(Bradford K. Smith is the president of the Foundation Center. In his last post, he wrote about the Jumo/GOOD merger, philanthropy, and social enterprise.)
"Philanthropy is distorting markets for the poor!" exclaimed a prominent NGO leader at one of the many breakfasts held around Manhattan last week in connection with the Clinton Global Initiative. It was a statement intended to provoke, and it swirled around the table in a cloud of other market-friendly phrases ("impact investing," "social investment," "base of the pyramid," "shared value"). Finally someone said, "It's really confusing when everyone who makes grants, subsidized loans, or equity investments describes themselves as an investor." Which made me reflect on just how far the marketization of philanthropy has progressed. I mean, some days it seems like the last thing anybody wants to admit to being is a grantmaker!
To be fair, the intent of the provocation was to underscore the point that, today, there is a far wider range of market-based solutions available to address the needs of the poor than many of us might imagine. Yet beneath this whole discussion is an almost Rousseau-like view of "the poor" that informed an earlier generation of anti-poverty efforts. Then, foundations and governments poured significant amounts of money into "community development" abroad and "community building" at home while the kind of idealized communities they sought to promote were being buffeted by the politics of race, civil strife, immigration and, yes, markets, in the form of globalization.
Today, as de-leveraging in the global north drives societies toward greater inequality, the market is being promoted as the solution to the mother of all market failures -— global poverty. And whereas yesterday's poor were supposed to preserve the sense of community the rest of us had lost, the poor today are expected to buy into an idealized form of market capitalism while the rest of us try to repair the damage caused by a near-fatal economic meltdown. Years ago when the craze was micro-enterprises, I remember a Canadian trade unionist reminding us at a global YMCA conference that you couldn't have small business without big businesses. And that was a time when "big" meant something far smaller than the too-big-to-fail firms that are piloting the global economy as it lurches from crisis to crisis.
Before getting all idealistic and dewy-eyed about markets, let's remember that unlike, say, photosynthesis, they are a creation of man. To understand markets you need at least a passing familiarity with Adam Smith, Joseph Schumpeter, and William Shakespeare. To lay the blame for market failures on faulty implementation by a few bad elements or over-zealous regulators is irresponsible. C.S. Lewis famously wrote that you shouldn't judge Christianity by Christians. But markets are not religion, and we have an obligation to assess how people make them work or fail. We need realistic expectations as to what they can and cannot achieve.
So where does this leave philanthropy, an industry in the United States that controls $600 billion dollars in assets and spends $45 billion a year to do lots of things for the public good, including taking on poverty? I kind of like the approach of the Omidyar Network. After a time spent trying hard not to be many things, it seems to be finding its groove. The folks at ON clearly believe in markets and use lots of investment jargon. Yet managing partner Matt Bannick regularly articulates a pragmatic "blended capital" approach to the organization's work. Basically, Omidyar identifies an issue, say, property rights, and then figures out which part of it can be addressed with outright grants, which part with program-related investments, and which part with full market-rate investments.
The grant vs. social investment debate is both a healthy one for philanthropy and a false choice. If markets functioned perfectly, there would be no poverty. But they don't and never will, which is why we need to be compassionate, idealistic, pragmatic, and flexible in using all the tools at our disposal to meet the challenges of our time. That so much poverty persists alongside such massive accumulation of wealth is unacceptable and dangerous for the long-term prospects of our increasingly global society. While philanthropy is a product of those contradictions, it also has the means and a responsibility to do something about them.
(Photoillustration: Ji Lee, Portfolio magazine)
-- Brad Smith