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Philanthropy

Point-Counterpoint: Philanthrocapitalism

Philanthrocapitalism, a term that came into common parlance in 2006 to describe the need for philanthropy to become more like for-profit markets with "investors" and "social returns," is becoming a social sector wedge issue. The reason? The increasingly uneasy relationship between markets, democracy, and economic inequality. In SSIR's first-ever point-counterpoint, Kavita Ramdas, executive director of Ripples to Waves at Stanford University, provides a critique of philanthrocapitalism and Matthew Bishop and Michael Green, co-authors of Philanthrocapitalism: How Giving Can Save the World and The Road From Ruin: How to Revive Capitalism and Put America Back on Top, argue its continuing merits.

Kavita N. Ramdas is executive director of Ripples to Waves, the Program on Social Entrepreneurship at Stanford University’s Center on Democracy, Development and Rule of Law (CDDRL) at the Freeman Spogli Institute for International Studies. From 1996 to 2010 she served as president and CEO of the Global Fund for Women, where she currently serves as a senior advisor.

 
Matthew_Bishop_headshot

Matthew Bishop is the US business editor and New York bureau chief of The Economist.

Matthew_Green_headshot

Michael Green is an economist and writer, and formerly a senior official in the British government.

Bishop and Green are the co-authors of Philanthrocapitalism: How Giving Can Save the World and The Road From Ruin: How to Revive Capitalism and Put America Back on Top.

 

Point: Philanthrocapitalism Is Not Social Change Philanthropy

Recently, Bill and Melinda Gates were in my homeland, India, meeting with the richest men (and they are all men, so far) of the Indian elite. They were seeking to persuade Indian billionaires to join an elite international club—the philanthrocapitalists who have taken “the giving pledge”—a pledge to give at least half their wealth to charity in their
lifetime or at the time of their death. I do hope that they succeed, and I would be delighted to learn that billionaires Ratan Tata, Mukesh Ambani, and Lakshmi Mittal had decided to make their contributions to philanthropic causes benefiting those less fortunate than themselves. It would certainly sit easier with most Indian citizens than watching another 27 story single family home being built in Mumbai with a helipad and a rooftop swimming pool. (Ambani recently built such a home in Mumbai.)

My concern, however, is that far too few in this elite club are willing to ask themselves hard questions about a model of economic growth that has made their phenomenal acquisition of wealth possible, in a nation where more than 800 million people still languish in poverty. Data from McKinsey & Company show that the number of households in the highest-earning income bracket, making more than $34,000 a year, has risen to 2.5 million, from 1 million in 2005. But the ranks of those at the bottom, making less than $3,000 a year, also have grown, to 111 million, from 101 million in 2005. In fact, as a recent Wall Street Journal article suggests, the same factors that helped create the billionaires may have also exacerbated social injustice and inequality, malnutrition, and disempowerment for millions of poor people cross India.

Social change philanthropy, in contrast to traditional charity, must be measured by its capacity to question the dominant development model, to seek the root causes of inequality, and to engage in a process of self-reflection that also seeks to expand its accountability to the broader public that it seeks to serve. Only then, can private or public philanthropy realize its potential as a genuine catalyst for transformative social change. In my experience, while there certainly are foundations and individual donors who are willing to engage in a more self-critical analysis and open themselves to greater public scrutiny, the dominant form of global philanthrocapitalism is too deeply embedded in the current economic and political status quo of global capitalism to make investments that might really rock the boat. At the same time, much to my relief, citizen-led social justice movements around the globe, many funded by social change philanthropies, are emerging to challenge the substance, form, and direction of philanthrocapitalism as well as the current, largely unequal systems of trade and global capitalism. The Occupy Wall Street protests and encampments are examples of growing discomfort with the model even here in the United States, in what author Arundhati Roy calls, the heart of empire.

Critics of philanthrocapitalism are not really against the use of those funds for the social good, as much as they are opposed to the policymaking and agenda-setting powers that tend to accompany this new global elite. Some like Robin Rogers, a sociologist at Queens College, argue that the “super elite” should not be the key decision makers in philanthropy and that what we need is a new system capable of managing a civil discourse between government and philanthropy. Roger’s suggestion, however, seems unlikely to take shape in the current policy climate of the United States, where the Supreme Court has effectively voted to allow corporations and other interest groups to buy almost every vote of every member of the Congress and Senate. Democracy itself does not seem to have made elites more accountable in the United States, where income inequality now stands at the highest levels since the end of the Cold War.

As someone who grew up in India and has worked for many years in both private and public foundations, I am also skeptical about what is likely to change as a result of philanthrocapitalism’s focus on money, markets, measurement, and management. I am troubled by the hubris that often seems to lurk just below the surface of the good-citizen conscience of the very wealthy, and increasingly unnerved by the alignment of fashion, power, and celebrity behind it. Where is the evidence that philanthrocapitalism works, and are there better ways to achieve urgently needed global social progress?

Despite many good intentions, philanthropy seems poorly suited to resolve the world’s most deep-rooted problems. This is because it is enmeshed in two contradictions. The first is that the more unequal the world gets, the more the public is being invited to celebrate a cherished few who benefit from this condition of inequality. Indeed, we pour adulation on those among this new super elite who have chosen to use some of their almost unfathomable wealth to address “specific” problems with “measurable” outcomes. Half of Warren Buffet’s net worth would still leave him with $25 billion. What is missing in most discussions of the new mega-philanthropy is any deeper questioning about what ails a global economic system that seems to produce endemic inequality, crushing poverty, and food insecurity. The new philanthropy avoids exploring what is wrong at this systemic level—where a single individual’s net worth can become larger than the combined GDPs of some of the world’s poorest nations.

The second contradiction is that even as the significant downsides of so-called “development” in the Global North become ever clearer (among them unsustainable consumption patterns and financial freefall caused by lack of regulation), philanthrocapitalism in its current form seeks to invest in efforts and initiatives that can bring the wonders of this model of development to people and communities around the globe. Remarkably, the more the West learns about the drawbacks of industrial agriculture, excessive dependence on fossil fuels, the fallibility of nuclear power, and the poor health outcomes related to current sedentary forms of life, the more determined it is to share its successful development strategies with others. And, the new super elites of the developing world and the governments they influence are no less keen to adopt the patterns that seemed to work so well for Global North. Yet, as our world grows ever more interdependent—a fact that global climate change is making clear—communities and social movements across the world are seriously questioning the assumptions that underlie this new version of the “white man’s burden.”

It is vital to examine the actual effects of this form of “development.” Ecologist and activist Vandana Shiva has written: “Development deprives the very people it professes to help of their traditional land and means of sustenance, forcing them to survive in an increasingly eroded natural world. The reality is that people do not die for lack of income. They die for lack of access to the wealth of the commons.” Some striking examples internationally include: the combination of “free-market” policies and the removal of government subsidies that is putting intense pressure on Indian small farmers and peasants, causing them to lose the equivalent of $26 billion annually, that has led an estimated 250,000 farmers to commit suicides in the past decade; and the reality that the $50 billion of “aid” (including private philanthropy) trickling from Global North to Global South annually is but a tenth of the $500 billion being sucked out of the Global South each year in the form of interest payments on loans and other mechanisms imposed by international financial agencies, including the World Bank and the IMF.

Current philanthropic practice is also driven by the need to find technological solutions, the same “fix-the-problem” mentality that allowed business people to succeed as hedge-fund managers, capital-market investors, or software-developers. This approach is designed to yield measurable and fairly quick solutions. A symptom of this may be found in the kind of skills that new foundations are seeking. I am struck by how few social scientists are employed at the new “mega-philanthropies.” Instead, the people most sought after are management consultants, business people, former industry leaders or lobbyists, and scientists. Each of these is expected to bring a crisp and coolly efficient approach to their work, demonstrating their “expertise” on specific issues—climate change, agricultural productivity, soil quality, or infectious disease. The nuance and inherent humility of the social sciences—the realization that development has to do with people, with human and social complexity, with cultural and traditional realities, and their willingness to struggle with the messy and multifaceted aspects of a problem—have no cachet in this metrics-driven, efficiency-seeking, technology-focused approach to social change.

So, where does this leave us? Is there a third way? Can we engage in shared debate and discussion and learning that fully confronts the contradictions that I outlined at the beginning of this analysis? I believe it is time for forward-thinking social change philanthropists to have a dialogue with both social activists and philanthrocapitalists. Such a partnership should be able to connect those of us who work in philanthropy with one another, with those in the citizen sector, in the private sector, and in government. Such a partnership would need to begin with a shared sense that the tools we have been using so far are simply not enough—not in a world that is living through extraordinary people-led revolutions in the Middle East. It will require us to demonstrate a collective willingness to unpack what has and has not worked as philanthropy has sought to mitigate, alleviate, or take advantage of the rapid changes that have occurred under the broad rubric of “globalization” and “economic growth” over the past twenty years.

In this effort, both philanthrocapitalists and old time philanthropists could benefit from listening to and learning from those on the ground who are working in some of the most exciting social-justice movements around the globe. From there, we can begin also to re-engage the state and governments, in a conversation based on mutual respect and a genuine willingness to learn from one another. Failing such voluntary openness on the part of the philanthropic sector, we may well find that greater transparency, dialogue and accountability will be forced on all philanthropists by activists on the street, where the multiple constituencies that philanthropy claims to serve, are beginning to find the confidence and courage to speak clearly for themselves and ensure that their voices heard.

A longer version of this article was published originally in the summer 2011 issue of Society.

 

Counterpoint: False Dichotomies

The world is certainly in one hell of a mess at the moment and no one has a master plan to fix it. Certainly not Kavita Ramdas, who confuses symptoms and causes, based on a model of the world that is fundamentally out of date. We need to get beyond this type of blame-game rhetoric to try to figure out solutions to the world’s problems. Philanthrocapitalists are playing a vital role in this process and could do even more.

Ramdas’s argument rests on three false dichotomies. First, why does she still talk about the Global North versus the Global South? This distinction made some sort of sense when the idea was popularized by the Brandt Report in the 1980s. Today, when the United States is in hock to the world and Europe has gone begging to China and other emerging countries to help rescue the euro, and the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) are taking over from the BRICs (Brazil, Russia, India, China) as the world’s fastest growing economies, how can this make any sense at all? We are living in an interdependent, multi-polar world, not one where North imposes dependency on South.

Her second false dichotomy is to set rich against poor. Bill Gates and Warren Buffett are not rich because the poor are poor. Indeed, if the poor were richer it would no doubt be good for Microsoft and the companies that Buffett invests in. Yes, we agree with her and Occupy Wall Street that there is a problem that the rich have captured so much of the benefit of the growth of the global economy over the past 30 years. Yet the 1 percent are not all the same. Yes, some of the rich have made their money in exploitative ways and some of them indulge in crass ostentatious consumption. Yes, the rich need to pay more tax, as Buffett has frequently argued. But the important question must surely be how to end poverty rather than to end wealth? Bashing the rich, as if they are all the same, is as pointless as it is populist.

Finally, Ramdas thinks that there is philanthropy that tackles the symptoms of poverty, which is bad, and “social change” philanthropy that tackles the root causes of poverty, which is good. Is the world really that simple? Even if it is, is Ramdas arguing that the poor should be left to watch patiently as their children die of preventable diseases like polio and malaria, while they wait for social change?

Ramdas is also selective in her description of what philanthrocapitalists are actually doing, either deliberately to suit her argument or because of sloppy research. Hedge fund legend George Soros has been backing social change movements for decades, in the United States and overseas, courting controversy all the way. Mo Ibrahim, the Sudanese cell phone entrepreneur, has launched an African Leadership Prize to drive a debate about the role of government. Britain’s celebrity serial entrepreneur Sir Richard Branson has worked with Nelson Mandela to create The Elders, a group of the world’s most trusted leaders that is campaigning to end child marriage within 20 years. Ebay founder Pierre Omidyar is backing technology startups that harness new communications technologies to help citizens hold their governments accountable. We could go on.

Philanthrocapitalism is a powerful force shaping our world. It touches on big issues, such as the accountability and responsibilities of the rich. We wrote Philanthrocapitalism because we believe that the change in the world that the book describes raises important issues about the effectiveness and legitimacy of what the rich are doing, which need to be debated. But that debate must be based on real issues, not tired old dichotomies. Here are a few suggestions:

1) How do we start a conversation about failure in philanthropy? Taking big risks, which is philanthropic capital’s advantage compared to government, means embracing the possibility of failure. Yet too much communication by foundations and nonprofits focuses on claiming successes. An honest debate about failure would help us all to learn lessons as well as change the culture of risk taking. Might a philanthropist fund a “Heroic Failure” prize, akin to the Lodestar Foundation’s excellent prize for nonprofit collaboration?
2) Let’s also talk about how government needs to change to work better in partnership with philanthropy. If private donors can take risks to test out new ideas, government needs to be ready to take these solutions to scale. Links are strengthening between philanthropists and government, but there is a long way to go to turn this into a real partnership that maximizes social value.
3) Let’s talk more about how businesses add or subtract to social value—not through PR-driven corporate social responsibility projects, but through their core business activities. (10,000 Women is a great example of corporate philanthropy, but Goldman Sachs’s use of the billions of dollars that it controls is way more important.) How do we measure this social value, and how do we engage citizens to vote with their wallets—not just as consumers, but as investors, using their savings and investments to promote better business?
4) We still need to talk about nonprofit performance and impact. Most nonprofits are “black boxes” to their supporters. We are excited that the Internet and social media can engage and mobilize “mass philanthrocapitalism” from ordinary donors. Organizations such as GlobalGiving, Kiva, and DonorsChoose have made a great start, but this revolution has a long way to go. And we mean revolution, maybe even a mass extinction of traditional nonprofits that cannot engage their givers. Hold on to your hats.

 
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COMMENTS

  • Dirk Sampselle's avatar

    BY Dirk Sampselle

    ON December 17, 2011 10:22 AM

    Hi Kavita,

    Thanks for your post.  Would you mind supplying citations for the following figures?  I would like to trace the empirical argument further.  I appreciate your attention to this topic and sympathize with some of your arguments. -Dirk

    “...the removal of government subsidies that is putting intense pressure on Indian small farmers and peasants, causing them to lose the equivalent of $26 billion annually, that has led an estimated 250,000 farmers to commit suicides in the past decade; and the reality that the $50 billion of “aid” (including private philanthropy) trickling from Global North to Global South annually is but a tenth of the $500 billion being sucked out of the Global South each year in the form of interest payments on loans and other mechanisms imposed by international financial agencies, including the World Bank and the IMF.”

  • BY Alice Korngold

    ON December 17, 2011 10:35 PM

    Point and Counterpoint both provide excellent arguments.  Thank you to SSIR for presenting the two perspectives.  Also, I wholeheartedly applaud the generosity of philanthrocapitalists.  There is no question that they are making a tremendous difference in the world. 

    At the same time, in support of Ramdas’s perspective, we know that some corporate fortunes are built by using conflict minerals and violating human rights – practices that maintain and exacerbate poverty and human suffering.  So although philanthropy might provide band-aids, the ultimate solutions to the greatest global challenges will be a corporate commitment to human rights, fair wages and working conditions, health care for workers and their families, clean water and decent living conditions, and education. 

    Bishop and Green begin to get at this in their point #3.  In fact, there are many companies leading the way in their environmental, social and corporate governance practices (ESG), particularly through NGOs such as http://www.bsr.org/ 

    As to nonprofits measuring impact and performance (Bishop and Green point #4), I am also a huge fan of (and donor to and via) GlobalGiving, DonorsChoose, and Kiva as model organizations with outstanding leaders.  But let me note that these organizations had the benefit of enlightened donors to invest in their measurement infrastructures. The vast majority of nonprofits lack funding resources to support their infrastructures; they do not have investors to help them build the enterprise capital for longer-term financial sustainability (“philanthropic equity”).  Even worse, nonprofits have been admonished and downgraded by ratings agencies for spending on infrastructure expenses (which is the bucket where measurement would fall).  Most funders are only been willing to fund “programs,” and often only shiny new programs, not core programs.

    As Bishop and Green point out, “if the poor were richer it would no doubt be good for Microsoft and the companies that Buffett invests in.”  Yes, indeed, as people in emerging countries move out of poverty, they will become customers.  That opportunity is not lost on big businesses, and fortunately, that might be our best hope of all.

  • Robin Rogers's avatar

    BY Robin Rogers

    ON December 18, 2011 01:39 PM

    Kavita Ramdas makes excellent points, but she mischaracterizes my position on philanthropolicymaking.  I agree with Bishop and Green that philanthropy is shaping social change.  In fact, I argue that philanthropy is now setting education, agriculture, and health policy, albeit “soft” policy, globally. The language of giving should not obscure this policymaking power of philanthropy. We need to build our social institutions with an eye toward maintaining the spirit of democracy within this new reality. My argument is much bigger than a call to mediate between government and philanthropy.

    I outline this position in my essay “Why Philanthropolicymaking Matters” in The Politics of Philanthrocapitalism Society symposium, Fall 2011.

  • BY Håkon Lorentzen

    ON January 3, 2012 03:42 AM

    - Kavita is probably right; one cannot expect the philanthrocapitalists to undermine the foundation of their richness, which is capitalism. Which again means that to the degree that global injustice is caused by capitalism, one can hardly expect the mega/ultra rich indivduals to solve the problems.

    What Kavita seems to be asking for, is an alternative to global capitalism. In Norway, the state has, as the owner of enormous oil incomes put aside in a foundation, taken the role   as one of the world’s largest philanthrocapitalists. That does not neccessarily change anything. A more just distribution of wealth and welfare perhaps, but a continued exploitation of natural resources.

  • BY Gena Rotstein

    ON January 3, 2012 07:00 PM

    I have enjoyed reading the comments as much as the article!  Thank you for sharing your thoughts. 

    I feel there are several issues at play here.  One is a language issue, another is a perception v. reality paradigm and the third is a societal system that is pushed from the masses, yet directed by policies developed from a governing body.

    Material wealth and the imbalance it has caused is a motivator behind philanthropic activities.  When companies want to do work in various African countries, they are required, not just by their shareholders, but by the governments in power, to “level the playing field” by investing back into the community.  Of course, what we have observed is that in large part these funds do not actually get back to the community, nor does it level the playing field.  So now companies are seeking out NGO business partners on the ground who can implement the community projects, and circumvent the corrupt government officials.  This of course has led to other major issues, most specifically the removal of accountabilities of the government for their own people, and putting the NGO in the position of filling needs of citizens that governments should be addressing.

    So, is this really progress?  As a global society have we really moved forward, or have our actions pushed us backwards?  Is the idea of “bigger, better, faster” really advancing our societies even though we are seeing a rise in societal issues both locally (increased domestic violence, increased addictive behaviours in youth, increased rates of heart attacks and stress related illnesses) and internationally (growing rates of human trafficking, increased acts of genocide and racially motivated crimes, increased global environmental concerns)?

    We need a new word for philanthropy [philanthrocapitalism might be that word].  Our activities around charity are no longer philanthropic.  They have moved to acts of survival.  It is no longer incumbent upon those with wealth to ensure that those without are supported.  Our whole system is breaking down because we have been top-heavy for too long.

    Countries can no longer be dependent on other countries for aid.  This model is broken.  As soon as the global economy took a nose-dive, it became quite clear that those dependant on the wealthy were not prepared for when the tap had to be shut off.

    The role of the community investor, whether you are a business or an individual, has to change.  And the change needs to occur on several fronts: Relationships with NGOs, relationships with government and relationships with other community investors (whether they invest $10 or $10 Million).

  • CCL-Ergo's avatar

    BY CCL-Ergo

    ON January 2, 2013 09:43 AM

     


    President Kennedy did not invent “Ask not what your country can do for you…”. He was just a famous person who repeated the famous quote or idea.

    President Kenneth Kaunda of Zambia in the 60s called upon Capitalists to infuse capitalism with a little bit of humanity:  he termed it “humanistic capitalism”.

    As good as she is, Ramdas is rephrasing, recoining the term or idea. But thanks to her for bringing the idea to the fore again, especially with a call to not only dealing with the symptoms as the old and new capitalists do, but also a call to addressing the underlying problems.

    And to the counter pointers: the rich cannot exist without the poor and the underclasses collective wealth and labor. It is useless to deny that, counter pointers.

    In the beginning, in the West, the state and powers that be, with pit bull gripe influence of the Capitalist—the robber baron—literally executed poor debtors in default at gallows. It is no longer the case.

    But that is in no way to say this practice has gone away. It has just changed into other forms and methods.

    History reveals that the Nobels to the Chases and Rockefellers, etc., did not give willingly:  they were shamed into giving; Or from guilt.  Or both.

  • BY Steve Consilvio

    ON June 29, 2013 01:21 PM

    For the record, I have an explanation of the cause of the divide of wealth, and a solution. I am just a poor small business owner, so nobody pays attention to what I say, but for those of you who are curious, read on: behappyandfree dot com

    (Hint: Buy low-sell high has to be replaced with Buy low-sell low. Trade, not profit; And, fiat money and taxation are contradictory).

    Philanthropy is better than non-philanthropy, but you cannot solve the problem of poverty that way. Turning charity into a business-style management with ROI, etc., just makes it dumber. Philanthropy should be about compassion, not effectiveness. If there were as much compassion and mercy as there are hoards of wealth, then that would be something, eh?

  • Máximo Pastor Rivero Pereira's avatar

    BY Máximo Pastor Rivero Pereira

    ON June 29, 2013 01:23 PM

    Mucho eufemismo y ninguna solución: La gran crisis sistémica del Capital y del Capitalismo, jamás será resuelta por el “acto- Filantrópico”, esta nueva revuelta del neoliberalismo tratando de justificar su fracaso histórico, no dará resultado, los pueblos del mundo estamos decididos por una nueva Sociedad Socialista del Siglo XXI, como muy acertadamente lo señaló el Comandante Hugo Chávez Frías. Mientras exista la explotación del hombre por el hombre el planeta, la raza humana, y la vida misma estarán en peligro. Todo eses discurso es bueno para el espejo, para auto engañarse, o para engañar a los incautos. Los Movimientos sociales del mundo llamado desarrollado del norte son sólo el enuncio del proceso de implosión del capital y del capitalismo. Los problemas de fondo sólo los resuelven las contradicciones de fondo, y esa gran contradicción de fondo, e histórica es entre el capital y el trabajo: los ricos existen porque explotan la fuerza productiva del trabajador. Esperemos el cambio histórico que se avecina…, EL SOCIALISMO

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