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?

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.

Many development policy wonks admit that the 0.7% target is a weak measure of commitment to development – but it is the only one we’ve got, they argue, and Britain’s Conservatives, in particular, do not have a great track record on aid. Indeed, the new government’s 0.7% pledge has surprised many who remember how the aid budget was slashed under the Conservative rule of Margaret Thatcher and John Major.

Leaving aside the explanantion that perhaps at least some in the Conservative Party care about the poor, the 0.7% pledge appears to serve a dual political purpose: for the Conservatives to show that they are not the ‘nasty party’ of old; and, for their Liberal Democrat coalition partners to signal to their supporters that they are exerting a kindly influence on government spending priorities. But this leaves a problem – how to spend all this money?

The International Development Secretary, Andrew Mitchell, has talked the tough talk about getting results but, given that DFID, his department (and Michael’s former employer), is already struggling to get results with the money it is already spending, what will he do with the extra cash? Worse, how can he do better with fewer staff? For, while DFID’s programmatic spending budget has been protected, it is having to endure the same pain as everyone else in government by cutting spending on administration.

Meanwhile, sceptics about the Conservative commitment to aid think that the government will square the circle by reclassifying certain expenditure by other parts of government as aid, such as Foreign Office and Ministry of Defence programmes in conflict zones like Afghanistan, or the Foreign Office’s block grant to the cultural quango, the British Council, or climate change initiatives. That may all be true, but it is unlikely to solve the spending problem, especially since Mr Mitchell seems keen to reverse DFID’s past enthusiasm for writing big cheques to multilateral aid agencies like the World Bank and the UN, and to developing country governments, through what is known in the trade as ‘budget support’.

Maybe Mr Mitchell should have the courage of his government’s convictions about the Big Society, which is all about engaging private citizens in creating social value, and replace the 0.7% target with a new goal that Britain, government and people together, will contribute 1% of national income to fighting poverty around the world. That was the original target set by the UN 40 years ago, before the size of the government share grabbed all the attention.

The first benefit of using this measure would be that, if achieved, it would mean more aid for the developing world. According to the Index of Global Philanthropy, if you add Britain’s public and private aid together it comes to nearly 0.7% of national income. Setting a 1% goal for all aid would therefore deliver more help to the world’s poor than just targeting an increase in government aid.

A 1% target would also provide a powerful incentive for Mr Mitchell and his staff to think in terms of partnerships with private-sector actors like philanthropists, social entrepreneurs, social investors, companies and so on. While, like government aid, such partnerships do not guarantee results, the chances of having an impact will surely be greater if DFID draws on this wider pool of expertise instead of relying on an ever-decreasing pool of civil servants.

Every year since the Gleneages summit, Bono’s lobbying organisation, the One Campaign, has published the DATA report, in which it grades the generosity of the rich world. The commitments made at Gleneagles ran to 2010, so this year’s report will be the last. “The G7 are on track to deliver a $13.7 billion increase, or 61% of the development assistance increases promised”, is the good news (well, a B is a pretty good grade for governments).

Top of the class is the UK, which under Tony Blair’s leadership at Gleneagles joined Bono and friends to gang up on the (other) heads of state and shake them down for more aid cash. The US, Canada and Japan all get a pat on the head for meeting or exceeding pledges that were, the report says pointedly, “modest”. Germany and France are acknowledged for making some improvement yet also chided for their boastfulness, as they only stumped up a quarter of what they promised.

Bottom of the class comes Italy, which the DATA Report does not even give a pass mark for effort. “Italy is an utter failure as a member of the G7,” says headteacher Bono, unequivocally.

As he looks forward in the report, Bono does his best to be optimistic. “We’ve come pretty far, having passed (maybe mostly) through the fog of financial crisis,” he writes in his foreword. Given that three members of the G7 have spent the past few weeks fighting off the implosion of the Euro it seems that the financial crisis has ‘mostly maybe’ passed rather than ‘maybe mostly’. Worse, even if the Eurozone does avoid meltdown that does not mean good news for aid.

When the DATA report warns of “a new debt crisis” round the corner, you have to wonder whether it’s talking about the rich or the poor world, or, indeed, both. The public debt of the donor countries has spiralled during the current economic crisis and with taxpayers on a fiscal crash diet it’s hard to see even current levels of generosity to the needy abroad being sustained.

The tragic irony, of course, is that evidence is filtering through that the aid splurge of the past five years may have started to achieve something. Two hundred million bednets have been distributed since 2006, cutting deaths from malaria by half in some African countries. The number of people with HIV in Africa receiving anti-retroviral drugs has gone up from 100,000 in 2003 to 3 million today. Another 42 million kids are enrolled in school. But that evidence is unlikely to have much of an impact on governments pondering whether to cut spending on things that directly benefit their own voters to pay for aid to non-voters in other countries.

Like it or not, we have to find new ways of making the aid money go further and find new ways of financing development that do not depend on the political will of a few rich countries. Philanthrocapitalism, by tapping the expertise, creatvity, money and other resources of the private sector, has to be central to a new development strategy. First, to pilot and test ideas to make aid smarter and more effective. Second, to leverage more private capital – full for-profit, ethical investment and donations – to fill the gap.

As we have argued before, this means thinking about aid not as the exclusive preserve of government but as a partnership with philanthrocapitalists, rich and less rich alike. This challenge is urgent and the rich countries are being slow to take it up - Britain’s new government, in particular, seems set on business as usual (although there are plenty of disgruntled voices on the right who would like to see an axe taken to the aid budget).

Yet there are some tentative signs that things are starting to change. Women’s Ministers from the Commonwealth countries will be looking at philanthrocapitalism as part of their meeting next month (where Michael will be speaking) on putting gender equity at the top of the development agenda. And new USAID Administrator and Gates Foundation veteran Raj Shah will be charged with building more partnerships with private organisations, if a recent leaked strategy document is to be believed, which it should be.

As he recuperates and ponders the last five years, Bono can take pride in the way he has pushed governments to increase what they spend on aid. He may shed a tear for the passing of that era but something new is now needed. Hopefully he will soon find what he’s looking for.

“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.

In a fascinating new paper for the Center for Global Development, former British aid official and podcaster Owen Barder says that aid policies “rely too much on a planning paradigm”. Instead, he calls for a “collaborative market” for aid based on more decentralised decision-making. The foundation of an effective market, he points out, is information., which means better data on what donors are doing and what impact they are achieving.

Philanthrocapitalists are already working on this. The Hewlett Foundation has partnered with government aid agencies to get better results through the International Initiative on Impact Evaluation and the Gates Foundation has funded a big health evaluation programme at the University of Washington.

Even more exciting, as we discuss in the updated paperback edition of our book, is the potential of online giving platforms such as GlobalGiving to get feedback from recipients in developing countries and start to turn development into a collaborative process. Organisations such as Google.org, could potentially make a huge contribution to turning this into a reality. Philanthrocapitalists should be interested in transparency not just for reasons of effectiveness but also to build their own legitimacy – which is an essential part of the social contract that is needed to underpin rich individuals’ growing role in tackling global problems.

The biggest challenge, however, is for governments. Rather than clinging to the planning paradigm and trying to push private donors to conform to the procedures set out in the Paris Declaration, official aid agencies and developing country governments need to embrace ways of working that are adapted to the new collaborative marketplace.

All markets need rules. Barder’s thoughtful paper concludes with some imaginative ideas on how to make the market for aid more effective. Take one of the problems that the Paris Declaration was trying to solve – multiple donors competing with each other to talk to developing country governments that are already overstretched. He suggests a ‘flat tax’, of say $5 million, for all donors to pay to developing countries for the inconvenience they (undoubtedly) cause by taking up government officials’ time or poaching the best staff. Or a ’cap and trade’ regime, whereby developing countries would limit the number of donor missions allowed each year and sell off the right to visit – government and private aid agencies would then have to compete with each other for the visiting rights, and developing country governments could pick the organisations they believed would have the biggest impact. Now that would be fascinating!

Yet this was not some sudden conversion of Bono’s brother-in-arms to the anti-aid cause. Geldof delivered a typically technicolour refutation of Dambisa Moyo’s arguments against aid and celebrated the fact that 37 million Africans had gone to school as a result of the aid commitments won at the G8 summit at Gleneagles in 2005. He is just frustrated that poverty hasn’t been eliminated already.

Geldof is not sure if he’s a philanthropist because he doesn’t have a lot of money to give away. We think he is a classic “celanthropist” – a celebrity philanthrocapitalist – because, as he admits himself, his fame gives him “access”, which he can use to do good.

The other panelists had no such doubts about their qualifications as philanthropists. Yohei Sasakawa is chairman of the Nippon Foundation (and co-founder of Forum 2000). Czech supermodel Helena Houdova runs her Sunflower Children’s Foundation. Catherine Zennstrom, a French citizen, has recently established the Zennstrom Philanthropies with her Swedish tech billionaire husband, Niklas, the co-founder of Skype. Sigrid Rausing, also Swedish, is one of Britain’s most respected philanthropists, through the work of her trust.

Notice anything about these names? Firstly, there were no Americans – which shows how philanthrocapitalism is an increasingly global phenomenon, including in Japan, which is often described as a philanthropy-free zone. Second, the majority are women, an increasingly influential force in philanthropy, we are happy to say.

As for Geldof, our verdict is that his experience, along with that of Bono, is a deeply encouraging one. They have learned a lot, realized how naive and ineffective their earliest efforts were, yet they have stuck to their mission and driven themselves to find better ways to achieve it. Along the way, they have inspired millions of people around the world to be more altruistic and given many more the chance of a better life – which, as futility goes, isn’t bad.

Michael spoke at a couple of fringe events at the British Labour Party’s annual conference in Brighton this week. Beleagured Prime Minister Gordon Brown used his main speech to make a raft of spending commitments, including a pledge to pass legislation to force future governments to spend 0.7% of national income on international aid.

In a sense this is not controversial – all of Britain’s major political parties have said that they are committed to the same goal.

Or maybe not, according to international development Minister, Gareth Thomas, who shared a platform with Michael at an event organised by the Foreign Policy Centre. Minister Thomas complained that the aid community was “sleepwalking” if it believed that the Conservative party, the most likely victors of (probably)next year’s election, will maintain aid spending.

Well, he would say that wouldn’t he? But there is also a big question about whether a government of any colour can defy fiscal gravity and keep pumping more money into aid, while making the drastic cuts at home in public expenditure necessary to restore the finances to some kind of health. And even if the Brits kept their aid promises, how many other countries would join them?

The aid world needs an urgent rethink on how to live with less money, which means that every pound or dollar of assistance must go further. Of course, philanthropic donations cannot plug the aid gap but working with philanthrocapitalists has to be part of the answer, to lever new sources of finance and make aid smarter.

First, if grant money from government is going to dry up, developing countries will have to look for private funding for investments in health, education, water and sanitation, and so on. Fortunately, as Matthew wrote recently in The Economist, there has been an explosion of interest in the idea of social investing – using capital invested to get a financial return to achieve development goals. The British Government was a pioneer in this area through the Task Force on Social Investment, chaired by private equity titan Sir Ronald Cohen, that looked at how to use these tools to address social problems at home. Sadly, the government (and the opposition) has been slow to realise the potential of social investing internationally.

This opportunity needs to be grasped now. The government should create a new Task Force on Development Investment to bring together the business leaders and philanthrocapitalists already working in this area, to see how government can work with them to get this idea to scale as quickly as possible. Some reneging on aid pledges may be inevitable. Failing to take up the opportunities available to make up for the shortfall in aid would be an unforgiveable betrayal of the poor.