Philanthrocapitalism: after the goldrush

About the author

Michael Edwards is a writer and activist based in upstate New York. He is the editor of the Transformation section of openDemocracy and a Distinguished Senior Fellow at Demos in New York. Mike’s latest books include Civil Society, Small Change: Why Business Won’t Save the World , and the Oxford Handbook of Civil Society. His website is futurepositive.org.


It's indisputable that something genuinely important is stirring in the world of philanthropy - a movement to harness the power of business and the market to the goals of social change, what Matthew Bishop calls "philanthrocapitalism".

There is justifiable excitement about the possibilities for progress in global health, agriculture and access to micro-credit among the poor that have been stimulated by huge investments from the Bill & Melinda Gates Foundation, the Clinton Global Initiative and others. Philanthrocapitalism should certainly help to extend access to useful goods and services, and it has a positive role to play in strengthening important areas of civil-society capacity. These are surely good things, so why have I written a book - Just Another Emperor? The Myths and Realities of Philanthrocapitalism (Demos/Young Foundation, March 2008) - that challenges the increasing influence of business thinking in philanthropy?

Michael Edwards's essay is based on a talk he delivered at the launch of his new book - Just Another Emperor? The Myths and Realities of Philanthrocapitalism (Demos/Young Foundation, March 2008) - at the Young Foundation on 10 March 2008. The book is co-published by:

The Young Foundation - a centre for social innovation based in East London - combining practical projects, the creation of new enterprises, research and publishing

Demos
- a non-partisan public policy research and advocacy organisation in the United States committed to building a society that achieves its highest democratic ideals

This essay provoked a lively and lengthy debate - including here on openDemocracy - to which Michael Edwards responded in "Philanthrocapitalism: old myths, new realities" (14 November 2008)                                  Michael Edwards's website is here

My worry is that the hype surrounding philanthrocapitalism will divert attention from the deeper changes that are required to transform society, reduce decisions to an inappropriate bottom line, and lead us to ignore the costs and trade-offs involved in extending business principles into the world of civil society and social change. I'm concerned that these questions, and the evidence that underpins them, are not being given a fair hearing. And I want to provoke a conversation in which different positions can be aired and listened to. The only way that philanthrocapitalism will be able to fulfill its considerable potential is by moving beyond the hype.

What is it?

So, what exactly is philanthrocapitalism? It's an elastic term, both connected to but distinct from social enterprise or social entrepreneurship, venture philanthropy, and corporate social responsibility. I think there are three distinguishing features:

* Resources: very large sums of money being committed to philanthropy, mainly the result of the remarkable profits earned by a small number of individuals in the IT and finance sectors during the 1990s and 2000s.

* Methods: a claim that methods drawn from business can solve social problems, and are superior to the other approaches used in the public sector and in civil society.

* Achievements: a claim that these methods can achieve the transformation of society, rather than increased access to socially-beneficial goods and services - a noble goal for sure, but insufficient to lever deeper changes in the distribution of power and resources across the world.

What does the evidence tell us about these claims? We already know that for-profit involvement in human services is often ineffective, at least in social terms. This is what philanthrocapitalism is supposed to fix. Take the huge investments in global health, micro-credit and environmental services that Bill Gates and others are making. The available evidence from these investments so far suggests that it is perfectly possible to use the market to extend access to useful goods and services, but far harder to have any substantial impact on social transformation. The reason is pretty obvious: systemic change involves social movements, politics and the state, which these experiments generally ignore.

At a smaller scale, increasing numbers of initiatives are successfully deploying market methods to distribute goods and services that benefit society, like the One Laptop Per Child programme, which manufactures cheap computers running on open-source software with Google's help.

These are important experiments, but the evidence suggests that they are very difficult to operate successfully at scale, and that they usually experience some trade-offs between their social and financial goals. For example, a survey of twenty-five joint ventures in the United States showed that twenty-two "had significant conflicts between mission and the demands of corporate stakeholders"; moreover, the two examples that were most successful in financial terms also deviated most from their social mission - reducing time and resources spent on advocacy, weeding out clients who were more difficult to serve, and focusing on activities with the greatest revenue-generating potential.

Or take Project Shakti, a public-private partnership promoted by Hindustan Lever (HLL) in India, which integrates low-income women into the marketing chain of its producers, selling things like shampoo and detergent "to boost their incomes and their confidence." A recent evaluation showed that there is "no evidence that the project empowers women or promotes community action", as opposed to making then "saleswomen for HLL", often at considerable cost to themselves (since there are cheaper brands available, returns on investment are therefore low, and the work is very hard).

There's a lot more evidence like this in my book that shows how difficult it is to blend the social and financial bottom lines. Few of these experiments are truly self-sustaining, "mission-drift" is common, and failure rates are high. The other problem is scale: fairtrade is estimated to reach 5 million producers and their families across the developing world, while social enterprises had earned revenue of only $500 million in the United States in 2005.

Michael Edwards is the author of Civil Society (Polity Press, 2003) and Future Positive: International Co-operation in the 21st Century (James & James, 2004).

For more information visit www.futurepositive.org His latest work is Just Another Emperor? The Myths and Realities of Philanthrocapitalism (Demos/Young Foundation, 2008)

Also by Michael Edwards in openDemocracy:

"For Alan Beavan" (24 September 2001)

"Love, reason and the future of civil society" (22 December 2005)

"Democracy in America: paths to renewal" (21 November 2006)

"A world made new through love and reason: what future for 'development'?" (25 April 2007)

The second area where philanthrocapitalism claims to make an impact lies in improving the financial and management capacities of civil-society organisations. I have always been confused by the way in which venture philanthropists and social entrepreneurs differentiate themselves from the rest of civil society on the grounds that they are results-based"' or "high-performance", implying that everyone else is uninterested in outcomes. Sure there are mediocre citizens' groups, just as there are mediocre businesses, venture philanthropists, social entrepreneurs and government departments, so (as Jim Collins of Good to Great fame asks) "why import the practices of mediocrity into the social sectors"? What separates good and bad performers is not whether they come from business or civil society, but whether they have a clear focus to their work, strong learning and accountability mechanisms that keep them heading in the right direction, and the ability to motivate their staff or volunteers to reach the highest collective levels of performance.

The most important results measure impact at the deepest levels of social transformation, and there is a wealth of evidence showing that they are generated by social movements that rarely use the language or methods of business management. Yet, to repeat, there is already evidence that those who do use these techniques encounter trade-offs with their social mission.

It is easy to identify quick fixes in terms of business criteria, only to find out that what seemed inefficient turns out to be essential for civil society's social and political impact - like maintaining local chapters of a movement when it would be cheaper to the central office to combine them. And although solutions have to work economically this doesn't necessarily imply the raising of commercial revenue. Philanthrocapitalists sometimes paint reliance on donations, grants and membership contributions as a weakness for civil-society organisations, but it can be a source of strength because it connects them to their constituencies and the public - so long as their revenue streams are sufficiently diverse to weather the inevitable storms along the way.

The impact on civil society

Is there any evidence that civil society as a whole is being damaged by these trends? There are certainly some worrying signs, including:

* The dilution of "other-directed" behavior by competition and financial incentives (for example, paying volunteers)

* The diversion of energy and resources away from structural change, institution building and deep reform, in favor of social and environmental service-provision

* The loss of independence that comes with dependence on business or government, and the consequent weakening of civil-society's ability to hold them accountable for their actions.

* Increasing inequality within civil society between well-resourced service providers (or other groups considered to be high performers by large investors) and under-resourced community and advocacy groups

* Changing the relationship between citizens' organisations and their members to one of passive consumption (giving money at a distance), instead of active participation

* The erosion as a result of civil-society's role in social transformation through co-optation, or even emasculation, instead of equal partnership

The accumulated outcome is that civil society may be getting larger - but not stronger or more effective in leveraging fundamental changes in society.

The market and the movement

Why does involving business and markets produce such mixed results?

The answer is that the logics of business and social transformation are not just different - they pull in opposite directions in many important ways, and there is long experience of the risks involved in mixing them together. Take attitudes to redistribution and social justice, which rarely appear on the radar screen of the philanthrocapitalists but are central to any transformative agenda. "Wealth is like an orchard", says the Mexican philanthrocapitalist Carlos Slim, "you have to distribute the fruit, not the branch", presumably because the branch, tree and forest all belong to him.

Or take competition versus cooperation, or individualism versus collective action and mutuality. Jeff Skoll, who co-created e-Bay, is proud to say that social enterprise "is a movement from institutions to individuals", because they "can move faster and take more chances." Indeed they can, but can they also generate system-wide changes in social and political structures that rely on collective action and broad-based constituencies for change? History shows that systemic change was achieved in relation to the environment, civil rights, gender, and disability through the work of social movements rather than heroic individuals, and involved politics and government as well as civil society and business.

And that's a crucial point. In markets we are customers, clients or consumers, whereas in movements we are citizens, and each has very different implications. "NPC LLC researches, evaluates, and selects organizations for each of our funds so that our customers don't have to." This isn't an advert for Wall Street, but a group in the United States that advises on charitable donations. In future you won't need any contact with the organisations you support, never mind participation in their activities, you can just invest in a political mutual fund and write it off to tax.

In the ever-growing outpouring of books, newspaper stories and conference reports on philanthrocapitalism you will find plenty of attention to finance and the market, but scarcely a mention of power, politics and social relations - the things that really drive social transformation. Although the landscape is shifting a little as a result of accumulated experience (especially at the Gates Foundation) the great majority of venture philanthropy supports technical solutions and rapid scaling up ("technology plus science plus the market brings results").

In business, the pressure to quickly go to scale is natural, even imperative, since that is how unit-costs decline and profit-margins grow, but social transformation moves at a slower pace because it is so complex and conflicted. Having inherited their wealth or made it very quickly, the philanthrocapitalists are not in the mood to wait around for their results, and the metrics they use to evaluate success focus on short-term material gains not long-term structural shifts in values, relationships and power.

Business metrics privilege size, growth and market share, as opposed to the quality of interactions between people and the capacities and institutions they help to create. When investors evaluate a business, they ultimately need to answer only one question - how much money will it make? The equivalent for civil society is the social impact that organisations might achieve, alone and together, but that is much more difficult to evaluate.

The blend and the commons

These are deep-rooted differences, but are these rationalities unbridgeable, frozen forever in some mutually-antagonistic embrace? Philanthrocapitalism says absolutely not, but I'm not so sure.

All organisations produce different kinds of value in varying proportions - financial, social and environmental - whether they are citizens' groups or business. These proportions can be changed - or "blended" - through conscious or unplanned action, but not without real implications for those forms of value that are reduced, challenged or contradicted in return. Does one set of values become diluted or polluted when you mix it with the others? Is the resulting cocktail tasteless - like mixing wine and vinegar - or delicious, a margarita made in heaven? And are there some things - like oil and water - that do not mix at all?

Discussions of blended value seem to take place in a world free of trade-offs, costs and contradictions. Positive synergies are possible between service provision and advocacy for example, and service providers can certainly get more social value against an acceptable financial bottom line, but there is plenty of experience among organisations that started off with a social purpose and steadily lost it as they became more embedded in the market. Over time one type of value tends to squeeze out the others.

The philanthrocapitalists want to extend competitive principles into the world of civil society, on the assumption that what works for the market should work for citizen action too, but they haven't thought through the implications of their actions. Some call this the creation of a "social capital market", in which non-profit groups would compete with each other for resources, allocated by investors according to certain common metrics of efficiency and impact. Believers in this school of thought therefore set much sway on the collection of standardised data and its storage on the worldwide web, so that those who want to give to charity have more information to guide their decisions. But these data rarely measure progress towards social transformation.

Competition might actually retard progress by pushing non-profits to economise in key areas of their work, eschew the most complicated and expensive issues, and avoid those most difficult to reach. Outside service provision, it is difficult to see how competition would make any sense at all, and not just because the relevant market conditions are unlikely to exist.

Some relevant sources and links for exploring further the issues raised in Michael Edwards's essay:

Just Another Emperor? The Myths and Realities of Philanthrocapitalism


Non Profit Quarterly

Alliance
magazine


Council of Foundations

Philanthromedia

Philantopic


Matthew Bishop & Michael Green, Philanthrocapitalism: How the Rich Are Trying to Save the World (Bloomsbury, 2008)

Would local voluntary groups compete to host the children's Christmas party? Would there be increasing competition between groups dealing with different issues like HIV and schools? And who would really benefit? It is true that advocacy groups compete for members and for money, but often they cooperate, and in any case organisations are not easily "substitutable" in civil society because affiliations are based on loyalty, identity and familiarity, not on the price and quality of services provided. It's unlikely that members of the National Association for the Advancement of Colored People in the United States will cross over to the Puerto Rican Legal Defense Fund if they feel dissatisfied with their leaders.

It's because of these problems that I think collaboration among separate organisations may be better than blending or competition. It preserves the difference and independence required to lever real change in markets (not just extend their social reach), and to support the transition to more radical approaches that might deliver the deeper changes that we need, like new business models built around "the commons" such as open-source software and other forms of "non-proprietary production"; and community economics and worker-owned firms, which increase citizen control over the production and distribution of the economic surplus that businesses create.

The follower and the leader

The problem is that these approaches are absent from the philanthrocapitalist menu, perhaps because they would transform the economic system completely and lead to a radically different distribution of its benefits and costs. Systemic change has to address the question of how property is owned and controlled, and how resources and opportunities are distributed throughout society. That is presumably why Jim Collins, in a pamphlet that seems conspicuous by its absence given his stature in the corporate world, concludes that "we must reject the idea - well-intentioned, but dead wrong - that the primary path to greatness in the social sectors is to become more like a business."

"What could possibly be more beneficial for the entire world than a continued expansion of philanthropy" asks Joel L Fleishman in his book, The Foundation, that lionises the venture-capital foundations. Well, over the last century far more has been achieved by governments committed to equality and justice, and social movements strong enough to force change through, and the same might well be true in the future. No great social cause was mobilised through the market in the 20th century. The civil-rights movement, the women's movement, the environmental movement, the New Deal and the Great Society - all were pushed ahead by civil society and anchored in the power of government as a force for the public good. Business and markets play a vital role in taking these advances forward, but they are followers not leaders.

The best philanthropy does deliver tangible outputs like jobs, healthcare and houses, but more importantly it changes the social and political dynamics of places in ways that enable whole communities to share in the fruits of innovation and success. Key to these successes has been the determination to change power relations and the ownership of assets, and put poor and other marginalised people firmly in the driving seat, and that's no accident. This is why a particular form of civil society is vital for social transformation, and why the world needs more civil-society influence on business not the other way around - more cooperation not competition, more collective action not individualism, and a greater willingness to work together to change the fundamental structures that keep most people poor so that all of us can live more fulfilling lives.

Would philanthrocapitalism have helped to finance the civil-rights movement in the US? I hope so, but it wasn't "data-driven", it didn't operate through competition, it couldn't generate much revenue, and it didn't measure its impact in terms of the numbers of people who were served each day, yet it changed the world forever.

The symptom and the cure

To conclude, I'm arguing that:

* The hype surrounding philanthrocapitalism runs far ahead of its ability to deliver real results. It's time for more humility

* The increasing concentration of wealth and power among philanthrocapitalists is unhealthy for democracy. It's time for more accountability

* The use of business and market thinking can damage civil society, which is the crucible of democratic politics and social transformation. It's time to differentiate the two and reassert the independence of global citizen action

* Philanthrocapitalism is in part a symptom of a profoundly unequal world. It hasn't yet demonstrated that it provides the cure

So here's the 55-trillion-dollar question (the amount of philanthropy that is projected to be created in the United States alone over the next forty years): will we use these vast resources to pursue social transformation, or just fritter them away in spending on the symptoms?

The stakes are extremely high, so let's have a global public debate to sort out the claims of both philanthrocapitalists and their critics.

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This essay and Just Another Emperor provoked a lively and lengthy debate on openDemocracy and elsewhere, to which Michael Edwards replied in a further article: "Philanthrocapitalism: old myths, new realities" (14 November 2008)