Say it with philanthropy

February 19, 2009

combojulie- Matthew Bishop and Michael Green are the authors of “Philanthrocapitalism: How the Rich Can Save the World.” They blog regularly at Philanthrocapitalism. Their views are their own. -

Bankers keep telling us how sorry they are for getting the world into the current economic mess, but the public doesn’t seem to want to accept their apology. To show they mean it, the rich need to discover philanthrocapitalism and start to give back to society – for their sakes and ours.

Reckless financiers are public enemy number one and everyone seems to be enjoying the schadenfreude of watching them squirm in front of Congressional and Parliamentary inquisitions. Cathartic as these spectacles may be, it doesn’t seem that the bankers are going to be let off the hook that easily.

Bonuses are already under scrutiny. But more swingeing, and damaging, action is being called for. How long will it be before public bloodlust demands convictions and jail time? Will governments be able to resist draconian regulation of the financial sector that will choke off financial intermediation and risk taking, and thus hobble the economic recovery?

It’s not just the bankers who are in the frame. The financial meltdown is adding fuel to the pre-existing fire of deep resentment of CEOs of big corporations and the rich in general who amassed such a large share of the benefits of the boom time. This is an ugly time to be rich and a perilous period for capitalism as a system.

As our economies worsen, poverty and social unrest will rise. Charities and nonprofits, which will be on the front line in meeting those needs, are being hit by a triple whammy of declining revenue, as private donors cut back their giving, scarcer public funds, and rising demand for their services.

The rich need to move swiftly and decisively to fill the charity funding gap: to show contrition and demonstrate that they are good members of society rather than a bunch of speculators and hucksters. That’s why, at the World Economic Forum in Davos earlier in the year, we called on the CEOs of the Fortune 500 and FTSE 100 companies to give a year’s salary to good causes. Other wealthy individuals should join them.

It is not just their money that the rich should donate. A key element of this new philanthropy that we advocate is that the rich should use the business skills that earned them their fortunes to make their giving as effective as possible. Although there is much excellence in the charity/non-profit sector, as a whole it underperforms seriously relative to its potential.

Strategic thinking is in short supply. Inefficiency is rife. There are too many small, me-too operations that for all their good intentions, waste massive amounts of vital money. In the absence of a market for corporate control and real measures of effectiveness, it is hard for good nonprofits to grow to scale in the way that a highly successful company might and it is almost impossible for ineffective nonprofits to go out of business.

By using their business nous in their philanthropy, an approach to giving that we call “philanthrocapitalism”, the rich can get much more impact from their giving by transforming the performance of the non-profits that they support — which is good for everyone.

Obviously, critics on the left would dismiss giving a year’s salary as a cheap stunt and argue for higher taxes instead. (Don’t worry, we are all going to be paying more tax for years to come, regardless.) But that is to miss the point. Government is good at some things, such as providing universal access to education and social welfare as a right, but it is weak at innovation and risk-taking.

If we are to tackle difficult social problems, we need social risk capital that can pilot and test new ideas that government either wouldn’t think of or couldn’t touch — which means we need people who know about business to put their money and talents to work themselves.

A model for a new partnership between philanthropy and government already exists in New York, where billionaire philanthropist Mayor Michael Bloomberg has found a way for government to harness the innovation of business by encouraging philanthropists to fund pilot schemes thought up by social entrepreneurs. Projects that work, like setting up a special training college for new school principals, can then be scaled up using taxpayers’ funds. Other political leaders would do well to follow his example.

But he could not do this without the commitment of wealthy business people. Reports are rife of wealthy philanthropists cutting their giving due to the economic crisis, which, although in many ways understandable, will only worsen the public image of the rich. This is a time for those who have the means to do so to show leadership, sacrificial leadership. If you can, dig deep, make a public commitment to getting society out of this mess, and put your money where your mouth is.


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“Feel free to be taken unwell” suggests a journalist from the UK’s Guardian today as echoing what Angela says about giving, the rich need to be persuaded by tax breaks to give proportionately as much as the poor or just 3% of their immense wealth. 2009/feb/28/tax-avoidance-aid

The problem, I suspect will be one of ego. Each wanting to tie their brand to an act of giving, and thus none will collaborate with another – or any of us.