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Nov. 13 2008 6:42 AM

The Rise and (Potential) Fall of Philanthrocapitalism

Billionaires brought their business sense and ambition to charitable giving. Now what?

Philanthro-capitalism.

Talk about unfortunate timing. With the global economy reeling from the excesses of Wall Street, Mathew Bishop and Michael Green give us the incredulously titled Philanthrocapitalism: How the Rich Can Save the World. Bishop, the chief business editor at the Economist, first described how the barons of the new economy were revolutionizing philanthropy by applying their business principles—and sweeping ambition—to their charitable endeavors in 2006. Now he has teamed up with Green, an international development expert, to chronicle how this "movement" of philanthropists has "set out to change the world." The world is indeed changed: This gilded age has come to an abrupt and hard stop, and with it, perhaps, has come a tempering of irrational exuberance about the potential of outsized philanthropists to be, in Bishop's words, "superheroes for solving some of society's problems."

Bishop and Green offer an exceptional synthesis of the influence of the private sector on the field of philanthropy, and this book should be required reading in any MBA or public policy program. But the authors fail to probe some hard questions thoroughly enough: Is the "new" philanthropy really even "new"? And is the private sector the best exemplar of corporate governance, accountability, or long-term investment savvy—particularly when it comes to complex and persistent social and economic problems? With the pillars of global capitalism quaking and government bailouts that will, inevitably, limit public spending for social needs, these are more than academic questions.

In their engaging—if incomplete—history of philanthropy, the authors cite the influence of Andrew Carnegie's Gospel of Wealth, in which he described the rich as merely stewards of their economic surplus and advocated giving wealth away in one's lifetime, rather than leaving it to heirs. The Gospel has inspired tycoons from John D. Rockefeller, the world's first billionaire, to philanthrocapitalist par excellence Bill Gates, who received a copy from Warren Buffett. So, what, exactly, is philanthrocapitalism, and how does it differ from the philanthropy of those earlier titans of industry? First, the scale is unprecedented. The wealth creation of the last quarter-century—adjusted for historical inflation and the recent collapse—dwarfs any other period in history. At the start of 2008, the United States claimed 1,000 billionaires and the world 2,500. And charitable giving in the United States has increased accordingly, more than doubling from $13 billion in 1996 to nearly $32 billion in 2006. Second, this wealth has been created by entrepreneurs in tech, finance, and other industries who now channel their energy, drive, and principles to philanthropic endeavors. According to Bishop and Green,

philanthrocapitalists are developing a new (if familiar-sounding) language to describe their business like approach. Their philanthropy is "strategic," "market conscious," "impact oriented," "knowledge based," often "high engagement," and always driven by the goal of maximizing leverage of the donor's money. Seeing themselves as social investors, not traditional donors, some of them engage in "venture philanthropy." As entrepreneurial "philanthropreneurs," they love to back social entrepreneurs who offer innovative solutions to society's problems.

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Bill and Melinda Gates are the most obvious example of philanthrocapitalism—huge wealth, strategic investing, risk-taking, leverage. The Gates Foundation is the world's largest, with approximately $60 billion in assets (as of early 2008). It is on track to grant $3 billion a year—improving education in the United States and fighting poverty and diseases like malaria, tuberculosis, and HIV/AIDS around the world. According to the authors, Gates applies the "systems" approach of his Microsoft success to "strategic" funding choices of the foundation. New York City Schools Chancellor Joel Klein notes that Gates supported experiments in the reform of the city's school system that were initially too risky to fund with public dollars (e.g., piloting new small schools). Gates also understands markets—when they work and when they fail. He funds research into vaccines for diseases that disproportionately affect the world's poor since pharmaceutical R & D dollars will not flow without the prospect of a return on investment. To help create the Global Alliance for Vaccines and Immunization, Gates convened a number of corporate, philanthropic, and government agencies, then leveraged their funds to guarantee demand for vaccines for diseases like malaria.

Though the Gateses may personify philanthrocapitalism, Bishop and Green illustrate that Bill and Melinda are not alone: The tenets of philanthrocapitalism now suffuse the entire charitable sector. Venture philanthropy, for example, which draws on the lexicon and principles of venture capitalism, has grown beyond Silicon Valley to charities national (New Profit Inc., Robin Hood) and international (Absolute Return for Kids Foundation, Children's Investment Fund Foundation in the United Kingdom). Social enterprise, which once typically referred to organizations "non profit in nature, entrepreneurial in spirit," now increasingly emphasizes commercial activity and "the role of profit." According to this logic, revenue generation allows social enterprises to be "self-sustaining," and profits will attract additional capital to solve social ills. Pierre Omidyar, who founded eBay with Jeff Skoll and who describes himself as "pro-market, anti-big government, skeptical of traditional philanthropy," has created the Omidyar Network to support both nonprofit and for-profit social enterprises. Google's own hybrid approach to philanthropy allows it, in Executive Director Larry Brilliant's words, to "play with every key on the keyboard."

The influence of the private sector is not limited to new philanthropic entities like Gates and Google. Many established philanthropies have undertaken significant introspection, examining what they fund and how they fund it. Perhaps the most radical "shakeup" of traditional philanthropy has come at Rockefeller, under the leadership of Judith Rodin. Since taking the helm in 2005, Rodin has embraced the language and methods of philanthrocapitalism: Program areas are now "strategic initiatives," grants are made in "portfolio," and Rodin "leverages" private and public resources from "strategic partnerships." The Rockefeller Revolutionary, as she was called by the Economist, has been a controversial figure in the philanthropic world, particularly with those skeptical of the private sector sway.

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