Small Change: Why Business Won't Save the World

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9781605093772: Small Change: Why Business Won't Save the World
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A new movement is afoot that promises to save the world by applying the magic of the market to the challenges of social change. But in this hard-hitting, controversial exposé, Michael Edwards shows that business is ill-equipped to attack the causes of poverty, inequality, violence, and discrimination. Achieving fundamental social transformation requires cooperation rather than competition, collective action more than individual effort, and support for long-term, systemic solutions instead of immediate results. With a vested interest in the status quo, business can promise only limited advances: small change. It’s time to turn away from the false promise of the market and reassert the independence of global citizen action.

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About the Author:

Michael Edwards is a writer and activist affiliated with the think tank Demos in New York, the Wagner School of Public Service at New York University, and the Brooks World Poverty Institute at Manchester University in the UK. Previously, he was director of the Ford Foundation’s Governance and Civil Society Program and worked for the World Bank, Oxfam, and Save the Children.

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Irrational Exuberance

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.

Across the universe, meanwhile, a very different form of philanthropy is taking shape. It has been nicknamed philan-throcapitalism by Matthew Bishop and Michael Green1, and its followers believe that business thinking and market methods will save the world — and make some of us a fortune along the way. Bobby Shriver, Bono’s partner in the Red brand of products, hopes that sales will help “buy a house in the Hamptons” while simultaneously swelling the coffers of the Global Fund to Fight AIDS, Tuberculosis and Malaria.2 Larry Ellison, who founded Oracle, thinks that “the profit motive could be the best tool for solving the world’s problems, more effective than any government”3 — until government has to bail you out, of course, as it did for large swaths of American finance and industry in the aftermath of the financial crash in September 2008.

“If you put a gun to my head and asked which one has done more good for the world, the Ford Foundation or Exxon,” says Charles Munger, vice chair of Berkshire Hathaway, “I’d have no hesitation in saying Exxon,”4 though I can’t think of any oil spills that my old employers have dumped into the Pacific. “This,” says Jeff Skoll, who co-created eBay, “is our time.”5 There are philanthrocapitalists outside the United States, too, like Carlos Slim, the owner of most of the Mexican economy; Nandan Nilekani, of Infosys in India; and Shi Zhengrong, of Suntech Power in China, who are all “hyper-agents,” according to Bishop and Green, smashing through the barriers that have obstructed previous efforts to solve global problems. In this book, I won’t be focusing on non-U.S. examples like these because so little rigorous information is available on their efforts, but it is clear that the influence of philanthrocapitalism is spreading from the United States to other parts of the world, just as in earlier generations of philanthropy. The four richest people in the world are philanthrocapitalists — Bill Gates, Warren Buffett, Carlos Slim, and Larry Ellison, with combined assets of $135 billion, more than the gross domestic product of some of the world’s most populous countries, including Nigeria and Bangladesh.6Not all philanthrocapitalists are rich (we’ll meet some of them in chapter 2), and not all rich philanthropists subscribe to these methods and approaches, but the basic message of this movement is pretty clear: Traditional ways of solving social problems do not work, so business thinking and market forces should be added to the mix.

Actually, these traditional ways, like the Ladies Auxiliary and social movements dedicated to human rights, have often worked, though imperfectly, and if we gave them more support and recognition, they could work even better — but that’s not what the philanthrocapitalists want to hear. Instead, “the real scandal,” says Harvard’s Michael Porter, “is how much money is pissed away on activities that have no impact. Billions are wasted on ineffective philanthropy.”7 “Charities have failed for decades to deliver ... do we want to continue with the status quo or apply some fresh, inherently efficient [my italics] and potentially very effective thinking to find new solutions?”8 This statement comes from Kurt Hoffman, director of the Shell Foundation, in a letter to the Guardian in London, though I could have picked from any number of statements that are constantly repeated as though they represent a simple and straightforward truth. In fact, if I had a dollar for every time someone has lectured me on the virtues of business thinking for foundations and nonprofits, I’d be a philanthropist myself.

This is a very odd way to talk about groups that have cared for the casualties of every crisis and recession for a hundred years or more, kept communities together in the good times and the bad, brought democracy alive in places very large and very small, protected the environment from continuous corporate degradation, pushed successfully for the advancement of civil and women’s rights, and underpinned every successful social reform since slavery was abolished. As far as I can tell, the people who make such statements have never worked in groups like these, nor have they studied the achievements and history of civil society organizations, nor have they experienced the difficulties of tackling power and inequality on a shoestring and in the face of constant opposition. On these grounds, maybe community organizers should go work for Lehman Brothers.

Come to think of it, that’s not such a bad idea: It might have saved us from the colossal mismanagement and risk taking by banks and hedge funds that led to the financial crisis — companies that were so successful and well managed that, like Lehman Brothers and its foundation, they collapsed overnight, leaving hundreds of nonprofits to face financial ruin — or it might have spared us Bernard Madoff with his massive Ponzi scheme, who defrauded Jewish charities of huge amounts of money and caused whole philanthropies like the JEHT Foundation to vanish without a trace.9 “In investment banking, it is taken for granted that decisions about how to use capital are based on rigorous research into performance,” say Bishop and Green in their love poem to philanthrocapitalism; or as we now know, such decisions could be based on raw speculation at everyone else’s expense. What is “inherently efficient” about business thinking and the market? That’s just ideology — pure, simple, and absolutely incorrect.

Not all philanthrocapitalists talk or feel this way, but the mix of arrogance and ignorance revealed in these quotations sure takes some explaining. What lies behind the rise of this phenomenon? The philanthrocapitalists are drinking from a heady and seductive cocktail, one part “irrational exuberance,” as Robert Shiller puts it,10 that is characteristic of market thinking; two parts believing that success in business equips them to make the same impact on society at large; a dash or two of the excitement that accompanies any high-profile new solution; and an extra degree of fizz from the oxygen of publicity that is created when philanthropists get the chance to mix with the world’s richest and most famous people. “The new rich have often made their money very fast, and get intoxicated by their own brilliance into thinking that they can quickly achieve results in the non-profit sector. They forget that their success may be due to luck, and that the non-profit sector may be far more complex than where they have come from,” says Mario Morino, head of Venture Philanthropy Partners, in a welcome dose of common sense.11

Shiller used the word irrational in the title of his famous book for a very good reason, since he knew that stock market bubbles and corrections are caused less by facts and fundamentals than by a popular consensus that becomes disconnected from what is happening on the ground. In similar fashion, the philanthrocapitalists have latched on to something potentially important — that business and the market can have more social impact — but have become so caught up in the buzz surrounding their ideas that they are ignoring the costs of what they are recommending and exaggerating the benefits.

The advance of capitalism brings many material and technological rewards, but it also dismantles the social ties and sense of common purpose that are essential to healthy and well-functioning societies; and in its present form, it promotes inequality and individual alienation. The philanthrocapitalists see more capitalism as the answer to the problems that capitalism has already created, but is this going to be enough? Especially at times of economic crisis, questions are always asked about the undue influence of businesses and wealthy individuals, the encroachment of the market into every aspect of our lives, and the erosion of older traditions of service and civic engagement. It is no coincidence that discussions of Bill Gates’s ideas on “creative capitalism” have taken off just when conventional capitalism is experiencing such a loss of public trust. To prosper in the future, capitalism must be the servant, not the master, of democracy and the public good. That will require more government and civil society influence over business, and not the other way around: more cooperation, not competition; more collective action, not individualism; and a greater willingness to work together to change the fundamental structures that keep most people poor so that all of us can live more fulfilling lives.

The tide of public opinion in many countries is already turning back toward the benefits of strong government, market regulation, democratic accountability, and civil society activism (whether it stays there is, of course, another matter). High levels of grass-roots participation in Barack Obama’s presidential election campaign were, perhaps, a harbinger of things to come, as civil societies begin to recover their sense of purpose and self-confidence. If these trends continue, philanthrocapitalism will face increasing questions about its relevance and reach — most important, does it actually work? Can these new approaches transform societies, or do they simply treat the symptoms of social problems in more efficient ways?

Philanthrocapitalism vs. Social Transformation

“Since 2005, commitments made through the Clinton Global Initiative (CGI) have already affected more than 200 million lives in 150 countries.” In Asia alone, “more than 3.5 million people will gain greater access to health services, an estimated 715,000 children will benefit from better education opportunities, over 260,000 adults will learn new job skills, over 250,000 girls and women will be empowered with better opportunities for sustainable livelihoods, nearly 24,000 hectares of forest land will be protected by empowering local residents to manage their own natural resources, the equivalent of more than 40,000 tons of CO2 emissions will be cut, and over 700,000 people will better learn to cope with environmental stress and natural disasters.”12

These statistics, taken from the CGI Web site, which acts as a clearinghouse for many business-savvy philanthropists and social entrepreneurs (defined in chapter 2), say little about the quality and sustainability of the improvements that are claimed, but they are undeniably impressive. There is justifiable excitement about the possibilities for progress in global health, agriculture, and access to microcredit among the poor that have been stimulated by investments from CGI members, the Gates Foundation, and others. This kind of work — using business and the market to get socially and environmentally useful goods and services to more poor people — has become the largest and most visible project of the philanthrocapitalists over the last five years. As Pierre Omidyar, one of the founders of eBay, puts it, you can begin by investing $60 billion in the world’s poorest people “and then you’re done!”13

Well, not quite, Pierre. New loans, seeds, schools, and medicines are certainly important, but there is no medicine that can combat the racism that denies land to dalits (or so-called untouchables) in India, no technology that can deliver the public health systems required to combat HIV, and no market that can reorder the dysfunctional relationships between different religions and other social groups that underpin violence and insecurity. And that’s the crucial point. Philanthrocapitalism may well produce a vaccine against malaria, but there’s no vaccine against greed, fear, poverty, inequality, corruption, lousy governance, personal alienation, and all the other things that plague us. Few areas of business expertise translate well into the very different world of complex social and political problems, where solutions have to be fought for and negotiated — not produced, packaged, and sold. And, so far at least, there aren’t many philan-throcapitalists who are prepared to invest in the challenges of long-term institution building, the deepening of democracy, or the development of a different form of market economy in which inequality is systematically attacked.

In most of the literature from philanthrocapitalists, the goal is saving lives, or promoting access for lower-income groups to goods and services that are productive and beneficial. “The Gates Foundation is seen as a venture capitalist,” says Erik Iverson, the foundation’s associate general counsel. “In return, what we want is lives saved.”14 Capitalism is philanthropic, says Matthew Bishop, because “sooner or later everyone benefits through new products, higher quality and lower prices.”15 As Jacqueline Novogratz concludes, “We should see every poor person on the planet as a potential customer”16 — not exactly an inspiring vision to get you out of bed, but entirely logical for business.

Staying alive is certainly a necessary condition for social transformation, but it is hardly sufficient for living a life that is fulfilling, loving, and productive, and neither is increased consumption. That level of fulfillment requires changes in systems and structures, institutions and relationships, and norms and values, so that everyone can participate fully in the benefits of social, economic, and political life — and care for themselves, each other, and the planet in the process. And completing this job rests on much more than market forces. Philanthrocapital-ism focuses on building up the health, skills, and assets of individua...

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