Medium 9781605093772

Small Change

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A powerful critique of a seemingly beneficial trend that is actually undermining the effectiveness of philanthropy
Written by an insider -- a former official with several high-profile nonprofits
Co-published with the prominent New York think tank Demos

A new movement is afoot that promises to save the world by bringing the magic of the market to philanthropy. Nonprofits should be run like businesses, its adherents say, and businesses can find new sources of revenue by marketing goods and services that benefit society. Dubbed “philanthrocapitalism,” its supporters believe that business principles can and should be the primary drivers of social transformation. What could be wrong with that?

Plenty, argues, former Ford Foundation director Michael Edwards. In this hard-hitting, controversial expose he marshals a wealth of evidence to show just how far short the promise of philnthrocapitalism has fallen, and why the whole concept is fundamentally flawed.

Some business practices can be beneficial to nonprofits, and it’s definitely a good thing that the for-profit sector is developing a social conscience. Edwards carefully specifies when businesses and business thinking can help. But to really get at the root causes of the systemic problems most nonprofits wrestle with—hunger, poverty, disease, violence—requires a completely different way of operating. Social transformation demands cooperation rather than competition, collective action more than individual effort, and values patient, long-term support for solutions over short-term results.

Philanthrocapitalism concentrates power in the hands of a few major players, mirroring the very inequities civil organizations should be trying to ameliorate. With a vested interest in the status quo it shies away from fundamental change. At most all it can promise is valuable but limited advances: small change. Ultimately, Edwards argues that the use of business thinking can and does corrupt civil society. It’s time to differentiate the two and re-assert the independence of global citizen action.

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CHAPTER ONE Irrational Exuberance

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The Rise of “Philanthrocapitalism”

It is six o’clock on a Saturday afternoon, and the Swan Lake Fire Department Ladies Auxiliary is cleaning up after its 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 plastic bag — were simply given what they needed, and driven home to boot. “Imagine what this would have cost me at Walmart,” 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 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 members of the Ladies Auxiliary are free from concerns about money and what things cost — 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 play by a different set of rules, which are grounded in rights that are universal, not restricted by access according to one’s income; they recognize the intrinsic value of relationships that can’t be traded off against production costs or profit; and they live out philanthropy’s original meaning as “love of humankind.” Over many generations, community groups and social movements have protected these principles in their work to attack discrimination and injustice, alleviate poverty, and protect the natural world.

 

CHAPTER TWO The Good, the Bad, and the Ugly

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When Business Thinking Advances Social Change — and When It Doesn’t

All market activity has some social impact, just as all nonprofits and foundations — like the Ladies Auxiliary I mentioned in chapter 1 — engage with the market in one way or another, though their links may well be very light. The real question is what kind of impact business can make on social change, and whether it preserves the status quo or brings about social transformation.

Businesses create jobs, ideally good ones with good benefits. Businesses produce and distribute goods and services, ideally ones that are socially and environmentally useful. And they stimulate technological innovation, ideally in areas that benefit the public good. The ways in which businesses approach these tasks have enormous implications for society at large, but in the past, the social and environmental impacts of core business decisions were seen as byproducts — not conscious goals — of companies, which aimed to make a decent profit and build shareholder value. During the 1990s, this assumption began to be questioned by the pioneers of corporate social responsibility, and their thinking laid the groundwork for the appearance of philanthrocapitalism ten years later.

 

CHAPTER THREE Missing Evidence

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Anyone looking for scientific proof that philanthro-capitalism does or does not work is sure to be disappointed. As chapter 2 made clear, different aspects of this movement are likely to have different costs and benefits; and although some serious studies of social enterprise and venture philanthropy exist, by and large the literature is anecdotal or written by evangelists more interested in publicity than rigor. This is not a field where self-criticism or humility will win you many plaudits. Nevertheless, there is some evidence to draw on, and plenty of experience against which to judge the claims that are being made in three main areas: extending access to useful goods and services among lower-income groups, strengthening nonprofit performance and the health of civil society, and improving national-level outcomes in terms of inequality and poverty.

The first claim is true but exaggerates the social impact of service provision and job creation. The second claim is untrue and disguises substantial damage to the world of voluntary citizen action. What distinguishes high-performing organizations is not whether they come from business or civil society, but whether they have a clear focus to their work, strong learning and accountability mechanisms that keep them heading in the right direction, and the ability to motivate their staff or volunteers to reach the highest collective levels of performance. And the third claim has never been true, even for the United States in the early phases of its development. Overall, there is no evidence that philanthrocapitalism achieves better results in solving social problems than traditional government and civil society activism.

 

CHAPTER FOUR The High Cost of Mission Drift

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Why Human Values and Market Values Don’t Mix

At first sight, the belief that capitalism will spread equality and justice throughout the world seems far-fetched. How can a philosophy rooted in money and self-interest give rise to societies that are ruled by love? After all, markets were designed to facilitate the exchange of goods and services under a limited definition of efficiency that had little to do with moral or social goals. Yet the broader effects of capitalism have animated debates in all societies at least since Adam Smith, who was so agitated by this question that he wrote two different books in search of a single answer. One of them changed the world, and the other, sadly, has all but been forgotten.

The Wealth of Nations describes how economic forces will produce the greatest common good under conditions of perfect liberty and competition, maximizing the efficient allocation of productive resources and bringing the economy into equilibrium—“the ideal balance between buyers and sellers, and firms and workers, such that rates of return to a resource in various uses will be equal.”1 The “invisible hand” makes only one appearance in the 1,264 pages of my edition (it’s on page 572), perhaps because Smith didn’t believe that social welfare would be maximized through the uncoordinated (i.e., “invisible”) actions of self-interested individuals. It was later economists like Milton Friedman who claimed that the efficient operation of the market would always create more social value than would altering or redistributing the surplus it produced through philanthropy or government intervention. Smith did warn against the dangers of “social engineering,” but he also celebrated the importance of nonmarket values, including “sympathy.”

 

CHAPTER FIVE The Difference That Makes the Difference

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The Decline of Philanthrocapitalism and the Rise of Citizen Philanthropy

Philanthrocapitalism offers one way to increase the social impact of the modern market economy, by altering incentives and giving more back through foundations and corporate social responsibility, but there are other approaches to changing the ways that wealth is produced and distributed which might achieve even better results. Traditionally, societies have used corporate taxation, government regulation, and civil society pressure to force business to reform. Recently, advocates of new business models, community-based economics, and other radical innovations have pressed for more fundamental changes in ownership and governance that would alter the whole basis on which markets currently work. In both of these cases, real transformation occurs when business behaves more like civil society, not the other way around. I suspect that civil society will be able to push business further in this direction from a position of diversity and strength. It’s the difference that makes the difference to society, let’s 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 seamless weaving of competition and cooperation, doing good and doing well, sacrifice and self-interested behavior. If something seems too good to be true—like securing social justice by becoming a billionaire — then it almost certainly is. Philanthrocapitalism is an interesting idea, but there’s no evidence to support the wilder claims that are made for its influence and impact, and little logic that demonstrates why business thinking should be more effective than other approaches to fostering social change.

 

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