srheywood on "Philanthropy’s business benefit "

srheywood — Mon, 21 Apr 2008 14:16:40 +0000

What you're saying Mark is that it's somehow magically impossible for large profit-driven companies to even dream of exploiting the communities with which they do business. Clearly it's not impossible at all. It happens every day.

edwarmi@hotmail.com on "Philanthropy’s business benefit "

edwarmi@hotmail.com — Sat, 19 Apr 2008 23:45:09 +0000

I thought Mark lived in South Africa but from his post he's obviously relocated to Disneyland. To say that there are no conflicts of interest between business objectives and social transformation is pure fantasy. Stewart Paperin lauds Coca Cola while ignoring the fact that they are being sued for sucking up groundwater illlegally in India. Mark Surman gushes that Wikipedia is supported by philanthrocapitalists because they want to transform the economy (no connection with increasing demand for computer hardware and software then Mark?). And even BRAC in Bangladesh doesn't claim to "reach the poorest", because the poorest can't be reached by markets - they don't have the assets. "Just Another Emperor" is full of examples of these conflicts of interest and they are not going to go away.

Mark Surman on "Philanthropy’s business benefit "

Mark Surman — Fri, 18 Apr 2008 20:45:44 +0000

srheywood says: "The problem with "win-win" is that it is inherently vulnerable to conflicts of interest." Um, actually, no. The point of real win-win is that the successful pursuit of my *self interest* reinforces or at least does not hinder the successful pursuit of your self interest. So, in a private / community partnership, win-win means that a companies pursuit of profits also benefits the community group or whoever it is that is pursuing a social change goal. That's the logic behind entities like BRAC, which are not tiny cooperatives but rather large, business-like organizations dedicated to helping people move beyond a subsistence livelihood.

srheywood on "Philanthropy’s business benefit "

srheywood — Thu, 17 Apr 2008 13:18:21 +0000

1) Philanthrocapitalism is based on "win-win" rather than "zero-sum" assumptions - "I can profit personally while benefiting others" rather than "I have to give outright in order for others to benefit." The problem with "win-win" is that it is inherently vulnerable to conflicts of interest. If you are doing philanthropy for profit, you are likely to come up against moments of decision where you have to sacrifice profit for philanthropy or the other way about. There is always a strong risk that the profit motive will win out and the philanthropy become spin.

2) This article seems to assume that a vast global corporation is essentially the same class of entity as a tiny co-operative self-help group in the majority world, because both are devices for trading in markets. OK, but there are massive differences of power, purpose, modus operandi and outcome. The last I heard of Coca-Cola they were sucking up groundwater from drought-stricken rural communities in India and trying to dodge the blame in the courts, in a way which is somewhat beyond the resources and intentions of your average village fruit-farming co-operative, even if it does rely on micro-credit for start-up capital. If Coca-Cola and others like them have now started to clean up their act a bit, then, it's probably due in large measure exactly because (to borrow their own words) they know they're likely to get "bashed" by civil society, including those same old-fashioned non-profit NGOs, if they don't. if their intentions were good, you'd think they'd welcome the dialogue, but all they seem to do is complain about the interference, with that "Atlas Shrugged" air of harrassed self-pity which you only ever seem to see in rich people who suspect that someone is interfering with their God-given right to the money.

I had one small try at doing a "community" style project with a big corporation back in the nineties, and I wouldn't perrsonally do it again. There's no integrity in it. In my experience these institutions aren't designed to do good, they're designed to make money, and they want you to provide a bit of spin and nothing more. It was only the one project but it's 100% of my experience of the corporate sector!

Philanthropy’s business benefit , Stewart J Paperin

opendemocracy — Wed, 16 Apr 2008 11:41:46 +0000

In his article "Philanthrocapitalism: after the goldrush" (19 March 2008) Michael Edwards raises several serious questions about mixing business principles with philanthropic objectives and elevates the debate about the utility of a market-oriented approach to philanthropy. Edwards focuses particularly on the question of whether or not a focus on profits or business principles helps or hinders an organisation to successfully achieve longer-term social objectives, and he is quite critical of the potential outcomes.

Stewart J Paperin is executive vice-president of the Open Society Institute and Soros foundations network A large part of his dissatisfaction with merging business approaches with philanthropy results from Edwards's inadequate definition of when business principles should or should not be used. He paints the question as a stark choice: either conventional philanthropy carried out by the NGO sector of civil society, or a business-oriented and profit-driven approach to change. In reality, the issue is not so clear-cut. In many instances, a business-driven approach with a profit motivation can exist quite comfortably within a social mission. This is particularly the case in the rapidly expanding area of socially responsible investment.

The road to sustainability

Michael Edwards defines "philanthrocapitalism" according to three traits; the availability of outsized resources, the use of a methodology which rests on the assumption that business practices are more successful than approaches used in either the public or third sectors, and the claim that markets can transform society. He then concludes that "while it is possible to use the market to extend access to goods and services", this does not result in social transformation.

Edwards's trivialisation of access to goods and services is unfortunate, particularly because this access may permit economic development that results in employment and consequently in progress from subsistence to surplus. For example, one of the most successful engines of social development - the Bangladesh Rural Advancement Committee (Brac) in Bangladesh - is a social organisation that rests squarely on microfinance and small-business development supported by small-business lending. Around these cornerstone activities, Brac delivers health services, education and programmes that empower women. Brac's activities have created a variety of for-profit businesses including iodised salt manufacture, agricultural-seed development and soft-goods retailing that fund and subsidise other activities.

Donors who have funded Brac do so not only because of its excellent work but also because its business-like approach to microfinance, small-business lending and value-chain creation has made it sustainable. Brac still depends on donor funding for a small part of its operating budget because this offers Brac a window into how other organisations approach similar problems, not because it is incapable of wean itself off donor funds.

Brac's focus on sound financial organisation and profitable services notwithstanding, the organisation has had a transformational impact on Bangladesh. It is important to consider that these changes have occurred on a borad grassroots basis and have led to thousands of "solidarity borrowing groups" and the emergence of a small merchant class. Over time this certainly contains the seeds of a more permanent social organisation, and perhaps of a political organisation. Without question Brac has strengthened the role of women in Bangladeshi society and empowered them economically and socially.

Edwards also suggests that philanthrocapitalism leads to conflicts between social mission and the demands of corporate shareholders. Although this is certainly true in some cases, he seems to imply that businesses focus solely on profitability and cannot have multiple objectives. I think this view is far too narrow. Edwards fails to recognise that corporations frequently pursue many simultaneous and sometimes conflicting objectives by evaluating the net costs and benefits of each.

For example, both Pepsi Cola and Coca Cola have been generous supporters of clean-water programmes, having acknowledged their own heavy water use. They recognised that helping to provide the infrastructure that leads to improved drinking-water supply also improves both governmental and public perceptions. They are investors in filtration and distribution schemes not because they plan to enter the water-filtration business but because they are dependent upon the continuing goodwill that permits them to access this scare public resource. While they could conceivably operate a profitable bottled-water business in certain emerging markets, instead they focus on local development of a public good - partially for social objectives and partially to enhance public perceptions of their businesses. Conflicting objectives can be managed, as long as the corporation or the donor does the work to identify conflicts and think through a reasonable set of tradeoffs.

Rather than regarding returns as the principle objective, philanthrocapitalists often accept lower than market returns. A recently announced venture-capital exercise that brings together financing from Google.org, the Omidyar Network and the Soros Economic Development Fund focuses on for-profit investment in companies that address clients on the bottom of the economic rung in Hyderabad, India. This investment company's explicit objective is to invest in companies serving poor clients, and there is a clear acknowledgment that this will result in return on equity far below venture-capital levels - a result hardly justified by risk-adjusted metrics if social benefits are not taken into account. Nevertheless, the company expects a profit and a full return of capital.

Also, fundamental to the investment strategy of this initiative is the identification of target companies that are driven by profit, but are defined by their interest in poor clients as consumers who will benefit. Whether this can be achieved or not remains to be seen, but philanthrocapitalism certainly aims to use a business-based approach to create social benefits including employment, expanded spending - and its consequent multiplier effect - and the introduction of very poor people to a range of goods and services, including health and education.

The market lever

Michael Edwards also fails to appreciate the leverage effect that philanthrocapitalism can have in providing public goods and services. In a pure philanthropy case, 100% of funding is sourced from scarce philanthropic or public funds. As an alternative, clever risk-assessment and use of business practices can multiply the financing scale by guaranteeing or subsidising only the risky parts of a programme, or by demonstrating that certain beneficial services can be pursued without risk or with profit. Available financing is thus expanded by introducing market funding. Much of the financing that has evolved in microfinance markets has been raised in this manner: institutional investors who expect market returns provide the less risky portions of funding and philanthropic investors guarantee the riskier parts.

Also on openDemocracy in our debate on the new philanthropy:

Michael Edwards, "Philanthrocapitalism: after the goldrush" (19 March 2008)

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)

Michael Edwards's essay draws on his book - Just Another Emperor: the Myths and Realities of Philanthrocapitalism (Demos/Young Foundation, March 2008) Philanthrocapitalism can also play an important role in helping to properly assess mispriced risk and demonstrating that market-based contributions to social problems can be quite safe. When the South African government undertook a programme to provide safe and decent housing to poor South Africans, it agreed to provide permanent financing to liquidate development loans. Notwithstanding this permanent financing, few banks would lend to developers and few houses were built because of the banks' perception of risks.

George Soros determined that any such risks were dramatically overstated and could be well managed, so he agreed to make an outsized guarantee to protect lenders. Nurcha, the Soros-funded organisation, conclusively demonstrated that actual risks and losses were far lower than perceived, and mainstream financial organisations entered the market. Ten years later, over 250,000 homes have been built with minimal losses, and banks have stepped in as primary development financiers. If business-based lenders had not made significant commitments of funds, over 1.25 million South Africans would still be living in shacks. Moreover, an important public-policy opportunity to reform the provision of low-income housing would have been missed.

Edwards is correct, however, that market-based solutions and business-based approaches are not the solution to every problem. Matters of extreme poverty require public-policy solutions that focus on income transfer as well as provision of basic public goods - including education and fundamental healthcare. Participants below a certain income level cannot benefit materially from many of the new business-oriented approaches like microfinance unless they are also provided with a full range of social services. Markets alone will rarely, if ever, serve as an organising principle for social transformation, but certain aspects can enhance and strengthen the ability to realise deep social change. In particular, they can create a environment in which the poor can lift themselves, step by step, out of subsistence and into the independence that surplus brings.

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open Democracy News Analysis - Philanthropy’s business benefit , Stewart J Paperin - Comments

srheywood on "Philanthropy’s business benefit "

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Mark Surman on "Philanthropy’s business benefit "

srheywood on "Philanthropy’s business benefit "

Philanthropy’s business benefit , Stewart J Paperin