Profit motif
By Vincent Heeringa,
A new kind of philanthropy says it’s wrong to lose money
[Strategy]
Quick test. Who said this: “I think it’s wrong to ask people to lose money.” Warren Buffett? Donald Trump? Bob Jones?
Try Bill Clinton. The former US president spoke those words during a press conference in May for his own charitable organisation, the Clinton Foundation. They were no accident, capturing the essence of Clinton’s four-year-old organisation—and representing a new spirit in philanthropic circles: the spirit of Adam Smith.
Marxists have long predicted the demise of capitalism but it seems the march of the profit motive continues unabated. What used to be the preserve of Christians, governments and not-for-profits, is now being filled with ex-bankers and MBA grads eager to find market solutions to some of the world’s most intractable problems.
In Clinton’s case, the first problem tackled was the price of AIDS drugs. Caribbean nations were paying up to US$3,600 per person per year for HIV drugs, yet the wholesale price was US$500. In Clinton’s view the answer was not more public intervention; that would simply add market distortion. Nor was it more philanthropy; that would simply line the middle-men’s pockets. “It’s a system thing,” he told The Atlantic. By organising Third World nations into a bulk-buying club, the foundation created scale for the drug manufacturers and drove down the price—in some cases up to 50 percent. The foundation is now turning its considerable clout to global warming.
“The space between commerce and charity is rapidly dissolving as charities see profit in becoming more business-like”
The Clinton Foundation is one of the latest, and probably the most high-profile, of these ‘new philanthropists’. But it’s hardly alone. The space between commerce and charity is rapidly dissolving as charities see profit in becoming more business-like—and business sees profit in charity.
Examples in New Zealand are still fairly modest: the Cancer Society’s Daffodil Enterprises is marketing (and exporting) apparel, sunblock and other sun-related products to raise funds for cancer research. Wellington City Mission’s Ezee Meals sells affordable ‘heat and eat’ meal packs through 60 outlets nationwide. The Robin Hood Foundation is professionalising business donations by helping companies align their brands with the right kind of charitable cause. Cause Related Marketing has become so the rage that it supports its own specialist research agency, Nick Jones & Associates, which manages the impressive ‘Consumer Who Cares’ research. (However, I think Noel Leeming’s association with Erin Brockovich is embarrassingly ham-fisted).
Some overseas examples are much grander in scope and give us some idea of where the charity business is heading. Take the Acumen Fund, a three-year-old ‘venture philanthropy’ fund set up by former Chase Bank executives. The fund provides investment for entrepreneurs focusing on the world’s poor, such as an Indian ambulance company and new water technologies. It’s similar in that respect to World Vision’s highly successful microfinance programme, VisionFund, and the remarkable Bangladesh bank Grameen (see the cover story in Idealog #12).
The Acumen Fund is widely recognised as one of the best examples of venture philanthropy in the US but there are many others competing for the corporate philanthropy dollar and almost focus less on helping the poor than on rewarding entrepreneurs who sell to the poor.
Corporations are also mixing it up. A celebrated business innovator, Mexican cement company Cemex, has created a savings program called Patrimonio Hoy, which assists low-income families to construct their own concrete homes at two-thirds the usual cost and in one-third the usual time. Patrimonio Hoy not only tackles Mexico’s overcrowding problem, it also provides Cemex with an untapped market.
Cynics will question the motives of new philanthropists. It’s easy to see why. Profiting from the poor has a long and ignoble tradition, both in business and in charity.
I’m less sceptical. Charity is not the field only of governments or churches. The poor should benefit from as much entrepreneurial innovation as the rest of us. I see the trend accelerating where the same savvy of a for-profit enterprise is applied to social services, and where no self-respecting profit-driven enterprise is unaligned to charity.
Comments
Jason Kemp
Great summary Vincent. Market based philanthrophy makes a great deal of sense because it leverages pre-existing supply dynamics. See over on TED - Jacqueline Novogratz now has two videos there which include more examples.
"Jacqueline Novogratz founded and leads Acumen Fund, a nonprofit that takes a businesslike approach to improving the lives of the poor. She’s become a leading voice of the new philanthropy, which emphasizes sustainable bottom-up solutions over traditional top-down aid." http://www.ted.com/speakers/view/id/89
What people want are outcomes that don't perpetuate the usual inequalities and so some creative and contrary thinking is most welcome.
There is fierce debate in development communities about how best to help those in need.
Might also be a good time to check how CK Prahalads' concept of solving poverty profitably is going.
His 2004 book - "The Fortune at the Bottom of the Pyramid" offers some ideas and now 4 years later there have been a number of reality checks but the overall directions is correct (in my view.)
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