"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.