Philanthrocapital Gains

The Economist’s Matthew Bishop weighs in on Bill Clinton, Dambisa Moyo, microfinance, and the state of philanthropy.

The first edition of Matthew Bishop and Michael Green’s Philanthrocapitalism: How Giving Can Save the World was released, as Bishop puts it, on the morning of the global economic collapse. The book, which outlines the changing landscape of philanthropy and offers a prescription for effective giving through business acumen, was received well by critics but its timing was less than opportune. It did however find a fan in former President Bill Clinton, who penned the forward to the paperback edition, available November 12, which includes new chapters on philanthropic innovation in the age of Obama, and the state of giving in the wake of the economic crisis. GOOD talks to Matthew Bishop, who co-authored the book with Michael Green and is also a writer for The Economist, about the changing landscape of philanthropy, the importance of responding to critics of aid, and whether the end of poverty is just a pipe dream.

GOOD: We’ve had a model for giving that goes back to Rockefellers and Carnegies. What are the shortcomings of traditional philanthropy, and how does it differ from what you call philanthrocapitalism?

MATTHEW BISHOP: The shortcomings with much traditional philanthropy are not applicable to the Carengies and Rockefellers, which are in some ways first generation models for philantrocapitalism. The problem is more with foundations that have grown up in the second half of the 20th century where the founder hasn’t been engaged, so they’ve become rather bureaucratic organizations with a scattergun approach, without really enough focus on sustained long term impact—a program-related rather than a capacity building approach. If you look at Rockefeller, who was kind of a philanthrocapitalist 1.0, he had what he called scientific philanthropy: Analyze the underlying problem in society, and use a long-term, strategic, business-like approach over many years to come up with a solution. Gates’s effort to eradicate malaria would be a classic modern example.

G: The book was released on the eve of the global economic collapse—

MB: The morning of, more or less.

G: Right. What were the challenges of releasing a book about capitalism and philanthropy during that economic climate?

MB: The media in general lost all interest in philanthrocapitalism as a phenomenon, because all they wanted to know about was what’s going wrong and how do we stop it from getting worse; where has all the money gone? But at the same time, there was an awareness that there was less money around, which means a greater willingness to look at collaboration and merging of nonprofits, which is becoming an opportunity rather than a disaster for philanthrocapitalism.

G: What’s the biggest obstacle for the nonprofit world right now?

MB: There are too many small nonprofits that do very similar things, and not enough scaling up into big, efficient nonprofits. But, equally, part of that is due to the founders of nonprofits preferring to create their own entities rather than working with others to grow a really big, effective institution. [Most nonprofits] haven’t invested in the management capacity to be effective they way you would in the business world.

G: In February, just after Davos, you wrote a piece for the Huffington Post explaining a modest proposal, as you put it, for the leaders of the world’s 1,000 biggest firms to each put aside a year’s salary to promote social entrepreneurship. What was behind that idea?

MB: The reason for that proposal was that we felt that, because of the crisis, capitalism had a real credibility problem. Sadly, there hasn’t been a commitment. There’s talk of Goldman Sachs making a contribution from their profits and bonuses as a response to criticism, but anything less than a few billion will be seen as tokenism. If they had done it in January or February, I think it would have been something that would have helped re-establish faith and trust in the leaders of the system. But that trust isn’t really there at the moment.

G: Trust isn’t there. But there are also problems of trust when it comes to aid. How do you respond to criticism of aid by someone like Dambisa Moyo?

MB: You know, Dambisa is a friend of mine. She’s an incredibly talented economist, and she’s reacting to what she has seen as an African woman in terms of the abuse of aid, so many of her criticisms are valid. Now, she’s exaggerated: The idea that all aid is worthless is wrong. And the sad thing about her timing is that her book’s release coincided with her own firm, Goldman Sachs, abandoning many of their investments in Africa. And this is a year when more aid was probably needed. The broader point is that Africa’s future depends on its ability to generate jobs for itself. But the ecosystem, the infrastructure that makes jobs possible, is not going to happen spontaneously. You need to have some combination of government and private nonprofit money, what we call smart aid, coming in and actually building, making sure that government works more effectively. It would be better for her to say, How do we create better partnerships between philanthropy and government and private businesses to actually build that better Africa that is needed? Not dead aid but smart aid.

G: The new edition of your book champions things like Kiva, which GOOD has covered at length. How do you respond to the criticisms of microfinance that keep popping up this year?

MB: I think there’s been some backlash because microfinance was being presented as a silver bullet for poverty, which no one who’s really been involved in it over the years would claim. I was an adviser to the U.N. Year of Microcredit in 2005. One of the themes of that year was that the standard idea of a group of women in a village lending money to each other as a vehicle out of poverty, that while a lot of good had come out of it, that wasn’t the primary demand of poor people. They want a much broader set of financial services, including just the ability to save and put your money in a safe place, and have insurance against things like extreme weather conditions that would threaten a harvest. I think the exciting thing is that we’re starting to see those services developed, not in the least because of cell phones technology, which is becoming a sort of payment system in the poor world, and is allowing innovation. There’s massive demand for financial services. In that sense, this backlash against microfinance is fighting a war that was over years ago.

G: Do you think that there’s a realistic timeframe for seeing an end to global poverty?

MB: I think in terms of for-profit development work, next year is going to be very big. SKS Microfinance, which is an Indian microfinance for-profit company invested in a venture capitalist firm, is going to go public, and I think is going to be the breakthrough moment, where people realize you can actually make a profit by delivering these bottom of the pyramid services and do good at the same time. That will be the take-off moment for a whole series of investments in that space. To my earlier discussion of Dambisa’s work, I don’t think you’d get those business models without people doing the philanthropic work first, because you have to figure out how you develop markets and create and environment where people have the confidence in the business model. But I think you could have dramatic progress through those models in the next 10 years or so.