Are the super-rich the new super-heroes of the world stage, as Matthew Bishop and Michael Green claim in Philanthrocapitalism: How the rich can save the world?
Are there limits to what philanthrocapitalists can achieve? Is the philanthrocapitalist approach likely to tip the power balance even more in favour of funders? Isn’t it undemocratic for the super-rich to have so much unaccountable power? Caroline Hartnell talked to Matthew Bishop and Michael Green about their new book.
Your writings about philanthrocapitalism so far have suggested that a new generation of billionaire ‘social investors’ using big-business-style strategies are likely to achieve far more through their philanthropy than those using more traditional ‘charity’ approaches. The title of your new book seems to make a larger claim. Can you tell me how the rich are going to save the world.
Matthew Bishop The point we’re making is that there are more super-rich people around than ever before and they have all sorts of problem-solving talents developed in their business lives that they are now looking to bring to bear on some of the world’s big problems.
At the same time, all the other players that have traditionally been looked to to help solve those problems are constrained in different ways and unable to rise to the task. Governments are overburdened with their existing responsibilities. Businesses have their profit targets each quarter or half year. Charities are constantly looking for funds and so equally obsessed with short-term goals. Philanthropists have a unique ability to use their money in very innovative ways because they’re not hidebound by those other pressures. They can’t do it on their own, but with others they can be the source of the change capital that the world is looking for.
Are there limits to the things that philanthrocapitalists can achieve – for example long-term social change?
Michael Green What we’re arguing for is a division of labour. Welfare and long-term programme funding is a job for government. Non-profits and business also have a role. Where we see a role for philanthrocapitalists is in providing that highly risk-taking capital for social change. The thing about philanthrocapitalists is that all they have to lose is their money.
Where does long-term social change fall in your division of labour?
MB It depends what sort of social change you’re talking about. Our book gives two or three examples of very wealthy philanthrocapitalists backing bottom-up social change. One is George Soros, whose Open Society Institutes around the world have been amazing drivers of civil society growth. He’s very consciously tried to change societies in ways that promote freedom and personal expression.
Another is Jeff Skoll, who has backed Al Gore’s An Inconvenient Truth and other films that are all about helping change the way big social issues are thought about. Those are just two examples that show the start of a greater consciousness among philanthrocapitalists that because their money is relatively small compared to what governments and business have at their disposal, they need to use it to leverage policy change. So they’re very much into creating movements now and working at grassroots level.
Gates would admit that when he started out, he thought technical solutions such as producing new drugs would be enough, but he’s subsequently found that you need to get government and society working to really achieve your goals. So he, along with Soros and Ed Scott, each put in $1 million to set up DATA, the organization through which Bono has promoted the One campaign in the US and the Make Poverty History campaign in the UK, both real mass activist movements.
Is philanthrocapitalism more diverse than more traditional foundations?
MG One thing we emphasize in the book is that philanthrocapitalism is as diverse as capitalism itself. One concern we have is that it is being pigeonholed as a metric-driven particular kind of philanthrocapitalism, but at the other end of the spectrum you have the big bet, big risk, non-metric-obsessed philanthropy of people like Ted Turner. I think pledging $1 billion to the UN is pretty radical, and something a traditional foundation wouldn’t have done.
MB Traditionally foundations have steered clear of politics, but I think this new generation of philanthrocapitalists understand that getting involved in politics is crucial to their success.
In another way they’re less diverse than traditional foundations in that they’re very conscious of the need to focus. A lot of foundations have adopted a very scatter-gun, unstrategic approach to their giving. Gates’ view is that foundations should pick fewer issues and really concentrate their resources in those few areas rather than backing every horse in the race.
That brings us perfectly to my next question, which is about power. One of the things in favour of more responsive funding is that it allows ideas to come from a much wider range of people. In the September issue of Alliance, we focus on the issue of who sets the agenda. My assumption is that the philanthrocapitalist approach is likely to tip the power balance even more in favour of funders. Do you agree?
MG I’d like to run the analogy with capitalism again. Some investors work with small companies just as some philanthrocapitalists look for small organizations to back. In capitalism you also have the big investment banks taking big positions, and some philanthrocapitalists like Gates are doing that too. So you’ve got different approaches, some drawing from the bottom up, others offering focused, strategic leadership.
MB The other question is what you are comparing today’s philanthrocapitalists to. I think they often see their benchmarks as being on the one hand government, which is very bad at backing new ideas, and on the other hand foundations, which tend to back a wide range of projects for two or three years. All the philanthrocapitalists I’ve talked to want to back people with ideas and to want a long-term supportive relationship with them. So in a sense they are looking for new ideas bubbling up from the bottom, and people with the ability to take an idea and turn it into a solution.
If the traditional foundations had a better track record of all those projects they scatter their gun at consistently delivering good results, maybe you would think philanthrocapitalists are too narrow. But if you talk to people who’ve had funding from traditional foundations, they’re often terribly frustrated about the lack of overhead funding and capacity-building, and the short-term relationships. When the Center for Effective Philanthropy started asking grantees what they think of the way they’re treated by foundations, they found a mixture of arrogance and short-termism and unreliability. Compared to that, the philanthrocapitalists’ strategic thinking and long-term focus are a big step forward.
MG Intermediaries like CEP have shifted the balance in favour of the funded by giving them a voice and offering more accountability in the philanthropy marketplace. CEP’s grantee perception reports have allowed grantees to speak and be heard in a way they couldn’t before.
Philanthrocapitalists I’ve talked to often seem to have a low opinion of NGOs and existing organizations, which means they may have a rather fixed view of what an organization they’d want to support should look like, or even want to create their own organization.
MB I see this culture clash as one of the big challenges. Businesspeople are used to a command and control world, they’re used to being able to fire people and shut things down easily if they need to, they’re used to solving things quickly. They often don’t know what to make of non-profits. On the other side, non-profits often look down on businesspeople. ‘What do they know? All they’ve ever been interested in is making money while I’ve been out on the coalface doing all this hard caring work.’
The encouraging thing is that after some initial bad experiences the philanthrocapitalists are starting to see the value in the insights and experiences they find in the non-profit world. Equally, charities need to change. Save the Children, for example, has changed a lot in order to work more effectively with philanthrocapitalists. I’m optimistic that these culture clashes will become less and less of a factor in the future and that people will figure out that both sides are here to stay and they need to make the partnerships work if they’re going to achieve their goals.
In your column in the September issue of Alliance, you address the worry ‘that philanthrocapitalism will somehow undermine democracy and civil society, and erode government responsibility’. You argue that the rich are not inevitably self-serving and have often proved to be more responsive to the needs of the poor than the state. But the fact that the rich may be benevolent doesn’t make the system democratic. It still leaves a small group of people with an awful lot of unaccountable power, doesn’t it?
MB I think we are moving from a very egalitarian politics to a slightly more plutocratic politics, and rightly people worry about that. Who is Bill Gates or George Soros to be setting our agenda for us? That’s why we argue that it’s important that we have a new social contract between the super-rich and everyone else that makes it clear what we expect of them and what makes a good billionaire, including a commitment to philanthropy and paying their taxes and making their money in a fair and proper way and not exploiting people. Equally, everyone else will need to work out how to support the philanthropists and help them to be effective in their philanthropy.
A key aspect is transparency and accountability. We urge the philanthrocapitalists to take the lead in promoting the debate about a new social contract by being accountable and transparent in what they do and trying to build public support for their work. If they don’t do that, I think we’re going to get a much more ‘bash the rich’ approach to making them accountable, which will probably reduce their ability and willingness to get involved in these problems, and I think we’d all lose in that situation.
So is a more plutocratic politics inevitable?
MG I think there’s a danger of a kneejerk response that says the rich shouldn’t have any part in politics. We’re very clear that the rich must follow certain rules, but once they’ve obeyed those rules – paid their taxes, earned their money fairly, done their philanthropy – we should acknowledge them as important players because of the enormous assets they bring.
MB One of the people we talked to was Michael Bloomberg, a multi-billionaire who has been mayor of New York for the past seven years and was thinking of running for US president. We feel that he’s better as a politician, a mayor, a potential president because he’s beholden to no one. He hasn’t had to engage in political fundraising or other things that create hostages to fortune once you’re in office.
This isn’t an ideal situation, and you can see how with the wrong accountability systems you end up with someone like Silvio Berlusconi in Italy, which is the bad side of plutocracy. But with the right rules about transparency and about putting your money in trust and so on, as they have in the US, it can work really well.
I accept that the rich have a part to play, and that they’ve done some good things, but isn’t it a question of balance?
MB I think the onus is on the rich to show they’re using the money well. Philanthropic money is tax favoured, typically, so it should be seen as outsourced government spending, which means it should be judged by very high benchmarks. Over-regulation would lead to the rich having the same pressures to go down the populist route as government has already, but fundamentally they need to show the public they’re really delivering results.
The alternative is taxing the rich more heavily. At the margin there is always room for debate about tax rates. I just think the lesson of the mid 20th century was that punitive rates of taxation for the rich hurt everybody by killing the wealth creation process. I broadly favour a world where wealth creation is encouraged but the winners feel an obligation to put money back into helping society solves its problems. Philosophically I find that attractive, but I also think that trying to tax the rich very heavily has proved to be a damaging process, and increasingly in a globalized world almost impossible to enforce as well.
The fact is that in almost every developed country, marginal tax rates have come down. Our point is that the winners should feel they have an obligation to give back, and to do it effectively. If we can encourage that, and celebrate people like Bill Gates rather than be excessively suspicious of them, we may get the best of all worlds because we’ll be getting their wealth creation skills and their philanthropic skills. The alternative is maybe to cut off our nose to spite our face by taxing them so much they don’t create wealth either.
What effect do you think the present financial crisis will have on philanthropy?
MB My bet is that, as has happened in every financial crisis, the rich end up getting richer and the bulk of the pain is felt by the rest of the population. Clearly some of the rich will lose their fortunes, but I’m confident it won’t be very many of them and many will see this as the buying opportunity of a lifetime. As they say, the time to invest is when the blood is on the streets.
In that world, the onus is even more on the philanthropists to give money and do the things they’ve talked about doing in the good times. This is the first real test for this new generation of philanthropists. In fact there will be even more need for their philanthropic dollars. For one thing, the downturn in the financial markets is going to affect how much money many charities have at their disposal because they’ve invested in the markets. In addition, the US government, having bailed out the financial system in a massive way, is going to be even more financially constrained, so government funding to all sorts of areas of social provision and social need is likely to be cut. This is the challenge for the rich.
We both went into this somewhat sceptical about the rich – we’re not particularly rich ourselves – and we didn’t really know what we would find. I am impressed that a significant number of the super-wealthy feel they’ve got more money than they know what to do with. They find it challenging to have so much money, they worry about the impact leaving it to their kids would have on their well-being, and they see themselves as having a huge opportunity to use this money to solve some of society’s problems. That’s by no means all the rich, but there’s a growing number of them.
The book starts with Warren Buffett and Bill Gates pledging to give away most of their money – two richest men in the world at the time – and I think they’re having a profound effect on many of the other richest people in the world, who look at them and say, ‘If Bill Gates and Warren Buffett are going to give away most of their money and think they can really make a difference, then maybe we should be thinking about doing that as well.’
MG If at the moment we’re moving into recession and public finances are squeezed, the scope for government discretionary expenditure to innovate and take risks will shrink. So there’s a greater need for philanthropy to fill that gap – not to deliver the basics but to provide cutting edge funding for new ideas.
Isn’t there a danger in relying on the very rich to help the poor if they are themselves struggling and turning inwards to deal with their own problems?
MB I’m not going to dispute it, it’s possible that this is the crisis of capitalism and we go into the Great Depression all over again. But I think the safest bet is that we’re going to have a couple of difficult years. In 10 or 15 years’ time, with the digital revolution and globalization and China and India coming into the mainstream economy, this period is going to look pretty trivial in the scheme of things. The trend we’ve seen towards a growing number of super-rich people who have vast fortunes way ahead of the typical population is going to continue. And our book challenges those rich people to become more philanthropic.
Anything you want to add?
MB I was at a meeting last week with an African business leader, who said that one of the most striking things today is the way the new African wealthy are feeling that they need to get involved in philanthropy. The same is true in India and in China. After the recent earthquake in China, suddenly those newly wealthy Chinese are starting to get into philanthropy.
I think maybe in the emerging markets, the super-rich feel even more of an obligation, from a more enlightened self-interested perspective, to be very active in giving back. The vast social problems are so visible, and there’s much less certainty that the political system will remain stable and will survive great inequality. So I’m expecting that we’ll see many of the great stories of philanthrocapitalism over the next few years coming from developing world billionaires.
Matthew Bishop is Chief Business Writer/American Business Editor of The Economist. Email email@example.com
Michael Green works for the Department for International Development, but is writing and speaking here in a personal capacity. Email firstname.lastname@example.org
Philanthrocapitalism: How the rich can save the world by Matthew Bishop and Michael Green is published by Bloomsbury Press in the United States and A&C Black in the UK. To read the authors’ blog or order the book go to http://www.philanthrocapitalism.net