A great giving opportunity

The global financial crisis has been greeted with a certain smug satisfaction by that section of British public opinion with a grudge against the rich. Never comfortable with the fact that the re-emergence of entrepreneurial wealth in Britain had led to a rediscovery and rehabilitation of our philanthropic tradition, doomsayers are hoping that our current economic woes will see what I call philanthrocapitalism strangled at birth.  Let’s hope they are wrong.

Lord Eddie George was right when he commented recently, in a foreword to a report by centre-right think-tank Policy Exchange, that “this is the first real test for our ‘new philanthropists’ since their method of long-term support and long-term engagement started.”  Some donors will have been hard hit by the financial crisis but for many of the rich who can invest at the bottom of the market this is a great ‘buying opportunity’ that will make them even richer.  They need to resist the temptation to rein in their giving because, just as the slump in the financial markets is offering a great ‘buying opportunity’ for investors, so social investors have a great ‘giving opportunity’ to get maximum impact from their donations by driving efficiency improvements in the voluntary sector and government.

Philanthrocapitalists have developed a new vocabulary to describe their approach to charity, which borrows enthusiastically from the business lexicon. They call themselves ‘social investors’ or ‘venture philanthropists’, and try to make donations that are ‘high performance’ and ‘strategic’. Above all, they love to ‘leverage’ their money.

Leverage may be a bit of dirty word at the moment, but to make a real difference, philanthropists have to find ways to use their money that have an outsize impact, typically by using donations to change how others spend their money.  Philanthropic leverage will become more important in tough economic times as social demands increase and government budgets get tighter — the need to get the maximum bang for the increasingly sought-after philanthropic buck should become even more critical.

One form of leverage will be for philanthrocapitalists to bring about mergers and acquisitions in the voluntary sector that currently has far too many organisations doing essentially the same thing. When raising money was easy, charities could resist demands to get together. Now philanthrocapitalists who want to finance bigger, more efficient organisations may find a new willingness to accept their terms.

Leverage can come from doing things that no one else can.  Inspired by an attempt to fly Nelson Mandela into Baghdad to persuade Saddam Hussein to step down and avert a war in 2003 (ultimately frustrated by the US bringing forward the invasion), Sir Richard Branson is trying to influence global politics through his creation the Global Elders.  This team of independent international trouble-shooters, including Kofi Annan and Jimmy Carter, has been working to mediate peaceful solutions in Sudan, Kenya and Zimbabwe, playing a role that national governments and the United Nations cannot.

Leverage can also mean partnership.  The Gates Foundation, for example, has tried to ‘leverage’ the research and development budgets of the big pharmaceutical companies by giving incentives to encourage them to spend more of their research budgets on discovering, say, a vaccine for malaria (which kills millions) rather than a cure for baldness (which hurts only vanity). Another leveraging strategy has been to encourage research that combines a variety of inexpensive drugs to cure a different disease.  The British Government has been a willing partner in this process and sees Gates as a key ally in the push to achieve the Millennium Development Goals.

Philanthrocapitalists would do well to start thinking about how to apply this type of leverage at home, following a model developed in New York by billionaire mayor and philanthropist Michael Bloomberg, where philanthropy finances pilot projects too risky to ask taxpayers to pay for initially. If they are proven successful this philanthropic investment can be leveraged with little controversy or risk to taxpayers by making the expansion of the project part of the city budget.  So far no British civic leader has had the will or the nous to try this at home.  But maybe straightened economic circumstances will concentrate the mind of some maverick mayor with a big Olympic bill to meet?

In her recent book Unjust Rewards, Guardian columnist Polly Toynbee, writing with David Walker, dismisses philanthropy as self-interested, anarchic and plutocratic.  “True philanthropy in the modern age is tax-friendliness”, they argued, claiming that clawing back money from the rich through higher taxes beats philanthropy.  This argument dangerously underestimates the potential role that philanthropy could play for the good of our society, if the philanthrocapitalists stick to their guns.

Matthew Bishop is New York bureau chief of the Economist and co-author, with Michael Green, of Philanthrocapitalism: how the rich can save the world and why we should let them, reviewed by Beth Breeze in this issue of the Newsletter.