Sunday, March 19, 2006

"The Business of Giving"

Today’s been a lazy Sunday. Sitting on my porch over-looking Kindu’s main road, wearing my straw cowboy hat and tanktop, reading the Economist. If only I had a margarita. Sounds a bit like a jungle paradise but I stay confined to my porch because I’d rather not engage with Kindu. I just want a break from the Congo today. But Congo is hard to ignore – the keyboard equivalent of karaoke is going on a few doors down and Kindu’s few motorcycles and trucks seem to be set on buzzing past my apartment at full speed.

When I saw the Economist on my friend’s couch yesterday it was like the light of heaven shining down on a holy artifact. Seriously, the sunlight was aimed straight at it and was being reflected. A little holy grail of semi-current political info. I do keep up with news on the internet but I miss newspapers and magazines. One of the disadvantages of being in the middle of the Congo is not being able to participate in discussions on the bigger picture of development and humanitarian assistance – I spend most of my time focusing on the day to day management of assistance. One article got my brain back in analysis mode.

This issue (February 25- March 3) has a large section on "The Business of Giving." It’s about the increase in philanthropy and the business-like approaches of funding organizations and projects tackling poverty and other modern-day problems. The gist of the article is that new philanthropists like the Bill and Melinda Gates Foundation are taking some new spins on philanthropy in order to try to get the maximum impact out of their work. I was glued to the article.

What I find most interesting are numerous implications on how non-profits can learn from the for-profit enterprises (i.e. if we are so smart to make millions why not apply or skills the world’s problems?). The article discusses different approaches – pairing non-profits with for-profits in certain ventures, social entrepreneurship (applying business practices for social ends), venture philanthropists (couldn’t find an exact definition, but basically similar to venture capitalists, but targeting and supporting upstart social enterprises), corporate philanthropy (philanthropic activities by corporations) and expanding the non-profit enterprises of management consultants.

I couldn’t help but feel that the article started with the assumption that non-profits are at best inefficient. Take the following statements:

“The social sectors do not have rational capital markets to channel resources to those who delivery the best results.” (quote from Jim Collins, management guru).

“Both governments and non-profits have traditionally been run inefficiently.”

My personal favorite (regarding gearing MBA grads to non-profits):
“A bright young person can have more of an impact on any non-profit in his first five years than on Goldman Sachs, which is full of bright young people. In their first year they could make ten suggestions that would improve the non-profit operations because they have been trained in practical business ways of thinking.” (quote from Mr. Schramm of he Kauffman Foundation).

Ouch. So, in a nutshell, non-profits don’t have bright young people and we have no business sense. Why didn’t he just add that we’re also unattractive and without charm, just to take another dig? Only ten suggestions? Sounds like with all their practical business sense they could show us the light on at least a hundred things! And perhaps on our personal lives as well! Mold us in your image!

Alright, enough teasing of the stiff business types by the misguided non-profit NGO worker (who, by the way, does have a masters degree, speaks French fluently, and can name the capitals of all fifty states). I believe that the desire of the newly superrich to increase their actions in working against poverty is exciting, though I am more skeptical of the corporate action (more on this in a bit). Action and debate promotes innovation – and that seems like we can expect some. But I have some concerns as well.

Why do non-profits exist? Usually to address problems that are not being in their eyes properly handled by a government. Why do governments (and not the private sector) provide social welfare systems? Because the supply and demand nature of economies is not geared towards the provision of certain public goods, such as universal healthcare and roads, and poorer people would be excluded from accessing quality services and goods in an unregulated market approach. This makes one wonder about the appropriateness of the business-oriented approach, as private market generally leads to the need for non-profits! However, this debate in more about what private enterprises and like-minded foundations can add, rather than one on the privatization of social assistance.

One question I have is whether “venture social capital,” “social investing” and for-profit models for non-profit enterprises could encourage innovation by supporting activities that might be too far out for the normal donors, do these same models risk focusing more on financial sustainability than impact?

I think this question is particularly important because often the bigger then need the higher the cost – at least in terms of vulnerable populations. For instance, getting health access to families that already live in areas with some road infrastructure is much cheaper than targeting areas only accessibly by plane, but the needs in the isolated areas will be higher precisely because they are isolated (less livelihood opportunities, economic activity). A business-oriented cost-recovery scheme would therefore be more likely to succeed in the first case than the second. If the results are to be measured more in terms of social impact than financial (which ain’t easy), arguments can still be made that the overall impacts will be higher in area that have a lower cost per beneficiary as more people could be served. In both scenarios the groups with the higher needs will be less likely to be targeted. I would be interested to know if the ventures being supported in developing countries by this “new giving” are mainly geared towards the poor (but not poorest) and middle class. If it is, is this necessary a bad thing? Let’s keep in mind that the majority of development and humanitarian assistance comes from governments and international institutions. If other donors address the needs of the more vulnerable groups and tend to ignore the needs of the middle class and borderline poor, than the combination of public assistance and new philanthropy is quite in harmony.

What worries me more are the measures of success. In business, success = profit. In one of the above quotes, the concern was to put resources with those who deliver the “best” results. However, focusing narrowly on the achievement of a certain objective risks removing the problem from the context. How do you compare a program that can supply 50,000 families with access to malaria drugs but by-passes or minimizes the role of local government structures with one that uses the same money to reach 20,000 families through government sponsored centers, which builds the capacity of the local government? MBA boys, break out those spreadsheets and share your eternal wisdom.

Finally, there was also a section on corporate philanthropy. The article states that “corporate philanthropy is also becoming more important in developing countries, where firms may feel the need to support local communities by contributing through their foundations to healthcare, education and so on.” It cites the example of how Nestlé invests in “milk production systems” in developing countries to “ensure a reliable supply.” Aha. I see. Nestle just wants to help. The article failed to mention that Nestle has promoted breast milk substitutes in developing countries, which is a big no-no. In addition to being against sound health advice to promote the well-being of children in countries where living to the age of five is not a given, even Neslon Mandela has refused donations by Nestle for his charity. And they are just trying to “promote supply.” When poor families water-down powdered milk, children are malnourished. Do we really have to learn that mistake again and then give Nestle a gold star for cloaking corporate irresponsibility with philanthropy?

Let’s keep in mind that the aid industry is already often tied to business interests, and that this partnership is often to our detriment. For instance, the U.S. government provides the bulk of its assistance in food aid in order to cater to American farmers, even though this is extremely costly and minimum standards in food assistance stipulate that food should be procured locally or regionally if the market can support this effectively. Efforts to end this practice have also met significant resistance from shipping companies, who make millions in the transport.

The bottom-line: A private enterprise approach to solving the problems facing the world is not new. However, the attention given to it by the rich and powerful “new philanthropists” could have an incredible impact on world poverty and their desire to use business-like approaches could allow non-profits and other actors to expand market-oriented activities and increase their effectiveness. But rich guys, I beg you, just as everyone is in a rush to tell NGOs how to run like a business, bring NGO staff aboard at your foundations, if you haven’t already. It’s taken decades of learning the hard way to get as good as we are, even if that’s not good enough for you. Viewing global poverty through the eyes of a businessman has its limits and its only in recognizing those limits that this partnership can work. I’ll be leaving the Congo by August – have your people talk to mine.

12 Comments:

Anonymous Anonymous said...

Sara:
I agree that many of these issues can benefit from a two-way dialogue, but speaking as someone who currently works in int. development I will confirm that many of the organizations are horribly inefficient.

Furthermore if longterm poverty alleviation is our goal, then involving and nurturing a thriving private sector in these countries (I`m in Peru, you´re in DRC) is crucial. Many of the problems that we have here (at least in Peru) are issues of too much bureaucracy and too much gov`t intervention where it is counterproductive. Does that eliminate the need for effective gov`t regulation and provision of a social safety net in the areas you mentioned? No. But I do strongly believe that for long-term development to succeed it needs to be internally led.

For that to happen we need to offer more opportunities for entrepreneaurs and the profit motive not less. This is my opinion w/o even taking into account the harmful distortionary effects that aid can encourage amongst foreign governments and local currencies...

-DanK

5:06 AM  
Blogger 007 in Africa said...

Sarah,

I just skimmed your entry :) But I do agree that NGOs should be run more like a profit business in certain regards such as demanding efficiency in distributing drugs and writing professional and quantitative reports for example. It seems like the Gates is doing that with their foundation.

On the other hand, the bottom line's not always about money so in that regards, we need to be more flexible about our end-results.

I also believe that NGO workers are smart :) and have a good deal of common-sense. We achieve pretty good things considering the tools and environment we work with.

12:16 PM  
Anonymous Anonymous said...

Hi Sarah,

Just came back from NYC where it was cold but sunny and I am beat. I am flying down to Kinshasa from Athens via Doha and Nairobi on Wednesday.
I hope it won't be much of a cultural shock.

Sorry but I am too tired to comment on your article which raises some interesting points.


Let me know if I can be of assistance.

Take care,

Tasos

3:12 PM  
Blogger Judy said...

i think you should send it as a letter to the economist - would be a good entry.

3:44 PM  
Anonymous Kurt Wayne said...

"The business of giving" (from The Economist)...the Web is letting me see the article right now, FWIW.

1:50 AM  
Blogger Sahara Sarah said...

Dan, great response. i'm actually really supportive of private-sector/business-like/market-oriented/social enterprise solutions (a lot of terms not at all synomonous). I think the biggest question is measuring success, as 007 remarks. I see it about bang for your buck - most microfinance institions are not financially sustainable, but they can have a lot positive impact and invigorate local ecnomies. Cash distributions in emergencies are not easy to fund through the normal NGO route but can be more effective than food/non-food distributions when local markets can support it. They have no financial return to the project. I wonder if this last example of market-oriented (more so than profit-oriented) interventions might be left behind.

Tasos- I must find your email address again! Good luck. Might get a little bit of culture shock, but with UN happy hour on Friday, you'll have friends in no time.

Thanks for the link, Kurt.

9:50 AM  
Blogger Adventure Eddy said...

You can name the Capitals of ALL fifty States?

Wow.

4:12 PM  
Blogger TheMalau said...

Sarah, I am still amazed, as usual. I believe that your piece could be molded into a scholarly article very easily, for some of these MBA kids who wasnt to work in the "Business of Giving". More importantly, I really believe that tangent-cat is right, you should send it to the Economist.

As far as your actual arguments, it really brings up to me the necessity that we all have to develop clearer definitions for the bottom line, when we are talking about philanthropy. For having family in the Health care system in Congo, I agree with 007 that we need more efficiency. But I also think that part of the apparent inefficiency stems from the general inability currently to define what efficiency would look like, in other terms than the business-based bottom-line (le maximum d'actions pour l'argent que l'on investit). These business imperatives do not, IMHO, take into account the difficulties that you NGO workers (and even UN workers), with culture clashes, adaptation to traditions and customs, dealing with government corruption, transportation difficulties, and lack of infrastructure, human resources issues, etc, etc. Additionally, although this not universal among NGOs, the idealism and sensitivity that the NGO workers diplay towards the populations they serve, are things that have never really been adopted within the business environment.

But it is also true that some companies have realized that they need to do some corporate philanthropy for business to flow, like Cummins in India, for example. But that is not the same thing. And maybe it is time CEOs are called to their humanitarian duties, but someone needs to make clear to them them that "you're fired", mergers and quick fixes are not going to be the answer in philanthropy.

Now, I need to work on that Masters...

11:51 PM  
Blogger TheMalau said...

A none related question, Sarah: How do you connect to the net?

4:33 PM  
Blogger Adventure Eddy said...

Have you heard of something called Emmaus? It's a French organisation that helps homeless people off the streets.

It was founded after the war, when money was tight, and is based on the philosophy of making themselves self reliant through enterprise - because in those days nobody had money to give to charity. Therefore, they invested in some kind of business venture, like recycling discarded furniture, which in turn paid their costs and, in theory, allowed them to develop and grow.

It's a very succesful system - there are over 400 world wide - and totally in keeping with the simple ideas outlined in that Economist Article.

In the world today, there are an awful lot of charities looking for funding. There's simply not enough money to go around. One of the advantages of Emmaus is that it does really great work with disadvantaged people and they're don't have to go around holding out their hat for donations.

7:01 PM  
Blogger Judy said...

BTW, aside from the general brilliance of your piece on the business of giving, how much of a rock star are you, sitting on the porch in your cowboy hat and tank top? Seriously - edit it and send it to the Economist. Those Harvard kids need an intelligent smack down - you know how I do love Harvard. ;)

5:22 PM  
Blogger Carl said...

1: For the mba's to intervene without consulting with the ngo workers is as sensible a course of action as mba's running a war without consulting the soldiers or the diplomats or the...ngo workers. In Iraq, that ain't working to good.

2: Your example regarding helping many easily got to or the few hard to reach. At any one time, there are only so many resources available so I think it defensible to help the many.

3: The big, big problem that will never go away and will forever hamstring efficiency in these matters is the motivation of the donors. Most give not to help, but to feel good about themselves for having given. When the gift is made, the primary objective is met and nobody much cares what happens after that. That is human nature and it is inescapable.

4: The rest of your entry was over my head.

12:21 PM  

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