Philanthrocapitalism: old myths, new realities

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.


"Light the blue touch-paper and wait for the fireworks": that just about sums up the response to my book Just Another Emperor? The Myths and Realities of Philanthrocapitalism since its publication in March 2008. Not that I'm complaining. The book was written to stimulate debate about the increasing influence of business on philanthropy and it has done that pretty well - aided and abetted by a free download, the viral-networking potential of the web, and the publication of Matthew Bishop & Michael Green's homage to the rich and famous, Philanthrocapitalism: How the Rich can Save the World.

Michael Edwards left the Ford Foundation on 17 October 2008. He is now a Distinguished Senior Fellow at Demos in New York, a Visiting Senior Scholar at New York University's Wagner School of Public Service, and a Visiting Senior Fellow at the Brooks World Poverty Institute at Manchester University in northern England. He is the author of Just Another Emperor? The Myths and Realities of Philanthrocapitalism (Demos/Young Foundation, March 2008). Michael Edwards can be reached at edwarmi@hotmail.com The reactions to the book - and to the openDemocracy article drawing from it, "Philanthrocapitalism: after the goldrush" (19 March 2008) - exploded across the internet. They included appearances on Stopconstipation.com and at least one rubber-fetish site - not, of course, personally known to me. As they did so, my small file of responses grew into a whole filing-cabinet. This makes it impossible to summarise anything except the highlights, but even those provide a fascinating glimpse into a much wider debate about the future of society.

An opening for change

Why has such a small book created such a large response? The first reason is that it articulates what many were thinking but have been reluctant to declare in public, a testament to their understandable unwillingness to bite the hand that feeds them. By highlighting these concerns in a forceful and straightforward style, the book has dammed the tidal wave of support for business "solutions" (at least for a time) and in its wake created space for a different kind of conversation, less dominated by hype and more open to evidence and dissenting voices. And that's the spirit we need to move forward together in a more constructive way.

The second reason is that this debate opens up much deeper questions on a range of hot-button issues:

  • the rising social and political influence of business and wealthy individuals
  • the encroachment of the market into every aspect of our lives
  • and the potential erosion of older traditions of collective action, democratic accountability, solidarity and service.
  • These questions have been amplified by what has happened since Just Another Emperor? was published: the eruption in September-October 2008 of the biggest financial crisis since the Great Depression. This crisis, the result of irresponsible risk-taking and colossal mismanagement by banks and hedge-funds over several years, has already begun to have an impact on public debate in the United States and elsewhere. There are signs, for example, of rising concerns about inequality and more interest in the potential of collective action to reverse it, as has happened throughout the last century and a half. The election of a new US president, Barack Obama - which was anticipated in an openDemocracy article in 2006 - can be seen in part as evidence of this shift in sentiment (see "Democracy in America: paths to renewal", 21 November 2006).

    It is no coincidence that discussions about "creative capitalism", the term launched by Bill Gates at the World Economic Forum in January 2007, have taken off just at the time that ‘traditional capitalism' is experiencing a loss of public confidence and the "unmaking of the market" is back on the political agenda.

    So although on the surface the disagreements may seem to revolve around different approaches to philanthropy (and therefore different metrics, investment strategies and other similar issues), the real question is whether societies can be transformed through philanthrocapitalism or whether this new phenomenon is just "a symptom of a profoundly unequal and disordered world" as I put it in my original conclusion. Given that most of us want to make the greatest possible difference this is far from an academic question.

    "Everything short of a fatwa"

    Philanthrocapitalism, like all religions, inspires passionate adherence, opposition and reflection from those it seeks to influence. It has its evangelicals who have drunk so much of the kool-aid that no amount of argument or evidence will shift their conviction that markets are always best; its progressives who are actively seeking to transform society through revolutionary experiments in ownership, governance and incentives right at the heart of business; and a broad centre-ground that is open to influence and persuasion from both these directions.

    Perhaps it is unsurprising, then, that the hundreds of written responses to Just Another Emperor? that streamed in - by email, on blogs and webzines, and through interviews, reviews, op-ed pieces and commentaries in the print media - fell into three general categories:

  • ecstatic (from established non-profits, "older" foundations, civil-society activists and community organisations)
  • dismissive (from a small number of social entrepreneurs and others who felt under unwarranted personal attack)
  • and somewhere in-between (the largest and most interesting category, who agreed that it was high time to burst the philanthrocapitalist balloon, but worried about "throwing the baby out with the bathwater", or who had concerns about particular parts of the argument I had made).
  • Most common among the first group were simple expressions of thanks - "thanks for doing this", "thanks for bringing a bit of fresh air and resistance into our world", "thanks for putting into words what has been disturbing me so deeply about our field as public trust is supplanted by private hubris" (three comments from trustees of US foundations who wanted to remain anonymous).

    At long last, such voices seemed to feel, someone has said what needed to be said in reaction to years of being lectured on the "inefficiencies" of non-profits, the "lack of innovation" in traditional philanthropy, and the supposed superiority of all things that emanate from business. "I've watched the growth in the domestic youth field of various philanthrocapitalism schemes with dismay", wrote the publisher of Youth Today, "so much overhead, so much white-collar welfare, so little to show for it."

    "Nonprofits are proud to be un-businesslike these days...if Lehman Brothers or AIG had been run more like non-profits they might not be in so much trouble", said Laura Pierce. Philanthrocapitalism is just "today's oxymoron," said a post in The Nonprofiteer; "bang! That's the sound of Michael Edwards hitting the nail on the head time and time again", said Jan Masaoka; "If you haven't read this anatomy and debunking of social venture philanthropy, do. It. Now.", said another The Nonprofiteer post. For many, the most important contribution of Just Another Emperor? was not the challenge it provided to philanthrocapitalism but the reaffirmation it provided to civil-society activism. If they did have a quibble, those in this group expressed disappointment that the book was too gentle, too balanced, and far too polite.

    This would come as a nasty shock to the second category of responders, who were outraged that anyone would challenge those who were clearly doing their best to promote social change through business and the market and should therefore be lionised, not lamented. "Everything short of a fatwa", was the response of a leader from European venture philanthropy when I asked him how his colleagues had reacted.

    To this group, my description of philanthrocapitalism was another straw-man, uninformed or even deliberately misleading, "an exercise in political spin" as Benetech founder Jim Fruchterman put it in a cry of pain heard all the way from Silicon Valley. Some, like Beth Breeze from Britain's Association for Charitable Foundations, were so astonished that anyone could doubt the benefits of business that my account had to be an exercise in self-deception, even a "counsel of despair" - which is quite a conclusion given that the book argues for the endlessly-creative power of civil society and its freedom to act independently of the market. And there were predictable accusations of "socialism" and worse on the Wall Street Journal's blog.

    The third category of responders included several who considered themselves philanthrocapitalists but who saw the second group's views as exaggerated or overly-defensive. Among them were Paul Hudnut, who noted how prickly some of his colleagues could be despite their achievements and self-confidence on the surface; Paul Shoemaker, who saw much to agree with in my recommendations but "so many misperceptions" in the criticisms I had made; Leslie Lenkowsky, who gave philanthrocapitalism "at least two cheers even if it fails to live up to the claims its proponents make"; and the various contributors to nextbillion.net's dialogue about the book, who maintained their faith in philanthrocapitalist solutions to poverty but rejected the arrogance of some of its proponents and their assumptions. 

    This became a recurring theme in other online debates hosted by NonProfit Quarterly, the Global Philanthropy Forum, and openDemocracy itself - all of which deliberately encouraged a wide range of different views and voices.

    What emerged from the responses in this middle ground was a feeling that civil society and philanthrocapitalism have more to offer each other than they might admit, whether in "blended" form or by working together as separate, different and independent actors. As Mike Quinn put it on businessfightspoverty.com: "as a supporter of social entrepreneurship, my civil society roots have often left me surprised at the lack of empirical evidence and critical thought that accompanies any case study on social innovation or social enterprise from the philanthrocapitalist perspective...but the skills learned in business school and in the private sector do have real relevance, and not just for the financial management of civil society organizations as Edwards argues. Perhaps civil society also needs the humility to recognize where it needs certain expertise and admit that it is underfunded at least partially because of its own mismanagement of resources."

    Jim Koch, director of the Global Social Benefit Incubator, argued - in a comment echoed by many others - that philanthrocapitalism and collective action might actually complement each other, with the former supporting human agency through sustainable economic solutions to poverty and dispossession, and the latter helping to translate that agency into social movements and large-scale political action.

    The implication is that instead of perpetuating mutual stereotypes, perhaps we should take advantage of the strengths and contributions of both the "old" and the "new" philanthropy by working through the issues that get in the way of closer collaboration. Respondents like these highlighted a number of criticisms that provide a useful framework for the conversation we clearly need to have.

    Mea culpa....Je ne regrette rien

    The first of these criticisms was over-generalisation (to which I plead "guilty-as-charged"), accompanied by the feeling that I had underestimated the potential social impact of some strains of philanthrocapitalism. The power of polemics derives in part from the fact that they do involve a certain degree of simplifying focus in order to concentrate on the essentials of an argument. But it is certainly true that the philanthrocapitalist umbrella covers many distinct phenomena:

  • using markets to advance social goals
  • integrating business principles into non-profit management
  • providing goods and services through social enterprises
  • deploying venture-capital investing techniques in philanthropy
  • raising commercial revenue for civil-society organisations
  • deepening different iterations of "corporate social responsibility"
  • and investing in new business models like "commons-based production".
  • So which aspects of philanthrocapitalism are healthy for social transformation, which are neutral, and which might actually be damaging? Sorting through these questions is one way of assuaging concerns that blanket criticism might act as a disincentive to future giving, and forms an important component of the next steps that need to be taken to drive this conversation forward.

    The most interesting feedback of this kind came from the "social innovation" school, including social entrepreneurs and others who rejected the claims made by hardline philanthrocapitalists about the rich as "super-heroes" and the need to raise revenue through the market or scale-up quickly. They offered instead a more inclusive vision of "entrepreneurial individuals applying themselves for public benefit rather than purely personal gain" through peer-group collaboration, strategies to achieve systemic change, and the empowerment of those usually classed as "beneficiaries" - a vision very close to Michael Young's original definition of the "social entrepreneur" that was formulated twenty-five years ago in London.

    Rohini Nilekani (herself a wealthy philanthropist) issued a powerful call in The Hindu for India's new rich to face up to their role in perpetuating inequality, rather than pretending that business solutions could cure India's deep-rooted social problems. As the debate spread across the world of international development, comparisons were drawn with an earlier generation of foreign-aid providers who had tried and failed to generate results through the kind of top-down control and rigid metrics beloved of some philanthrocapitalists.

    Even the "base-of-the-pyramid" movement is undergoing its own internal shifts as a result of criticisms about its lack of social impact and failure to reach the poorest (see Erik Simanis & Stuart Hart, The Base of the Pyramid Protocol: Toward Next Generation BoP Strategy, Cornell University Press, 2008 -  downloadable from www.johnson.cornell.edu/sge/; and Stuart Hart's foreword to Prabhu Kandachar & Minna Halme, Sustainability Challenges and Solutions at the Base of the Pyramid: Business, Technology and the Poor,  Greenleaf Publications [Sheffield], 2008).

    Some critics seemed to have missed my strong acknowledgment that philanthrocapitalism should be able to expand important markets for socially- and environmentally-useful goods and services, perhaps strengthening non-profit service providers in the process. But by themselves these successes would have little impact on the forces that drive social transformation - namely politics, government and social movements strong enough to achieve broad-based changes in the distribution of power, resources and opportunities.

    "You don't put band-aids on sucking chest wounds" as "Retired Marine" put it on the Wall Street Journal's blog. "Social enterprises do best when they identify one concrete need and meet it well", said another; "they are much less effective in tackling complicated issues where people disagree on what to do, or when the problem simply isn't fixable in the conventional sense of the word."

    Other respondents questioned whether the philanthrocapitalists had ever intended to achieve deep-rooted structural changes in society, so it was unfair to judge them by this criterion. To "expect them to fund the loss of their own power is almost tragi-comic," a leading Indian fundraiser wrote in a confidential email.

    Should philanthropy make up for the shortfalls of a system that is basically sound, or change that system in ways that enable the majority of the population to share in the fruits of success and become philanthropists themselves? Are "larger crumbs from the rich man's table" the best we can hope for in these enervated times? Is philanthrocapitalism really just trickle-down economics in a new and friendlier disguise?

    After all, if business and the super-rich are serious about their social responsibilities there is plenty of work to be done in changing the way that wealth is produced and distributed without the smokescreen of philanthropy. Taking the right steps on wages, working conditions, benefits, consumer standards, tax obligations, political lobbying, monopolies and competition at the heart of business would have a huge social impact. As Daniel Lubetzky (a leading social entrepreneur himself) put it: "what most resonates with me about the unexamined ‘noise' surrounding philanthrocapitalism is that it is often used to mask dishonest or noxious behavior from corporations."

    Who will stand for "civil society strong"?

    The second set of criticisms concerned my somewhat romantic treatment of civil society, social movements, and traditional philanthropy (which, with one or two exceptions, has never funded radical mass-based citizen action). Buzz Schmidt of GuideStar International, for example, agreed that "pressures to commercialize social activity erode the integrity of non-profit initiative" but blamed the "standard operating practices of private foundations" rather than the specifics of philanthrocapitalism for this problem.

    For Schmidt and others, the villain in this piece is the whole of institutional philanthropy, which is ripe for root-and-branch reform (and after working in it for the last nine years, I happen to agree). Some of the most exciting comments about Just Another Emperor? came from those who advocated completely different systems for funding social change, variously described as "citizen philanthropy" ("user-friendly and "user-generated"), "social justice philanthropy", and "transformational philanthropy" - ideas that begin to get at the unequal power dynamics and accountability deficits that lie at the heart of conventional foundation decision-making and governance.

    If philanthropy is "private funding in the public interest", it is not unreasonable to insist that the "public" has some say in defining how its "interest" is identified and addressed. Democratising philanthropic foundations may be a headline issue in the next ten years, especially because philanthrocapitalism celebrates the very public concentration of wealth, celebrity and status.

    Nevertheless, philanthrocapitalism has some distinctive attributes that continue to concern me as a civil-society enthusiast. Bruce Sievers, an early and insightful critic of philanthrocapitalism before it was baptised, gently chided me for compressing the huge diversity of civil society into something that could be targeted at specific social outcomes. Fair enough, but this observation doesn't change the fact that civil society is crucial for social transformation, nor that philanthrocapitalism may erode the very characteristics (like diversity and independence) which make civil society an important engine of social and political change.

    In my own conversations with philanthrocapitalists, what strikes me is how little direct experience they have of real collective action, equal democratic negotiation, and the empowerment of poor and marginalised people so that they can control their own agendas. This is not because they are bad or ignorant people - it is simply a consequence of their personal formation in business and the market, which have such a different philosophy of action. Looking in the mirror, I would say the same thing about myself but in reverse, and for me the need to differentiate and protect these philosophies remains absolutely important - "it's the difference that makes the difference to society" as I put it in Just Another Emperor?

    It was this argument - a deliberate push-back against the "Tesco-isation" of charity - that resonated so powerfully with many respondents from civil society, especially Bill Huddleston, who posted a lengthy explanation of "why non-profits are not businesses" on multiple sites on the web which is well worth reading and then re-reading again. "There are twenty other organizations as good or as important as us - it's not a competition", wrote Si Kahn from Grassroots Leadership in the United States, "I'm a movement person, so it doesn't matter whether we get a grant or someone else does, so long as we as a whole have enough to do the work".

    Contrast this position with Matthew Bishop's monotonous advocacy of "more competition" as the route to greater non-profit impact in the Chronicle of Philanthropy. True, competition does exist among non-profits (especially among service-providers, which is where "business" thinking is most useful), but it is not the quality that characterises successful social movements, alliances and coalitions.

    Business and the market have already colonised every other aspect of our lives - public services, politics, the media, and universities - so the invasion of civil society and the philanthropy that supports it is to be expected. However, the effects could be disastrous, since civil society is the last remaining place where we can be equal, and free to invent solutions that are not dependent on business or government, a space that is the lifeblood of any truly innovative and democratic society.

    Who will ask the big questions about capitalism and social justicewhen civil society is privatised? Who will do the difficult work of building community and fighting for democracy when you can earn revenue and profile much more easily by providing goods and services in the not-for-profit marketplace? And if the rich and famous can really "save the world", why not make social change into a spectator sport, with the rest of us buying tickets to watch them instead of rolling up our sleeves and taking our share of the responsibility? Welcome to "civil society-lite" - the natural consequence of the continued commercialisation of the not-for-profit sector. Standing up for "civil society-strong" may be Just Another Emperor?'s most important contribution.

    Business thinking or old-fashioned common sense?

    The third set of criticisms rejected my description of "business thinking" as inappropriate to the measurement of social change, or at least rejected the conflation of business jargon with the underlying need to measure performance and assess real results (see here and here). A focus on impact, in other words, is and must remain independent of "business" and the "new philanthropy" - just as alternative methods of impact assessment should be honoured, especially for those things (like empowerment and institutional capacity-building) that are most difficult to quantify.

    I agree, and said as much in Just Another Emperor?, but obviously not in terms that were persuasive. On his blog, Bob Giloth put it like this: "rather than just argue that more money should go to social justice organizations (a good idea), maybe some of this philanthrocapitalist money and expertise should go to improving the non-profit sector...the best of this assistance isn't making non-profits operate like businesses - but helping them to operate better."

    ‘"Differences in performance across civil society organizations", wrote Jeff Bradach of the management consultancy Bridgespan in an email, "have nothing to do with applying market paradigms, but simply ask what they are trying to accomplish and how would we know if they are making progress." If this is true, it will be music to the ears of many in civil society who have been lectured about the virtues of business metrics and measurement techniques in much less nuanced terms.

    Conclusion

    Just Another Emperor? was designed to make space for more balanced and sophisticated positions like these, push back against the wilder claims of philanthrocapitalism, and encourage people to find their voice and not simply swallow hard in the face of the tsunami of pro-business thinking that was heading in their direction.

    Nine months on, the ground under our feet is moving. In this new economic, political, and intellectual environment, the "emperor" has retained much of his clothing but has lost his crown, no longer the sole figure in a triumphal procession towards the permanent supremacy of the market. Those of us lining the streets must keep a careful watch on what happens next, and be prepared to enter the fray if we see Napoleonic tendencies returning. All in all, the provocations of Just Another Emperor? have done their job and done it well. Bring on Josephine. Je ne regrette rien.

    openDemocracy's debate on philanthrocapitalism was launched by Michael Edwards's essay, "Philanthrocapitalism: after the goldrush" (19 March 2008)

    The essay sparked these responses:

    Gara LaMarche, "Philanthropy for social change" (9 April 2008)

    Geoff Mulgan, "The new philanthropy: power, inequality, democracy" (10 April 2008)

    Simon Zadek, "Civil society and capitalism: a new landscape" (14 April 2008)

    Stewart J Paperin, "Philanthropy's business benefit" (16 April 2008)

    Mark Surman, "Philanthropy on the commons" (18 April 2007)

    Colin Greer, "Philanthropy as solidarity" (21 April 2008)

    Karen Weisblatt, "Individual giving, collective action" (23 April 2008)

    Kavita N Ramdas, "Philanthrocapitalism in denial" (25 April 2008)