use them as one-off initiatives rather than using this as a strategic tool. This is considerably better, however, than anything suggested by the recent donor-led Philanthropy Review, which passed over the issue of match funding and lobbied hard instead for tax breaks.
There are three keys advantages of match funding, compared to tax-break subsidies to giving. First, a match fund can be targeted towards a specific objective (boosting public engagement in international development, helping museums and universities develop new funding models, and for supporting particularly needy arts) and tailored to leverage particular types of donors (DFID seems to be going for the general public whereas the arts scheme is more focused on major donors). Second, the spending department pays, whereas a tax break simply depletes the revenue pot, so the benefits of using the money for a match can be weighed by policymakers against spending the cash in some other way to ensure that the taxpayer is getting value for money. Third, match funding schemes are finite and need to be deliberately renewed – presumably only when they are delivering the desired results – whereas tax breaks are hard to unwind.
The DFID announcement is welcome and will contribute to a growing evidence base on the benefits of match funding (including private match funding schemes like the excellent Big Give). We hope that other government departments, in Britain and abroad, will take note and start doing some more strategic thinking on how they too might use this tool as a way to make scarce public money go further.
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June 27th, 2011
Time has come for closing arguments in our debate with Felix Salmon. In his final shot he offered up the typically provocative (and false) assertion that ‘Philanthrocapitalism coddles CEOs’. This came as a bit of a surprise, since we have written extensively about the failings of corporate bosses to grasp the scale of the challenge needed to make business more part of the solution to, rather than the cause of, the world’s problems.
Of course, this being Felix, the only evidence to support the charge of coddling that he presents is that, in his view, CEOs will agree with what we say. Yes, some do – because there are CEOs out there, like Indra Nooyi of PepsiCo and Paul Polman of Unilever, who do seem to be trying sincerely to rethink how their business runs. Yet there are many who don’t, as we have pointed out, because it is easier to restrict your corporate do-gooding to some PR-driven philanthropy, or to hide behind Milton Friedman’s dictum that the role of business is to maximise profits.
Felix goes on that when we say that a better capitalism is not about CEOs alone we are letting them off the hook. Not at all. We are trying to move the debate on from one about good and bad CEOs to look at fundamental issues about the incentives in the whole system. One of the commenters on his post puts it rather well, discussing the issue of CEO compensation:
“As long as compensation is based on the performance of each company and the measures of performance are financial, sales, profit, stock price etc etc or some mixture of these numbers, and the time frame is short term, mostly single year performance, all the discussion of “long term”, “enlightened self interest”, is so much crap.”
Indeed. That is why, in ‘The Road From Ruin‘, we argue for corporate governance reform, changes in the rules guiding institutional investors, new ways of measuring corporate and national economic success, and greater public engagement with how companies are run. These are arguments that Felix, sadly, will neither support nor even engage with.
There is, however, one accurate charge in Felix’s article – that (alas, some years ago now) Matthew was honoured as a Young Global Leader by the World Economic Forum. Why this matters and, indeed, is a central plank of his argument is unclear. (It presumably isn’t a criticism, as his colleague and editor-in-chief of the digital arm of Thomson Reuters, Chrystia Freeland, is also a Young Global Leader, and Felix himself attended this year’s World Economic Forum in Davos – at least, when he wasn’t swilling fine wine or skiving off skiing.) Yet maybe this makes sense in Felixworld, where it’s all about personalities rather than ideas.
Tags: Chrystia Freeland, Davos, Felix Salmon, Indra Nooyi, Milton Friedman, Paul Polman, PepsiCo, The Road From Ruin, Unilever, World Economic Forum, Young Global Leaders
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June 22nd, 2011
When a group of British donors and charity chiefs announced at the end of last year their own independent review of how to make Brits give more to charity, we were excited at the possibility that the philanthropy community would come up with new ideas to promote giving. Indeed, since David Cameron’s government was engaged in the same enterprise at the same time, the fact that philanthropists would go toe to toe with politicians and civil servants to come up with the best ideas was rather inspiring. Yet, even judged against the government’s White Paper that was launched last month, the Philanthropy Review report unveiled yesterday rather underwhelms.
Not that all the ideas are bad ones. The report rightly points out the weakness in data on giving in the UK. The suggestion that high street banks should offer ‘charity bank accounts’ sounds like a more sensible way for the financial sector to serve the public good than the government’s extortion of some “Davegeld” soft loans for its Big Society Bank. But whose job it is to fix these data problems and whether the Review’s proposals will fly with the banks is less than clear. (The reviewers want to convene a meeting with government to talk about data and a feasibility study of ‘mainsteam’ charity banking by accoutancy firm Accenture is due in July.)
Less ingenious but worthy nonetheless is the report’s plug for more payroll giving. As it says, only 1% of UK companies and 4% of British workers participate in this method of giving tax-efficiently, compared to around 33% of workers in the United States. The review is, again, light on ideas on how to make this happen, although the suggestion that companies should be made to include data on payroll giving in their corporate reporting is probably a good one. (Despite this, rumours earlier this year that the Philanthropy Review was going to do some groundbreaking thinking about how business can support the Big Society have, sadly, proved unfounded.)
Other than that, the report is mostly focused on the usual stuff about needing more tax breaks for giving. Not only is the report opaque about the cost to the taxpayer of these measures, it also feels a bit like cheating, at least when comparing the Philanthropy Review to the Giving White Paper which was avowedly tax revenue neutral. Yes, more helpful Gift Aid rules, lifetime legacies and suchlike might be an incentive for more giving, but the Reviewers would have been much more radical if they had started with the assumption that the government subsidy to giving is not going to grow in this age of austerity. A plan for a new system of tax breaks that would be more effective in incentivising philanthropy while being revenue neutral for the Treasury would have been a more helpful contribution to the debate.
Even more disappointing are recommendations such as the need to promote giving education in schools (maybe not a bad idea), which is quickly followed by lobbying for a public subsidy of £1 million. Could a group of philanthropists and foundation execs not have been a bit bolder and, at least, put up the cash to pilot and prove that this would be a good use of taxpayers’ money? It is ironic that a report that talks a lot about changing the culture of giving still seems so stuck in the old ways of looking to government cash as the solution to every problem. (The Review also drips with the familiar UK charity sector aversion to even acknowledging more radical ideas, like a US-style payout rule for foundations.)
One advantage that the Philanthropy Review has over the White Paper is that whereas politicians and civil servants move quickly on to new challenges, this group of the great and the good is likely to keep plugging away at these questions. Maybe some big announcements will come with the rather sketchy ‘Give More Campaign’ that they say they are going to launch later this year. If they mean business, why not bring Bill Gates and Warren Buffett to London to sign up some British billionaires to the Giving Pledge? Surely, for starters, the Philanthropy Review could offer up that nice Richard Branson to promise to give away half his fortune?
Tags: Big Society, David Cameron, Gift Aid, giving pledge, payout rule, Philanthropy Review, Richard Branson
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June 21st, 2011
Of all Felix Salmon’s many unjustified criticisms of our work (and this blog, like our books, is always written jointly), none is odder than his assertion in his latest attack (“Philanthropy Can’t Be Outsourced To A Profit Motive”) that “when corporate leaders listen to Altman and Bishop, then, they get the message that if they just do what they claim to be doing already, then they’re already doing all they can in terms of their corporate social function.”
We hold no brief for our friend Dan Altman – whose recent paper on “The Single Bottom Line”, as we said in our first response to being Felixed, “we share some of Felix’s scepticism about” – but we defy anybody to read our books, articles and blogs and conclude that they make the case for the status quo.
In “Philanthrocapitalism” we devote a chapter, “The Good Company”, to the role of businesses in delivering social benefit. In this we write, “Beyond their role in making their founders wealthy enough to give, are companies an integral part of philanthrocapitalism? Certainly the scale and power of big companies means they have the potential to be an important force for good. However, the need to make a profit will constrain the ways they can do so in ways that their non-profit partners in any cause need to understand, or risk disappointment.” We also note that “the public should ensure that politicians properly regulate companies in areas where it is unrealistic to rely on self-regulation or good behaviour” and that “companies claiming to do good should be scrutinized as carefully as anyone else who makes such claims – especially as firms often have large public relations budgets to spend on making themselves look good.”
We conclude the chapter by saying, nonetheless, that “there are many reasons to believe that firms pursuing their enlightened self-interest can play a significant part in tackling the world’s biggest problems. Potentially they have a huge role to play in philanthrocapitalism’s new division of labour.” Here, the key word is “potentially” – which means we don’t think it is yet happening anything like enough.
Our view that the status quo needs a drastic overhaul is explained at length in our second book, “The Road From Ruin“, which calls for profound reform of capitalism in the aftermath of the global financial crisis that brought the economy to its knees in September 2008. In the introduction we point out that, among other things, “the crisis was also the result of a general failure of leadership in the business world. Too often corporate executives excused themselves from asking deeper questions about where things were going by focusing on rising quarterly profits as the only yardstick of good capitalism. This failure of values at the heart of capitalism needs to be addressed by the capitalists themselves.”
Perhaps, as Felix suggests, corporate leaders could read this and “get the message that if they just do what they claim to be doing already, then they’re already doing all they can in terms of their corporate social function”, but only if they are, much like Felix himself, determined to keep on thinking whatever they like regardless of the actual content of our writing.
As we describe in “The Road From Ruin”, corporate bosses (especially in America) are so insulated from their shareholders that they can take most motions passed at AGMs as ‘precatory’ (advisory) rather than mandatory, and ignore them. Boards, all too often, lack the skills and the will to take on CEOs. As a result we get companies that follow strategies which, rather than maximising long-term shareholder value, massage executive ego and boost executive bonuses. Instead of the long-term enlightened self-interested behaviour we want, there is a widespread culture of “I’ll be gone, you’ll be gone” short-termist behaviour.
Institutional investors deserve much of the blame for this. The norm amongst pension and mutual funds is simply to track the short-term performance of the market, adjusting their portfolios to hold the stock of companies posting good quarterly earnings figures, often heedless of long term strategies. They rarely ask whether the company is doing the right things to maximise its value over a ten or 20 year period, or take any interest in whether its board is doing a good job in overseeing the chief executive. As a result of this failure to do their job properly by institutional shareholders, we have what Lord Myners, a veteran of the City of London and one time Minister in the British government, calls ‘ownerless corporations’.
Felix is right that how the wealth-creation process of capitalism serves humanity has been debated for centuries, but it has entered a new phase, especially since the global financial crisis. Before then, much of the world had settled on a consensus that what is good for today’s stock price is probably good for humanity. That belief has been proven wrong. We now have an opportunity to build a better capitalism where the self-interest of investors and the interests of society are aligned more effectively. (And no, we don’t believe that a long-term focus in the corporate world would deliver nirvana, as government regulation will certainly still be needed, but we do think it would be a huge step in the right direction.)
Improving our capitalist system will not be easy. As we argue in “The Road From Ruin”, there is an urgent need to tackle fundamental flaws in the economic system by strengthening shareholder rights, improving the role and effectiveness of boards, and updating the fiduciary duties of institutional investors to make clear that they have a legal obligation to act in the long-term interests of those whose assets they manage. It is going to require reforms to how companies are run, new ways of thinking about success, and the owners of businesses – including all of us ordinary ‘citizen capitalists’ who own shares through our savings, investments, and pensions – being part of that debate. Sadly, little of this is on the political agenda in America, though it seems that Britain’s coalition government is taking some of it seriously.
As we argued in our previous post, the status quo is compelling to many people because it is comfortable and familiar. A capitalism that is more responsible is not going to come from a few enlightened CEOs choosing to do good – it will only come from an overhaul of the way business is run. We wish that Felix (and many others) would join us in being part of that change. Reading ‘The Road from Ruin’ might be a good start.
Tags: Dan Altman, Felix Salmon, Lord Myners, The Road From Ruin
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June 16th, 2011
In the good old days, when he used to write engaging articles about economics, the Nobel Prize winning economist Paul Krugman took on the urgent and pressing issue of how food in England got so bad and why it had suddenly got better. The problem, as he described it, was that the English had industrialised and urbanised early, before innovations in refrigeration and preservation, so had lost touch with traditional peasant cuisine. Over time they had become accustomed to sub-standard dining on things like the tasteless, almost meatless, English sausage, or ‘banger’, as it is known. As Krugman put it in economics speak, “the history of English food suggests that even on so basic a matter as eating, a free-market economy can get trapped for an extended period in a bad equilibrium in which good things are not demanded because they have never been supplied, and are not supplied because not enough people demand them.”
This image of John Bulls turning up their noses at ‘foreign muck’ and calling for a plate of bangers came to mind when we read (fellow Englishman) Felix Salmon’s sideswipe at philanthrocapitalism in his counterblast against a new paper by Dalberg’s Daniel Altman (a former colleague of Matthew) and Jonathan Berman that tries to take forward the question of how businesses can get involved in ‘doing good’ as part of their commercial strategies for ‘doing well’.
Such ideas are as shocking as a plate of mahi mahi and maitake mushroom salad in a soy-yuzu broth for a traditionalist like Felix. He trumpets that “Philanthropy isn’t for profit” before, like all good bigots, simply declaring that it is not to his taste. “The good news here is that these attempts by Altman and Bishop to elide the distinction between capitalism and philanthropy — to make rapacious executives feel good about being greedy — are such transparent failures that with any luck they’ll mark the turning point at which people do good to do good, rather than simply declaring that the best way they can do good is to chase profit as zealously as possible.” God bless the equilibrium in which business is simply about nasty profit-making and doing good only happens when people are explicitly trying to do it.
Sadly, this ignores two things we have learned about capitalism in the past 20 years or so. The first is the growing realisation that business does have the capacity to create as well as destroy social value. Jed Emerson called this ‘blended value’ more than a decade ago. One-time corporate social responsibility sceptic Michael Porter christened it ‘shared value’ earlier this year. Getting business to think about how to be net positive and see the benefits of seeking out this nonfinancial value is a key part of what we call philanthrocapitalism.
This is too idealistic, say our critics. Yet the second big thing that we have learned about capitalism is that chasing financial value, if measured exclusively by short-term profits, is bad capitalism. Maybe Felix has forgotten about the financial crisis. But, as we argue in ‘The Road From Ruin’, rethinking what is real economic value at the corporate and country level and focusing on delivering the long term sort is essential if we are to build an economy better than it was before.
Figuring out how to do this is not easy. Indeed, we share some of Felix’s scepticism about Dan and Jonathan’s idea that social and environmental value can simply be captured in the “single bottom line” of profit. They may have a case in theory, but they note the chronic short-termism of today’s stock market capitalism only as an afterthought, whereas we believe it is at the heart of our problems; we think the growing discussion of CSR, corporate citizenship, corporate philanthropy and sustainability is useful precisely because it tends to encourage companies to focus less on the short-term and more on the potential for long-term profits. In that sense, we need more of it, not less, though certainly it would be useful to have more real-world examples of how taking these issues seriously leads to higher long-term profitability.
(Felix also takes aim – “profoundly silly” – at an article by Matthew in the latest Economist, in which he compares the social impact of IBM and the Carnegie Corporation as they each celebrate their 100th birthday. The article argues that a company can do considerable social good, especially when it understands it has a responsibility to society and is not obsessed with short-term profits at all cost; it also shows that philanthropy – genuine giving, not the for-profit kind – can do abundant
social good, but that philanthropies (like companies) can lose their way as the years go by, which seems to have been the case to some extent at the Carnegie Corporation, though it still does important work under its admirable current president, Vartan Gregorian. Felix thinks that Matthew is too hard on Carnegie, wrongly concluding that the article favours IBM, but otherwise seems to enjoy the thought experiment – maybe “silly” is a word of praise in his dictionary?)
As we have argued in our article, “A Capital Curve for A Better World“, this is a moment of great opportunity for philanthropy and the profit motive to connect in a socially useful way. But getting the relationship between the two forces right will not be easy, and needs serious thought rather than sneering. Debates are needed urgently about how philanthropy can harness the profit motive to good effect, and how to ensure that profit really does work for the poor in products such as microfinance. There are big challenges ahead if ‘impact investing’, the new asset class championed by JP Morgan as a way to combine making money and solving social problems, is to live up to its potential. Yet just because these ideas are unfamiliar and need to be worked on should not mean that they should be rejected out of hand – unless we want to keep eating forever the same old bangers of the short-termist, ‘greed is good’ version of capitalism.
The inspiring idea in Krugman’s analysis of English food is that somehow, perhaps through foreign travel, enough of the English started demanding better food that they achieved a critical mass that, eventually, flipped the system. The same needs to happen in our economy. We won’t get a better capitalism if we don’t demand it or if, like banger-loving Felix, we simply turn our noses up at anything new or different.
Tags: Blended value, Carnegie Corporation, CSR, Dan Altman, Felix Salmon, IBM, Jed Emerson, Michael Porter, Paul Krugman, shared value, Vartan Gregorian
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June 13th, 2011
The news that $4.3 billion of new money was pledged on June 13th to vaccinate children in the developing world against several deadly diseases is worth celebrating. The money was promised at the first ever pledging conference for the Global Alliance for Vaccines and Immunisation (GAVI), which exceeded its target of $3.7 billion. That means that some 250m children will be protected sooner than expected and, GAVI estimates, more than 4m premature deaths will be avoided.
GAVI is the best example yet of philanthrocapitalism delivering real large-scale impact. Launched at the World Economic Forum in Davos in January 2000, it is a pioneering partnership between private philanthropy, NGOs, business, multilateral agencies and governments.
The pledging conference was co-hosted by the Bill & Melinda Gates Foundation and the governments of Britain and Liberia. It was preceeded by news that pharmaceutical companies have agreed to supply at a significantly reduced cost a range of life-saving vaccines, including a two-thirds price reduction on the rotavirus vaccine, which combats the leading cause of diarrhoea deaths. At it, governments collectively more than doubled their previous commitments and new donor governments said they will give for the first time, including Japan and Brazil. GAVI’s largest corporate donor, La Caixa Foundation, extended its financial commitment and new donors Anglo American plc and British hedge fund philanthropy Absolute Return for Kids (ARK) made their first pledges.
GAVI’s ability to attract additional funds at a time when budgets, particularly of govenments, are under severe pressure, is evidence both of a degree of political courage (not least by Britain’s ruling coalition, which is putting up over a quarter of the new money) at a time of scepticism about the value of international aid and, above all, of the fact that this is one aid policy that really works. As David Cameron, Britain’s prime minister, pointed out, “GAVI was one of the very top performers in our root-and-branch review of the agencies that deliver British aid because it demonstrates tangible results.” That said, even more money is needed if this opportunity to save lives is to be fully grasped, as even all the new funding will not be sufficient to prevent many premature deaths.
As we note in our book, the creation of GAVI was an important innovation by the philanthrocapitalism movement, not least because it showed that private actors could drive change in government and multilateral policies. Bill Gates told us that “GAVI was our first toe in the water – when we said, OK, it’s not just us spending our money wisely and bringing in smart people that do things; it’s us as one of the convenors of UN agencies which will help developing governments to create an initiative.”
Admittedly, the first round of GAVI financing taught Mr Gates a lot about the realities of using private money to leverage government funds: his foundation’s first $750m grant over five years to launch GAVI did not initially attract anything like the amount of government money that was expected. Now, his foundation does not commit unless its partners also put their money on the table at the same time.
This week’s announcement of the additional $4.3 billion for GAVI, to be deployed by 2015, suggests that this harder-nosed approach to partnership – in which this time the Gates Foundation is attracting an extra $3.3 billion from others in leverage on its $1 billion gift – is paying off, and should be the model for other such philanthrocapitalistic partnerships. Certainly, the children of the developing world will be better for it.
Tags: Absolute Return for Kids, Anglo American, Bill & Melinda Gates Foundation, Bill Gates, Brazil, David Cameron, Davos, diarrhoea, GAVI, Japan, La Caixa Foundation, Liberia, vaccines, World Economic Forum
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June 2nd, 2011
“A riddle wrapped up in a mystery inside an enigma,” was Winston Churchill’s description of Russia, but the same might equally apply to Goldman Sachs. On Wednesday it was being lauded by the Committee Encouraging Corporate Philanthropy for the generosity of its $100m “10,000 Women” initiative. Can this really be the same institution that was slammed last year by Rolling Stone magazine as “a great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money.” Can it be possible to be both a great vampire squid and a great philanthropist at the same time?
Let’s start with the philanthropy. 10,000 Women is, in our view, a smart piece of philanthropy that richly deserves the plaudits of the CECP. It is based on a powerful, evidence-based insight (the untapped potential of women in developing countries to be successful entrepreneurs) in order to leverage impact beyond the target group of beneficiaries (the women the scheme invests in will create jobs and create wealth for their societies).
That 10,000 Women is a good initiative is no surprise. As we describe in the book, Goldman Sachs has a long tradition of philanthropy, back to Henry Goldman, the son of one of the founders who supported Albert Einstein’s research, and Walter Sachs, who was the first treasurer of the National Association for the Advancement of Colored People. Becoming a philanthropist has long been expected of those who aspire to leadership at the firm.
Goldman Sachs has also been better than most of its peers in responding meaningfully to the financial crisis. In 2009 it pledged $500m to a “10,000 Businesses” programme that combines grants and loans to help small businesses across America. This voluntary initiative compares favourably to, say, Britain’s banks, which had to be bullied and threatened before they stumped up a combined £200m of loans to Prime Minister David Cameron’s flagship Big Society Bank, that will invest in social enterprises.
The problem is that Goldman Sachs is sticking to what it is good at – making lots of money with one hand and giving quite a lot away with the other. This might have been okay before September 2008, when most people thought that the financial wizardry of Wall Street was socially useful and creating real wealth. Today, with the knowledge that Goldman Sachs was up to its elbows in flogging useless products to its clients (and sometimes using its own money to bet, correctly, that these would fail), that model just doesn’t work anymore.
Great philanthropy – whether it is 10,000 Women or 10,000 Businesses – is important, but it is not enough. In “The Road From Ruin” we argue that the lesson of the crash of 2008 for Goldman Sachs and the rest of the financial sector is that they need to eschew the allure of the quick buck and start focusing on creating long term value. A good start for Goldman Sachs would be to deploy some of its revered brainpower to figure out ways of developing the nascent market for impact investment, an area where it is lagging behind its rival JP Morgan.
If Goldman Sachs wants to shed its reputation as a great vampire squid, it needs to be more than a great philanthropic organisation. It has to show that it has learned from the mistakes of the past and has changed so that its core business is socially useful as well as lucrative. If it can manage that transition it can become a truly great philanthrocapitalist institution.
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May 23rd, 2011
“In the past, the left focused on the state and the right focused on the market. We’re harnessing that space in between – society – the ‘hidden wealth’ of our nation.” Given the parlous state of Britain’s finances, it is perhaps unsurprising that David Cameron is looking to hidden wealth to solve the country’s problems. In his speech on May 23rd, the Prime Minister relaunched, yet again, his Big Society with the release of a new White Paper on Giving. But is he trying to tap into a crock of gold, or merely scrabbling around the back of the sofa looking for loose change?
Government’s usual weapon to influence citizens is the tax system, which can be used to make people pay more to do bad things (like smoke) and pay less to do good things (like give). Yet, with Mr Cameron’s Coalition Government leading a national austerity drive there is precious little cash to go around to promote giving. (That may be no bad thing: there is little evidence that increasing Britain’s already generous tax breaks for giving would have much effect.)
With no money to announce, the White Paper was sexed up instead with a few gimmicks, such as a commitment that Government Ministers will volunteer one day a year. The paper also proposes lots of behavioural “nudging”, as advocated by Mr Cameron’s favourite economist Richard Thaler. Hence much of the focus is on making it easier to give, via ATMs, and making it easier to navigate the complexity of the Gift Aid tax deduction system – both of which are sensible ideas. (We are less thrilled, however, by more blatant attempts to incentivise giving, such as linking philanthropy to honours, which surely would at best merely formalise something that has always happened informally.)
The White Paper also provides a useful survey of new platforms to encourage giving and volunteering by making it easier and more fun, and announces a new initiative called Regalo, to be run by the quasi-governmental Big Society Network to get new ideas up and running. Yet it is unclear what are the implications of this for government – surely the rough and tumble of the market is the best way to figure out which of these innovations captures the public imagination, not Prime Ministerial patronage or public funds?
The fine line between encouraging and distorting the market is illustrated well by two specific announcements in the White Paper. One is that Mr Cameron will convene a major conference on philanthropy in the autumn, to bring together government, donors and charities. As a way to keep up the momentum and create the culture of philanthropy, this is a sensible way to use government’s convening power. Contrast that with the frankly peculiar announcement that £700,000 of public money will be provided to subsidise Philanthropy UK, an initiative run by the Association of Charitable Foundations and the Community Foundation Network to promote philanthropy. If an organisation representing philanthropists and promoting philanthropy cannot get cash out of its own supporters and has to rely on the taxpayer, isn’t that a tad alarming?
Sadly, the Government chickened out of a cost-free way to boost giving that was mooted in its original Green Paper: a payout rule to prevent some grantmaking foundations sitting on piles of cash. We are not surprised that this proposal, which we championed, did not make it into policy, given the strength of the foundation lobby against it. Yet we do take a crumb of comfort from the White Paper’s conclusion that this proposal is deemed not appropriate at “the current time”. Is that a word of warning to the most tight-fisted foundations, some of which pay out as little as 1% of the value of their endowments each year (compared to the mandatory 5% in the US)? Here’s hoping.
The White Paper is not going to revolutionise giving overnight. Nor is it going to win the British public over to Mr Cameron’s Big Society idea. (Indeed, there seems to be more enthusiasm for the Prime Minister’s big idea on the other side of the Pond.) Yet, as we argue in The Road From Ruin, there is the potential for the Big Society to be the basis of a much-needed reinvention of how Britain solves social and environmental problems. Philanthropy can never take the place of government – it has to be society’s risk capital, doing things that government cannot. Part of the challenge for the Big Society is therefore to reinvent government to work better in partnership with philanthropists and social entrepreneurs. Business has a role too, though principally through responsible investment, employment and procurement rather than corporate donations. The Giving White Paper was never going to take on these big issues. So, what will? Watch this space.
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May 5th, 2011
The very existence of a Center for Effective Philanthropy (CEP) is an acknowledgment both that there is also such a thing as ineffective philanthropy, and that it should be possible to tell the difference between good philanthropy and the other sort. Indeed, you might expect that this would be the main focus of the CEP’s annual meeting next week. So we were shocked to read a blog post by our old friend Phil Buchanan, head of the CEP, justifying inviting Esther Duflo as a keynote speaker from critics in the foundation community who have challenged him as to “What kind of a statement do you intend to make by having Esther Duflo speak at your conference?”
“How could the CEP possibly not invite Ms Duflo?” is our question. She is the co-author, with Abhijit Banerjee of a new book, “Poor Economics“, which we regard as essential reading for anyone committed to helping poor people to enjoy a better life – which, we would like to think, should include everyone attending the CEP’s annual conference.
“Eschewing both grandiose solutions to global poverty and sweeping claims that aid cannot work, Banerjee and Duflo draw on their pioneering experiments at MIT’s Poverty Action Lab to show what actually does work – in areas including education, health and governance. Their painstaking, cutting-edge research will allow policy makers to develop robust strategies to improve the lives of the world’s poorest people,” writes Paul Brest, president of the Hewlett Foundation, on the back cover. We couldn’t have put it better. It is a fascinating, at times depressing, but ultimately thoroughly inspiring read.
We understand that randomised control experiments are controversial, and would not wish the CEP, as Mr Buchanan’s critics suggest, to be “randomised control zealots”. But, frankly, the idea that anyone in the foundation community would feel that providing a platform to one of the pre-eminent practitioners of these experiments makes some kind of unacceptable statement, beggars belief. So kudos to Mr Buchanan, one of our favourite members of the philanthrocapitalism universe, not only for inviting Ms Duflo but for standing unequivocally behind his decision. As he writes, “I believe there is an important place for experimental design. There is a right time and place for the kind of approach Duflo espouses and, in those contexts, her approach to analyzing what works can help, quite literally, to save lives. Many lives.”
Tags: Abhijit Banerjee, Center for Effective Philanthropy, Esther Duflo, Hewlett Foundation, MIT Poverty Action Lab, Paul Brest, Phil Buchanan
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May 3rd, 2011
The late and unlamented terror chief may not be anyone’s idea of a philanthropist, least of all ours. Yet, however offensive it may seem, the horrible thought does raise some important questions, so please bear with us on this one…
First of all, Osama bin-Laden had plenty of cash – inheriting a pile from his father’s construction business and growing it through shrewd investments, according to the BBC obituary.
Second, in common with politically-focused philanthropists from George Soros to David Koch, he was a rich man using his fortune to try to bring about his personal vision of a better world. (A vision, lest we forget, that briefly overlapped to a degree with the West’s when he was fighting to eject Soviet forces from Afghanistan in the 1980s.) Bin-Laden’s approach was described as “revolutionary philanthropy” in 2003 by Bruce Hoffman of the RAND Corporation in a fascinating article in The Atlantic , “The Leadership Secrets of Osama bin-Laden”. This included supporting conventional acts of charity, such as providing humanitarian assistance after last year’s floods in Pakistan. And, according to Hoffman, it also included “arms, material, and other assistance in order to further the cause of global jihad.”
Third, as Hoffman pointed out, this “revolutionary philanthropy” was very much results oriented: “Such philanthropy is designed not only to harness the energy of geographically scattered, disparate movements but also to ensure that al Qaeda operatives can, in turn, call on these local groups for logistical services and manpower.”
Even the terroristic killing of thousands of innocent civilians was justified on a “what works” basis, according to Hoffman: because, he believed, “the United States cannot bear the pain or the losses inflicted by terrorist attacks”, “In bin-Laden’s view, terrorism against the United States – and allied Western countries – therefore works.” We can only hope that the killing of bin-Laden will be taken as evidence that, in fact, terrorism does not work.
On the face of it, a willingness to deal in death should automatically disqualify any claim to be a philanthropist. Yet, in practice, this has sometimes been a grey area even for the greatest institutions of Western philanthropy. For instance, the Rockefeller-funded researchers who led the Tuskegee medical trials in the 1950s and 1960s must have thought a few deaths were a price worth paying to create a better world when they withheld potentially life-saving penicillin from patients with syphilis so that they could continue their medical experiments on a group of poor, rural African-Americans.
That’s an easy one to deal with, of course, since the consensus today is that what the Tuskegee doctors did was a major ethical breach. But, before we get too smug, what about donors who are causing deaths by failing to make sure that their money is well used? In our last post we highlighted the argument by aid evaluation expert Howard White that without rigorous impact assessment donors simply do not know if they are wasting resources that could be saving lives.
Of course, there is a big difference between sins of omission and sins of commission. Could it ever be right for a philanthropist to deliberately kill? No? Never? What if the killing was of someone like bin-Laden?
The persistent rumour that an un-named American philanthropist has put a bounty on the head of Joseph Kony, the leader of the Lord’s Resistance Army in Northern Uganda, provides an interesting test. Kony has been indicted by the International Criminal Court for acts of unspeakable cruelty to thousands of people. His twisted messianic movement is also destabilising much of the Great Lakes region of Africa, not just Uganda, which causes much greater suffering as people are deprived of basic health and education services as a result. Yet, despite his infamy, not enough is being done by the governments of the world to bring Kony to justice. No less than Kenneth Roth of Human Rights Watch urged President Obama to do more to arrest the LRA leader last year, apparently to no avail.
If governments have failed to deliver, would it be so wrong for a philanthropist to put some money on the table to kill Mr Kony? (Africa specialists will grumble about gross over-simplification of the conflicts in the Great Lakes region. Agreed. But that’s not the point.)
One argument against this bounty – let’s call it the Ex-Prize – might be based on the objection that it is not up to a private individual to decide who is and is not a war criminal. The idea of billionaires, or the gathered high priests of capitalism at Davos, or, indeed, bin-Laden, issuing death warrants is repellent. But that is not the issue in this particular case. Mr Kony’s indictment by the International Criminal Court (ICC) partly covers off that objection – nabbing him would not be about private whim, but delivering on the decision of a legitimate organ of global (outside America anyway…) justice reached by due process. But that still leaves the problem that the ICC only wants to arrest and try him. Is it a step too far to have him killed?
Which takes us back to Mr bin-Laden, a man that President George W Bush said he wanted ‘dead or alive’. Would we feel differently if our donor had put a bounty on the head of the al-Qaeda boss rather than Kony?
That question is somewhat academic, not just because bin-Laden is now dead but also because of the enormous resources that the U.S. government and its allies committed to taking out this most wanted of the wanted. A bounty of a few million, or even a few hundred million, dollars from a philanthropist probably wouldn’t have made much of a difference. But doesn’t this just highlight a flaw in our system of global governance? Threats to rich countries, like those from bin-Laden, are relentlessly pursued, while the Joseph Konys of this world, whose victims are largely in poor countries, largely provoke UN resolutions that proclaim something must be done without providing the resources to make that happen? If the governments of the world are discriminating against the poor by failing to deliver on their promises about global justice, would it really be so wrong for philanthropists to level the playing field in their favour? Private armies, provided by companies such as Blackwater (now Xe Services), are increasingly used by governments and multilateral agencies; should the likes of Bill Gates make use of their services, too, on behalf of the poor?
These questions have taken us a long way from that merciless killer of civilians, bin-Laden, who in the end did the opposite of the true meaning of philanthropy, which is the love of humanity. Yet it troubles us that we cannot dismiss them all out of hand, though we think they are at best premature as a justification for action. One part of our vision of the world is that it should be governed by states that enjoy a monopoly of violence, and use that monopoly sparingly. And whilst we recognise that there are parts of the world where the state is too weak to enforce its monopoly or lacks the legitimacy to do so, we believe that there is a vast number of yet-to-be-taken opportunities for philanthropists to invest in addressing those problems by peaceful means before they need to consider the alternative.
For a visual take on some of these issues, this strikes us as an excellent moment to watch again the movie “Charlie Wilson’s War“, and in particular the sad, disastrous twist at the the end where, having funded military action in Afghanistan, the taps are turned off when it comes to paying for the long-term investment needed to build a better country, such as by providing a decent education. With bin-Laden dead, there are many who would like to walk away from Afghanistan and Pakistan, but (as we will explain in our next post) there is no better time for philanthrocapitalists to take a lead in fixing these failing states.
Tags: Afghanistan, Bill Gates, Blackwater, Bruce Hoffman, Charlie Wilson's War, David Koch, George Soros, George W Bush, Human Rights Watch, International Criminal Court, Joseph Kony, Kenneth Roth, Lord's Resistance Army, Osama bin-Laden, Pakistan, RAND Corporation, Rockefeller Foundation, Tuskegee medical trials, Uganda, United Nations
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April 27th, 2011
“Fail often, fail fast, fail cheap.” This well-known principle of innovators in Silicon Valley is still anathema to much of the philanthropy business, where failure is a dirty word. We argued in “Philanthrocapitalism” that the failure of foundations to embrace failure is a huge brake on their effectiveness, so we were excited to read the new book by Tim Harford, the Financial Times ‘Undercover Economist’, called “Adapt: Why Success Always Starts with Failure“.
“Adapt” ranges across a wide range of topics from regime change in Iraq, through the global financial crisis, to the efforts to eradicate malaria. Across all of these problems Harford demonstrates that success requires the cultivation of lots of different potential solutions, many of which will fail, rather than single top-down strategies, and rigorous screening of the evidence to find out which of these solutions work.
One of our main arguments for philanthrocapitalism is that, as private donors can do things that government cannot, it can be the supporter of the risky (some might say crazy) solutions that would not get the backing of public funders. This is exactly what Harford finds, including some great examples that we had not heard of. Take, for example, the British Spitfire fighter plane that is widely credited with winning the Battle of Britain in the Second World War, which struggled to get adequate government funding throughout the 1920s and 1930s. “Adapt” tells the story of how a philanthropist called Dame Fanny Houston, the widow of a shipping millionaire, bailed out the project in 1931 with a donation of £100,000.
Highlighting individual successes, of course, is subject to the potential bias of cherry-picking and Harford could equally have written a book about crazy philanthropic failures. Yet another story that was new to us was a comparison made by a team of economists between grants to scientific research from the National Institutes of Health (NIH) and the philanthropic Howard Hughes Medical Institute (HHMI). The publicly-funded NIH, he describes, funds projects with a high chance to succeed in achieving concrete measures of success. The privately funded MMHI, on the other hand, funds for longer and on looser terms, preferring to back individuals rather than specific projects. The MMHI, it turns out, funds more duds – research that makes little contribution to scientific knowledge (measured by citations in scholarly journals). MMHI also funds more stars and, on average, outperforms NIH.
One lesson from this example is the benefits from trying risky strategies. Equally important is the need for measurement. Our critics love to rail against measurement, saying that the work of philanthropy cannot be captured in numbers. That may be true, sometimes. But the rejectors of measurement are playing a dangerous game. In an excellent presentation at the recent Global Philanthropy Forum, the economist Howard White, who is leading the 3ie evaluation initiative started by the Hewlett Foundation, used the example of a World Bank nutrition project in Bangladesh to show that it was only through a randomised control trial that a project that had widely been seen as a success was, in fact, found to have been a waste of money. Philanthropists, just as much as organisations such as the World Bank, need to invest in hard-nosed research to see if what they are doing is working. If they don’t, they may be wasting money which could otherwise be saving lives.
The importance of randomised trials is one of the big messages of “Adapt”, where Harford praises the work of economist Esther Duflo and others to bring this approach to finding out what works in aid. (We will comment in more detail in a future post on her remarkable, must-read new book with Abhijit Banerjee, “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty”.) He also sees the potential of incentive prizes as a way to encourage innovation yet only pay for success, citing examples such as the X-Prize and the Gates Foundation’s work on Advance Market Commitments that we discuss at length in “Philanthrocapitalism”.
“Adapt” is both entertaining and inspiring in its call for new thinking in how we tackle social and environmental problems. Indeed, it is a must-read for anyone who wants to make the world a better place. We hope that it will both inspire more foundations to learn to love failing and give the critics of measurement cause to reconsider.
Our own modest proposal in this campaign for failure in philanthropy is that we should be doing more to celebrate when bold projects don’t work out. To that end, we would love to see a donor step up to fund a ‘Heroic Failure’ prize. That’s right, a prize for the biggest, boldest failure in philanthropy to reward those who have failed by giving them a chance to try again, to
make failure something that philanthropists talk about, and (perhaps most importantly) so that we can all learn from what doesn’t work and thus stop repeating the same mistakes.
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April 5th, 2011
Abbreviation is something of an art form in Australia. A pickup truck is a ‘ute’ (from ‘utility vehicle’), university is ‘uni’ (a term that was once alien in Britain but is now ubiquitous through the influence of Aussie soap operas like ’Neighbours’), afternoon is ‘arvo’ (not be confused with ‘avo’, an avocado), and the global financial crisis has become, simply, ‘the GFC’. So (ignoring the comments about philanthrocapitalism being a tongue-twister) we were honoured when our hosts on our recent book tour to Australia bestowed philanthrocapitalism with its own matey abbreviation, ‘Phil Cap’.
The question that came up in almost all our media interviews was ‘why is there so little philanthropy in Australia?’ The media seemed unaware that only last year, Australia came top of a ranking of the World Giving Index. On the other hand, as philanthropy expert Peter Winneke points out, at 0.4% of national income, Australian giving lags behind the UK (0.7%) and the US (2.0%) and doesn’t even have the excuse of a recession for increasing sluggishly.
The paradox of Aussie generosity comes down in part to the problem of bad data. The numbers that Peter is quoting refer to donations to government approved ‘Deductible Gift Recipients’, according to the tax code. One of the messages we heard from philanthropists and nonprofits alike in Australia is that qualification for ‘DGR’ status is tightly drawn (whereas the US has far the easiest qualification for tax exempt status), so it would be mistaken to infer that Americans are five times as generous as Australians. The World Giving Index tries to fix this problem of international comparisons by using polling data but its results are heavily skewed by responses to a question about whether the interviewee would help a stranger.
Many Aussie philanthropists – and we met lots – remain media shy, fearful of what they describe as Australia’s ‘tall poppy syndrome’. Yet donors such as Andrew Brice, co-founder of last minute hotel booking website wotif.com, are starting to raise their profile. One philanthrocapitalist, Simon McKeon, was named 2011 Australian of the Year.
Like their counterparts elsewhere in the world, Australian philanthrocapitalists are looking not just to do good but to have an impact. Some are sticking close to home, such as Gordon Merchant, the founder of Billabong surfware, who is supporting medical research to find a cure for skin cancer, a particular problem for Australians. (The Merchant Foundation and the University of Queensland, its lead partner in the new Skin Cancer Network, were sponsors of our visit.) Former banker Andrew Penfold is supporting indigenous education, a problem that large dollops of government money has failed to tackle. So is Australia’s second richest person, Andrew Forrest, who is also launching new initiatives to help abused or neglected children abroad. IT entrepreneur Steve Killelea has gone for worldwide impact through advocacy, by creating a Global Peace Index.
So is philanthrocapitalism booming in Australia, despite the disappointing figures on total giving? Aggregate data on giving can hide underlying trends. For example, in the US even the mega-philanthropy of Bill Gates, Warren Buffett and other signatories of the Giving Pledge has not shifted the needle much on total giving. From what we saw, a new generation of philanthrocapitalists is emerging in Australia, which like America, the UK and new economic powerhouses such as India is centred on the country’s newly successful entrepreneurs. Government, too, is starting to pick up on the potential of new innovations in social investing such Social Impact Bonds.
Maybe it is time for Messrs Gates and Buffett to visit Australia and encourage Phil Cap with a supportive G’Day!
Tags: Andrew Brice, Andrew Forrest, Andrew Penfold, Australia, giving pledge, Global Peace Index, Gordon Merchant, Peter Winneke, Phil Cap, Simon McKeon, skin cancer, Social Impact Bond, Steve Killelea, University of Queensland, World Giving Index
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March 2nd, 2011
The outrageous persecution of Muhammad Yunus by the government of Bangladesh has gone from bad to worse. On March 2nd, the government-appointed “chairman” of Grameen Bank, a microfinance institution founded by Mr Yunus for which he was awarded the Nobel peace prize, announced that Yunus had been fired as managing director because his reappointment in 2000 had never been valid in the first place. Reportedly the Bangladesh central bank never approved the appointment, as it was supposed to do, and now regards it as “unlawful” – though, as the micro-lender’s main regulator it has been consistently giving Grameen a clean bill of health for the past decade, and has neglected to bring up this matter before now.
As we have argued before, though we have issues with Mr Yunus’s attacks on for-profit microfinance, we stand shoulder-to-shoulder with him in opposing this politically-motivated attack. We note with alarm that the Bangladesh government is continuing to up the ante despite widespread opposition in the global media and by some of the most respected leaders of the international community, including the founders of the new group, Friends of Grameen.
As Grameen points out, it is owned by its 8 million or so borrowers, most of them relatively poor women. It remains to be seen if the voice of these owners will be heard. There is a real danger that what is in effect an attempted takeover by the Bangladesh government will do serious damage to Grameen and the people it helps. While there are certainly examples of for-profit microlenders harming the poor, we think the greater harm to the poor is often done by the politicians who purport to be on their side. We fear this will be anther example of that shameful truth – and can only hope that, even at this late hour, common sense will prevail, and that the government of Bangladesh will leave Grameen and its founder alone to get on with the work they have hitherto been doing so well.
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February 16th, 2011
In the United States, the giving sector is up in arms about a proposal in President Obama’s budget bill to cut back the tax exemption for wealthy donors. In the United Kingdom, donors are complaining that the government’s desire to boost giving under its Big Society programme is not being backed up with new tax incentives. On both sides of the Atlantic the philanthropy sector is gearing up to defend tax breaks to giving. But then again, they would, wouldn’t they? Yet, a serious debate is long overdue about whether, or when, the public actually benefits from such tax breaks. And, since philanthropists and fundraisers care about the wellbeing of society, they should really be welcoming this debate, not merely protesting.
As we argue in the book, there are some good reasons for extending tax incentives to giving. First, giving is part of a healthy society and deserves to be encouraged. Second, philanthropists (at least, the best ones) can use that money in innovative and effective ways that government cannot. Tax incentives, however, also come with a cost. They are revenue foregone by the government, which means that, all things being equal, other taxpayers have to pay more. Given the parlous state of US public finances and the looming crisis in public services in deficit-cutting Britain, it is too glib for the philanthropy sector to argue that its tax subsidies should not be examined for value for money alongside every other line item of public spending.
By this point, no doubt, we have lost those who think that government’s only duty is to get smaller and that any mechanism that shelters the taxpayer from the grasping hands of the state is a good thing. Yes, we do think that paying taxes is part of the responsibility of every citizen, including (especially) the rich (and many philanthrocapitalists share this view). Indeed, paying a fair share is one of the elements of the ‘good billionaire guide’ that we set out in the book. Yet we absolutely reject the argument that punitive taxation to fund state spending on public services is the only acceptable model for a civilised society.
Rather than being unequivocally for or against subsidising giving, we need a debate about how well the tax system promotes more and, crucially, more effective giving.
It seems to us that the system of incentives needs to be made less haphazard. At the end of last year, Richard Thaler (one of our, and David Cameron’s, favourite economists) argued powerfully in the New York Times that the current system of US tax deductions for charitable donations is pretty warped. In the UK, addressing this would mean reforming the Gift Aid system, which is so user-unfriendly for both donors and charities as to be unfair. If giving is to be subsidised because it is a “social good”, all taxpayers should be encouraged to take advantage of it and all causes should benefit, not just those that can wade through miles of red tape.
Moreover, if (some) philanthropy is to be tax subsidised, surely it should be in order to generate some clear public benefit? In the US, as Robert Reich of Stanford University has pointed out, more than half of all giving goes to the pursuit of religion, which economists might call a ‘club good‘ rather than a public good. The UK, in our view, is on the way to getting this one right: to qualify for a tax break, a British charity has to prove that it delivers a public benefit.
Yet the UK is still too easy in its treatment of philanthropic foundations, some of which pay out so little in grants each year that they probably get more back from the taxpayer than they actually give away for the public good. The UK foundation sector hates it when we argue for the introduction of an annual ‘payout rule’, like there is in the US and Canada (5% and 4% of the value of the endowment each year must be given in grants, respectively). They claim that they are already regulated too much. Maybe. As Michael argued last night at an event organised by the European Association for Philanthropy and Giving, it is surely ridiculous that a large foundation could be paying out as little as 0.9% a year (an issue which Third Sector magazine curiously ignored in its write-up). Those who argue against a payout rule would be in a stronger position if fewer foundations were free-riding on the already over-burdened taxpayer.
Then we have to look at which tax tools are the most effective at leveraging impactful giving. The UK government has started to experiment with match-funding schemes to help universities, the arts and aid agencies to strengthen their donor base. It may be that targeted schemes of this sort are a better way to subsidise and encourage giving than further tax incentives to giving of all kinds. Or maybe not. But that’s the point: we need a rational debate about the relationship between the public purse and philanthropy, not just constant pleading for more subsidy.
Tags: Big Society, charitable tax deduction, EAPG, Gift Aid, Giving Green Paper, payout rule, Richard Thaler, Robert Reich, Third Sector magazine
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February 14th, 2011
Lately, the Big Society has seemed in danger of early consignment to the dustbin of history. Though it is David Cameron’s big political idea, the Big Society did not excite the voters at last year’s general election and has wobbled alarmingly between unpopularity and ridicule in recent weeks, as the British prime minister’s plans for citizen activism were derided by charities hit by the looming public spending axe and laughed at by political commentators. But Mr Cameron is not giving up easily. Today, he tried to refloat the idea at a gathering of social entrepreneurs and other philanthrocapitalists, hosted fittingly by the Big Society Network.
Before Mr Cameron arrived the veteran social entrepreneur John Bird, founder of the Big Issue newspaper sold by homeless people, warmed up the crowd with jokes and even a song and gave the Big Society a warm (and rare) endorsement. Then it was the main act. PM Cameron, jacket off, giving a robust defence of his big idea, dismissing the notion that it is all merely a cover for cuts, and then taking questions from the audience. Yes, he really does believe that the Big Society is going to make Britain a better place.
There is still a gaping hole in his Big Society vision, however. Asked about the role he has in mind for business, Mr Cameron endorsed the idea of companies ‘doing well by doing good’ but offered no vision or plan about how to ensure that this will happen. As we argue in the newly-released UK edition of our book ‘The Road From Ruin’, he needs to harness the tools of philanthrocapitalism if his project is to succeed.
A glimmer of hope comes from the new Big Society Bank (a scheme conceived by the Social Investment Task Force, formed by his predecessor Gordon Brown and chaired by Sir Ronald Cohen, who we are delighted to see has now been brought into the Big Society tent as advisor to the bank), which will launch with £100 million siezed from ‘dormant’ bank accounts and £200 million of capital lent by the banks as part of the ‘Project Merlin’ peace deal between government and the City. If this “Dave-geld” money is simply used to buy off charity sector critics and create some PR opportunities then it will be a missed opportunity. As we argue in The Times (paywall, sorry), the big prize will be to use this new bank to leverage real sums of money for social investment, not as a way to bash the City but as a real partnership.
Mr Cameron’s other big problem is that he is still alarmingly vague about what success for the Big Society would look like. When pressed on this today he talked about more volunteering, more mutual societies, and money lent by the Big Society Bank. These may be useful intermediate targets but they are still just inputs. He needs to start talking about better educational performance, improved health, reduced crime and so on – and setting targets by which his government’s claims to be creating a Big Society can be judged.
Given that Mr Cameron heads a party whose iconic recent leader famously claimed that there is “no such thing as society”, we should perhaps be grateful that unlike Mrs Thatcher he both believes in society and wants it to be big. But, for most people, that would be just a statement of the obvious. Now we need some meaningful details on where Mr Cameron actually wants to lead us, a roadmap and a timetable.
Tags: Big Issue, Big Society, Big Society Bank, Big Society Network, David Cameron, John Bird, Project Merlin, Social Investment Task Force
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January 17th, 2011
Our recent blog post criticising Muhammad Yunus for his blanket criticism of for-profit investment in microlending has sparked a lively debate, especially in the Twittersphere. The influential @socialedge called the post “must read”. @andrewsprung called it a “pitch-perfect rebuttal to Yunus”.
On the other hand, @KimberleyCanada protested “Oh pls. some respect. the man is brilliant and RIGHT.” @LiamABlack struck a similar note of criticism, demanding for Mr Yunus “some respect please. He has 30 years experience on the ground making change for millions possible. you?” (Actually, though obviously not in Mr Yunus’s league, we are not complete neophytes when it comes to microlending. Matthew (aka @mattbish), the co-author of this blog, was a member of the Advisors Group to the UN International Year of Microcredit 2005, while the other co-author, Michael (@shepleygreen) funded and managed microfinance projects during his time working for the British government’s Department for International Development.)
Others found the entire debate a dangerous diversion from repelling the government of Bangladesh’s attack on Mr Yunus (which we denounced in an earlier post): “in these times of turmoil for Mr Yunus and Microcredit, let’s save the better instead of fearing the worst,” urged @thepennylistt, seemingly forgetting that in this battle over for-profit microfinance it was Mr Yunus who cast the first stone.
In longer form, Reuters blogger Felix Salmon was Mr Yunus’s main champion. If microfinance is to serve the poor, he argues, it needs to stick firmly to a charitable model based on free or cheap capital from donors. Now, hey, we’re the philanthrocapitalism guys who think that giving is an important and growing force that is changing the world. But even in the most optimistic scenario for philanthropy, it seems inconceivable to us that there will be enough charitable capital to meet the demand for microfinance from the world’s poor any time soon.
Felix is ready for this argument, however, and offers the ingenious claim that : “If the world of for-profit microfinance institutions dried up, then maybe all those philanthrocapitalists might be more inclined to simply donate startup capital to non-profit institutions instead.” Now this is just plain weird. True, Mr Yunus’s Grameen Bank got going thanks in part to significant grant support from foundations and governments (which, as David Roodman of the Center for Global Development rightly points out, means that Grameen is a bad counter-example for Mr Yunus to use when handing down judgement on other microfinance institutions born without such silver spoons). Yet it was the failure over many decades to scale adequately the nonprofit model of microcredit to meet massive unmet demand that drove the search for alternative, for-profit solutions. Charity alone cannot do the job; relying on charity because we are squeamish about making profits from serving poor people will mean more poor people going without or having to use real-life loan sharks, who are far more expensive and unpleasant to deal with than any recognised for-profit microfinance institution.
Again Felix is ready for us, chuntering at our argument that only 150 million of the 1 billion or so people in the world living in extreme poverty currently have access to microcredit. Well, if anything we were understating our case by limiting it only to those living on less than a dollar a day. If we expand the definition of poor people to those living on less than $2 a day (let alone the poor in rich countries who are starting to be served by microfinance) then the unserved market is even larger. You need look no further than the continuing prevalence of real-life loan sharks throughout the world, charging obscene levels of interest (often 1% a day) and sometimes enforcing their loans through violence and intimidation, to see that there is massive unmet demand for modern microfinance.
That is not to say that for-profit microfinance providers are always perfect or that for-profit should be the only model. Indeed, there is a good argument made by Bhagwan Chowdhry that microsavings and other innovations could help build financial access for the poor without relying on expensive capital from international investors. We are also excited about the potential of mobile banking (something, at least, that we can agree on with Felix). Like microfinance, these are disruptive technologies that will challenge vested interests and generate political resistance, particularly in countries with high corruption and poor accountability.
Nor do we deny that regulation is needed to ensure that microfinance operates to make life better for poor people. But it needs to be the right sort of regulation, such as rigorous anti-trust policy to promote competition. Alas, there is plenty of evidence that capping interest rates hurts the poor by limiting the supply of the capital they need. The right sort of regulation is the kind recommended by Matthew and other members of the Advisors Group to the UN International Year of Microcredit in their concluding statement (starting at paragraph 15). Here are three key points made by Matthew and his fellow Advisors.
“Regarding consumer protection, there are at least three areas in which government can play a helpful, enabling role. First, we recommend that lenders be required to inform borrowers clearly of the full cost of their borrowing, including interest rates and any other fees. Such a requirement ought not to impose significant costs on either lenders or regulators. Secondly, we are concerned that, in some countries, laws to protect privacy are preventing the emergence of credit bureaus. Such credit bureaus can greatly reduce the cost of lending – and thus increase the overall supply of loans – by giving lenders better information about the creditworthiness of borrowers. Some rich countries have managed to combine strong, effective privacy protection with sufficient freedom to share financial information to enable viable credit bureaus, and we recommend that poor countries follow their example and take measures to facilitate and encourage the establishment of credit bureaus. Furthermore, we encourage efforts to help microfinance providers improve their information systems, not least so that these bureaus can receive relevant information. Third, deposit protection is often woefully inadequate in poor countries. Although deposit protection schemes, such as insurance, can have some downsides, including a heavy regulatory burden and the creation of a moral hazard that can make savers careless of who they entrust with their money, combined with effective but light regulation such schemes can greatly increase consumer confidence in the financial system. A lack of such confidence is often – and not unreasonably – a serious constraint on the growth of financial systems. We recommend that governments explore whether they can sensibly and cost-effectively introduce deposit insurance or other protection scheme for savings accounts provided to poor people.”
Our complaint against Mr Yunus is not that he thinks mistakes are being made, or that he wants proper regulation of microfinance. We agree with him on those points. It is that rather than making a justified warning against mission drift by for-profit microfinance institutions, he is making sweeping generalisations that seem to be ideological rather than grounded in reality. The danger is that his public attacks on microfinance models that are not the same as his own will play into the hands of vested interests who want to resist changes that benefit the poor.
Tags: Bhagwan Chowdhry, Center for Global Development, Compartamos, David Roodman, Felix Salmon, microfinance, Muhammad Yunus, SKS
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January 15th, 2011
It may not have been as terrifying as Francisco Goya’s depiction of Cronus devouring his children , but the article by microfinance pioneer Muhammad Yunus in today’s New York Times had disturbing echoes of the story from Greek mythology of the titan who, fearing that his offspring will overthrow him, eats them instead.
“In the 1970s, when I began working here on what would eventually be called ‘microcredit’, one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor.” Yet, he laments, “I never imagined that one day microcredit would give rise to its own breed of loan sharks.” Who are these loan sharks who have betrayed the great man’s vision? Mr Yunus goes on to name and shame microfinance providers like Compartamos in Mexico and SKS in India, which have tried to turn his ideas into a for-profit business. If his Grameen Bank can serve the poor by offering loans at an interest rate of 20%, those charging a rate of 50% or more are, surely, exploiting the poor, he argues, warning borrowers and regulators to beware anyone levying interest of more than 25% a year.
This is not a new argument. Mr Yunus has been campaigning against the for-profit school of microfinance since back in 2005, when he got into a spat with philanthrocapitalist eBay founder Pierre Omidyar at the home of Silicon Valley venture capitalist John Doerr. We discuss this incident in the book where we argue that the Nobel Prize-winning Mr Yunus has got this one wrong.
Even in wealthy countries, poor people are often excluded from the mainstream financial system because they are an expensive client group to serve. There is little difference in the administrative cost to a financial service provider of offering a loan for $100 or $1,000 but the interest rate required to cover those administrative costs (as well as the cost of raising the money to lend) gets lower the bigger the loan. A $100 loan at 50% would pay the lender $50 over a year, while $1,000 lent at 10% would yield $100.)
For some microfinance providers, like Grameen, the way to keep down the interest rate is to take deposits from clients to fund loans. That is all well and good for Grameen but financial regulations in many countries stop microfinance providers taking deposits and the capital has to come from somewhere else. And, given the limited supply of the sort of philanthropic donations that helped Grameen get started, the only plentiful supply of capital is for-profit investors.
Of the billion people living in poverty about 150 million currently have access to microfinance, so there is still plenty of unmet pent-up demand. Providers like Compartamos and SKS have grown quickly and therefore helped more people because they have engaged the for-profit capital markets (and as they have grown, they have passed some of the savings from scale efficiencies back to borrowers in lower interest rates). If Mr Yunus has his way, this supply of growth capital will be choked off and hundreds of millions of people will be left waiting for financial inclusion.
It is true that some borrowers in India have got into financial dificulties, and a few have committed suicide, which has inspired local politicians to attack the fast-growing microfinance industry. There are some lessons for the industry here. But the idea that leading commercial microlenders like SKS and Compartamos are loan sharks is outrageous. They devote considerable resources to ensuring their borrowers are financially literate and capable of repaying their loans. Compartamos has a non-performing loan rate of under 2%, which suggests very few its clients are getting out of their depth. Nor, unlike traditional loan sharks, do these institutions rely on violence or other heavy-handed methods to get their money back. On the contrary, they are committed to the rule of law and promoting best practice throughout the industry.
Mr Yunus supports the idea that governments should impose caps on the interest rate charged by microlenders. He says this should be no more than 15 percentage points above the cost of raising the funds to lend. In the case of Grameen, he says, that would be an interest rate of 25% – a number that, it would be easy to conclude, is not far off what he thinks would be the right cap on interest rates elsewhere. Yet in countries such as India and Mexico, where interest rates are significantly higher, the consequence of a rate cap of anything close to 25% would be a dramatic decline in the number of poor people able to get access to credit, at a time when demand for credit is as strong as ever.
Although Mr Yunus has been criticising for-profit microlending for years, it would be easy to conclude that this latest article has been prompted by the ongoing attack on him by the government of Bangladesh. As we noted recently, this attack is outrageous, undeserved and alarming. Yet in his article, Mr Yunus is full of praise for Bangladesh’s prime minister, Sheikh Hasina – who has been leading the criticisms of Mr Yunus, even calling him a bloodsucker (aka loan shark).
Mr Yunus has inspired many of the leaders of the for-profit microfinance movement. They would have much to learn from his constructive criticism. Instead, it seems, he has decided to try to deflect the attack on himself by encouraging an attack on his children. It is unworthy of him and, if you take the lesson from Greek mythology, a strategy that is unlikely to succeed (the one son Cronus failed to deal with, Zeus, eventually killed and usurped him).
Tags: Compartamos, Grameen, John Doerr, microfinance, Muhammad Yunus, Pierre Omidyar, Sheikh Hasina, SKS
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January 13th, 2011
Back in the day, before Britain was run by the David Cameron-led coalition, many of us assumed that, under the weight of the public spending axe, a Conservative government would wriggle out of its commitment to keep upping the UK government’s aid budget to 0.7% of national income. It seemed like a no-brainer that increasing spending on people who aren’t UK taxpayers when Brits are seeing their own services cut was just not going to wash politically. Well, we were wrong (so far).
Whether it was the influence of the Conservatives’ coalition partners, the Liberal Democrats, Mr Cameron’s wish to avoid the ‘nasty party’ monicker for his party, or (perish the thought) because even Tories can care about global poverty, is not clear. What is certain, however, is that Andrew Mitchell, the International Development Secretary, will have his work cut out spending all this new cash if, at the same time, he is to fulfill his promise to deliver results and thereby convince voters that this is, indeed, money well spent.
Unfortunately for Mr Mitchell, according to his Department’s own research, the public is getting weary of aid: when asked in February 2010 (before the election and before the cuts) whether they supported more government aid only 35% of respondents said ‘yes’, down from nearly 50% only 18 months previously. Worse, the number who thought that aid was ‘pointless’ because of corruption had shot up by thirteen percentage points over the same period. Something clearly needs to be done to stop aid being a vote-loser.
When in opposition, one of Mr Mitchell’s big ideas was to run a scheme called ‘My Aid’, whereby citizens’ votes on a shortlist of projects would determine where a small amount of the aid budget would go. Though we liked the spirit of the idea, at the time we commented that, frankly, it sucked. Better, we said, to use the cash to finance a “match-funding” scheme for citizens’ own donations, on the grounds that this could catalyse more funding for development (the match money acting as a prompt to actually give, rather than just think about it) and get people thinking more seriously about where best the money should be spent. So we are chuffed to see that Mr Mitchell’s department has just launched a consultation on a scheme that is along the lines of what we proposed.
Aid technocrats will no doubt bristle at such populism (the development community are a terribly snobbish lot*). Yet the public is increasingly empowered by information and analysis to understand these issues and make informed choices – what we call ‘mass philanthrocapitalism’. Our hope is that organisations like New Philanthropy Capital, GlobalGiving, seethedifference, and the media will step up to help crowdsource more effective aid spending.
*Michael worked at DFID for 12 years.
Tags: Aid, Andrew Mitchell, Conservatives, David Cameron, DFID, Global Giving, Liberal Democrats, My Aid, New Philanthropy Capital, Seethedifference
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January 7th, 2011
The mere thought that the Grameen Bank might be taken over by the government of Bangladesh and that Muhammad Yunus, its Nobel Peace Prize-winning founder, might be forcibly retired, is shocking. But senior people inside the world’s best-known microfinance institution fear that this may happen, perhaps quite soon. Already, senior Grameen staff have had to phone each of the bank’s branches to refute press reports that Mr Yunus had resigned, reports that had threatened to panic savers into withdrawing their money and borrowers to stop repaying loans.
This was triggered, as Matthew helped report in The Economist, by a Norwegian documentary that reported a dispute over the handling of aid money from Norway that took place, and was resolved to the satisfaction of the Norwegian government, over 12 years ago, in 1998. Yet this old nothingness has been seized upon by Sheikh Hasina, the prime minister of Bangladesh, where Grameen was founded and built its pioneering reputation. She has personally unleashed a tirade of abuse against Mr Yunus, and against microfinance more broadly. Her finance minister was apparently responsible for the resignation story. Various other old allegations against Mr Yunus have also been dug up, and he is now due to appear in court on January 18th on libel charges for comments he made in 2007 to the effect that politicians in Bangladesh only work for money. The prime minister has already launched an official investigation into Grameen Bank.
It is hard to object in principle to such an inquiry, provided it is not a witch hunt. Indeed, a properly constituted inquiry, staffed by respected, politically independent people (ideally including some foreign statespersons), could help clear the air and Mr Yunus’s name. So far, however, there is no reason to think that this is the sort of inquiry there will be. Besides, as Grameen Bank points out, it is regularly monitored by the central bank of Bangladesh, which consistently gives it a clean bill of health.
There are many in Bangladesh who suspect that this is essentially some sort of personal vendetta against Mr Yunus by a prime minister who is jealous of his Nobel Prize and fearful that he might enter politics, as he briefly proposed to do when the country was under military oversight a few years back, and perhaps also part of her efforts to consolidate power following her election on the return to democratic rule.
Sources very close to Mr Yunus fear that the government may increase its stake in the bank from the current 25% to majority control, at the expense of the borrowers who currently own a majority of the shares in Grameen Bank. It may also increase its board seats from three out of 12 to a majority, which would be followed swiftly by the dismissal of Mr Yunus. (The fact that the government of Bangladesh is as involved in the bank as it is, and that it used to have such a majority stake, is rarely mentioned in the articles celebrating Grameen Bank as a private-sector social enterprise.)
It has always been a miracle that social enterprises such as Grameen Bank and BRAC have been able to thrive untouched by the corrupt politics of Bangladesh (which ranks a lowly 134 out of 178 countries on the 2010 Transparency International Corruption Perceptions Index). Alas, that miracle now may be over, though hopefully common sense will prevail. As Nick Kristof puts it in an excellent blog post, “Let’s hope this is all a tempest in a teacup. If not, and if Grameen is turned into a state bank, that would be a catastrophe — above all for the impoverished people who depend on it.”
One leading mainstream banker who has lent to microfinance institutions wrote to us this week, asking “aren’t you surprised that the political motivations of some of these politicians in countries like Bangladesh, Nicaragua, the Punjab in Pakistan and Andra Pradesh aren’t more questioned? Certainly a sector that has grown at the pace that it has in some markets needs greater infrastructure (credit bureaus, etc) and appropriate oversight and supervision, but there appear to often be possible other motivations for criticism that don’t seem to be directly linked to client protection issues, such as the sector dis-intermediating state sponsored programs and patronage opportunities, money-lenders, etc.” Indeed.
The attack on Mr Yunus is part of a far wider backlash against microfinance, and businesslike approaches to helping the poor, that we predict will grow around the world this year. That is one reason why there is no delight to be had in the ironic similarity between the abusive language the prime minister has used against Mr Yunus – whom she called a “bloodsucker” – and the equally intemperate language used by Mr Yunus recently against for-profit microfinance firms such as BancoCompartamos in Mexico and SKS Microfinance in India. Grameen Bank is the poster child for a movement: there is a great deal at stake here for the entire movement, which is at the heart of philanthrocapitalism.
Tags: Bangladesh, BRAC, Compartamos, Grameen, microfinance, Muhammad Yunus, Nobel Prize, SKS, Transparency International
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January 4th, 2011
Last year we made a set of predictions for 2010. Some were satisfyingly prescient - the surge in mega-giving we predicted for 2010 became a reality through the Buffett-Gates Giving Pledge (even if we were off the mark in betting on Steve Jobs rather than Larry Ellison to be the Gates business rival who would step up to major philanthropy). On the other hand Tiger Woods did not emerge as the leading celebrity philanthropist, as we had hoped, prefering to reconnect with Buddhism (though maybe this year…).
So what do we expect in 2011? (You can watch Matthew talk about some of these ideas here.)
1) A battle is going to rage over the relationship between profit and philanthropy. Last year we predicted that the flotation of shares in Indian microfinance business SKS would be one of the events of 2010. So it was. Yet so too was a backlash against what critics saw as SKS’s exploitative lending practices. What much of the debate about microfinance revealed is that there is a deep suspicion within the development community of for-profit solutions to poverty. Contrast that to a report by JPMorgan that came out in November, trumpeting a $1 trillion business opportunity in so-called impact investing (doing good while making a financial return). If microfinance ruffled feathers, we are expecting a full on cock-fight as more private profit-seeking capital is invested in sensitive areas like healthcare, education, water and sanitation.
2) Underlying this debate is going to be the growing trend towards the privatisation of aid. Most of the governments of the rich world are going to continue to scale back their aid commitments as chill fiscal winds blow through the G8 club that has been the main aid donor in the past. We do not expect emerging powers such as China to be willing to step up and fill that gap straight away. As government aid recedes, it is going to have to be private donors and impact investors who fill the gap.
3) The good news is that private giving by the wealthy is going to continue to surge, helped by billionaire arm-twisting under the auspices of the Giving Pledge. One tycoon who has signed the pledge that we expect to get serious about fulfilling it this year is David Rubenstein of the private-equity firm Carlyle. At least as significant will be a new cohort of philanthrocapitalists in India – a country where wealth creation has raced ahead of government’s ability to deliver basic services like health and education to those at the bottom of the pyramid. Quality of giving will become just important an issue as quantity for the Pledgers. So far most of the focus has been on how much is given; now there will be more and more questions about how the new super-donors will put their money to work in a thoughtful, impactful way. About time too.
4) In the US the ‘hot topic’ for philanthropy is going to be school reform and globally it will be maternal and child health. Even the act of picking hot topics has critics and supporters. ”Global solutions don’t lend themselves to “annual hot lists”, protests Lucy Bernholz, whereas Steve Goldberg thinks that philanthrocapitalism should be ready to take on even the biggest challenges, given the twin crises of resources and effectiveness faced by government. Anyway. Why these two ‘hot topics’ for 2011? The debate about US school reform, and philanthropy’s role in that reform, has been hotting up in 2010 and, frankly, isn’t going to go away. America’s failing schools are, for many philanthrocapitalists, the big strategic threat to the nation’s future so they aren’t going to give up on trying to improve them, even as the protests of their critics grow more shrill. Globally, malaria was the top cause of 2010 and will remain a high priority for Gates and others in 2011. Critics of the Gates Foundation approach say that it is too reliant on technological solutions, which is a criticism of its initial approach to communicable diseases that the foundation broadly accepts, as we discuss in the book. Yet Gates has started to swim deeper into the complexities of health system reform in developing countries as part of its expanded work on maternal and child health. Watch this space.
5) The most interesting country to watch in 2011 is going to be Britain. Prime Minister David Cameron’s ‘Big Society’ vision for reform and renewal of how the UK tackles social problems is going to need to deploy all the tools of philanthrocapitalism if it is to succeed. Over the next 12 months he’ll have to start turning rhetoric into reality.
6) The relationship between taxation and philanthropy is also going to be pushed front of stage in 2011 as fiscal tightening will reopen the debate about the tax subsidy to giving, particularly by the rich. The risk is that this debate simply reduces to bashing the rich. Yet there is an opportunity to revisit tax rules to think about the fairness and efficiency of tax breaks for philanthropy (see, for example, behavioural economics guru Richard Thaler’s recent thoughtful piece in The New York Times or the British government’s tentative steps to consider a mandatory payout rule for grantmaking foundations).
7) One of the sad landmarks of 2011 will be the 10th anniversary of the 9/11 attacks, which will offer pause for reflection on how much progress has been made in undermining support for extremists who preach and practice terrorism. A few philanthrocapitalists are working to tackle this problem around the world, such as the Education for Employment Foundation, but this remains a difficult and controversial area for donors. Indeed, one of last year’s predictions that was, sadly, off beam (the humanitarian response to deadly floods notwithstanding) was that philanthropists would do more to help Pakistan. That our world is still so threatened a decade after the wake-up call of 9/11 is surely a sign that this is an area where innovation and risk-taking is desperately needed.
8 ) Celebrity philanthropy will continue to boom, as will conspicuous philanthropy (with Lady Gaga due to perform at the annual Robin Hood Foundation fundraiser in New York in May). Perhaps Lady Gaga will emerge as the next big celanthropist, though Ed Norton and Ben Stiller are already showing promising signs of doing something big. Wyclef Jean had a terrible time in 2010, because he did not take seriously enough the governance of his foundation. There are few better run foundations than LiveStrong but we wonder how it will fare if the investigations under way into its founder, Lance Armstrong, damage his reputation; hopefully there is nothing to worry about.
9) Mass philanthrocapitalism will increasingly turn to politics. Websites such as Kiva and DonorsChoose, that have built up online communities of givers and micro-lenders, will increasingly try to channel the commitment of their crowds into political influence on relevant policies such as education reform and international aid. If they succeed, expect others to quickly follow their lead.
10) “When even shoeshine boys are giving you stock tips, it’s time to sell” was Joseph Kennedy’s explanation of his prescient decision to get out of the stock market before the Wall Street Crash of 1929. On that basis, maybe, just maybe, 2011 will be the year when social enterprise jumps the shark. Social entrepreneurs are everywhere, it seems. Some are, indeed, changing the world. Many are not. Also, the phrase has become so ubiquitous and now seems to cover everything from for-profit businesses that claim to have a conscience to old-school charities that you have to ask if it means anything at all. Last year we wrote a piece for Innovations magazine where we argued that we need a more nuanced understanding of the institutions and mechanisms that will create a capital curve for social innovation, which can grow great ideas from start-up to scaled-up solutions. The loose language of social entrepreneurship may be holding us back. Maybe in 2011 we will develop a much needed, more precise lexicon to describe what, in the world of social innovation, actually works.
Tags: 9/11, Ben Stiller, Big Society, Bill Gates, David Cameron, David Rubenstein, Donors Choose, Ed Norton, Education for Employment Foundation, giving pledge, impact investing, JPMorgan, Kiva, Lady Gaga, Lance Armstrong, Larry Ellison, Livestrong, Lucy Bernholz, malaria, maternal and child health, microfinance, Pakistan, Richard Thaler, Robin Hood Foundation, SKS, social entrepreneurship, Steve Goldberg, Steve Jobs, taxation, Tiger Woods, Warren Buffett, Wyclef Jean
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December 29th, 2010
“[T]he call to social action needs to speak to individuals’ motivations and account for the obstacles to giving; to fit with people’s lifestyles and interests.” That this is the big idea in the British Government’s new Green Paper on Giving that was launched in London on Wednesday, shows the influence of so-called behavioural economists like Richard Thaler (co-author of the bestseller Nudge) in the efforts to turn the Brits into a nation of givers. Can the nudgers succeed where others have failed?
According to the World Giving Index 2010, Britain is among the top flight of philanthropic nations, coming in eighth overall measured in terms of giving money, giving time and willingness to help a stranger. Yet the government of David Cameron wants citizens to do more; not, the Green Paper insists, because the public coffers are empty but because a giving society (or Big Society, as the politicans have named it) is a better place to live.
This is a laudable goal yet successive governments have tweaked the tax laws and sponsored exhortatory campaigns to promote giving in the past and have been disappointed with the response. The Green Paper ignores the tax question (now is not the time for new tax breaks) and focuses instead on making it easier and more attractive to give. What follows is a rather jumbled list of suggestions and ideas from offering people a chance to donate via their ATM (a Colombian initiative, apparently) to ‘cost-free’ giving (who could object to that?) through mechanisms like everyclick, and even getting government Ministers to write thank-you letters to major donors.
What is striking about many of these ideas is that so few of them are actually government’s to deliver. The message that comes through is that charities, many of which are now facing up to a famine of government money after several feast years, are going to have to revolutionise how they mobilise donors and that new technologies will have crucial role to play (although it is odd that the paper fails to mention two of the most successful innovations in mass philanthrocapitalism kiva and donorschoose).
We are pleased to see that two ideas that we championed in our Philanthrocapitalist Manifesto have made it into the Green Paper – more government money used to match fund donations and a payout rule for foundations – both of which could have a large and immediate effect on giving.
More disappointing is the Paper’s rather tired approach to the role of business, which sees private companies simply as sources of charity cash. As we argue in the book, the much more exciting trends in corporate philanthrocapitalism come when companies put the full force of their supply chains, production processes, procurement systems and investment strategies behind creating sustainable long-term value. Maybe those questions lie outside the terms of reference of a government paper on giving but the danger remains that the role of business in the Big Society is being too narrowly defined. Let’s hope we are proved wrong.
Green Papers, of course, are where government thinks aloud and measures the response. Prime Minister Cameron is to be applauded for having started the debate. Let’s hope that the concrete initiatives in the White Paper on giving that will follow in the spring will be even bolder.
Tags: Big Society, David Cameron, DonorsChoose, Kiva, match funding, Nudge, payout rule, Richard Thaler, World Giving Index
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December 24th, 2010
If you want to curl up with a classic this Holiday Season, here are five of our favourite suggestions from the Philanthrocapitalism bookshelves. (Steve Goldberg asked us to include his fine, thought-provoking book, “Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Advance Social Progress,” but because we do not wish to encourage such shameless lobbying, we reluctantly had to exclude it from consideration.)
“The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits,” by C.K. Prahalad. The death of C.K. Prahalad earlier this year could not have come at a worse time, as criticism has increased sharply of efforts to harness the profit motive to eradicate poverty. What would he have thought of the mess in Indian microfinance, or the behaviour of the Unitus board, we wonder? So what better time to read his great call to capitalistic action to help poor people – ideally, the fifth anniversary edition that includes a thoughtful essay by Prahalad on lessons learnt so far. As we noted in our obituary, putting these ideas into practice made him more optimistic – a quality those committed to using profits to help the poor are likely to need plenty of in the years ahead. When he last spoke to Matthew, he said that “I can now answer ‘yes’ to five questions I posed when I first launched the idea of Bottom of the Pyramid. Is there a real market? Is it scalable? Is there profit? Is there innovation? Is there a global opportunity?” Yes, yes, yes, yes, yes!
“Showing Up For Life: Thoughts on the Gifts of a Lifetime,” by Bill Gates Senior. This fascinating and highly entertaining memoir is far more than the best source of information on the upbringing of the world’s leading philanthrocapitalist. Bill Gates Senior, who refers throughout to his wealthy son by his family nickname, Trey, offers some tremendous insights into the art of giving, but perhaps even better ones into how to create the sort of family in which all the children grow into adults who are committed to giving back, regardless of whether or not they also become billionaires. If you haven’t read this book yet, you really should.
“The Foundation: A Great American Secret. How Private Wealth is Changing the World,” by Joel Fleishman. The definitive account of the history of institutionalised philanthropy and the positive role it has played in America and the world – full of challenges to do better as well as celebrations of what has worked. As Matthew wrote in his review of the book in The Economist, as Mr Fleishman laments, “foundations ‘operate within an insulated culture that tolerates an inappropriate level of secrecy and even arrogance in their treatment of grant-seekers, grant-receivers, the wider civic sector, and the public officials charged with oversight. This needs to change.’ Something, then, for those trendy new philanthropists to ponder.”
“On Assistance to the Poor,” by Juan Luis Vives. It seems obvious today that philanthropy’s goal is to solve problems but this was a radical idea when Juan Luis Vives wrote his classic study ‘On Assistance to the Poor’ in the early 16th century. In ‘Philanthrocapitalism’ we trace the historic roots of the ideas of today’s entrepreneurial problem-solvers to the philanthrocapitalists of earlier eras. Vives, as we discuss further in one of the historical bonus chapters, was a follower of the humanist philosopher Erasmus, who designed radical new ways to lift the poor of renaissance Europe out of poverty, rather than just treating them as recipients of alms. He was also an early advocate of equality in education for girls – a goal we have sadly still not achieved.
“The Warden,” by Anthony Trollope. Charles Dickens usually gets the credit for writing the definitive novels about Victorian philanthropy but we want to give a shout out to Anthony Trollope for ‘The Warden’ – an insightful tale of the complexities of reforming charities. The Warden of the story, Septimus Harding, runs a medieval foundation called Hiram’s Hospital. He is a kindly man and he and the residents of the hospital live a comfortable life. That is until a young reformer, John Bold, starts to shake things up. It is easy to talk about philanthropy being disruptive – The Warden is a reminder that change is often as painful as it is necessary.
Tags: Anthony Trollope, Bill Gates Senior, Charles Dickens, CK Prahalad, Joel Fleishman, Juan Luis Vives, Steve Goldberg
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December 22nd, 2010
Ah, there’s something about Christmas: a time to be with family and friends, a time to think of others, a time to make merry and, of course, a time for dusting off old prejudices. On that last point, Aaron Dorfman of the National Committee for Responsive Philanthropy (NCRP), is playing Scrooge with two articles in the Huffington Post attacking the Buffett-Gates Giving Pledge.
Mr Dorfman’s first objection is that ‘the amounts being given are actually quite small’, on the basis that a lot of the money will go into endowments for foundations rather than being spent today. This, he says, means that the benefit will ‘trickle’ out over many years rather than helping to fill the giving hole left by the economic downturn. Well, maybe. As Dorfman himself admits, Buffett for one is keen to spend faster than the minimum 5% required by law in the United States, reflecting the interest of many philanthrocapitalists in ‘spending out’ while they are still alive rather than creating a perpetual endowment. Hardly a devastating critique.
Next up is a grumble that too much philanthropy is going to universities or the arts, and too little to ‘under-served communities’. This is a re-hash of a 2009 study that the NCRP did to show that foundations don’t favour the same causes as… the NCRP! It is certainly debatable whether Mr Dorfman and his colleagues have a monopoly on the truth (especially since you might quibble with their methodology about what qualifies as ‘under-served communities’) and there is also a danger in extrapolating from current foundation giving trends to how the Giving Pledgers will behave. An issue to watch, perhaps, but not really a criticism of the pledge itself, surely?
Finally, there’s the danger of giving billionaires too much power over how their money is used. And what is the evidence that donors have too much power? Because they should give more money to the causes that Mr Dorfman supports. See above…
Actually, there’s a lot in what Mr Dorfman says that we agree with – the need for more and better giving, a call for foundations to be more forward-thinking about how to use their foundations’ endowments to do good, and so on. But none of this has anything to do with the Giving Pledge, which is supposed to be the focus of his critique. You have to wonder why, if Mr Dorfman has nothing negative specifically to say about the actual Giving Pledge, he says anything at all.
Christmas traditions are all well and good, but Mr Dorfman makes such an unconvincing Scrooge that maybe he should leave this job to someone else next year.
Tags: Aaron Dorfman, giving pledge, Huffington Post, NCRP, Scrooge
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December 21st, 2010
2010 has been a good year for books touching on philanthrocapitalism. In no particular order, here are our 15 favourites (not including our own “The Road From Ruin“):
“The Power of Social Innovation“, by Stephen Goldsmith. This is a terrific look at some of the best examples of trying to take the ideas of social innovation to the scale at which they can make a huge positive difference – particularly to the effectiveness of government. Mr Goldsmith, one of America’s most innovative mayors in the 1990s and now an equally innovative deputy mayor of New York City, writes with the eye for detail and understanding of potential pitfalls of the experienced practitioner, yet covers a vast amount of ground and academic literature, mostly American but also British. Writing in The Economist, Matthew said that this book is “a sort of bible of social innovation, full of examples of social entrepreneurs’ successes.”
“Life Is what You Make It: Find Your Own Path to Fulfillment,” by Peter Buffett. What is it like to be the son of Warren Buffett? Would being a member of what your famous father calls the “lucky sperm club” screw you up? Peter Buffett, who soon rejected a career in finance in favour of his passion for playing rock music, has written a candid, highly-readable and autobiographical examination of the pressures and opportunities that follow from being born into a wealthy family. Now an active philanthropist, with $1 billion of his dad’s money, Mr Buffett is honest about the difficulties he has faced, yet offers plenty of encouragement through his tale of self-discovery. Needless to say, this book is finding an enthusiastic readership amongst the children of the wealthy, but you don’t have to be rich to find something valuable in it.
“Zilch: The Power of Zero In Business,” by Nancy Lublin. Too often non-profits are told to learn from business; in this lively, insightful and humorous book, Ms Lublin, the Chief Old Person at DoSomething.org, tells business what it can learn from non-profits, not least about how to thrive with virtually no money. This is a great guide to the best practice of some of the best non-profits, delivered with Ms Lublin’s unique brand of inspirational provocation. To get a taste of this great book, watch her interview with Matthew and read his review in The Economist.
“Power in Numbers: UNITAID, Innovative Financing, and the Quest for Massive Good”, by Daniel Altman and Philippe Douste-Blazy. In the past few years, philanthrocapitalists have come up with some innovative ways of tapping new sources of capital to address some of the world’s toughest problems. Mr Altman, now the Director of Thought Leadership at Dalberg Global Development Advisors, and Mr Douste-Blazy, special advisor to the UN Secretary General on innovative financing for development, have written a thoughtful and accessible overview of the trends and issues that, if a bit too uncritical of Mr Douste-Blazy’s beloved UNITAID, is well worth reading. There is no other book we can think of that comes close to the breadth of its coverage of this topic – yet it is nice and short, too!
“The World That Changes The World: How Philanthropy, Innovation and Entrepreneurship Are Transforming the Social Ecosystem,” by Willie Cheng and Sharifah Mohamed. This is an excellent collection of essays by 21 authors (including John Elkington, Geoff Mulgan, Kumi Naidoo and Jed Emerson) that is bang up to date in its description of the current players and connections that comprise the “social ecosystem” of philanthrocapitalism. The latest publication orchestrated by Mr Cheng, a Singapore-based business man and social entrepreneur, this is a great starting point (after reading “Philanthrocapitalism“, of course), for anyone wanting a theoretical framework in which to think about the future of social change.
“Social Entrepreneurship: What Everyone Needs to Know,” by David Bornstein and Susan Davis. A terrific, readable, concise guide (albeit a tad uncritical in places) that does exactly what it says on the tin: tell you everything you need to know about social entrepreneurship. It rightly defines social entrepreneurship broadly, as “a process by which citizens build or transform institutions to advance solutions to social problems.” As well as updating readers on the history of social entrepreneurship, it sets out a provocative vision (like Bornstein’s previous book, “How to Change the World“, heavily influenced by Ashoka founder Bill Drayton) of how everyone can become a change-making social entrepreneur.
“The Big Society,” by Jesse Norman MP, is an impressive attempt by one of the intellectuals of the British Conservative Party to explain why Prime Minister David Cameron’s oft-ridiculed flagship policy is more than political spin, or a cloak for neoliberalism. Mr Norman takes the reader back to the foundations of Conservative thinking to set the Big Society in context (and, in so doing, see off its critics within the Conservative Party). The central message of the book, which echoes one of the themes in “Philanthrocapitalism,” is that government needs to admit that it does not have all the answers. In that sense, it reads as a somewhat surprising appeal to Mr Norman’s political opponents in the Labour Party to let go of their fixation on bigger government as the only solution to social problems. It is in this appeal for a new political debate in which left versus right means more than arguing for bigger versus smaller government that Mr Norman has written a prescient and powerful book.
“The Networked Non-Profit,” by Beth Kanter and Allison Fine. How does the rise of social media change philanthropy? In this extremely useful practical guide, Ms Kanter and Ms Fine highlight the opportunities and challenges, and show how social media can greatly increase the overall effectiveness of giving and other engines of social change. Full of well-chosen examples – though, oddly, it ignores two of our favourite philanthrocapitalistic users of social media, Kiva and DonorsChoose (but you can read about them in “Philanthrocapitalism”).
“Big Business, Big Responsibilities. From Villains to Visionaries: How Companies Are Tackling the World’s Greatest Challenges,” by Andy Wales, Matthew Gorman and Dustan Hope. A fascinating view from inside some big multinationals about the forces that are changing how companies relate to society. The authors argue that success for firms depends increasingly on them actively engaging in tackling some of the big problems facing society, rather than standing on the sidelines or opposing progress. Contains lots of interesting case studies, including some especially useful ones of how firms can partner effectively with non-profits/NGOs.
“Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream,” by Arianna Huffington. Full of passion and telling examples, the founder of The Huffington Post has written a powerful warning that America is in danger of going down the tubes, with the majority of ordinary Americans faced with becoming increasingly marginalised and impoverished. One part of the answer, she argues, is to explore “how this moment of crisis for capitalism and philanthropy could be used to transform both – how capitalism could be imbued with a social mission, and philanthropy could be reinvigorated with the best practices of capitalism.” To learn more, watch Matthew’s interview with her for “Tea With The Economist.”
“Waiting for ‘Superman’,” by Karl Weber and Davis Guggenheim. The book accompanying the campaigning movie of the same name, an attempt by the makers of “An Inconvenient Truth” to have a similar catalytic effect on the debate about how to improve America’s faiing schools. This spells out the extent of the problems and what is being done, and could be done, to fix them, at far greater depth and length than could be crammed into this extraordinarily powerful movie (see our earlier comments on its message and strategy here and here). The latest activist project by Participant Media, the for-profit social business of philanthrocapitalist eBay billionaire Jeff Skoll, the book comes with an added bonus: a free gift worth more than the price of the book that can be given away to help teachers pay for classroom projects through another of our favourite philanthrocapitalistic organisations, DonorsChoose.org.
“MacroWikinomics: Rebooting Business and the World,” by Don Tapscott and Anthony Williams. This is a great, must-read book about how connectivity is changing the world, and needs to do so even more if we are to come out of this current economic mess in significantly better shape than we went into it. The authors look not just at what business and government should do, but also at how the new tools of connectivity can drive social change. For example, some important lessons are learnt from two of our favourite philanthrocapitalistic organisations, Kiva and Ushahidi. Watch Matthew interview Mr Tapscott over Tea With The Economist.
“Citizen You: Doing Your Part to Change the World,” by Jonathan Tisch. This is one of the better inspirational books of recent years about how each of us can make a difference – both in work and outside it – because it is informed by the practical experience of an author who has run a big company as CEO of Loews Hotels as well as being intimately engaged in the venture philanthropy movement through his association with New Profit Inc. Watch Matthew interview him over Tea With The Economist.
“Sustainable Excellence: The Future of Business in a Fast Changing World,” by Aron Cramer and Zachary Karabell. This is as good a statement as you will get of what activists focused on corporate citizenship and social responsibility will demand of business in the years ahead. Lots of practical examples from the battlefield, and a convincing argument that increasingly the better firms treat their workers and the world, the more likely they are to succeed. Mr Cramer, who runs Business for Social Responsibility, a non-profit, is particularly good on the need to improve the ethics of supply chains, not least through partnerships with civil society organisations.
“The Imaginations of Unreasonable Men: Inspiration, Vision and Purpose in the Quest to End Malaria,” by Bill Shore. This is a fascinating insider’s account of the extraordinary global campaign now under way to eradicate malaria, by one of America’s top social entrepreneurs. It is at once inspiring and challenging, in that it shows how philanthrocapitalism can make a difference but also how far there is to go, and how many lessons remain to be learnt. In discussing the belated realisation by the Gates Foundation that “disease-specific wars can succeed only if they also strengthen the overall health system in poor countries,” for example, Mr Shore reminds us all that “those fighting diseases as intractable as polio or malaria – or taking on any other task of that size – have to ask whether even their most ambitious efforts lack vision and imagination.”
Tags: Allison Fine, Andy Wales, Arianna Huffington, Aron Cramer, Beth Kanter, Bill Shore, Daniel Altman, David Bornstein, Don Tapscott, Jeff Skoll, Jesse Norman, Jonathan Tisch, malaria, Nancy Lublin, Peter Buffett, Stephen Goldsmith, Susan Davis, Waiting for Superman, Willie Cheng
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December 20th, 2010
Bill Clinton, who is a big fan of ‘Philanthrocapitalism’, has generously signed a copy of the paperback. We are going to give away this unique ‘presidentially-endorsed’ edition to one of the members of the philanthrocapitalism Facebook community. All you have to do is visit the Philanthrocapitalism site on Facebook, become a member (if you haven’t already) and click on ‘like’ under the post about the competition. We will pick a name at random on Christmas Eve. Ho, ho, ho!
P.S. Former President Clinton is also a fan of our other book, The Road From Ruin, which (like Philanthrocapitalism) would make an excellent Christmas gift. You can see President Clinton talking about the book here.
Tags: Bill Clinton
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December 20th, 2010
2010 has been a good year for books touching on philanthrocapitalism. In no particular order, here is our final batch of favourites (not including our own “The Road From Ruin“). We will highlight our worst books of the year and remind you of some must-read classics in later posts.
“Waiting for ‘Superman’,” by Karl Weber and Davis Guggenheim. The book accompanying the campaigning movie of the same name, an attempt by the makers of “An Inconvenient Truth” to have a similar catalytic effect on the debate about how to improve America’s faiing schools. This spells out the extent of the problems and what is being done, and could be done, to fix them, at far greater depth and length than could be crammed into this extraordinarily powerful movie (see our earlier comments on its message and strategy here and here). The latest activist project by Participant Media, the for-profit social business of philanthrocapitalist eBay billionaire Jeff Skoll, the book comes with an added bonus: a free gift worth more than the price of the book that can be given away to help teachers pay for classroom projects through another of our favourite philanthrocapitalistic organisations, DonorsChoose.org.
“MacroWikinomics: Rebooting Business and the World,” by Don Tapscott and Anthony Williams. This is a great, must-read book about how connectivity is changing the world, and needs to do so even more if we are to come out of this current economic mess in significantly better shape than we went into it. The authors look not just at what business and government should do, but also at how the new tools of connectivity can drive social change. For example, some important lessons are learnt from two of our favourite philanthrocapitalistic organisations, Kiva and Ushahidi. Watch Matthew interview Mr Tapscott over Tea With The Economist.
“Citizen You: Doing Your Part to Change the World,” by Jonathan Tisch. This is one of the better inspirational books of recent years about how each of us can make a difference – both in work and outside it – because it is informed by the practical experience of an author who has run a big company as CEO of Loews Hotels as well as being intimately engaged in the venture philanthropy movement through his association with New Profit Inc. Watch Matthew interview him over Tea With The Economist.
“Sustainable Excellence: The Future of Business in a Fast Changing World,” by Aron Cramer and Zachary Karabell. This is as good a statement as you will get of what activists focused on corporate citizenship and social responsibility will demand of business in the years ahead. Lots of practical examples from the battlefield, and a convincing argument that increasingly the better firms treat their workers and the world, the more likely they are to succeed. Mr Cramer, who runs Business for Social Responsibility, a non-profit, is particularly good on the need to improve the ethics of supply chains, not least through partnerships with civil society organisations.
“The Imaginations of Unreasonable Men: Inspiration, Vision and Purpose in the Quest to End Malaria,” by Bill Shore. This is a fascinating insider’s account of the extraordinary global campaign now under way to eradicate malaria, by one of America’s top social entrepreneurs. It is at once inspiring and challenging, in that it shows how philanthrocapitalism can make a difference but also how far there is to go, and how many lessons remain to be learnt. In discussing the belated realisation by the Gates Foundation that “disease-specific wars can succeed only if they also strengthen the overall health system in poor countries,” for example, Mr Shore reminds us all that “those fighting diseases as intractable as polio or malaria – or taking on any other task of that size – have to ask whether even their most ambitious efforts lack vision and imagination.”
Tags: Anthony Williams, Aron Cramer, Bill Shore, Davis Guggenheim, Don Tapscott, DonorsChoose, Jeff Skoll, Jonathan Tisch, Karl Weber, Kiva, MacroWikinomics, malaria, New Profit Inc, Participant Media, Ushahidi, Waiting for Superman, Zachary Karabell
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December 16th, 2010
2010 has been a good year for books touching on philanthrocapitalism. In no particular order, here is our second batch of favourites (not including our own “The Road From Ruin“). We will select five more of the best, highlight our worst books of the year and remind you of some must-read classics in later posts.
“Social Entrepreneurship: What Everyone Needs to Know,” by David Bornstein and Susan Davis. A terrific, readable, concise guide (albeit a tad uncritical in places) that does exactly what it says on the tin: tell you everything you need to know about social entrepreneurship. It rightly defines social entrepreneurship broadly, as “a process by which citizens build or transform institutions to advance solutions to social problems.” As well as updating readers on the history of social entrepreneurship, it sets out a provocative vision (like Bornstein’s previous book, “How to Change the World“, heavily influenced by Ashoka founder Bill Drayton) of how everyone can become a change-making social entrepreneur.
“The Big Society,” by Jesse Norman MP, is an impressive attempt by one of the intellectuals of the British Conservative Party to explain why Prime Minister David Cameron’s oft-ridiculed flagship policy is more than political spin, or a cloak for neoliberalism. Mr Norman takes the reader back to the foundations of Conservative thinking to set the Big Society in context (and, in so doing, see off its critics within the Conservative Party). The central message of the book, which echoes one of the themes in “Philanthrocapitalism,” is that government needs to admit that it does not have all the answers. In that sense, it reads as a somewhat surprising appeal to Mr Norman’s political opponents in the Labour Party to let go of their fixation on bigger government as the only solution to social problems. It is in this appeal for a new political debate in which left versus right means more than arguing for bigger versus smaller government that Mr Norman has written a prescient and powerful book.
“The Networked Non-Profit,” by Beth Kanter and Allison Fine. How does the rise of social media change philanthropy? In this extremely useful practical guide, Ms Kanter and Ms Fine highlight the opportunities and challenges, and show how social media can greatly increase the overall effectiveness of giving and other engines of social change. Full of well-chosen examples – though, oddly, it ignores two of our favourite philanthrocapitalistic users of social media, Kiva and DonorsChoose (but you can read about them in “Philanthrocapitalism”).
“Big Business, Big Responsibilities. From Villains to Visionaries: How Companies Are Tackling the World’s Greatest Challenges,” by Andy Wales, Matthew Gorman and Dustan Hope. A fascinating view from inside some big multinationals about the forces that are changing how companies relate to society. The authors argue that success for firms depends increasingly on them actively engaging in tackling some of the big problems facing society, rather than standing on the sidelines or opposing progress. Contains lots of interesting case studies, including some especially useful ones of how firms can partner effectively with non-profits/NGOs.
“Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream,” by Arianna Huffington. Full of passion and telling examples, the founder of The Huffington Post has written a powerful warning that America is in danger of going down the tubes, with the majority of ordinary Americans faced with becoming increasingly marginalised and impoverished. One part of the answer, she argues, is to explore “how this moment of crisis for capitalism and philanthropy could be used to transform both – how capitalism could be imbued with a social mission, and philanthropy could be reinvigorated with the best practices of capitalism.” To learn more, watch Matthew’s interview with her for “Tea With The Economist.”
Tags: Ashoka, Big Society, Bill Drayton, Bill Shore, Conservative Party, David Bornstein, David Cameron, Jesse Norman, malaria, social entrepreneurship, Susan Davis
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December 14th, 2010
2010 has been a good year for books touching on philanthrocapitalism. In no particular order, here are the first five of our favourites (not including our own “The Road From Ruin“), with more to follow in later posts:
“The Power of Social Innovation“, by Stephen Goldsmith. This is a terrific look at some of the best examples of trying to take the ideas of social innovation to the scale at which they can make a huge positive difference – particularly to the effectiveness of government. Mr Goldsmith, one of America’s most innovative mayors in the 1990s and now an equally innovative deputy mayor of New York City, writes with the eye for detail and understanding of potential pitfalls of the experienced practitioner, yet covers a vast amount of ground and academic literature, mostly American but also British. Writing in The Economist, Matthew said that this book is “a sort of bible of social innovation, full of examples of social entrepreneurs’ successes.”
“Life Is what You Make It: Find Your Own Path to Fulfillment,” by Peter Buffett. What is it like to be the son of Warren Buffett? Would being a member of what your famous father calls the “lucky sperm club” screw you up? Peter Buffett, who soon rejected a career in finance in favour of his passion for playing rock music, has written a candid, highly-readable and autobiographical examination of the pressures and opportunities that follow from being born into a wealthy family. Now an active philanthropist, with $1 billion of his dad’s money, Mr Buffett is honest about the difficulties he has faced, yet offers plenty of encouragement through his tale of self-discovery. Needless to say, this book is finding an enthusiastic readership amongst the children of the wealthy, but you don’t have to be rich to find something valuable in it.
“Zilch: The Power of Zero In Business,” by Nancy Lublin. Too often non-profits are told to learn from business; in this lively, insightful and humorous book, Ms Lublin, the Chief Old Person at DoSomething.org, tells business what it can learn from non-profits, not least about how to thrive with virtually no money. This is a great guide to the best practice of some of the best non-profits, delivered with Ms Lublin’s unique brand of inspirational provocation. To get a taste of this great book, watch her interview with Matthew and read his review in The Economist.
“Power in Numbers: UNITAID, Innovative Financing, and the Quest for Massive Good”, by Daniel Altman and Philippe Douste-Blazy. In the past few years, philanthrocapitalists have come up with some innovative ways of tapping new sources of capital to address some of the world’s toughest problems. Mr Altman, now the Director of Thought Leadership at Dalberg Global Development Advisors, and Mr Douste-Blazy, special advisor to the UN Secretary General on innovative financing for development, have written a thoughtful and accessible overview of the trends and issues that, if a bit too uncritical of Mr Douste-Blazy’s beloved UNITAID, is well worth reading. There is no other book we can think of that comes close to the breadth of its coverage of this topic – yet it is nice and short, too!
“The World That Changes The World: How Philanthropy, Innovation and Entrepreneurship Are Transforming the Social Ecosystem,” by Willie Cheng and Sharifah Mohamed. This is an excellent collection of essays by 21 authors (including John Elkington, Geoff Mulgan, Kumi Naidoo and Jed Emerson) that is bang up to date in its description of the current players and connections that comprise the “social ecosystem” of philanthrocapitalism. The latest publication orchestrated by Mr Cheng, a Singapore-based business man and social entrepreneur, this is a great starting point (after reading “Philanthrocapitalism“, of course), for anyone wanting a theoretical framework in which to think about the future of social change.
Tags: Dalberg Global Development Advisors, Daniel Altman, DoSomething.org, Geoff Mulgan, Jed Emerson, John Elkington, Kumi Naidoo, Nancy Lublin, New York City, Novo Foundation, Peter Buffett, Philippe Douste-Blazy, Sharifah Mohamed, Social Innovation, Stephen Goldsmith, UNITAID, Warren Buffett, Willie Cheng, Zilch
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December 10th, 2010
Cynicism abounded in September when Mark Zuckerberg, the co-founder of Facebook, announced a $100m donation to improve education in Newark just in time for the launch of The Social Network, a movie about the networking website that does its best to portray him as a money-obsessed double-crosser. Whilst there is a long tradition of the wealthy using philanthropy to repair a battered reputation, this gift, trumpeted on the Oprah Winfrey show, seemed particularly blatant, said the sceptics.
Undeterred, Mr Zuckerberg has now declared his intention to take his philanthropy to an entirely different level, promising to give away at least half his wealth (currently estimated at well over $5 bill
