“A laser-like focus on measuring impact”, is Ed Penhoet’s description of the philosophy of the Gordon and Betty Moore Foundation, which he ran from 2004 to 2007. In a keynote conversation with Matthew on June 25th, he rejected criticism that the foundation, established in 2000 by one of the founder’s of Intel, was too obsessed with measurement. This criticism has implicitly been accepted by his successor, Steve McCormick, however, who has relaxed some measurement requirements in order to take what Penhoet calls, with a smile, a slightly “fuzzier” approach.

In general, too much philanthropy is unfocused and doing things in which it is impossible to know what difference, if any, the giving is making, says Penhoet.

Penhoet also questioned the usefulness of the Center for Effective Philanthropy, an organisation we praise in the book as a leading philanthrocapitalism intermediary. The CEP’s best-known product, the grantee perception report, “doesn’t measure effective philanthropy”, he said, “it measures a foundation’s popularity with those it gives grants”. When the Gordon and Betty Moore Foundation went through the CEP process, it got a decidedly mixed report. But that is because “many of our grantees didn’t like us, because we asked them tough questions about the impact they were having and whether they were using our money to achieve our goals”.

Penhoet is the sort of foundation chief we like - a successful business man, the co-founder of biotech pioneer Chiron, who brings his business brain to philanthropy, being strategic, no-nonsense, having a realistic sense of what the foundation can achieve, and above all wanting to use giving to make a demonstrable difference.

As a fairly large foundation, with assets of $6 billion, the Gordon and Betty Moore Foundation has more ability than most to drive change. Even so, Penhoet and Gordon Moore, the philanthropist who stumped up the money, have focused on areas where they believed they could bring about meaningfully better outcomes. One area where Penhoet believes a difference was made was revitalising the relatively neglected academic field of marine micro-biology, another was improving ocean stocks of North Pacific salmon, another was raising the quality of nursing in the Bay Area (which Penhoet says had been among the worst in the country).

Yet there have also been failures, such as an attempt to reduce deforestation in the Amazon. The foundation knew the project was risky, but had not reckoned with the recent surge in demand for corn for ethanol production, which caused trees to be cut down for land to grow replacement soy for that lost due to greater corn production.

It will be interesting to see how the less laserlike, less measurement-obsessed Gordon and Betty Moore Foundation performs under its new leadership. We suspect its grantees may like it more, but we are not so sure its impact will be greater.

“It is wonderful to see all these do-gooders in one room,” said Barack Obama, at a White House gathering on June 30th of leaders of America’s best non-profits. The occasion was the long-awaited launch of a $50m Innovation Fund to support the scaling up of the non-profit community’s best ideas for tackling America’s biggest problems at home.

In attendance were many people from organisations featured in Philanthrocapitalism, including New Profit Inc, Ashoka, Echoing Green, the Skoll Foundation, Harlem Children’s Zone, Robin Hood Foundation, KIPP Schools, Bridgespan Group, City Year, Salesforce Foundation, Sea Change Capital Partners, meetup.org, Nurse Family Partnership, Atlantic Philanthropies, Edna McConnell Clark Foundation, WalMart, the Gap, the Ford Foundation, the Gates Foundation and so on.

As President Obama made clear, he has been thinking about this challenge for a long time - at least since a conference he was at with, among others, New Profit’s Vanessa Kirsch 15 years ago. “Government can’t do everything and be everywhere - nor should it be,” he said. “If anyone out there is waiting for government to solve all their problems, they’re going to be disappointed. Because ultimately, the best solutions don’t come from the top-down, not from Washington; they come from the bottom-up in each and everyone one of our communities.”

“The bottom line is clear: Solutions to America’s challenges are being developed every day at the grass roots — and government shouldn’t be supplanting those efforts, it should be supporting those efforts,” the president continued. “Instead of wasting taxpayer money on programs that are obsolete or ineffective, government should be seeking out creative, results-oriented programs like the ones here today and helping them replicate their efforts across America.” Hear, hear!

Melody Barnes has been appointed to run the Innovation Fund, which will be used to scale up the best non-profit ideas. This has much in common with the $650m “What Works Fund” launched by another longtime partner of philanthrocapitalism, Arne Duncan, the education secretary. Encouragingly, given the danger that money in this sort of initiative can end up being misdirected by the political process, President Obama said that decisions on which are the best non-profits will be fact based: “We’ll examine their data and rigorously evaluate their outcomes. We’ll invest in those with the best results that are most likely to provide a good return on our taxpayer dollars.”

Most encouragingly of all, the intention is to get a second-opinion from the private-sector before taxpayer money is invested - a second opinion that must put its money where its mouth is. The Innovation Fund will require that non-profits “get matching investments from the private sector - from businesses and foundations and philanthropists - to make those taxpayer dollars go even further.”

As we argue in Philanthrocapitalism, to solve the pressing problems facing the world today, a new partnership is needed between the government, business, non-profits and philanthropy. But this new partnership will not work well if it is just a cosy huddle with everyone trying to do everything. There must be a new division of labour, in which each of government, business, non-profits and philanthropy do what they can do best, and get out of what they do not do well.

The encouraging thing about President Obama’s announcement today is that he clearly gets it: “All of this represents a new kind of partnership between government and the non-profit sector. But I can tell you right now, that partnership isn’t complete, and it won’t be successful, without help from the private sector. And that’s why I’m glad that there are some deep pockets in the audience here - foundations, corporations, and individuals. You need to be part of this effort, as well. And that’s my challenge to the private sector today.

“Our non-profits can provide the solutions. Our government can rigorously evaluate these solutions and invest limited taxpayer dollars in ones that work. But we need those of you from the private sector to step up, as well. We need you to provide that critical seed capital to launch these ideas. We need you to provide those matching funds to help them grow. And we need you to serve as a partner, providing strategic advice and other resources to help them succeed.”

Of course, implementation is going to be challenging, to say the least. There is not much of a track record of scaling up non-profits to draw on for guidance. And $50m is a drop in the ocean compared to the scale of the problems (and to the federal budget - the fund should be far bigger, or at least be scaled up fast if things go well).

Yet this is a most encouraging first step. Here’s hoping philanthropists respond to the president’s leadership by rising to meet his challenge. After all, as he put it, “If we work together - if we all go all-in here - think about the difference we can make.”

British hedge-fund philanthropist Chris Cooper-Hohn and his wife Jamie have just announced another huge gift - of £495m ($812m) - to the Children’s Investment Fund Foundation (CIFF), as Matthew has reported in The Economist. This took the assets of the foundation, which they created in 2003 to receive and give away a slice of the management fees and profits of Chris’s hedge fund, TCI, to just over £1.5 billion at the end of their 2008 financial year in August.

This remarkable growth shows the strength of what has become known as “the TCI model” of philanthropy, namely that when hedge funds succeed they can generate spectacular amounts of money which can be recycled quickly into doing good through an associated foundation. Some variant of the TCI model is increasingly in vogue, among private-equity as well as hedge-fund managers - to put lipstick on a pig, say the cynics, or (more optimistically) reflecting the commitment of these successful people to give back, and the realisation that giving will be a lot less of a wrench if it is built into the fund from the start rather than left until after the money is in the bank.

CIFF’s recent experience also shows the importance of diversifying the management of the money away from the hedge fund once it has been generated - something that CIFF did relatively recently, though happily just in time. During the recent market meltdown, CIFF’s now well-diversified investment portfolio is believed to have lost only 10% of its value (pretty impressive in an investment industry where -20% is regarded as the new in-the-black). As Felix Salmon notes in his blog, money-making wise, Chris Cooper-Hohn had a miserable year, TCI reportedly losing 43% if its value in (calendar year) 2008. Apparently Britain’s Charity Commission encourages conservative investment strategies of the sort now deployed by CIFF - an aversion to risk that has not gone down well with the country’s hedge fund philanthropists in the past, but now looks entirely right.

As we write in the book, there has been some criticism of CIFF for not putting the money in its endowment to work fast enough. That is probably unfair on the Cooper-Hohns, who after all are only just starting their philanthropic lives, and are doing so at an age (around 40), at which until recently hardly anyone would have thought of creating a big foundation. Moreover, their approach to giving is to pick big projects that have the potential to drive “transformational change”. Such gifts take time to get right. Nonetheless, in 2008 CIFF is believed to have paid out around 4% of its endowment at the start of the year - not far below the 5% required by law in America. There is no minimum required payout in Britain. Within a couple of years, the Cooper-Hohns expect that CIFF will be giving - or rather, as they put it in classic philanthrocapitalist language, investing - around £100m a year.

Two big recent commitments illustrate this investment philosophy. CIFF has committed $50m over three years in partnership with the Bill & Melinda Gates Foundation, which is putting in $120m, to the Global Alliance for Improved Nutrition (GAIN). The goal is to fortify with essential nutrients the basic foodstuff (rice, fish sauce etc) of poor people in 22 countries. This is expected to have a dramatic effect, improving the diet of 1 billion people and, in particular, sharply reducing maternal and child deaths.

Another commitment is to fund house-to-house testing for HIV/Aids in partnership with the government of Uganda. CIFF’s analysis of the evidence has led it to believe that increasing the percentage of people knowing whether or not they have been infected from the current 6% to 90%, and treating those with HIV/Aids, will actually save money - particularly by reducing transmission from mother to child.

Both of these gifts are designed to be investments that will flip the system into a far better equilibrium, not merely alleviate symptoms. Obviously, it remains to be seen if they will succeed, which will depend in part on how good the Cooper Hohns are at executing their big ideas. But wish them well. At a time when hedge funds are under fire (largely unfairly, in our view, but that is another story), it is great to see that at least one of them is helping to build a better world.

“Cheap holidays….in other peoples’ misery!” screams Johnny Rotten at the start of the Sex Pistols song Holidays in the Sun. Aid sceptic Bill Easterly seems to think that the Millennium Villages project, the brainchild of his sparring partner and aid champion Jeffrey Sachs, has gone beyond the pale by apparently taking the Sex Pistols’ message to heart and touting the poor as a tourist attraction.

Easterly was picking up on an earlier article in the Huffington Post by Magatte Wade, a Senegalese entrepreneur, that fired the opening salvo against the tourism initiative. Wade picked out rule 1 of the brochure for prospective visitors to Mayange, the Millennium Village in Rwanda: “Please do not give anything to the villagers - no sweets, cookies, empty water bottles, pens or even money.” ”Condescension towards Africans is both offensive AND a sign of a counterproductive approach to development,” grumbled Easterly.

Millennium Villages have drawn plenty of criticism, particularly from commentators from the developing world, for being top-down, white-man-knows-best projects, with too much celebrity glitter (Madonna is one of the sponsors). In the book, we quote Indian social entrepreneur Bunker Roy, who claims, with what looks like considerable poetic licence, that he could use the money from one Millennium Village to feed 100,000 families.

Yet the tourism project has been defended with vigour by the Rwandan head of the Millennium Village at the centre of the controversy, again in the Huffington Post. Donald Ndahiro says that, rather than being imposed by Mr Sachs or his wannabee Albert Schweitzer minions, the tourism project was the brainchild of the community itself, with most of the money going back into projects such as building houses. Telling tourists not to hand out gifts, he says, was a deliberate decision by the villagers themselves, for fear of creating a dependency culture in Mayange.

Sachs has staked his reputation on the Millennium Villages project. He is not trying to lift a billion people out of poverty one village at a time, as some critics claim. The goal, in typical philanthrocapitalist style, is to lever wider change by piloting new ideas to create models that can be scaled up. According to Ndahiro, this is already happening, with ideas from Mayange now being adopted as part of the Rwandan government’s Vision 2020 national development plan. If the tourism works, let’s hope it gets adopted. If it doesn’t, let’s hope that Sachs will be open about it.

Where would you rather live - Zambia or Zimbabwe?  Not much of a choice perhaps but, according to the Legatum Institute’s Prosperity Index, you would have a better chance of a prosperous life under Robert Mugabe.

The Legatum Institute, which Michael visited recently, is located in rather swanky offices in London’s fashionable Mayfair district (with another office in Dubai) and funded by reclusive New Zealand billionaire philanthropist Christopher Chandler, whose Legatum Capital investment fund claims to be building ‘trust-based capital markets’ (legatum means ‘bequest’ in Latin). He made his fortune investing with his brother in firms such as SK Corp, a huge South Korean oil firm, and Russian gas giant Gazprom. 

As well as the Institute, there is also Legatum Ventures, which is pioneering for-profit investments in the developing world, the Legatum Foundation, which makes grants to a range of health and humanitarian projects, and the Legatum Center at MIT, run by Iqbal Quadir, the man behind Grameenphone in Bangladesh, which is promoting technology-based, for-profit enterprises in the developing world. Oh, and don’t forget the $1m a year Legatum Fortune Technology Prize, established with Fortune magazine to encourage for-profit attempts to use technology to help people in the developing world. Chandler certainly takes seriously both halves of philanthro-capitalism.

The Prosperity Index is an attempt to widen the debate about development from existing measures like Gross Domestic Product per capital, or Human Development as measured by the United Nations, to include things like the environment for entrepreneurship and depth of religious belief. There is plenty to disagree about in the rankings, to say the least, but it is an interesting contribution to the debate.

Around $1 billion has been raised so far to help developing countries by taxing plane tickets. The idea, proposed by former French president Jacques Chirac, first took effect in July 2006. Travellers in countries participating in the scheme pay two euros on top of an economy ticket in Europe, four euros in business class, rising to ten euros and forty euros respectively on transAtlantic flights.

The money raised is paid into UNITAID - slogan “Together to Heal” - which in turn distributes it to projects addressing the UN Millennium Development Goals that concern health, including on child mortality, maternal health and HIV/Aids, tuberculosis and malaria. So far 15 countries have signed up to support UNITAID, including France, obviously, though not all of them are levying the tax. Norway collects a tax on CO2 emissions instead, and the British government has agreed to pay up to 60m euros directly from its budget.

This may soon rise to 20 countries, said Philippe Douste-Blazy, the former health minister of France who now heads UNITAID, in a meeting with Matthew on June 19th. There are high hopes that these will include Japan, where Parliament is currently debating a tax which would split revenues 50:50 between environmental causes and development. Countries in the Gulf with significant air hubs are also said to be interested.

Yet there are some big economies that show no interest in taxing fliers - none bigger than America, which accounts for around 44% of the 2.5 billion airline tickets sold every year, and China, now the fastest growing major market. So Mr Douste-Blazy is trying a different tactic - tapping the spirit of giving in ordinary travellers. He has negotiated with the three major ticket booking companies - Sabre, Amadeus and Travelport - as well as big online travel sites such as Expedia to include in the booking process the question, would you like to make a (say) $2 donation to development? Revenue will be collected from credit cards without the customer having to do anything other than click yes.

A new body, the Millennium Foundation, has been created to administer this not very catchily named “voluntary solidarity contribution project” (how French!) - UNITAID is housed within the World Health Organisation, an arm of the UN, which can accept money from governments but not the private sector (as Ted Turner discovered when he gave $1 billion to support UN causes), so (as in Turner’s case) a special private foundation has had to be created to intermediate.

Will people voluntarily donate? The experience of the global “check out for children” partnership between Sheraton hotels and Unicef, where guests paying their bill are asked to donate $1 to the children’s charity, bodes fairly well, having raised $16m since 1995 - a sum that UNITAID hopes to dwarf when the scheme gets going next spring.

Philanthrocapitalists should wish it well, for the money raised from airline tickets has already been a crucial ingredient in public-private-philanthropic partnerships to stimulate markets in drugs for the poor, such as supporting the Clinton Foundation’s efforts to make affordable anti-retroviral drugs available to children with HIV/Aids in the developing world, as well as the new Affordable Medicine Facility for Malaria (AMFm) initiative.

Last week, the One campaign, which successfully lobbied for more aid at the G8 summit at Gleneagles in 2005, warned that “the G8 are at risk of defaulting their commitments to Africa”. In its annual report about the promises made at Gleneagles, One singles out Italy and, oddly enough, France for making “exceptionally poor progress” in living up to their promises.

UNITAID should not let rich governments off the hook. Yet, with public budgets under strain, finding new ways to finance development is more urgent than ever.

Praise for Philanthrocapitalism as “extremely well written” from an unexpected source - our old sparring partners at Gates Keepers. True, they do also take us to task for being too soft on Bill Gates, but that’s not really a surprise.

The really surprising thing about the review is that, having attacked the idea of philanthrocapitalism for several months, the Gates Keepers admit that have only finally got around to reading the book!  We are getting used to that, having already been subjected to one pre-emptive strike from Michael Edwards, albeit now updated (sign up required). Edwards also confesses to have enjoyed the book, when he finally read it. Ho, hum.

We believe that the philanthrocapitalism revolution is a radical new direction in the way that the world is run, and that it needs to be debated. We are therefore glad that the discussion is moving on from simple attacks on a caricature of our position. The Gates Keepers pick up on our call for a “new social contract” to underpin the work of the philanthrocapitalists and ask how this should be hammered out. Our answer is right here, right now.

How do you encourage the innovation needed to make a better world? That was the theme of the excellent Incentive 2 Innovate (i2i) conference on June 8th-9th at the United Nations, in which both Michael and Matthew took part.

The conference was run by the X-prize foundation, which is trying to use incentive prizes to drive innovation and breakthroughs in genomics, energy and space travel.

Peter Diamandis, founder of the X Prize Foundation, says he originally used X as a placeholder for the name of whoever he would eventually convince to fund a prize. Now X is the brand!

A comprehensive paper on how to design prizes was the meat in the panel moderated by Matthew. The McKinsey consultants who wrote it showed that in the past decade there has been a sharp increase in “incentive prizes” (which encourage behaviour that the prize-giver wants), relative to “recognition prizes” (which celebrate past behaviour the prize-giver approves of). We welcome this shift in the book, as incentive prizes are likely to leverage far more bang for the philanthropic prize-giver’s buck.

Michael moderated a panel on innovations in global development.(Diamandis confessed to the conference that the X Prize Foundation it is still wrestling with how to define the rules for a prize in the area of reducing poverty (answers on a postcard to Peter).)

Michael described how he had seen the philanthrocapitalists shake up the development world with new ideas. He then challenged the participants to think about how the “customers” for global development, the poor themselves, can be integrated into finding solutions that really work.

Amir Dossal described the evolution of the UN Office for Partnerships, which he runs, that started with Ted Turner’s $1 billion donation - a gift in 1997 that really kicked off the philanthrocapitalism revolution, as we describe in the book. 

This partnership approach is now being embraced up by USAID, the development arm of the US government. Its Deputy Director for Partnerships, Carol Grigsby, talked about its first steps, under the Bush Administration, to reach out and engage innovators through challenge competitions and a new outreach website.

We have argued in the book for this type of partnership between government and the private sector, so we hope that these ideas spread.

The two other panel members came from the nonprofit world. Andreas Widmer (whose career includes serving as a Swiss guard to the Pope!) is carrying his experience as a technology entrepreneur into finding enterprise-based solutions for poverty through his Social Equity Venture Fund.  Charlie Brown runs Changemakers, an initiative of our old friends Ashoka, that is running competitions to tackle a wide range of problems, including education in Africa.

All the panelists recognised that they had a long way to go to really reach out and involve the poor in solving their own problems.Yet it is a good sign that thinking this way is on the rise.

  The spread of mobile phones across the developing world has huge potential to transform the development business. But, as one of the discussion groups at the conference pointed out, this will require finding new ways of framing problems so that these poorer customers can really engage with solving them.

Our critics bristle at the idea of (carefully) applying techniques from the business world to the nonprofit sector. A report released today by New Philanthropy Capital, one of the leaders of the philanthrocapitalism movement, shows that such complacency is misplaced and even, in these tough economic times, downright dangerous.

“‘Merger’ is a dirty word in the charitable sector as it seen as implying aggressive and predatory behaviour, says the report, “What place for mergers between charities?”, noting US research that the rate of mergers across large non-profit organisations, with an annual budget of $50m and over, is just one tenth of the rate of large for-profit companies. Of course, not all such mergers are a success and the desire to grow bigger can have more to do with managerial hubris than adding value. Yet the authors show through case studies from the UK, such as the 2001 hook up between the Imperial Cancer Research Fund and the Cancer Research Campaign to create Cancer Research UK, that mergers can bring enormous benefits. More non-profits, which are often very similar to each other, should follow suit in other sectors. NPC says that one sector in the UK where there are clear merger opportunities is breast cancer, where Breakthrough Breast Cancer and Breast Cancer Campaign look perfect candidates to tie the knot.

“The most important question is not what works best for the charity,” says report author John Copps, ”it’s what works best for all the people that charities intend to help.”  The fact that only 3% of charities think about merging, despite the current funding crunch, looks like a missed opportunity that will only harm those that charities say they are trying to help. It is time to throw off the old prejudices and look at what philanthrocapitalism has to offer.

“What has the Gates Foundation done for global health?”, was the topic of a debate at Britain’s Royal Society of the Arts on May 28th. The debate was inspired by a series of articles in the medical journal The Lancet (registration required) that highlighted the growing number of criticisms of the Gates Foundation’s efforts from the global public health establishment.

The debate was kicked of by David McCoy, the lead author of one of the Lancet articles, which analyses the $8 billion plus of grants made by the foundation to global health over the past decade. As Matthew, responding to McCoy, pointed out, this paper is a welcome contribution to a much needed debate - which has been under way for a while, including here and here on this website and on the GatesKeepers website. Even the Gates Foundation says it has found McCoy’s work helpful: a spokeswoman told Matthew that the foundation has grown so fast it has struggled to systematically keep track of where its money has gone - so it learnt a lot from the article. Moreover, the foundation’s health chief, Tachi Yamada, spoke at length with McCoy after the article appeared - a conversation that both sides say was positive and promises to be the start of a useful ongoing dialogue.

There is a fair account of the debate here by Richard Smith, a blogger for the British Medical Journal. As we wrote at length in the book, and have argued many times since, philanthrocapitalism of the sort practised by Bill Gates and others has huge potential and indeed is already making a big, positive difference; yet it can only acheive its full potential if it is accountable to the public and engaged in the sort of vigorous public debate that took place at the RSA.

The most surprising moment in the debate came at the very end, during the summing up by the hitherto fair and balanced chairman, Lancet editor Richard Horton. He launched an attack on Bill Gates, saying that in recent months he has been reversing many grants approved by Yamada that would have taken the foundation beyond the narrow technological approach criticised by the Lancet, among others, into a broader strategy of building health systems approved of by the global health establishment. These reversals, Horton claimed, amounted to the “constructive dismissal” of Yamada by his philanthrocapitalist boss.

This is a big claim, and we eagerly await a substantial article in the Lancet explaining it. We are ready to be proved wrong - but we will not be surprised if it turns out that Yamada is not the only senior Gates Foundation executive who has found his or her decisions revisited and even reversed in the past few months. That is because Gates is now full time at his foundation, and applying his mind a lot more diligently to the problems he is trying to solve - a process which, hopefully for the better, might be expected to challenge past thinking and policy at the foundation.

When Matthew visited the foundation in January to interview Bill Gates for The Economist about his first annual letter, various foundation executives told him privately that since going full time he had been “too nice”. Instead, they wanted more of the sometimes disagreable, argumentative “real Bill” of Microsoft fame. Maybe they are now getting what they asked for.