Changing roles in a changing world

Anthony Tomei

The collapse of Lehman Brothers in 2008 seems to mark a symbolic moment at which the world changed. The changes were felt very differently in different parts of the world, but it seems likely that the resulting shift in the balance of economic power will turn out to be permanent. What about philanthropy?

Five years on, how do things look? How have foundations responded?  Have they changed the way they see their role and the way they do things? These are the questions this Alliance special feature sets out to explore. Three themes that emerge from the articles are the need for philanthropy to address growing inequality, a tendency to see philanthropy in terms of investment rather than grantmaking, and the need for cooperation and partnership, especially with government. 
The theme of this special feature was originally to have been ‘Philanthropy in an age of austerity’. As a recently retired foundation director, this had immediate resonance for me. The debates that happened after the financial crisis of September 2008 were still fresh in my mind. The urgency and severity of the situation were beyond the experience of trustees, staff and beneficiaries alike. With most foundations experiencing substantial drops in endowment values, how should they respond to the growing needs of the organizations they supported? Should they retrench, continue to spend at their normal rate, or even increase their spending?

Underlying all these questions was a more fundamental one: was this a temporary blip, or had the order of things changed in a way that was structural and long term? If austerity was to be the ‘new normal’, what did that mean for the role of foundations, and philanthropy generally?

From ‘….age of austerity’ to ‘….changing world economy’
Further thought suggested that this was too narrow a perspective. Alliance is, after all, ‘for philanthropy and social investment worldwide’ and globally a rather different picture emerges. Consider:

  • While global GDP declined in 2009, it has since recovered and is now growing at around 3 per cent, with predictions that it will grow steadily at 3.5–4 per cent for the next few years.
  • Most of this growth has been in developing countries.
  • China is already the world’s second largest economy and is expected to become the largest within 15 years. Within 50 years India’s economy is forecast to be larger than America’s and twice the size of Europe’s.
  • While much attention is focused on the BRICS countries (Brazil, Russia, India, China, South Africa), there is also a wave of emerging economies with growth rates much higher than those of developed countries.

In short the world’s economy is going through profound long-term changes and the austerity that preoccupies the mature economies of the West is only a part of a bigger story.

Setting the scene
The first few articles give an overview and address some general questions about foundations and the way they behave under different economic conditions. In the opening article, Matthew Bishop, cautiously optimistic, talks of a ‘Golden Age of Giving’, the fifth in modern times, built on the technological and structural innovations of the past 30 years. While Europe and North America face the prospect of a long period of economic stagnation, in developing countries September 2008 may be no more than a small perturbation in a story of continuing growth and rising prosperity for many people.

Bishop suggests that there will be growth in philanthropic giving in developing countries, partly because of the activities of a new generation of very wealthy people and partly because of an increasing propensity to give arising from growing general prosperity. He has more to say about the former than the latter and treats us to some interesting speculations about possible future directions. Will philanthropy on a large scale become a norm for the new super-rich? Will cultural and dynastic responsibilities militate for or against large-scale giving? Can we expect to see more emphasis on impact investing in its various forms, or will more traditional approaches dominate?

Whatever the answers, the issue of inequality casts a long shadow. It seems clear that in nearly all developed countries the gap between the wealthy and the rest has been growing. Whether that is also happening in developing economies is harder to say but it seems likely.

And what of relations with government? Matthew Bishop says: ‘It seems clear that governments everywhere will increasingly look to allow private giving and business to play a bigger role in delivering social progress, often in partnership with them.’  That seems right, but, as he says, whether in the austere North or the buoyant South the big challenge is to get the division of labour right.

Changing styles of philanthropy imply changes within foundations, but because of their wealth foundations are notoriously insulated from external pressures. So what causes them to change? Based on her historical research, Diana Leat suggests a number of possibilities, ranging from simple fatigue to changes in the roles of government, echoing one of Matthew Bishop’s comments.

Are increased concentration of wealth and increased inequality necessary bedfellows, ask Barry Knight, Chandrika Sahai and Halima Mahomed. In short, do the conditions that give rise to the development of foundations necessarily also give rise to one of the problems they ought to be concerned with? The authors believe that they do. They take foundations to task for failure to address social justice and suggest different ways in which they can do so, including developing new relations with government.

Europe and North America

The articles in the next section review the situation in Europe and North America. The first two articles are from Italy, where the crisis has hit especially hard. Luciano Balbo and Massimo Lanza see September 2008 as a symbolic date, but see the roots of the financial crisis stretching back a long way. They see the changes as structural and long term, leading not just to widening inequality but also to an increase in absolute poverty. Grantmaking and the traditional tools of philanthropy are inadequate to address this and the authors describe how impact investing is beginning to achieve results on a larger scale. Cooperation and partnership are key factors.

Echoing Knight, Sahai and Mahomed, Pier Mario Vello notes the paradox that the things that produce philanthropy’s resources (markets and governments) are also responsible for the problems it is trying to solve. Given the scale of the present problems, he says, the only solution is for governments, markets and philanthropy to work in partnership. This requires foundations to change. Vello’s view is that they are changing, but not fast enough.

Bradford Smith, President of the US-based Foundation Center, notes that while long-term expectation of returns on investment are reduced he does not see any major changes either in payout or in the number of foundations contemplating spending down. The latter, he suggests, is more a matter of donor attitudes than of strategy. He sees some changes in the way foundations are choosing to work: notably an increased interest in programme related and mission related investing, and also an increased appetite for partnership and collaboration, both with government and with the private sector.

Dilemmas for endowed foundations

Many foundations in Europe and North America have been set up with the assumption that they will exist in perpetuity. But the apparently long-term decline in investment returns has called this into question. If the aim is to continue in perpetuity and current conditions mean foundations are paying out more than they earn, should they reduce the amount they are paying out, at a time when the needs are greater than ever? Alternatively should they take the bold decision to accept that life is limited and spend down? Richard Jenkins argues that the choice need not be so stark. Preserving long-term value is only a matter of probability, never a certainty, so maybe the right approach is simply to take a risk-based approach to longevity. His key message, which chimes well with what other contributors are saying, is that the role of trustees is to be stewards of all the assets of a foundation, not simply custodians of its long-term value. In a series of thoughtful comments, Sara Llewellin, Phillip Henderson and Antti Arjava reflect on these ideas from the perspectives of three rather different foundations.

India and Brazil
In both India and Brazil philanthropy is changing rapidly; generational and cultural factors are at least as influential as the sheer growth of wealth available. Alison Bukhari’s article gives a snapshot of philanthropy in India, with comments from a panel of experts. Philanthropy is said by some to be growing, but this is disputed and the number of grantmaking and operational foundations does indeed seem low. The different patterns of growth of corporate, individual and dynastic wealth paint a complex picture of different motivations for, and approaches to, philanthropy. Fernando Rossetti’s comments on Brazil reveal points of similarity and of difference with the Indian experience. He has some intriguing thoughts on what happens when philanthropy is funded by corporate money but headed by families, and how this changes as businesses mature.

To someone used to discussions of European philanthropy, there were three observations common to both Brazil and India that caught the eye. The first was the distrust of NGOs, and the consequent preference of corporations and families to run their own programmes. The second was the tendency to shy away from more political issues such as human rights, transparency and inequality. The third was the tension between the easy exchange of international ideas and learning (also mentioned by Matthew Bishop) and the desire to develop locally owned solutions. Ideas like the Giving Pledge traverse the world easily but, as Alison Bukhari remarks, ‘the new generation of philanthropists think India not only can solve its own problems, but should’.

Africapitalism – necessary but not sufficient
The three articles on Africa make for fascinating reading, both in their own right and as a contrast with what has gone before. Stephen Dawson looks to developing venture capital markets in Africa as a means of stimulating the SMEs that will be the engines of growth and employment. His is a compelling vision, with complementary roles for commercial investment, philanthropic impact investment and traditional grantmaking. The common denominator is the creation of employment, easy to measure and bringing benefits to all parts of the community.

The approach of Tony Elumelu, a leading African businessman who has set up his own foundation, has much in common with Dawson’s. He too sees support for the private sector as the key to addressing social, economic and environmental issues in Africa but he emphasizes the importance of infrastructure and the development of an enabling environment that supports business – a concept he characterizes as ‘Africapitalism’. This too requires a mix of commercial and philanthropic impact investing and he describes how his foundation does both.

Theo Sowa broadens the debate. While agreeing that the private sector is crucial to development in Africa, she argues that certain preconditions are also necessary for development, in particular the full range of human rights, and strengthening governance in the public and private sectors, and these are unlikely to be addressed by private sector investment. There is therefore a continuing need for other forms of support. Echoing the sentiment in Alison Bukhari’s article on India, all agree that, as Tony Elumelu puts it, ‘no one but Africans can develop Africa.’

Back to the global
The final article brings together views from around the world. Seventeen experts on philanthropy, all except one members of the Alliance editorial board, offer their views on a series of questions about philanthropy’s response to a changing world. Their answers reflect and confirm many of the themes discussed in the articles. They also raise some new issues, one of which is the question of government aid to developing countries. Some say that there has been no retrenchment, but others are less sanguine. At a time of austerity it is not surprising that governments find themselves subject to populist demands to put the needs of those at home ahead of those in other countries. What this will mean for philanthropy is uncertain. At the moment very few foundations operate outside their own country boundaries. Few would bet on that improving in the foreseeable future.

Concluding thoughts

The scope of this special feature defies easy summary but some things do seem incontrovertible. Long-term global economic change is the reality and philanthropy has to adapt. In the (relatively) declining economies of the North some have seized this challenge and are rethinking their roles and ways of working.  Some of these will fail, but that is entirely legitimate.  The criticisms of the authors are reserved for the many who think that business as usual will suffice.

In the growing economies of the South, new forms of philanthropy are being invented, albeit in the context of cultures where there are long traditions of giving. The great wealth that leads to foundations being established is only now being accumulated. Cultural and local political factors are hugely influential. While modern global communications and exchanges mean that views and ideas can be easily shared, each country is devising its own solutions. Tony Elumelu’s comment risks sounding parochial but surely expresses a fundamental truth, that countries cannot develop unless they take charge of their own destinies.

Inequality and philanthropy
Three themes seem to me to run through all I have read. The first is inequality. There is no doubt that this is rising in developed countries and such evidence as there is suggests that it is rising in developing countries too (with the interesting exception of Brazil and a few others in Latin America). If philanthropy depends on wealth and wealth leads to inequality then, as Pier Mario Vello and others point out, we have the paradox that the existence of philanthropy is inextricably linked to the problems it attempts to solve. Several authors note the reluctance of foundations in developing countries to address issues of social justice and human rights. Perhaps only mature foundations whose connections with the development of their country’s wealth are in the past are likely to take on those challenges. And if Pier Mario Vello is right, what does that tell us about the legitimacy of foundations in general?

Investments rather than grants
The second theme is that many new forms of philanthropy are seen as investments rather than grants. There are disagreements about taxonomy and it may be, as several authors suggest, that at the moment there is more talk than action. But what is striking is how compelling the rationale appears to be, whether it is addressing decline and austerity in the North or the new problems of emerging economies in the South. There are plenty of concrete examples in the special feature, but the thinking is also implicit in other ways. For example, it seems the obvious inference to draw from Richard Jenkins’s plea that trustees should think of themselves as stewards of all the assets of a foundation, not just guardians of its long-term wealth and dispensers of its surpluses.

Cooperation and partnership
The third theme is cooperation and partnership, particularly with government. This is explicit or implicit in virtually all of these articles and it raises issues that are fundamental to the defining characteristic of foundations, their independence. Being a partner does not mean simply acquiescing and writing cheques. It includes challenge and holding to account in pursuit of a common purpose. This is one of the key roles of NGOs, but at a time when their budgets are under pressure and they are reliant on the state for their funding, it becomes hard for them to do. Foundations have the convening power, the independence and the resources to help fill that gap. Some have historically seen that as their role, but the need seems greater now than ever.

Government actions and policies define the landscape in which foundations work and everywhere that landscape is being reshaped. How foundations adapt will be the key to whether they can meet some of the challenges that have been thrown down in these articles. Pier Mario Vello calls for foundations to act in partnership with markets and with government, with philanthropy taking a strategic role that we should not be afraid to describe as ‘political’. That seems right to me.

Perhaps the final word should lie with our opening author, Matthew Bishop: ‘The more philanthropists are allowed to indulge in risk-taking and long-term or contrarian thinking, and the less they are looked on as deep pockets to be picked, the more likely they are to play a positive role.’ That is the key message for both parties.

Anthony Tomei was director of the Nuffield Foundation from 1995 to 2012.  He is a trustee of the Bell Foundation and a visiting professor at King’s College, London

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