However, what Steve Goldberg calls a “kerfuffle” has taken place over the alleged lack of transparency in grantmaking by SIF, alleged conflicts of interest and alleged favouritism shown to one grantee, New Profit Inc, a venture philanthropy that we feature in the book.

We decided to make this the subject of our second debate on Twitter, where Matthew goes by the alias @mattbish and Michael is @shepleygreen. (Our first debate was on profits and the poor.) This took place from 3-4pm Eastern time on August 25th. It was a lively debate, with 58 different contributors, including our friend Stephanie Strom, whose article in the New York Times introduced the kerfuffle to a global audience. You can read a transcript of the debate here – best done by skimming down the page, rather than concentrating too hard

These were the rules of engagement: Keep your comments to under 140 characters each. Always include the hashtag #SIFDEB (for social innovation fund debate). The hashtag allows people to follow the flow of debate without everyone having to retweet comments they refer to. If you respond to a particular person’s comment, start your tweet with re and the person’s twitter name: for instance, if you respond to a comment by @mattbish, start your tweet: Re @mattbish and end it with #SIFDEB. Other than that, please avoid personal abuse.

Do let us know if there are other topics you would like to debate on Twitter.

The first, by Kimberly O. Dennis, who runs the Searle Freedom Trust, takes a sideswipe at the Gates/Buffett Giving Pledge, worrying that the signatories are giving away too much money, since “the wealthy may help humanity more as businessmen and women than as philanthropists”. This is a line the Journal has run before. Three years ago, in fact, in an article by the Harvard economist  Robert Barro, which we discuss at some length in the concluding chapter of the book.

Dennis does make the important point that the idea of the rich ‘giving back’ can give the impression that they have taken something in the first place when, in fact, they have created wealth and jobs through their entrepreneurship. (A Marxist wouldn’t agree with her, of course – but you don’t have to be a Marxist to acknowledge that at least some billionaires around the world have made their money not by creating wealth but by expropriating it, through running exploitative monopolies or ripping off the public by acquiring assets on the cheap in dodgy privatisations.)

One weakness in the Dennis/Barro argument is that they think there is a contradiction between giving money away and wealth creation. That’s not how Warren Buffett sees it – as he approaches his eightieth birthday he is as focused as ever on making money. George Soros too told us how philanthropy cured his mid-life crisis and inspired him to make even more money. True, Bill Gates has stepped down from running Microsoft – but, as we report in the book, he felt that the time had come to give someone else a go at the helm of Microsoft and that his energies would be better engaged on new projects, philanthropic and otherwise. Maybe he, not a lobbyist or an academic economist, is the right person to judge in what activities he can achieve most with his time, energy and entrepreneurial gifts. (Dennis, in particular, should agree that nobody is more likely than Gates to know how to run his life and how to deploy his assets, given she runs an organisation with the mission to “promote individual freedom and economic liberty”.)

Another weakness in the argument against giving is the assumption that philanthrocapitalists will inevitably be less successful in improving the world through their philanthropy than they have been through their money-making. This is nothing more than defeatist thinking. As we describe in the book, the new generation of givers led by Gates and Buffett are applying many of the skills and strategies that they honed in business to their giving, and are starting to achieve some success. It is true that the failure rate in philanthropy is high – but, as Buffett points out, that is because the problems are often harder than those facing a business person such as himself, who he describes (perhaps with excessive modesty) as always going after the “low hanging fruit”. Our society stands to gain from the fact that our most successful business people are increasingly trying to put their skills and assets to work in tackling some of society’s biggest problems and it is premature, to say the least, to assume they are doomed to fail.

Nor do many of today’s philanthrocapitalists make the sharp distinction that Dennis does between making money and giving it away. Many of them are into making a buck while doing good. E-bay founder Pierre Omidyar has set up his philanthropic organisation Omidyar Network not as a traditional foundation but as a company that can apply the right kind of capital to the problem in hand – sometimes grants, sometime for-profit investments. He has already had some success in encouraging for-profit microfinance, falling out along the way with Muhammad Yunus, the Nobel prize-winning founder of the Grameen Bank. Others, including Gates, are also entering this growing “social investment” space – which rather than harming the process of wealth creation may actually lead to the discovery of better ways of wealth creation that will make capitalism more successful than ever.

Companies, too, are increasingly rethinking their engagement with society not out of charity but with a view to ‘doing well by doing good’ – although this too provokes the Journal’s ire. This time it is Aneel Karnani, a strategy professor at the University of Michigan, whose arguments are so confused that he has surely been advising that state’s car makers on strategy for the past 30 years. He has the cudgels out for the corporate philanthrocapitalists because “in most cases, doing what’s best for society means sacrificing profits”. 

Karnani believes there are two possible states of the world in which business operates – one in which markets are perfectly aligned with public interests, in which case corporate social responsibility is unnecessary; the other, in which the market is not aligned with public interests, in which either the drive to make profit will overwhelm any pressure to be socially responsible, or socially responsible behaviour will harm the paramount interests of shareholders. The only real solution, he says, is government regulation – though ultimately he doesn’t seem convinced that will work either, which leaves us, er, where, exactly? Still, the Wall Street Journal’s editors must really hate CSR if they are willing to give so much space to someone arguing (even half-heartedly) for more government regulation. The big surprise is they didn’t run our friend Chrystia Freeland’s recent article blaming the BP oil spill on CSR.

There are some grains of truth in Karnani’s article. There has been plenty of bad corporate philanthropy over the years. The phrase corporate social responsibility is certainly unattractive and clunky, not designed to excite the animal spirits as we would wish. But he, along with most of today’s critics of CSR, fails to engage with what is actually going on in leading firms in the name of CSR and, in particular, of doing well by doing good.

Above all, the description of a world stuck in two states, one of markets aligned with public interests the other not, is a fantasy. In reality, markets and their relation to public interests are constantly evolving – and the actions of companies play a crucial role (through the sort of products they introduce and through lobbying, for instance) in whether they evolve in a direction that serves the public interest or undermines it.

Much of the current focus on doing well by doing good is the result not of pressure from outside busybodies but of companies trying to figure out how to build flourishing markets in the developing countries where they hope to enjoy much of their future business growth and how to win the battle for talent in a world where workers are increasingly choosy about the ethics and mission of the firm they work for.

As we argue in our latest book, “The Road From Ruin”, the current economic crisis was caused not least by endemic short-termism in capitalism, whereby the leaders of many firms put short-term profit maximisation ahead of long-term profit maximisation. Our belief is that had they focused more on the long-term, they would have followed strategies that were much better for society and for their shareholders – who, let’s not forget, are all of us who live in society, as we collectively own many of these firms through our savings.

Corporate history is littered with companies who went for the fast buck and cut ethical corners – think of Nestle selling babymilk formula and Nike’s once-cruel supply chains – that cost their shareholders dear. (Both firms learnt the hard way that such social failures were bad for long-term shareholder value.) More of the sort of pressure on executives demanded by CSR to take off the quarterly profits blinkers and look at the wider picture would surely be a positive development in capitalism.

Karnani’s argument reminds us of the old joke about the economist who won’t pick up a $20 bill left on the sidewalk, reasoning that if it were a $20 bill someone else would have picked it up already. That jibe is made at the expense of economists who believe that markets are always efficient and that, therefore, there could never be a massive market crash. Oh dear. Yet the supporters of this idea have responded to the financial crisis by blaming all the problems on government meddling in markets rather than any imperfection on the part of the markets. This denialism now seems to have evolved into outright hostility to any suggestion that anything but capitalism red in tooth and claw is a perversion of the true faith, rather than constructive engagement with ideas designed to improve how capitalism works.

When Philanthrocapitalism came out, just as the markets crashed in September 2008, the Journal gave the book a very favourable review. In the aftermath of the biggest crisis of capitalism in more than half a century, hopefully philanthrocapitalism has not become a heresy for this influential pro-market newspaper.

Maybe this should be a model for all political memoir writers? After all, they are largely making money out of the public’s interest in how they performed their public duties (and if they really need to cash in on their experiences, they can do so in other ways through directorships, consultancies and speaking fees). Perhaps Mr Blair could make this the start of a political giving pledge to mirror that of Bill Gates and Warren Buffett in the business world – how could Prime Minister Cameron, or Mr Blair’s old chum former President Bush, refuse if asked to sign up to give away, say, at least half their book proceeds?

But why stop at politicians? As we write in the book, ex-leaders such as Messrs Blair and Clinton, are a subset of a category of philanthrocapitalists called “celanthropists”, whose fame is a key source of their ability to drive change. How about the rest of the celanthropists following Mr Blair’s example? Ludicrously well-paid sportsmen, like Britain’s footballers, pump out mind-numbingly tedious ghost-written memoirs for the Christmas market each year – how about turning at least a chunk of those earnings over to the public good? So too with those celebrities who do nothing except be a celebrity. Their giving, unlike Mr Blair’s, might actually be a smart piece of PR.

Public expenditure is going to have to fall, that’s inevitable. (For what it’s worth, we think that Cameron’s government plans to cut too quickly, responding to political rather than economic considerations. But that is a question of timing - sooner or later government in Britain, like other countries, is going to have to get smaller.) Polly does not seem to dispute that point, her challenge is that it is wrong, indeed hypocritical, for the pain to be inflicted on the charitable sector.

Read on, however, and there is the startling statistic that “the £35bn voluntary sector is 40% sustained by state support – more than in most countries”. If that’s the case, it’s pretty hard to see how the charity sector can avoid feeling some of the pain from public expenditure cuts. Nor does Polly ask whether that £14 billion or so is actually being well spent. Yes, she points to charities that are suffering from the cuts – but maybe that money is better spent elsewhere?

The fact that this question is probably unanswerable highlights the central problem – as New Philanthropy Capital has pointed out – we have very little idea about the impact of the billions of pounds that the government grants to the charity sector each year. Yes, there is a danger that slash and burn emergency budgeting means that good charities will suffer undeservedly but we cannot ignore the fact that government is probably going to have to spend less on the voluntary sector and look for better value for money.

As well as better measurement of charity impact, which will take time to feed through, we think that match funding initiatives by government have the potential to leverage more private giving – every scarce tax pound can work harder if it levers another pound of philanthropic giving. We don’t expect Polly to agree with us on this one. Her 2008 assault on the rich, Unjust Rewards (co-authored with David Walker), sneers at philanthropy and argues for more taxation as the route to social justice. This stance plays well with the followers of her column in The Guardian, many of whom work in the charity sector, but does not really help. Tax rates are shooting up already (Yes, Polly, we can hear you – it’s all the bankers fault, they are rich and some of them are even philanthropists – but massive tax hikes are as unlikely as they would be unhelpful to the economic recovery we need if we are to keep financing essential public services.) We need new thinking, not old bash-the-rich orthodoxy.

So how do we get private giving, which is also being hit by the recession, to fill the funding gap and drive a productivity miracle in the social sector?

This is a change that has already started. As we argue in the book, Britain lost the giving habit in the 20th century as marginal tax rates rose and the social contract settled around the idea that government would provide for society’s needs. Over the last 30 years tax rates have fallen and there has been a resurgence in entrepreneurial wealth, which is starting to turn into a revival of interest in philanthropy. The challenge is accelerating that cultural change (a challenge that the Prime Minister has so far shied away from, probably for fear of associating the Big Society with the largesse of the rich).

Creating a culture of giving, and a bit of competiton, is part of the solution, which is why we would love to see a British Giving Pledge. But this culture shift is not just about the rich. Our political leaders also need to be clear about the areas where the state is going to have to pull back and where philanthropy needs to step in (like the arts and higher education) and, in the short term, a 5% payout rule, for foundations could release maybe a billion pounds a year of extra funding for the charitable sector.

Commentators also have a part to play. Polly Toynbee is an important and influential champion for social justice but in refusing to accept that things need to change she is doing the cause she serves an injustice. Polly, it’s time to take off the tin hat, leave the trenches and join the debate.

First, how did they earn their money? America’s billionaires mostly have a good claim that they have earned their money fairly. “In America, there is equality of opportunity”, argues the Peruvian economist Hernando de Soto. “At the end of the day,” he says “the argument that Bill Gates can use against anybody in the U.S. is ‘you could have done it, too’”. But what about Microsoft’s brushes with anti-trust regulators in the U.S. – surely that means that at least some of his gains are ill-gotten? Well, that’s actually de Soto’s point – in America and other advanced economies the rules of the game mean that corporations are held to account and if they cross the line, as Microsoft was judged to have done, they have to pay the price. In the developing world, however, this may be a different story, where spectacular wealth has been acquired, in some cases, by ripping off the public in dodgy privatisations or through monopoly power. If Gates and Buffett roll the pledge out globally, this is going to be an important question for some billionaire donors. Yet  even in America it is right to question the individual donors about their business practices – making money through shoddy labour practices or pushing sub-prime mortgages on poor people who cannot afford them does deserve criticism – but this should be done on a case by case basis, rather than assuming that all wealth is the product of exploitation.

Second, yes, billionaires need to pay their taxes and billionaires who choose to pay more tax, say by refusing to move to a tax haven, should be given credit for doing so. Some of the critics seem to assume that the wealthy are all a bunch of tax avoiders who would resist paying more tax at all costs. Yet Buffett, along with other billionaire donors like George Soros and Ted Turner, spoke out against President George W. Bush’s abolition of inheritiance tax, observing that he is not a believer in the “lucky sperm club”. Of course there will be anti-tax billionaires on the other side but, again, it’s about judging the super-rich on a case by case basis.

Third, how much do they give? We support the Giving Pledge because it sets a sensible benchmark of half their wealth as a measure of billionaire generosity. As important as how much is given, however, is how the money is used. Some critics rightly point out that American philanthropy enjoys a generous tax subsidy and we would back a British-style public benefit test for charitable donations as a sensible compromise between the rights of the donor and their public responsibilities. We also hope that the pledgers will get on with their giving sooner rather than later – channelling the donor’s own passion and harnessing the donor’s skills is likely to mean that the money is better used rather than just being posthumously dumped into a foundation for some philanthrocrat to give away.

The really important question is how do the rest of us harness this new wave of giving so that it delivers the maximum benefit for our society and our environment?  We believe passionately that for the philanthrocapitalism revolution to achieve its full potential there needs to be transparency from donors – about their failures as well as their successes – and a willingness on all sides to join in the debate. For that reason one of the most important spinoffs of the Giving Pledge is the way that is has, hopefully, started that crucial discussion.

Gates and Buffett deny that Turner’s naming and shaming was the inspiration for their extreme generosity, which they say had been long-planned. Gates, in particular, has sold philanthropy to his peers on the basis that it is enormous fun. The Giving Pledge update that they released earlier today is testimony, however, to the power of peer pressure. With their encouragement, 40 super-rich Americans have signed the pledge – that’s 10% of the country’s 400 billionaires by Sean Stannard-Stockton’s calculations - and more are expected to follow at home and abroad. The pledge is already proving a big step forward for the philanthrocapitalism movement.

This new philanthropy A-list includes plenty of familiar names – like Michael Bloomberg and Eli and Edythe Broad who are veteran givers – but, at least one surprise: Larry Ellison, the CEO of Oracle and one-time rival to Gates for title of the world’s richest man. His name is unexpected, in part because he has rather blown hot and cold over philanthropy in his public statements over the years but also because there is no love lost between he and Gates. Ellison’s pledge admits that it was Buffett’s arm-twisting that got him to sign up on the grounds that it might influence others to give, with a rueful comment “I hope he’s right”.

At the start of the year we predicted that another IT magnate, Steve Jobs, would be the one to go big on giving in 2010. Ellison surprised us all by getting in first but if the Giving Pledge can keep up this momentum Jobs may be adding his name soon, along with the other 359 American billionaires. Let’s hope.

It is a question that we posed earlier this year after the catastrophic earthquake in Haiti. Yet, for all its problems, the challenge in Haiti pales in comparison to the obstacles in the way of the poor of Pakistan. Here is a country that has received billions of dollars of aid over the last thirty years but where human development has flatlined. And the only ‘progress’ the country has made in this period is acquiring nuclear weapons.

We know that this is not just a moral challenge. The West understands that instability in Pakistan is a threat to global security, which is why the US voted through more aid for the country in 2009 and appointed perhaps its most experienced diplomat, Richard Holbrooke, as envoy to the region. Yet the new aid package has quickly run into trouble. As blogger Mosharraf Zaidi explains, this is not just America’s fault - Pakistan’s dysfunctional government is equally to blame.  Can philanthrocapitalism help break this cycle?

One area that is ripe for innovation is education. School enrollment in Pakistan is 39%, worse than Sudan, and the education most kids receive (in public schools as well as madrassahs) is, frankly, rubbish. We cannot afford to wait for the government to turn this around. Private provision – for-profit and charitable – is going to have to take the strain. In India, the nonprofit Pratham is playing a crucial role in both the direct provision of education and in reforming government education programmes – philanthrocapitalists can help grow a Pakistani equivalent.

For-profit and social entrepreneurship, to create businesses that help people work their way out of poverty and to create sustainable ways to tackle social problems, is crucial too. This is a tough job, often hampered by bureaucracy (see, for example, the difficulties that Kiva.org has faced in building a programme in Pakistan), which is why the leading microfinance lender, Kashf, is still several orders of magnitude smaller than, say, Grameen in Bangladesh or SKS in India. The business skills of the philanthrocapitalists could help to turn this around.

We are not saying that working in Pakistan is easy. Indeed, that’s why we think it’s ripe for help from the philanthrocapitalists – to take the risk to work in this tough environment, to innovate and figure out what works. It will mean working with organisations, like Frontier Development Support, that have relationships of trust with local communities, particularly in the tribal areas.

Pakistanis themselves, at home and abroad, are in the vanguard of the humanitarian effort to help the flood victims but can they step up to the long term development challenge? The Haitian diaspora in America has taken a lead in rebuilding their country, not just through their giving but through organised lobbying of the US government on issues like trade rules. The winners from India’s economic boom, like IT billionaire Azim Premji, have also quickly moved into philanthropy, accepting a responsibility for the social and economic development of their country. The Pakistani diaspora has not yet organised itself and Pakistani elites have not yet stepped up to major giving – they might do well to learn from the example of others.

At the start of the year, we made ten predictions for 2010, one of which was that philanthrocapitalists would play a role in some of the tougher development challenges, like helping Pakistan. Some of our predictions have already been fulfilled. Let’s hope that Pakistan will be next.

Matthew, who on Twitter goes by the name @mattbish, kicked it off at 2pm Eastern Time (7pm UK time) on July 30th, and it ran for an hour. (Michael’s Twitter handle is @shepleygreen – as you can see, he is a fan of extreme food.)

These were the only rules. Keep your comments to under 140 characters each. Always include the hashtag #propoor (for profits and the poor). The hashtag allows people to follow the flow of debate without everyone having to retweet comments they refer to. If you respond to a particular person’s comment, start your tweet with re and the person’s twitter name: for instance, if you respond to a comment by @mattbish, start your tweet: Re @mattbish and end it with #propoor

Other than that, please avoid personal abuse.

We respectfully disagree. The keenly anticipated initial public offering, which aimed to raise $354m, is another important step towards fully engaging the mainstream capital markets in the fight against poverty.

As we reported in the chapter of Philanthrocapitalism called “philanthropreneurship the eBay way”, Yunus made similar comments about the successful IPO of Compartamos, a Mexican microfinance bank, in 2007, and about the efforts of philanthrocapitalist Pierre Omidyar, the founder of eBay, to encourage the development of for-profit business models for microfinance.

As we concluded in the book, “a big opportunity for philanthropists may be to back ideas that, if they succeed, would profitably solve social problems, but which have a higher risk of failure than commercial providers of capital, including venture capitalists, are willing to bear. Bearing the risk of ascertaining whether the idea can be pursued profitably is well suited to philanthropy. If the idea is a dud the money can be counted as a donation to the cause of increasing human knowledge; if it only works as a non-profit, philanthropists can choose to keep funding it; whilst if it succeeds, the philanthropists can let for-profit investors take it to scale while they, having played a crucial catalytic role, can put their philanthropic risk capital to work elsewhere.”

The SKS IPO is a case in point. Whereas Compartamos got its seed funding from charitable sources, such as the Accion microfinance network and the Mexican billionaire Alfredo Harp (Carlos Slim’s cousin), SKS was seeded by traditional mainstream investors, including Sequoia Capital, a Silicon Valley venture capital powerhouse, and Sandstone Capital, as well as George Soros and Indian outsourcing billionaire (as well as noted man of integrity), Narayana Murthy.

Hopes are now high that other for-profit investors will put their money into the emerging for-proft “bottom of the pyramid” marketplace. Already this is expanding beyond the traditional microcredit pioneered by Yunus at Grameen. SKS has already sold 12.5m micro-insurance policies. Ignia, an investment firm co-founded by Alvaro Rodriguez, the chairman of Compartamos, and backed by investors including Omidyar, is seeking for-profit opportunities in firms providing a range of services to the poor, from health care to low-cost housing to schools.

”By offering an IPO, you are sending a message to the people buying the IPO there is an exciting chance of making money out of poor people. This is an idea that is repulsive to me,” says Yunus. ”Microfinance is in the direction of helping the poor retain their money rather than redirecting it in the direction of rich people.” A better way to look at it is to see the emergence of a win-win, in which investors can profit by putting their money to work to help poor people enjoy a higher standard of living.

Certainly, profiting from providing services such as microfinance to poor customers can feel uncomfortable. Yet the experience of Compartamos shows the benefits that can flow from it. High interest rates were charged – upwards of 70% a year – but the profits Compartamos earned attracted lots more capital into Mexican microfinance, greatly extending the availability of credit to poor Mexican borrowers who would otherwise have had to go without or turn to real – ie, really nasty – loan sharks. Had Compartamos remained a non-profit, Mexican microfinance would almost certainly have stayed far smaller, with many of its current clients left worse off. Now the combination of economies of scale and competition from new entrants is starting to drive down interest rates to less alarming levels. Expect the SKS IPO to initiate similar trends in India.

Yunus has been busily developing a rival business model to the for-profit bottom of the pyramid sort. Called “social business“, it aims to earn a profit but not to return any money to investors. The most notable example so far is a joint-venture between Grameen and Danone to provide yoghurt enhanced to promote basic health to poor Bangladeshis. He is, reportedly, also to appear in the Simpsons cartoon later this year. It is not known if he will try to recruit Marge to a classic Grameen-style all-female lending circle, but Homer had better not try to start a for-profit microfinance institution in Springfield. Doh!

As well as providing greater detail about the different forms of extreme poverty in different parts of the world, the new measure, devised by the Oxford Poverty and Human Development Initiative and the United Nations Development Programme, shows that there are many more people living in extreme poverty than is suggested by the dollar a day measure (or, strictly speaking, $1.25 a day): 1.7 billion, rather than 1.3 billion.

The index will be incorporated into the UNDP’s annual Human Development Report, the 20th edition of which will be published in October, and should improve its already invaluable Human Development Index.

To see the difference the new measure makes, consider two African countries, Tanzania and Ethiopia. Using the income measure of poverty alone, Ethiopia looks much the less impoverished of the two – 39% of its population living in extreme poverty compared to 89% of Tanzanians. Use the multidimensional poverty measure, however, and the picture is reversed: around 65% of Tanzanians are in extreme poverty, compared with 90% of Ethiopians. Niger has the highest percentage of people in extreme multidimensional poverty, at 93%.

Despite these examples, and Africa’s generally impoverished image in the media, it accounts for ‘only’ 28% of the people in the world living in extreme multidimensional poverty. Over 51% live in South Asia. Despite India’s consistently strong economic growth, the 421m people living in extreme multidimensional poverty in eight of its states exceed the total number living similarly impoverished lives in the 26 poorest African countries combined.

These new numbers should add to the sense of urgency not only among India’s growing army of billionaires, at least some of whom are exploring how to be effective philanthrocapitalists, but also at the various international meetings scheduled for September to consider how to make greater progress towards achieving the Millennium Development Goals by 2015. The more subtle measurement of the details of poverty in different places should be of great help to philanthrocapitalists and others as they try better to target their efforts on the areas of greatest need.