The newly published annual billionaires list in Forbes magazine confirms the first of those predictions. The super-rich are bouncing back faster than the global economy – the world’s billionaire count has jumped from 783 in 2009 to 1,011 now. The philanthrocapitalists have also continued giving, as demonstrated not least by Bill Gates’s recent $10 billion pledge at Davos.

The big “news” from this year’s Forbes list, however, is that the richest person in the world today is neither Bill Gates (number one on the list for most of the past decade) nor Warren Buffett (his partner in philanthropy, who once knocked Gates off the top slot) but the Mexican telecoms tycoon Carlos Slim. This is not such a huge surprise, since Slim has been catching up with Gates and Buffett over the past few years – though given the fact that estimating the wealth of the superrich is more art than science and Forbes found less than a 1% difference between the fortunes of Slim and Gates, it may be no coincidence that the magazine’s choice as top dog happened to be the one likeliest to generate the most headlines. (How boring if Gates had been the richest yet again.)

That said, the Forbes ranking provides a great opportunity to test the new number one against the ‘good billionaire guide’ that we set out in the book.

The first rule for a good billionaire is to earn your money fairly in competitive markets (some think that Gates falls foul of that rule since Microsoft has had a few run-ins with the antitrust authorities, although one could argue that since Microsoft was forced to pay some substantial fines as a result it has paid its dues ). Critics have certainly slammed Slim for his iron grip on the Mexican telecoms markets, which he won when they were privatised (his BBC biography says that he controls 90% of the country’s landlines).

The second rule is the billionaires should pay their taxes. We do not have any evidence to go on with this one. Mexico is known as the major economy with the lowest rate of tax revenues relative to GDP. But we have no information regarding Slim’s own contributions, and whether he bucks that trend. If you know, please do tell us.

The third rule is that billionaires should be disproportionately generous, to reflect their substantial wealth, and the fourth, that they should be thoughtful about giving in a way that maximises its positive impact. The good news is that when we wrote the book, Slim had just pledged to give away $10 billion, which is not Gates-like or Buffett-like generosity, but is a decent showing. He has also appeared alongside Shakira as a show of support for her philanthropic work in Latin America, to which he has given an unspecified amount of money (almost certainly small change to him). However, we have heard very little about his philanthropy since. It may be that Slim is giving it away in secret but, on the whole, we think that well-known philanthrocapitalists should be talking about their giving – to encourage others and to be transparent.

Slim has certainly spoken sceptically about philanthropy in the past and has argued that “poverty is not fought with donations, charity or even public spending, but that you fight it with health, education and jobs.” This argument seems rather feeble to us. Yes, investing his money can create jobs and wealth but that’s not the whole answer to the world’s ills – his philanthropy could have a massive impact on poverty.

Our advice Carlos, for what it’s worth, is to give giving a chance. In fact, we even predicted you would in our start of the year forecast for philanthrocapitalism in 2010. If you’re too busy for now making money then why not let someone else spend it, say by matching the Gates donation for vaccines, or, perhaps even better, adding to the endowment of some other foundations working in global health to create a bit of competition for Gates. Go on, you might even enjoy it.

“Investing in new vaccines against malaria is great, but there’s no vaccine against poverty, inequality, violence or corruption,” Michael complains. He bemoans the focus on the easiest, most immediate problems. Instead he wants to “pour the generosity of the rich and famous into national development funds under democratic control.” (As well as backing the fundamentally flawed Robin Hood Tax).

This is all good, crowd-pleasing stuff for Michael’s supporters who don’t like capitalism but it is inaccurate and empty. Inaccurate, because philanthrocapitalists are working not just on vaccines but also on the fundamental issues of citizen empowerment, democracy, transparency, accountability, peace-building and anti-corruption that are so dear to his heart. (He even approvingly cites a report from the Center for Global Development, which relies heavily on funding from philanthrocapitalists, including its co-founder Ed Scott, who also partnered with Bill Gates and George Soros to seed-finance Bono’s campaigning organisation.) Empty, because he fails to acknowledge the flaws in the government and NGO-led aid model that he champions – the system that has manifestly failed over the last fifty years.

Tackling poverty needs more than warm words about the importance of civil society. It needs innovation and implementation. We are optimistic about philanthrocapitalism (which, in contrast to Michael’s caricature of it as all about the rich and business, is often manifested in partnerships betwen the wealthy, government, business and social entrpreneurs and non-profits) because we think it can deliver in those areas, bringing new ideas, testing them, and making them work in a way that has not been possible in the past. Philanthrocapitalism needs challenge to succeed, but that challenge should be based on evidence not tired old polemics.

Michael likes to describe philanthrocapitalism as “Just Another Emperor” sporting non-existent new clothes, but increasingly the evidence suggests it is he who is naked.

The conference, with the theme of “Redefining Service for the 21st Century”, featured numerous panel discussions plus keynotes by Kiva’s Premal Shah; Goodwill Ambassador Lia Kebede; Sonal Shah, the head of the White House Office of Social Innovation; and (in conversation with Matthew) pioneering philanthrocapitalist, and now special UN envoy on malaria, Ray Chambers, who said that the world is on track to have “zero deaths from malaria by 2015″ – which, if it comes to pass, will be truly amazing. The conference was extremely well attended: encouragingly, MBA students show no sign of losing their enthusiasm for social entrepreneurship.

It was good to see news recognised as a good that social entrepreneurs ought to be involved in providing. The three were a full-on for-profit entity, Politico; one, Global Post, that hopes one day to be profitable, but has been seed financed to the tune of $9m by investors who are believed to understand that they may never see a financial return on their money; and ProPublica, an investigative journalism organisation launched in 2008 and philanthropically funded by Herbert and Marion Sandler (whose fortune came from selling sub-prime mortgages, among other things -which they got out of just before the market crashed).

All three media outlets say they are doing well. According to Philip Balboni, a veteran journalist who launched Global Post in January 2009, there was initially lots of scepticism about the potential for an online publication dedicated to international news. A Harvard Business School professor, no less, predicted the Global Post would fail because ‘Americans don’t care about international news’. So far, he told the students, it has had 4m unique visitors, from 232 countries, and now has around 750,000 unique visitors a month. Balboni says he expects to be getting 1m unique visitors a month by the end of this year, on track for his goal of 2m-3m within a ‘few years’. As for the goal of profitability, it has struck partnerships with old media organisations such as CBS, PBS and the Times of India, syndicates its content to 30 other publications, and has received advertsing dollars from companies including Siemens, Bank of America, Liberty Mutual, Intel, Verizon and Singapore Airlines. Around 70% of its revenues are from advertising, and nearly 30% from syndication – with so far only a modest contribution from readers signing up to pay (though a relaunch of the membership strategy in April is intended to improve on this by offering unnamed special benefits to loyal readers). Balboni is hopeful that Global Post will be profitable by 2012.

Politico is already more or less profitable, Frerking acknowledged, thanks to its constant supply of political information, significant and trivial, to Washington DC insiders and those obsessed with what they are up to. In three years since it was launched by an established media holding company, its website has grown to 3.5m unique visitors a month, according to Nielson (and 7m-8m according to its own internal estimates), and its staff has grown from 50 to around 120. Intriguingly, given all the talk that ‘print is dead’, Politico prints and gives away within DC 35,000 copies of a tabloid version of its content every day that Congress is in session; this print edition accounts for around 60% of its revenues, thanks to what Frerking calls “advocacy advertising” (including full pages from Goldman Sachs, health insurers and so forth).

ProPublica, which we write about in the book, also claims to be making progress in its mission to fill a growing gap in investigative reporting caused by the increasingly difficult economics of the news business. Investigative journalism is expensive per story, and risky – in that the story may never be delivered. According to managing editor Stephen Engelberg, there have been a growing number of articles that deliver on its mission of generating “stories that create change”. One notable success has been uncovering a scandal over shooting by the New Orleans police in the aftermath of Hurricane Katrina. As yet, however, no revenue stream has been found, so ProPublica remains reliant on philanthropy, and is busily trying to find other donors to reduce its dependence on the Sandlers.

The difficulties of the news business has prompted growing talk that philanthropy or even government subsidy will be needed to ensure that society is properly informed. Watching how these three new organisations fare in the next few years – and all of the panelists are optimistic that ultimately a viable method of charging for content will be found – will provide important evidence on whether social entrepreneurs can come up with business models for news that work, whether they will be self-sustaining or if philanthropy will be needed – and if it is, whether that giving will be forthcoming. This week’s scoop? Some optimism may be in order.

Certainly, the idea is elegantly simple: a small 0.05% tax on the banks’ speculative shifting of capital around the world will free up huge sums of money for the fight against poverty and climate change. And the only people who will have to pay will be the banks – which will thus be unable to pay their employees such obscenely large bonuses. What’s not to love? It’s like free money, only better, given the added feel-good element of banker bashing! No wonder people are signing up in droves – a poll on the campaign website says that supporters outnumber opponents ten to one.

The campaign for the Robin Hood Tax reunites the dream team that successfully bullied the G8 into big aid pledges in 2005 – Bono’s lobbying organisation, One, the British Government (which first tried floating the tax idea to the G20, which was unenthusiastic, before turning to lobbying), with endorsements from philanthrocapitalists such as Warren Buffett and George Soros.

Yet, a ’tiny’ tax that yields such huge sums sounds suspiciously like turning lead into gold, or some other fiscal alchemy.

So who will actually pick up the bill for this new tax? The banks, say the campaigners, by eating into their profits. ‘Good’, we hear you say. Except that the banks, in all probability, will just pass the costs on to consumers, so we will pay the tax, not the banks. And, on the other hand, if profits did fall, that would hit bank shareholders, who include many ordinary citizens, through their (already diminished) pension funds.

The tax would also make it more expensive for banks to move money around. Again, a good thing, you might think: when the idea for this tax was first floated in the 1970s by the Nobel Prize winning economist James Tobin, he saw it less as a fundraising tool and more as a way to ‘throw sand in the wheels’ of financial speculation. That is why Joseph Stiglitz, another Nobel Prize winning economist is supporting the tax. Yet no evidence is presented by the Robin Hood advocates that their tax will make the financial system safer and, while it is faddish to see flows of capital as merely negative speculation, there is a decent case to be made that the free movement of capital is an essential part of the global economy. Taxing these transactions, without clear evidence that it can be done safely, risks throwing sand in the wheels of global prosperity, which would be bad for all of us, especially those on the fringes of the financial system – the poor. The potential risks and costs need to be debated properly, not wished away.

The One/Make Poverty History campaign of 2005 was, as we describe in the book, a great example of high-leverage philanthropy, as philanthrocapitalists allied themselves with celanthropists and activist campaigning groups to champion more public spending on aid. In doing so, it gave ordinary people an opportunity show that they wanted more of their taxes spent on helping the poor (and, by extension, less on other things like schools, roads and guns). It improved the public decision making process. The Robin Hood campaign, by contrast, is encouraging people to vote for a free lunch - the one thing that economics has proved does not exist. Not complicated. Not brilliant. Not honest.

This is one of the central themes in our new book The Road from Ruin, which has just been published in America. In it we set out an agenda to build a more stable and sustainable capitalism than the one that collapsed so spectacularly in September 2008. As well as reform of the financial system and the architecture of global governance, we argue that building a better capitalism demands more fundamental changes in how we run businesses. (You can read the introduction to the book here.)

Before the crisis, there was a widely-held assumption that chasing ever-increasing quarterly profits was the best way for business to serve shareholders and society as a whole. The crisis proved this to be false. Business leaders need to think more about the long term. They need to recognise that capitalism does not exist in a vacuum – it cannot survive if our societies are unhealthy and our environment is unsustainable.

In one chapter, ‘The Age of Philanthrocapitalism’, we look at reforms to corporate governance, executive values, pension fund strategies, and even the way we measure success, that would together help build a better capitalism. ”Today it is easy to be cynical about capitalism”, we write. “Nevertheless, over the past decade, for every blinkered banker chasing short-term profit, there has probably been a social entrepreneur, an ethical investor, or a philanthropist trying to find a more sustainable way of making money. If business leaders, shareholders, and consumers want a better capitalism, now may be the best time to remake the system.”

He turned up at a dinner discussion, moderated by Matthew, for many of the leading figures in the campaign to eradicate malaria, including the head of the Global Fund, Jeffrey Sachs – the economic guru behind the Millennium Development Goals, Bob Orr – an assistant secretary general of the United Nations - the head of the London office of the Bill & Melinda Gates Foundation, Jimmy Wales – the founder of Wikipedia – Jamie Drummond – a co-founder of Bono’s campaigning organisation One - as well as French former soccer star Emmanuel Petit.

Cameron’s appearance was brief but emphatic. He said that however financially broke Britain is, his government would honour its pledge to allocate 0.7% of GDP to international aid. Malaria is particularly important, as it is a disease against which massive progress can be made over the next 3-5 years. It is crucial that this progress happens, said Cameron, so that it can be used to prove to the British public that, particularly on health, aid works.

He left to loud applause. Sachs promptly said that he believed Cameron – who had told him the same thing two years before. The consensus in the room was that the Conservative leader was being sincere. Certainly, if he is not, he picked a particular bad audience to lie to. On the other hand, his willingness to be so unequivocal in making what he called ‘one of our few clear cut proposals on anything’ before such a powerful group may earn him some influential public support from people who would not seem to be natural Conservative sympathisers. Interesting.

The challenge is enormous. Haiti is an isolated outpost of sub-Saharan-style poverty in the Caribbean – it ranked just above Sudan in the United Nation’s ranking of ‘human development’ last year – and has had a long history of political instability and social unrest that persistent interventions by the United States and United Nations have barely kept a lid on. There have also been many pledges to rescue Haiti in the past, which have come to nothing.

There are, however, some grounds for optimism. In mid-2009 Haiti finally benefitted from a World Bank-led debt reduction deal. Preferential access to the US market offers the potential to build an economy based on trade with North America. A development strategy led by the Clinton Global Initiative, according to former President Clinton, was going well before the earthquake, and is a reason to hope, he says. And then there are all the pledges of further aid that are coming. There is also likely to be an unprecedented high-level leadership coalition on Haiti bringing under one umbrella the World Economic Forum, the Clinton Global Initiative and the United Nations. The challenge in each case is making it work.

State-building has been one of the hot topics in development in recent years. The British economist Paul Collier, in particular, has popularised the idea that the bottom billion of the world’s poor would benefit most from being freed from civil war and dictatorship. Collier has argued, and been criticised for, championing strong intervention, with military force if necessary, by the governments of the rich world to fix the problems of ‘failed states’. It is in the spirit of Collier that some voices have called for a temporary protectorship for Haiti – with the Economist championing putting Bill Clinton in charge, to be succeeded within a year by Brazilian president Lula – to get reconstruction going quickly unshackled by Haitian politics. Clinton says he would only run such an effort in partnership with a local Haitian leader, such as the prime minister.

Security and stability for the people of Haiti should certainly be a priority. Yet the track record of international protectorates after crises has not been great - in Bosnia and Kosovo as much as in Iraq and Afghanistan. The aid industry has burned a lot of money in these countries for few returns, with much of the assistance leaking out in bureaucracy, corruption and lavish payments to western consultants and contractors.

One way to break the cycle of expensive aid stagnation would be for a massive effort from philanthropcapitalists in the area they know best – wealth creation. Could a Marshall Plan led by the Bill & Melinda Gates Foundation (to apply its thinking around agiculture and supply chains), backed by multinationals such as Coca-Cola, Wal-Mart and Nike, kick start the Haitian economy and tackle chronic food shortages? Then add to that a grand coalition of Omidyar Networks, Grameen, Endeavor and others to promote enterprise – and maybe Haiti could start to work its way out of poverty.

Mass philanthrocapitalism could also be harnessed to get ordinary donations working harder. Kiva and GlobalGiving will surely operate in Haiti, so why not also a donorschoose for schools in Haiti? Could this type of platform help to lever the contribution of one of Haiti’s biggest exports – its people? The Haitian diaspora remits more than $1 billion back home each year. So why not create a network of Mexican-style hometown associations to get some of that money working to build schools, hospitals and bridges? Slice off a piece of the official aid budget to match those contributions and use a donorschoose or Kiva style of interface to connect people to what they are funding and we might get something interesting.

An even more radical idea would be to take up Paul Romer’s idea of charter cities, that might be run by experienced leaders from abroad and compete to be the most successful places to live. The mind boggles (not entirely positively) at the thought of breaking Haiti into a number of charter protectorates and letting competition rip between different leaders – Bill Clinton could take one, Tony Blair another, one perhaps to the former President of Mozambique Joaquim Chissano. And why restrict it to former leaders of countries? Maybe Bill Gates and Muhammad Yunus could be tempted into government for a while? Or might Michael Bloomberg run New York and Port-au-Prince at the same time?

Moving on from the world of fantasy, there is a germ of an idea here – rather than putting recontruction into the hands of bureaucratic planners from the United Nations or the World Bank, why not have some competition? 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.

We argue in the book that philanthrocapitalists need to be transparent about their work if they are to be legitimate. Gates has come in for a lot more challenge and criticism in the last year – some in the global health sphere still think he is too focused on technology and his work on education reform in America is drawing fire from teaching unions – so this is a welcome response.

The messages of the letter were clear. Gates celebrates the potential of philanthropy to drive innovation by backing high-risk initiatives that might take 15 years to come to fruition, from an anti-malaria vaccine to a new framework for assessing teachers’ performance. He also dedicates a long section of the letter to “Rich Countries’ Aid Generosity”. Despite being the world’s biggest private donor, Gates’ philosophy is very much that he will only succeed if his giving can lever the much larger sums available to governments. In his letter he throws his weight behind President Obama’s plan to double America’s aid, while blasting Italy as “uniquely stingy” and expressing “huge disappointment” that Italian Prime Minister Sergio Berlusconi turned down his personal appeal for more aid spending.

The big gap in the letter, as Matthew explains in an article for The Economist, is the lack of discussion (except on aid) of the political obstacles confronting his work. For next year’s letter, perhaps?

The party policy wonks are working on their proposals at the moment, which will be presented to the nation as their parties’ manifestos. Yet none of the parties has really embraced philanthrocapitalism as part of the solution to the nation’s and the world’s problems. That’s why we have produced our own manifesto setting out our blueprint for philanthrocapitalism to change public services and British society for the better. We are not running for elected office. This is not a partisan document. Indeed, philanthrocapitalism is not a partisan issue. It is an opportunity that Britain’s leaders should be seizing. That’s why we are asking you, our readers to go to our Facebook site and ‘like’ this post to show your support. And if you don’t like what we say, leave us a comment. These are important issues that Britain needs to debate – help us to put philanthrocapitalism on the politicians’ agenda.

THE PHILANTHROCAPITALIST MANIFESTO 

By May of this year one of our political leaders is going to have to do radical surgery on our public services. The last decade has been a gilded era for the government sector as a raft of public spending commitments from health and education to international development have been hailed as the solution to social problems. But those times are over.

Even awash with money, government has struggled to address deep-rooted challenges like child poverty and violent crime. In today’s post-crisis fiscal wasteland spending more is simply not an option. Yet nor is abandoning the young, the poor, the elderly and the vulnerable. Britain needs to find new, more effective ways to tackle the social challenges of the 21^st century.

Britain has a rich charitable and philanthropic tradition and continues to lead the world in many areas of voluntary action. All the major political parties acknowledge that the voluntary and charitable sector has a crucial role to play in finding solutions to social problems. But we should not be complacent. While there is much good in the charity sector, there is also much need for change in the way many charities are funded and managed. This is where our politicians and voluntary sector champions need to show leadership in proportion to the crisis our country now faces. So far, no one has come up with a comprehensive plan to reform the voluntary sector and use philanthropy and the power of business to remake the way our country is run.

Thirty years of market reform has been good for Britain’s rich and our society has become more unequal. Yet populist bashing of the rich is a blind alley. Instead we need to rewrite the social contract between the rich and the rest. The winners of capitalism have a responsibility to the rest of society, not just to pay their taxes but to give back with their money and their skills. By doing so, they can be a dynamic, entrepreneurial source of innovation in our society and so build a more sustainable environment for wealth creation.

The corporate world, too, is starting to realise that business can ‘do well by doing good’. The financial crisis has demonstrated that narrow-minded focus on short-term profits is bad for shareholders as well as society. Business needs to take a longer-term perspective on success, recognising that capitalism will only thrive if it sustains the society and the environment in which it operates. Before the crisis, some corporate leaders had started to lead the way towards a more responsible capitalism. After the crisis, the need is more pressing than ever.

No sector is under more scrutiny than finance. The crisis has given momentum to new thinking which says that finance should seek out social and environmental rewards, as well as profits. This social investment movement is gathering pace among mainstream as well as explicitly ethical investors, which opens up the possibility of levering the massive resources of the capital markets to do good.

We are also at the dawn of an era of mass philanthrocapitalism. In the same way that the internet has transformed the way we shop and the way we do business, it is starting to revolutionise the way we give. Kiva.org, Globalgiving, Donorschoose and Facebook Causes are taking the giving world by storm because they give even small donors the chance to see how their money is being used.

Britain’s economic crisis is an opportunity to take this movement further, to encourage more giving and to use philanthropy and social entrepreneurship to reinvent our public services. Adjustments to the tax incentives for giving may help at the margin but what Britain really needs is leadership to shift the way we think about the roles of public and private actors in social innovation.

This philanthrocapitalism revolution has already started in America. The Obama Administration and pioneering local politicians, like Mayor Michael Bloomberg in New York, have started to pilot new ways for government and philanthropy to work in partnership. Britain needs to follow their lead.

Philanthrocapitalism is not a party-political issue. It is an opportunity to create a new partnership of philanthropists, businesses and social entrepreneurs with government to build a better Britain for the 21^st Century. This manifesto sets out a plan to achieve three goals: more giving; more social investment; better philanthropy. We call on government, business leaders, the voluntary sector and donors to adopt this programme.

More Giving

The decision to give is a private one yet government can encourage giving with incentives and leadership. Similarly, corporate leaders can make giving a core value of their companies and an integral part of our business culture. Over the past 25 years successive governments have put in place measures to improve the tax incentives for giving. There are some useful changes that could be made at the margins to encourage philanthropy, such as charitable remainder trusts, or, more importantly, to streamline the unnecessarily bureaucratic Gift Aid process  – persistently low levels of take-up show this is broken. We need more active incentives for philanthropy.

Government funding to voluntary organisations has doubled under this Government to more than £10 billion a year, making much of the voluntary sector dependent on government grants and contracts. In these difficult economic times government should be looking for new funding mechanisms that crowd in rather than crowd out voluntary contributions. Early evidence suggests that “match funding” for universities, where the government tops up private gifts, has started to draw new donations to a sector that is crying out for resources and reform in equal measure. Match funding would be a way for government to encourage giving and direct those gifts towards issues where public expenditure cuts are likely to be the most severe and where philanthropic capital would add the most value, such as higher education, the arts and international development. A proportion of all government spending should be earmarked for match-funding partnerships with philanthropists.

Match funding is also a mechanism for stimulating giving from the wider public and as a way to democratise the way government and the lottery channel money to charities. We recommend that these match funds should be targeted on stimulating online giving in the UK through sites like Globalgiving, Localgiving, Kiva, the Big Give as well as new entrants to the market. 10% of all lottery funding and 1% of government funding for the voluntary sector should be ring-fenced for matching donations through online giving sites.

Giving rightly enjoys generous tax benefits yet these benefits should come with a responsibility to serve the public interest. At present, charitable foundations have considerable latitude in how much of their endowment they pay out each year and how they invest their money. For forty years American foundations have been required to pay out at least 5% of their assets each year to ensure that the taxpayers today who are subsidising giving get something back, rather than allowing those benefits to accrue to future taxpayers. The payout rule also encourages foundations to adopt less conservative investment strategies to grow their endowments faster, so they have more to give. Few British foundations pay out 5% of their assets each year. Some pay out practically nothing. Philanthropic foundations need to work harder for the public good, so should be required to pay out at least 5% of their assets each year.

Business is responsible for about 5% of charitable giving in Britain. We think it could do more, even though the recession is putting pressure on corporate philanthropy budgets. Enlightened businesses understand that giving back is not a cost to their PR budget line but an investment in the long-term sustainability of their business. Now is a moment for our business leaders to step up and show the way by getting more companies to give. We call on the CBI to make it a norm for British businesses to give 1% of profits to charity.

Business can also promote giving by putting more effort into payroll giving, which is an easy way for workers to take advantage of the tax subsidy to giving. Only 3% of British workers participate in payroll giving schemes, compared to 35% of American workers,and little more than £100 million goes through this mechanism. Business should be taking the lead in extending this scheme to all PAYE taxpayers and promoting giving to their employees with incentives like match funding. We call on business to ensure that all employees can participate in a payroll giving scheme and to commit to a target of trebling payroll giving in the next three years.

Giving is not just about money but also time and skills. The charity sector is crying out for trustees and advisers with managerial and financial skills. Initiatives such as Pro Bono Economics, which matches trained economists with charities that need help to measure the impact of their projects, are a welcome start. Opportunities to give back in this way are also becoming an increasingly important part of recruitment and retention strategies for companies. Government should do more to encourage this type of high-impact volunteering by offering tax incentives to companies that offer 1% of their employees’ time for voluntary work. Retired workers also have valuable skills that they could give back, and firms could do more to encourage and help them to do so. Pass a Serve Britain Act to incentivise volunteering, particularly among the highly skilled and experienced.

More Social Investment

We applaud the government for launching the Social Investment Task Force that reported in 2000. The major parties have rightly committed to the establishment of a Social Investment Bank using unclaimed bank deposits and we welcome the commitment in the pre-budget statement to pilot the Social Impact Bond, that improve greatly on existing private finance initiatives by incentivising improved social outcomes rather than merely lower costs. We urge government to accelerate the implementation of these initiatives and widen the pilot programme for Social Impact Bonds.

So far much of the work on social investment has focused on debt instruments. We now need to think about building a market for social equity risk capital as well. We call on the government to reconvene the Social Investment Task Force with a remit to make proposals to develop a social equity market, including a Social Stock Exchange.

The 2000 Social Investment Task Force focused on domestic investment in social progress. There are even greater opportunities to harness the capital markets in the fight against poverty and disease overseas and climate change, where public funding will be constrained in future years. The Commonwealth Development Corporation (CDC) is still too risk averse, focusing on projects with financial returns rather than high-impact social and environmental investments, and has failed to innovate.  Private firms and philanthropies, by contrast, have moved ahead with initiatives like the Global Impact Investing Network and the Aspen Network for Development Enterprise. It is time for government to catch up. We call on government to establish a Development Investment Task Force to explore the potential of this market and identify concrete initiatives that government can support through CDC or other mechanisms.

Foundations should be leading the social investment movement through active ‘mission-related investment’ of their endowments. A few, such as the Tudor Trust and Esmee Fairbairn Foundation, are leading the way but most foundations still think of their endowments as a source of investment income to fund grantmaking rather than a strategic asset that can be used for social benefit. American foundations like FB Heron are showing the way. The Charity Commission should be doing more to change foundation thinking, through its guidance on best practice (CC14). The proposed 5% payout rule for foundations could also be structured to give credit for social investments to encourage the use of endowments as a pool of social investment capital. We call on the government to use tax and other incentives to promote mission-related investment by foundations.

But this is just a start. The financial crisis is an opportunity for the mainstream financial sector – and pension funds, in particular – to do a better job of investing for long term value, as well as to show that it understands its wider responsibilities to society. We look to pension funds, which should be the long-term investors in our society thinking about the impact of their decisions on the shape of the world in 20 or 30 years time, to lead the social investment movement in the financial sector. We call on the major pension funds to show their commitment to long term thinking by signing up to the Global Impact Investment Network and supporting its work to develop agreed reporting standards on social investments.

We urge government and business to take this opportunity to make Britain’s financial sector a world leader in social investment.

Better Giving

Giving cannot and should not simply replace public funding, it should add value as ‘social risk capital’ free from the constraints on public expenditure. Government’s biggest problem when it comes to social innovation is risk aversion. Ministers and civil servants will not take on innovative initiatives which could be ridiculed in the popular press and where there is a risk of failure that could result in a critical grilling by the Public Accounts Committee. From education to counter-terrorism, government programmes will tend to play it safe. Nor are there any prizes for long term thinking beyond the three year public spending horizon. These problems are fundamental to government and cannot be fixed by yet another public service delivery reform initiative.

Rather, we should look to private initiative and social enterprise to test and pilot new ideas about how to tackle social problems, which government can take to scale once proven. This has been a central pillar of Michael Bloomberg’s time in office in New York. He has used philanthropic capital to fund initiatives that would not get through City Hall, which, once proven to be effective, are now financed from the public budget. To adopt this model in Britain, each government department should be required to identify key policy and delivery areas where it is looking for solutions and build a partnership with philanthropists and social investors to test new ideas in these areas.

Government’s commitment to take these ideas to scale, if proven to be successful, should be an incentive for donors to step up. It will also be a challenge to philanthropists and social entrepreneurs to look for transformational initiatives, rather than creating isolated pockets of excellence that never reach scale. Government departments should be required to report on their partnership strategies as part of their Public Service Agreements with the Treasury.

This will require a substantially different way of working from government departments, which have largely used voluntary organisations as contractors to deliver public services, rather than an engine of innovation. The Office of the Third Sector, which leads on government’s relationship with the voluntary sector, has been captured by the vested interests of the sector and has failed to challenge conventional wisdoms or engage with philanthropy in a meaningful way. The Office of the Third Sector should be scrapped and replaced with an Office of Social Innovation (OSI) focused on outcomes across government rather than serving the interests of a sector.

Local government is ideally placed to build partnerships with local businesses and philanthropists, building on the emerging community foundation sector and working in partnership with the regional development agencies. The Mayor of London’s Charitable Fund is a welcome initiative in this area, using the convening power of a political leader to bring funders together to work coherently across different tiers of government. A proportion of funding for local government should be ring-fenced for match-funding with philanthropists and social investors. These funds should be allocated on a competitive basis, with bids assessed on the basis of expected impact and with a sliding scale of matching so that deprived communities are more likely to benefit.

Match funding programmes like these will remain a small proportion of total public funding to the voluntary sector. The mainstream government funding for the voluntary sector needs to change as well. There is too little accountability for what public money channelled through the voluntary sector achieves. Too often it is a matter of faith rather than fact that charities are effective in delivering services. The public, too, has little information about real impact to guide their charitable donations. For example, the Department for International Development (DFID) gives more than £100 million a year to a select group of partner charities, without much accountability for what that money achieves, masking a huge divergence in the charities’ performance. By strengthening and publishing its performance assessments, DFID would be providing a service to help the public know which charities run the best humanitarian programmes, the best development projects and the best policy work. Government should take a lead in creating evidence-based performance frameworks for public money spent through charities, with quality assurance by the Office of Social Innovation.

Making public funding for voluntary organisations more performance-oriented and improving the information available to the public about performance will help to drive an improvement in the effectiveness of the charitable sector. The Charity Commission is already taking on some of these performance challenges through its work on compliance with the public benefit test for charities and by improving charity reporting. Change needs to happen faster.

Those words, written by the great British economist Adam Smith, seem strikingly wide of the mark at the moment, as millions of people around the world respond with generosity to the terrible misfortune that has befallen the people of Haiti. Twitter and Facebook are churning with tips on how to give and to whom to give.  Governments, businesses and individuals the world over are all opening their wallets to help.

Although sometimes caricatured as a champion of selfishness for extolling the power of the ‘invisible hand’ of the market, Smith’s quote comes from his lesser-known work, The Theory of Moral Sentiments, in which he argued that it is our sympathy for others that motivates our good deeds. In the world without telephones and televisions that existed when he was writing, catastrophes on the other side of the world were abstract stories; today, we can see the suffering of others and do something about it. For that reason, Smith would not have been surprised by the way the public has responded to this latest crisis, and would have celebrated this as progress for humankind.

Smith would also have noted with pleasure that a massive earthquake in China in 2008 led to a dramatic change in attitudes to giving there, where the government had previously been hostile to philanthropy. Yet he might also have worried that the economy’s invisible heart led to philanthropic funds being misallocated by the surge of sympathy after high profile disasters, which often attract more money and in-kind gifts than can be used effectively on the ground, at the expense of less compelling but more effective uses of the donations.

In general, we are all better at responding to human suffering caused by dramatic, telegenic emergencies than to the much greater loss of life from ongoing hunger, disease and conflict. Charity fundraisers know that they need to grab the public’s heart with powerful images, so they tend to exploit these emergencies to raise more money. This raises a difficult question: does how our natural human sympathy works in this modern, multi-media age skew our moral compass?

There is a real danger of images of suffering becoming a sort of “poverty porn”, argues Ethiopia-based aid blogger Owen Barder in a recent post. His immediate target was child sponsorship, a particularly popular form of fundraising to help kids in developing countries. “Why should children be forced to write letters describing their lives in return for money to eat or have an education?” he demanded. Asking poor children to write letters to sponsors is, in Owen’s view, one of many examples of poverty porn, which demeans the beneficiaries and distracts donors from what really matters.

While Owen’s indignation is understandable, we think it is misplaced in its other-worldliness.  Rejecting emotional appeals for sympathy would probably mean less giving, rather than better giving. The real question for philanthrocapitalists – even at heartbreaking moments like today, as the pictures from Haiti move us to give – is how to ensure that appeals to the heart do good and don’t do harm.

At least in Haiti there is no question that the shocking images are real. In Victorian Britain there was great controversy when the child welfare pioneer Thomas Barnardo was forced to admit that his highly successful marketing images of children ‘before’ and ‘after’ they had entered his care were faked. We tell Barnardo’s story in the new chapter of the paperback edition of the book (which comes out in Britain this week) in our discussion of the mass philanthrocapitalism of online giving sites. The online microfinance site kiva.org has recently been under attack, in the same way as Barnardo was, for misleading its donors. This has largely been a storm in a teacup although it has helpfully forced Kiva to explain better what it does. Yet even with these changes, do Kiva and other online giving sites that connect donors to individual recipients cross the line into philanthroporn?

Kiva’s defence is probably the most straightforward. Even the most successful corporations in the rich world have to pitch for financing from banks, the bond market or the stock market. Kiva’s clients may be poor businesspeople in poor countries but they are businesspeople and pitching for money is part of business, so it is hard to see any abuse here.

Donorschoose is a more difficult case, since the beneficiaries of these online donations to classroom projects are American schoolchildren. In this case, however, feedback to the donor is required from the teacher who has bid for the money, not the pupils. True, donorschoose does have a facility for the children themselves to post messages to the donors and it is just about conceiveable that an unscrupulous teacher could force his pupils to produce degrading or obsequious messages. If that were the case, however, it is pretty likely that one of the kids or their parents would blow the whistle – that is the power of the internet.

Giving to development causes may be different because poor African children don’t have the same options to speak up for themselves as poor American children. Though this is starting to change. One of the leaders in mass philanthrocapitalism, globalgiving.org, has started to experiment with handing out phones with cameras to the communities that benefit from their projects. We are not there yet, but the truly exciting potential of online giving is the possibility of harnessing the spread of mobile phones in the developing world to allow the beneficiaries of charity to finally make themselves heard and start a conversation with donors about what works.

Effective giving needs the head and the heart. As all our hearts go out to the people of Haiti, we offer three thoughts about how to give. First, give money. This may sound obvious, but aid agencies are swamped at this time with offers of food, clothing and other goods. Even when these goods are needed, it is far more cost effective for charities to buy and ship exactly what they need than sorting out gifts in kind. Second, give it to an organisation with a track record of effective action. Thanks to the internet, it has never been easier to find out who those organisations are. Third, why not match fund what you have given to Haiti with a gift through kiva or globalgiving to someone suffering just as much, but less dramatically, elsewhere in the world?