‘Same old, same old’ – this was the phrase I could not get out of my head at this year’s Skoll World Forum at Oxford in March. The attendees at what Jeff Skoll calls the ‘Woodstock of social entrepreneurship’ were individually as mind-blowingly inspirational as ever, but somehow, for me, the whole amounted to less than the sum of the parts. So much talent was gathered, with so much potential to change the world. Yet the speeches, panels and conversations had a ‘business as usual’ feel to them, as if the global crisis that had struck the previous September was taking place elsewhere.
When Lehman Brothers was allowed to go bust on 15 September 2008, triggering a meltdown in the financial markets, the economic paradigm that had dominated the world for the previous quarter of a century was exposed as seriously, perhaps fatally, flawed. The battle of ideas that will invent the new paradigm is now under way. Social entrepreneurs and philanthropists have plenty of ideas to offer – but only if they realize that the world has fundamentally changed and that they cannot simply keep on saying the same old thing.
The classic illustration of the case for discontinuous thinking is the story of the frog in hot water. Put a frog in cold water and gradually heat it up, and the frog will not notice the rising temperature and is eventually boiled alive. Drop a frog in water that is already boiling and it will understand the threat and jump to safety. ‘When the ship is sinking,’ said José María Figueres, a former president of Costa Rica, at the Skoll Forum, ‘the entrepreneurs are the first people into the lifeboats. You may not know where those boats will end up, but you understand that there is no future staying where you are’ – not an entirely virtuous image, for sure, but practical and wise.
The challenge for philanthropists, social entrepreneurs and all those trying to solve the world’s most pressing problems is, first, to figure out what has changed and then to look at themselves and their organizations anew. In many cases, personal or organizational attributes that were taken for granted or even seen as weaknesses in the old world will be tremendous strengths in the new one, while former strengths may turn out to be less important, or even downright dangerous.
Launching our book, Philanthrocapitalism, just days after the collapse of Lehman Brothers made clear in no uncertain terms to Michael Green and myself that the world had fundamentally changed. For many in the mainstream media, the idea that there was any positive role for the wealthy in solving social problems had been made moot by the collapse of the world’s wealth creation machine and the return of activist big government. Our critics in the non-profit world had great fun with our notion that the sector could become much more efficient by learning from capitalism – a position one reviewer wittily described as ‘Lehman Brothers to the rescue’. Ouch.
Clearly, we underestimated the extent to which the short-termism of for-profit capitalism made it vulnerable to systemic meltdown. Yet, paradoxically – and this is where discontinuous thinking can produce unexpected insights – this actually reinforced an underlying theme of the book that we had not made as explicit as we might have done, that the old barriers between sectors are collapsing, creating a huge opportunity for everyone to learn from each other.
For-profit companies can learn from non-profits …
So, for example, for-profit capitalism needs to learn from the non-profit world about the importance of understanding the long-term forces shaping society, which is after all the context in which they must do business. As they seek to recover, banks can look to socially driven financial organizations such as ShoreBank, Grameen, BRAC and Triodos to see how to lend sustainably.
The importance of the trend that was starting before the collapse of Lehman to align corporate philanthropy with a firm’s core business strategy becomes even more important now we see more clearly how short-termist for-profit companies often are. Aligning corporate philanthropy with corporate strategy is a way for firms to learn better about the long term. Like never before, there is an appetite in the boardrooms of the world’s leading firms to understand how they really can do well by doing good. Non-profits now have a huge win-win opportunity to partner with businesses; they must not miss this opportunity to shape capitalism for the better.
… and vice versa
Paradoxically, the crisis has also heightened the need for philanthropists and non-profits to learn from capitalism. It was not the transparency and focus on efficiency that caused the collapse of financial capitalism; it was the part of the market that lacked transparency – starting with the securitization of subprime mortgages – that proved its Achilles heel. To be effective, the non-profit world still needs to become far more transparent, and to find better ways to get scarce philanthropic capital to the organizations with the best ideas and the best execution.
The idea of creating ‘social capital markets’ is more important today than ever. Likewise, the need to expand the best non-profits and to close (through merger or liquidation) those that are not using capital efficiently. One silver lining of the current crisis is that non-profits that have hitherto been unwilling to contemplate mergers or cost-saving partnerships are now, out of necessity, increasingly doing so.
The importance of leverage
Another theme in Philanthrocapitalism that is even more relevant now is that effective philanthropy is about far more than the money. That is just as well, given there is now much less money to be given away (though that could change if the crisis reminds more wealthy people of their responsibility to give). Even Bill Gates admits that his money cannot solve the problems he is tackling unless he can leverage the far bigger sums controlled by business and government. Leverage may be out of fashion in capitalism, but it is more crucial than ever in the world of giving.
One area in which philanthropy can leverage creatively is in how foundations use their endowments. With conventional investment strategies now thoroughly discredited, the time has come to take mission-related investing seriously – and to apply the best minds in finance to doing it intelligently.
Working with government
Barack Obama’s enthusiasm for public-philanthropic partnerships, as demonstrated for example by the creation of the new White House Office of Social Innovation (see interview with Sonal Shah on p36), has also increased the opportunity for fresh thinking. If this model can be made to work in America, non-profits and philanthropists should be actively encouraging its spread around the world.
The biggest danger here may be timidity. I have been struck by how timid the philanthropic/non-profit sector has been in coming forward with ideas big enough to make a serious impact on the shape of government as it becomes more activist than it has been in several decades. Perhaps it is because the sector – and social entrepreneurship in particular – has long seen itself as an alternative to government rather than the partner that can make it smarter. Or because the opportunity to scale up good ideas is simply too scary, and that, for all the ambitious talk, non-profits are more comfortable with slow, incremental growth.
It’s not just about money
Philanthropists, businesses and non-profits have many assets apart from money – ranging from managerial talent to networks, reputation and knowledge. They may have less cash to splash, but perhaps this will free them to think more creatively about ‘giving’ these other assets. This year, the Clinton Global Initiative may find it harder to get its members to make cash commitments, but there may be a huge opportunity to use its deep connections in the business and philanthropic world to bring firms and non-profits together to share knowledge. Is this a moment when the pro bono activities of companies can be taken to a new level?
There is great opportunity in the current crisis, but only if people stop saying the same old thing.
Matthew Bishop is New York Bureau Chief of The Economist and author, with Michael Green, of Philanthrocapitalism. He blogs on www.philanthrocapitalism.net and on twitter is @mattbish. Email MatthewBishop@economist.com