The International Journal
of Not-for-Profit Law

Volume 10, Issue 2, April 2008

Michael Edwards1

It is six o’clock on a Saturday afternoon, and the Swan Lake Fire Department Ladies Auxiliary are cleaning up after their latest community rummage sale. Not much money changed hands today, but plenty of warm clothes did, much needed with the onset of winter in this upstate New York town. Prices varied according to people’s ability to pay, and those who couldn’t pay at all—like the mother who brought all her money in dimes, quarters and pennies inside a ziplock plastic bag—were simply given what they needed, and driven home to boot. “Imagine what this would have cost me at Wal-mart?” was what she told her driver.

In some ways, there is nothing special about this story, which is repeated a million times a day in civil society groups that act as centers of solidarity and sharing. In another sense, it is profoundly important, because it represents a way of living and being in the world that is rooted in equality, love and justice, a radical departure from the values of competition and commerce that increasingly rule our world. It is not that the Ladies Auxiliary is a community free of markets—like everyone else, they have to make a living and raise funds to support their work, and they keep meticulous accounts. But when it comes to their responsibilities as citizens, they have decided to play by a different set of rules—grounded in rights that are universal, not access according to your income, recognizing the intrinsic value of healthy relationships that cannot be traded off against production costs or profit, and living out philanthropy’s original meaning as “love of humankind.”2

Across the universe, meanwhile, a very different form of philanthropy is taking shape. Nicknamed “philanthrocapitalism” by journalist Matthew Bishop,3 its followers believe that business thinking and market methods will save the world—and make some of us a fortune along the way. Bobby Shriver, Bono’s less famous partner in the Red brand of products, hopes that sales will help “buy a house in the Hamptons” while simultaneously swelling the coffers of the Global Fund for TB, malaria and AIDS.4 It is a win-win situation—gain without pain—and the price of entry to the world’s “most elite club,” as BusinessWeek describes the “Global Philanthropists’ Circle” that is sponsored by Synergos in New York.5 If only we can make foundations and non-profits operate like businesses and expand the reach of markets, great things will be within our reach, much greater than all the traditional activities of civil society combined.

From Bill Clinton to Bill Gates, the rich and famous are lining up to boost the claims of this new paradigm. According to journalist Jonathan Rauch, ex-President Clinton wants to “repurpose business methods and business culture to solve the world’s problems … and he hopes to reinvent philanthropy while he’s at it.”6 “The profit motive could be the best tool for solving the world’s problems, more effective than any government or private philanthropy,” says Oracle founder Larry Ellison.7 “Wealthy philanthropists have the potential to do more than the Group of Eight leading nations to lift Africa out of poverty,” says “rock star” economist Jeffrey Sachs.8 “If you put a gun to my head and asked which one has done more good for the world, the Ford Foundation or Exxon,” says Buffet and Berkshire Vice- Chairman Charles Munger, “I’d have no hesitation in saying Exxon.”9 “The most pressing environmental issues of our time will be … solved when desperate governments and nongovernmental organizations (NGOs) finally surrender their ideologies and tap the private sector for help.”10 “This,” says Jeff Skoll, who co-created eBay, “is our time.”11

What lies behind the rise of this phenomenon? The philanthrocapitalists are drinking from a heady and seductive cocktail, one part “irrational exuberance” that is characteristic of market thinking, two parts believing that success in business equips them to make a similar impact on social change, a dash or two of the excitement that accompanies any new solution, and an extra degree of fizz from the oxygen of publicity that has been created by the Gates-Buffet marriage and the initiatives of ex-President Clinton.

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 Gates Foundation, the Clinton Global Initiative and others. New loans, seeds and vaccines are certainly important, but there is no vaccine against the racism that denies land to “dalits” (or so-called “untouchables”) in India, no technology that can deliver the public health infrastructure required to combat HIV, and no market that can reorder the dysfunctional relationships between different religions and other social groups that underpin violence and insecurity.

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, but social transformation requires a great deal more than these two things. Despite their admirable energy and enthusiasm and genuine intent, the philanthrocapitalists risk misfiring when it comes to much more complex and deep-rooted problems of injustice.

Philanthrocapitalism offers one way of increasing the social value of the market, but there are other routes that could offer equal or better results in changing the way the economic surplus is produced, distributed and used: the traditional route that uses external pressure, taxation and regulation; the philanthrocapitalist route that changes internal incentives and gives a little more back through foundations and corporate social responsibility; and more radical innovations in ownership and production that change the basis on which markets currently work. We don’t know which of these routes carries the greatest long term potential, though all of them rely on civil society as a vehicle for innovation, accountability, influence and modified consumption, and especially for getting us from reformist to transformational solutions. I suspect that civil society will be able to play those roles more effectively from a position of diversity and strength. “It’s the difference that makes the difference,” remember, so working together but independently may be a better way forward than dissolving our differences in some soggy middle ground. In the real world, there is no gain without pain, no seamless weaving of competition and cooperation, service and self interest, inequality and fairness. If something seems too good to be true, it probably is.

“What could possibly be more beneficial for the entire world than a continued expansion of philanthropy?” asks Joel Fleishman in his book that lionizes the venture capital foundations.12 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 mobilized through the market in the twentieth 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, “instruments in the orchestra” but not “conductors.”

“We literally go down the chart of the greatest inequities and give where we can affect the greatest change,” says Melinda Gates of the Gates Foundation,13 except that some of the greatest inequities are caused by the nature of our economic system and the inability of politics to change it. Global poverty, inequality and violence can certainly be addressed, but doing so requires the empowerment of those closest to the problems and the transformation of the systems, structures, values and relationships that prevent most of the world’s population from participating equally in the fruits of global progress. The long-term gains from changes like these will be much greater than those that flow from improvements in the delivery of better goods and services. After all, only the most visionary of the philanthrocapitalists have much incentive to transform a system from which they have benefited hugely.

So where are the examples of philanthropy that supports organizations that really make a difference? There are thousands of them scattered widely across the world through civil society, but very few receive support from the philanthrocapitalists. I’m thinking of groups like “SCOPE” and “Make the Road by Walking” in the United States, which build grassroots organizations, leadership and alliances in communities that are most affected by social and economic injustice in Los Angeles and New York respectively. Established after the Los Angeles riots in 1992, SCOPE addresses the “root causes of poverty” by nurturing new “social movements and winning systemic change from the bottom up.”14 It has involved almost 100,000 low-income residents in community action to secure a $10 million workforce development program with the Dreamworks Entertainment Corporation, developed a regional healthcare program funded by local government, initiated the Los Angeles Metropolitan Alliance to link low income neighborhoods with each other across the city and upwards to regional solutions, and launched the California State Alliance that links twenty similar groups throughout the state to develop new ideas on environmental policy, government responsibility, and reforms in taxation and public spending.

Make the Road New York opened its doors in 1997 in the Bushwick section of Brooklyn to build capacity among immigrant welfare recipients, but soon expanded its focus to combat the systemic economic and political marginalization of residents throughout New York. Since then it has collected over $1.3 million in unpaid wages and benefits for low income families through legal advocacy and secured public funding for a student success center to meet the needs of immigrants.15 Both organizations are part of the Pushback Network, a national collaboration of community groups in six states that is developing a coordinated strategy to change policy and power relations in favor of those they serve from the grassroots up.

Outside the U.S. there are lots of similar examples. Take SPARC (Society for Promotion of Area Resource Centers) in Mumbai, India, which has been working with slum dwellers since 1984 to build their capacities to fight for their rights and negotiate successfully with local government and banks.16 SPARC—whose motto is “breaking rules, changing norms, and creating innovation”—sees inequality as a “political condition,” the result of a “deep asymmetry of power between different classes,” not simply “a resource gap.”17 SPARC has secured large scale improvements in living conditions (including over 5,500 new houses, security of tenure for many more squatters, and a “zero-open defecation campaign”), but just as importantly, it has helped community groups to forge strong links with millions of slum dwellers elsewhere in India and across the world through Shack Dwellers International (SDI), a global movement that has secured a place for the urban poor at the negotiating table when policies on housing are being developed by the World Bank and other powerful donors.

Housing is just a concrete expression of a much deeper set of changes that are captured in the following quotation from Arif Hasan, who works with SDI from his base in Karachi, Pakistan. “Traveling in different parts of the city as I did,” he writes after the unrest that followed Benazir Bhutto’s assassination in December 2007, “you see nothing but burnt-out cars, trucks and trailers, attacked universities and schools, destroyed factories and government buildings and banks, petrol pumps and ‘posh’ outlets—all symbols of exploitation: institutions where the poor cannot afford to study; businesses where they cannot get jobs; government offices where they have to pay bribes and where they are insulted and abused. This is not a law and order situation, but an outpouring of grief and anger against corruption, injustice and hunger…. This is a structural problem that requires a structural solution.”18

Groups like these do deliver tangible outputs like jobs, health care and houses, but more importantly they change 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 marginalized people firmly in the driving seat, and that’s no accident. Throughout history, “it has been the actions of those most affected by injustice that have transformed systems and institutions, as well as hearts and minds,” as the Movement Strategy Center in Oakland, California puts it.19

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 U.S.? 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.

If I was ever invited to address the philanthrocapitalists, what would I say? First, a big vote of thanks for taking up the challenge of “entrepreneurship for the public good.”20 Without your efforts, we wouldn’t be having this debate, and the world would be further from the commercial and technological advances required to cure malaria and get micro-credit to everyone who needs it. But second, don’t stop there. Please use your wealth and influence to lever deeper transformations in systems and in structures, learn much more rigorously from history, measure the costs as well as the benefits of your investments, be open to learning from civil society and not just teaching it the virtues of business thinking, and re-direct your resources to groups and innovations that will change society forever, including the economic system that has made you rich. That’s not much to ask for, is it?

Venture philanthropists and social entrepreneurs are pragmatic people, with little appetite, I’ll wager, for lectures in political science; they could argue that action is vital in the here and now while we move slowly along the path to social transformation. That’s fair enough, I think. Pragmatism is a feature of civil society too, and neither wants to make the “best the enemy of the good.” Small victories are still victories, and a vaccine against HIV/AIDS would be a very big victory indeed. “I don’t believe there is a for-profit answer to everything,” says Pierre Omidyar, “but if for-profit capital can do more good than it does today, foundations can concentrate their resources where they are most needed,” a welcome dose of common sense in a conversation dominated by hype.21 No one is forcing Omidyar, Gates, Skoll and the rest to give billions of dollars away (they could have kept it for themselves). So how can we cooperate in moving forward together?

The first thing we need to do is to pause, take a very deep breath, and create space for a different kind of conversation. Philanthrocapitalism is seductive for many different reasons—the allure of a new magic bullet, set against the reality of plodding along, step by step, in the swamps of social change; the glitz and glamour of gaining entry to a new global elite; and the promise of maintaining a system that made you rich and powerful while simultaneously pursuing the public good. We all want our place in history as the ones who saved the world, but this is surely immature. Will “social enterprise end up intoxicated by virtue, breathing its own exhaust,” as a report from Sustainability concluded?22 At least Bill Clinton’s enthusiasm is tempered by some boundaries: “What I long to do,” he says, “is to see this [approach] integrated into every philanthropic activity from now on, where it is appropriate,”23 and “where it’s appropriate” may be a small but not unimportant part of the picture as a whole. I think it is time to launch a “slow food movement” for the philanthrocapitalists, in order to help them savor the complexities of what’s involved. It’s not that our old ideas about social transformation were perfect; it’s that our new ideas are imperfect too, and almost certainly won’t turn out as planned. There is no place for triumphalism in this conversation.24

What we do need is a good, old-fashioned, full-throated public debate, to sort out the claims of both philanthrocapitalists and their critics, and to inform the huge expansion of philanthropy that is projected over the next forty years. So here’s the $55 trillion-dollar25 question: Will we use these vast resources to pursue social transformation, or just fritter them away in spending on the symptoms? The stakes are very high, so why not organize a series of dialogues between philanthrocapitalists and their critics, on the condition that they shed the mock civility that turns honest conversation into Jell-O. There isn’t much point in staying in the comfort zone, forever apart in different camps, like the World Economic Forum and the World Social Forum that take place in splendid isolation each and every year.26 Deep rooted differences about capitalism and social change are unlikely to go away, so let’s have more honesty and dissent before consensus, so that it might actually be meaningful when it arrives.

Philanthrocapitalism is the product of a particular era of industrial change that has brought about temporary monopolies in the systems required to operate the knowledge economy, often controlled by individuals who are able to accumulate spectacular amounts of wealth. That same era has produced great inequalities and social dislocations, and past experience suggests that such wealth will be politically unsustainable unless much of it is given away, just as in earlier decades when Ford, Rockefeller and Carnegie found themselves in much the same position.

Effective philanthropists do learn from their experience and the conversations they have with others. Melinda Gates, for example, describes this process well: “Why do something about vaccines but nothing about clean water? Why work on tuberculosis but not on agricultural productivity? Why deliver mosquito nets but not financial services?”27 Of course, there is another set of questions waiting to be answered at a much deeper level—why work on agricultural productivity but not on rights to land? Why work on financial services but not on changing the economic system? But these are challenges that face all foundations and they are best addressed together, since all of us have much to learn from others. Rather than assuming that business can fix philanthropy, why not put all the questions on the table and allow all sides to have their assumptions tested? Who knows, this kind of conversation might lead us far beyond the limitations of the current debate and closer to that ultimate prize of an economic system that can sustain material progress with far fewer social, personal and environmental costs.

Notes

1 Michael Edwards, edwarmi@hotmail.com, has authored numerous books and articles on the global role of civil society. He has held senior management positions at international organizations working on issues of development and global governance, including Oxfam-GB, Save the Children-UK and the World Bank. He is currently Director of Governance and Civil Society at the Ford Foundation, but writes here entirely in a personal capacity. The views expressed in this article should not be taken to represent the opinions or policies of the Ford Foundation. This article is adapted from Just Another Emperor? The Myths and Realities of Philanthrocapitalism, by Michael Edwards (Demos and the Young Foundation). The book can be purchased from Amazon or downloaded from www.justanotheremperor.org.

2 “Philanthropy”…“love of mankind, especially as shown by contributing to the general welfare.” Chambers Dictionary, New Edition.

3 M. Bishop (2007) “What is philanthrocapitalism?” Alliance, March, p30.

4 Cited in “The New Wave of American Philanthropy,” NonProfit Times enewsletter, January 7th 2007. To be fair to Bono and Shriver, “Product Red” is one of the better “embedded giving” schemes on the market, insisting on detailed contracts with companies who participate so that buyers can see how much of the price they pay will find its way to the Global Fund. See also S. Strom, “Charity’s Share From Shopping Raises Concern,” The New York Times, December 13th 2007.

5 BusinessWeek , Nov 26th 2007.

6 J. Rauch (2007) “This is not charity,” Atlantic Monthly, October, p66.

7 Cited in W.K. Kellogg Foundation (2003) “Blurred Boundaries and Muddled Motives: a world of shifting social responsibilities,” p12.

8 “Philanthropy can eclipse G8 on poverty,” Financial Times, September 4 th 2007.

9 “Buffett rebuffs efforts to rate corporate conduct,” Los Angeles Times, May 7 th 2007.

10 “Richard C. Morais on Philanthropy,” Forbes.com, December 23 rd 2007.

11 Ibid, p6.

12 J. Fleishman (2007) “The Foundation: A Great American Secret—How Private Wealth is Changing the World,” New York: Public Affairs, 2007.

13 “Melinda Gates goes Public,” by Patricia Sellers, CNNMoney.com, January 7th 2008.

14 “Strategic Concepts in Organizing and Policy Education.” See www.scopela.org.

15 Make the Road by Walking, email to supporters, December 6th 2007. See www.maketheroadny.org.

16 “Society for the Promotion of Area Resource Centers.” See www.sparcindia.org.

17 SPARC Annual Report 2005 pp 3 and 16. The Gates Foundation has promised to invest in SDI but there are concerns (on both sides) about whether they will stick with the slow process of institutional development that underpins SPARC’s ability to lever large-scale improvements in housing and sanitation, and not just invest directly in the capital required to provide these things.

18 Cited in an email from Joel Bolnick to SDI members dated January 9 th 2008.

19 See www.movementstrategy.org.

20 Cited in K. Schneider, “Win Fabulous Prizes, All in the Name of Innovation” The New York Times, November 12th 2007.

21 Cited in McGray (2007) op. cit.

22 SustainAbility (2007) op. cit., p44.

23 Cited by Rauch (2007) op. cit., p66, my emphasis added; plus see B. Clinton (2007) Giving, New York: Knopf, in which he articulates a wider range of avenues in which all of us can participate.

24 Bruce Sievers, one of the few commentators who has criticized philanthrocapitalism in public, often makes this point. See B. Sievers (2001) “If pigs had wings: the appeals and limits of venture philanthropy,” Issues in Philanthropy Seminar, Georgetown University, Washington, DC, November 21st 2001; and Alliance (2006) Volume 11 (3), September, p23.

25 Estimates of future giving vary widely, but the latest figures give up to $27.4 trillion in “charitable bequests,” $41 trillion in “accumulated assets passed to the next generation,” and $55.4 trillion in “total charitable donations” in the U.S. between 1998 and 2052. National Philanthropic Trust: Philanthropy Statistics.

26 Some efforts have been made to link the two via video-conference, but not with any great success.

27 Melinda French Gates, Remarks to the Annual Conference of the Council on Foundations, Seattle, 2007.