Matthew Bishop challenges social investors to take their giving to the next level.
In September 2008, Michael Green and I published a book, Philanthrocapitalism: How Giving Can Save the World, in which we made the case that the world was potentially at the dawn of a new Golden Age of Philanthropy — the fifth since the Middle-Ages, and the first since Andrew Carnegie, John D. Rockefeller, and other American gilded age tycoons launched their foundations in the early 20th century. In this vision of a new Golden Age, a generation of purpose-driven businesses and entrepreneur philanthropists with innovative approaches would help drive a productivity revolution in how the world solves its toughest problems.
Twelve years later, that new Golden Age of philanthropy has yet to arrive. Some of the key trends we hoped to see grow have done so much too slowly, if at all — though it is not too late for philanthropists to deliver on this promise.
We have seen an unprecedented rise in the number of billionaires, and with it, as we predicted, a growing commitment to philanthropy. Forbes estimates that there are at least 2,153 billionaires today, up from 798 in 2008. And roughly 10% of these billionaires have signed the Giving Pledge, committing to giving away at least half their wealth. There has been a similar sea change in the espousal of corporate philanthrocapitalism. The Business Roundtable has dumped Milton Friedman’s profit maximization for a stakeholder-friendly version of capitalism. Some 3,300 for-profit companies around the world have joined the B Corp movement. Impact investing focused on achieving specific social or environmental goals as well as a financial return has been growing fast and now exceeds US$ 500 billion, though it is still dwarfed by traditional investing. And since the first Social Impact Bond (SIB) was launched in Britain in 2010, the number of SIBs and their sister Development Impact Bonds has grown to 174 in 32 countries.
Yet all this activity has delivered far too little positive impact on the world’s biggest problems to justify the Golden Age label. With a handful of exceptions, such as the Gates-inspired creation of the Global Alliance for Vaccines and Immunization (GAVI) that is estimated to save the lives of some five million children a year, there have been too few examples of large-scale success by philanthrocapitalists to counter the growing public resentment towards people who are the primary beneficiaries of the widening inequality gap between the 1% and the rest of us. This has made it all too easy for critics such as Anand Giridharadas, author of the best-selling book, Winners Take All, to unfairly dismiss philanthrocapitalism as an “elite charade”.
When the Giving Pledge was being created, it was originally intended to focus on four goals, until Warren Buffett insisted on just one, the commitment to give away a majority of the pledger’s wealth. The other three ideas that were abandoned neatly capture the missing elements needed to bring about a Golden Age of philanthropy: give now, give smart, give to inequities.
Although the number of mega-gifts has been growing — last year a record five tycoons made individual gifts of over US$ 1 billion, according to The Chronicle of Philanthropy — after signing, the typical Giving Pledger has seen their wealth grow far more than their giving. Many seem to be keeping until later most of the wealth they promised to donate. (Similarly, it remains to be seen how much real action will result from the recent commitments by business and investors to be more active in meeting the needs of society.) Yet that money is needed now, given the enormity of the problems currently facing the world.
But it is not just about more of their money. Giving more while living would hopefully tap into the philanthropists’ other valuable assets, from their influential networks to the knowledge acquired while making their fortunes about how to get things done at scale.
One reason we hoped that a Golden Age of Giving was coming was potential for this generation of philanthropists to be the “smart capital” driving social progress. Compared to other types of capital (from for-profit to government spending), philanthropic dollars face few constraints in their ability to back risky or controversial ideas, including those that may take decades of complex systems change to make a difference.
Yet in the past 12 years I have seen too few examples of bold risk-taking or out-of-the-box thinking by philanthropists, or a willingness to do what it takes to make large-scale change.
In venture capital, as a start-up succeeds, original investors usually want to stay on board and other investors want to add their money to the success story. Though there are some promising initiatives to encourage collaboration by philanthropists (such as Co-Impact, Audacious, and Blue Meridian), in philanthropy’s dysfunctional capital curve, as a social entrepreneur starts to succeed, their non-profit’s original backers too often seem happy to grab the credit and leave, whilst other philanthropists are reluctant to step in to something already associated with a rival donor. This creates a “valley of death” that I have seen too many growing non-profits struggle to cross. While becoming a for-profit social entrepreneur is emerging as a way to avoid this, that is not yet an option when tackling many kinds of social problems, so other fixes are needed to improve how philanthropic capital is allocated.
The chapter of our book that has turned out to be the most over-optimistic was titled “Virtue’s intermediaries.” We saw signs of the emergence of an ecosystem of high-performance philanthropy, in which new intermediaries would displace the traditional “blowing smoke” feedback loops to donors with proper research and data-based analysis of what is working and what is not — and, as a result, money would go to where it can achieve the most impact. In the past 12 years, data-driven philanthropy has increased, especially within the “effective altruism” movement, but it seems to me that a culture of high-performance remains the exception, not the rule, in philanthropy today. There is too little rigor around defining success and being accountable for achieving it. That must change if the Golden Age is to become a reality.
Philanthropists have also done far too little to engage with the broader public’s legitimate concerns about the role of business and wealth in society. In our book, we highlighted the need for philanthropists to respond to public fears of plutocracy by initiating a public debate about what should be in a new social contract between the rich and the rest of us. We even set out a three-pronged Good Billionaire Guide that we thought should be a crucial part of that new social contract: make your fortune fairly; do significant, effective philanthropy; and pay a higher rate of tax than people less well-off. So far, philanthropists have mostly avoided this debate, or entered it ineptly. Yet with populist anti-business, anti-rich sentiment surging around the world, the time has surely come to engage.
The world’s most successful wealth creators certainly have the potential to spark a renaissance in bold, strategic giving that can help remake our planet. But to do that they must take their giving to the next level — bigger, riskier, more collaborative, more focused on systemic change — and they need to do it now.