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Poverty and the Marketization of Philanthropy

September 23, 2011

(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.)

End-wall-st-bull-collapsed-slide "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

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Posted by Lucy Bernholz  |   September 23, 2011 at 05:34 PM

Hear! Hear! Well said, Brad. It makes me wonder if there isn't another longterm trend at work - that of the necessity of pendulum swinging, syncopated progress that requires these kinds of false choices. Certainly this seems to be the dynamic of the moment (or longer) in Congress, but can't we find alternatives in civil society? Is the only progress that which comes from swinging madly from one end of a spectrum to another, or choosing one extreme until it fails and then grabbing for rope to swing us back?

Posted by Nick D.  |   September 24, 2011 at 12:18 PM

Brad - spot on a lot of things. Balance and acceptance of diversity of approaches, tools, vehicles, philosophies is key. Although I'm by no means an apologist for the markets, I wonder if your statement that "if markets functioned perfectly there would be no poverty" is accurate. Beyond the fact that, as you point out, markets do not function perfectly, markets are not compassionate. On some things, supply and/or demand can fall so low that it means no survivability (not just companies, but people, too). Especially, markets can't really place value on the spiritual even though they try. But back to social progress - indeed we should use ALL the tools at our disposal - including, by the way, not only grantmaking, but that time-honored approach called charity, which often gets too easily dismissed in the large foundation/social impact circles. Sometimes you need to feed people to keep them alive rather than just teaching them how to fish or cleaning the pond or developing an environmental fishing policy framework. If we're always just looking at the forest as a whole, we could end up letting too many trees die and then the forest becomes a barren, ugly place.

Posted by Bradford Smith  |   September 26, 2011 at 05:37 PM

This is one of most poetic, metaphor-laden responses we have ever received Nick, so thank you! Nothing against markets at all, just a caution against assuming that they will somehow work more perfectly among the poor. Your reminder about charity is welcome. Charity is a significant part of giving worldwide and plays a huge role in, as you say, keeping people alive until some of the longer term, strategic, market-based and policy-based approaches can have impact. In the breakfast meeting that sparked the blog piece, there was a very interesting discussion about the role of markets in providing sustainable solutions.

Posted by Akwasi Aidoo  |   September 29, 2011 at 07:05 AM

This is a very thought-inspiring perspective on what has been such a core (and largely un-interrogated) part of the broader philanthrocapitalist trend which was/is often presented as the ultimate paradigm shift in our field.

The irony, of course, is that the smacking of philanthropy by the "market-sellers” has never really gone much beyond the tactic of tools to the strategic level where a real paradigm shift would normally occur.

The question, though, is: how do we get compelling analyses such as what you have here, Brad, to those who are still hard of hearing on the strategic role of philanthropy in continually addressing poverty? Perhaps it's time to write that book?!

Posted by David wood  |   October 05, 2011 at 12:02 PM

This is a lovely post. That markets are made means that we can remake them, and that too is a topic for philanthropy. We don't need to make social/impact/mission investment discussions about being market friendly, but about how markets can be made to better serve society (which'll be sometimes friendly, sometimes less so, as appropriate).

Posted by Bradford Smith  |   October 05, 2011 at 12:07 PM

A book may be one way to go, but there are are probably better and faster ways to reach people in the global information environment. We need ideas and platforms for circulating them widely and rapidly. Thanks for chiming in Akwasi!

Posted by Prentice Zinn  |   October 08, 2011 at 08:12 AM

What? Philanthrocapitalism won't solve poverty?


And just when I was getting into the religious fervor of markets in philanthropy.

Let's hope that the field's current freewheeling lack of self-criticism and comical parroting of business jargon is part of the pendulum swing Lucy describes.

I can only put up with the "market-sellers" (A brilliant term Akwasi!) for so long.

I yearn for balance in the discussion.

Thanks, Brad, for grabbing the rope!

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