The World Cannot Be Saved Without Business

I am debating former Ford Foundation director Michael Edwards this evening about his provocative book Small Change: Why Business Won't Save the World. His book is an important, first-hand perspective on the current state of philanthropy. I have never had the privilege of giving someone else's money away in the form of a grant, for example. But for the past several years I have worked with foundations, companies, and governments to raise funding for the various projects I have directed. So my perspective comes from the other side of the equation.

Mike asks, can business methods help save the world? More specifically, can market-based approaches to solving social problems do more good than harm, and what are the possible implications of such an approach? Mike's main point is that a focus on profits or income generation is incompatible with real social change since a focus on profit, price, and metrics tends to drive energy toward short-term thinking rather than deeper, longer-term causes of social change. The business approaches fail to support things like love, community, and compassion that have intrinsic, aesthetic value, which is unquantifiable but nonetheless important especially for long-term, transformational philanthropy, as Andrew Carnegie called it.

Mike's view had to be said, and I applaud him for having the courage to say it. His argument was the inevitable backlash after a decade of exuberance about businessy approaches to philanthropy. In my career observing foreign policy trends, I noticed a pattern in the common wisdom, and it is usually aided by the character of media as entertainment. A new trend can start out as great, then it is bad, but eventually the common wisdom settles somewhere in between. Like everything else, it's complicated. The truth is dialectical.

We see Mike's backlash view already percolating into foundation strategies. I was just in Washington a few weeks ago meeting with the head of grant-making at a well known institution. He admitted that referring to funding as "seed money," developing business plans for nonprofits to make money, and demanding strict methods for quantifying success (an outcomes mantra) have become unfashionable. Demanding metrics can lead to metrics inflation, the pursuit of the wrong short-term goals, and a waste of a nonprofit's time in the burden of reporting. This donor said we shouldn't have to work ourselves into contortions just to show metrics, but some kind of notion of success does need to be defined. A fair question remains in the grant-making world: How will we know if your project succeeds? How do you define success? And as a consultant friend of mine recently said: that question is a business question. And as Mike admits in his book, nonprofits depend on good business acumen for the management of financial assets.

My main point here is that the relationship between business and civil society is synthetic and symbiotic. Mike's venerable effort has definitely created some much needed debate. But without business, there would be no civil society and vice versa. Ethical business emerged out of a positive interaction between business and civil society. And without wealth generation, entrepreneurship, and innovation, there would be no support for civil society. And I agree with Mike that to create a better world, business needs to become more like civil society. One challenge is how can you do that while remaining globally competitive. Fortunately, the US and UK have been blessed with a relatively robust civil society and giving culture relative to the rest of the world.

The subtitle of Mike's book ("Why Business Won't Save the World") is misleading, and I don't blame him for that. But to take it literally, I would counter: The world cannot be saved--whether it be in addressing climate change, relieving hunger, or getting financial resources to the poor--without involving business. The way to get businesses to act more like civil society will be through business instruments like pricing, incentives, and training, as well as through civil society instruments like transparency, citizen pressure, and reporting, and through government action like regulation, rule of law, and taxes.

As Mike puts it (on pages 60-61), "...the best results in raising economic growth rates while simultaneously reducing poverty and inequality come when markets are subordinated to the public interest as expressed through government and civil society." We saw this in the Asian tigers in the 1960s as well as in the US in the 1800s as described by Pietra Rivoli in her classic The Travels of a T-shirt in the Global Economy. The way I would put it is that this civil society-industry-government relationship is needed to civilize the behavior and effects of business otherwise it will run loose like a wild animal. Animal spirits must be guided by ethics. Without these civilizing effects, you actually get a breakdown in the market as trust, fairness, pricing, transparency, and accountability, which make the market function, are at stake. Corruption is one example of market breakdown; and it leads to poor quality, dangerous products, a squandering of resources, and often violence and thuggery.

Toward fostering this positive interaction between business and civil society, we launched the Workshops for Ethics in Business at Carnegie Council about four years ago. The concept behind our series is that business and civil society can support one another, learn from one another, and act as agents for positive change for one another. Businesses need external champions to push for positive change in corporations.

But getting to Mike's central argument. I would also point out that a business approach can be appropriate in some facets of philanthropy.

First, it can reduce corruption or nepotism between a funder and a grantee and a funder and another funder. At least in principle with a more "open market" approach, giving can be fairer and more democratic. Grants can go to the hardest working or most effective rather than "some guy I know."

Second, business approaches provide a yardstick for assessing success, as well as a broad strategy rooted in serving the public and any plans for development or expansion.

Third, I would argue that donors have an obligation to tie their philanthropy to the origin of their profit. Businesses should be giving to things that relate to their business impact. If a company is public (is owned by the public), then private use of its wealth can be seen as a form of corruption. Businesses should show how their giving helps remedy problems or externalities generated by their activities. It is a cliche but nonetheless true that a lot of giving goes to support the arts, which often have very little to do with a business's activities other than "the CEO's spouse likes opera." As most people know, a majority of giving comes from individual donors, and the societal sector that receives the most funding is religion. Religion is fine insomuch as it was the very origin of civil society in the West. But I would like to see giving go more toward solving business problems directly. As Andrew Carnegie advocated in his essay "The Gospel of Wealth," wealth must be circulated back into society for the good of society and not squandered.

Meanwhile, I would disagree with Mike that business activities never led to social change. Businesses roles in social change include: the positive impact Google has had in China and Twitter has had in Iran; or on the other hand the negative impact mining and weapons manufacturers have had from Angola to West Virginia. Worldwide, the communications revolution and interdependence through economic globalization are some of the most critical meta-forces in international affairs today. Another meta-force is the broad demand worldwide for self-determination, which has been partly fostered by a growing and empowered middle class in many countries, such as South Korea and Indonesia.

Finally and most fundamentally, we all should ask: How we define profit? Is it long-term or short-term? What are the benefits and what are the costs? I hope that Mike's book will help philanthropists as well as businesses think more broadly about these questions--for their sake and for the planet's.

Sunset for Mugabe in Zimbabwe?

I recently interviewed Peter Jacobs of the University of the Western Cape in Cape Town, South Africa about the political crisis in Zimbabwe.

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In your estimation, is the land reform issue at the root of the political crisis in Zimbabwe?

Indeed, land reform or the absence of a genuine pro-poor land redistribution policy is a major source of the socio-economic and political crisis in Zimbabwe. But it is inaccurate to trace everything to this single driving factor.

The most productive resources remain concentrated in the hands of a few (including the black elite). But the land issue alone cannot explain the depth, breath and long duration of this crisis. Other post-independence economic and social policy blunders plus the dictatorial degeneration of the ZANPU-PF regime must also be factored into this story.

How has the land reform issue been dealt with in South Africa?

In South Africa, land reform is law-abiding and modeled on the willing seller willing buyer template promoted by the World Bank. In other words, it is through the law and the market, the pillars of land reform entrenched in the post-apartheid Constitution, that 30% of white-owned land is to be transferred to blacks.

Fast-tracking land restitution with a tougher expropriation law is becoming increasingly popular among ANC politicians- especially those most likely to seize hold of parliamentary power after the 2009 national elections.

What risks exist for the regional economy as a result of the ongoing crisis in Zimbabwe?

This really depends on who one talks to and at what time. Among most investors, the mood is very gloomy, but they are eager to pour capital into Zimbabwe if there is greater stability.

South Africa’s poor record in attracting long-term fixed capital investment is often blamed on the crisis in Zimbabwe. But it is not easy to support this claim with hard evidence given the many other things happening in South Africa and other neighboring countries. Other resource based economies in the region (such as Angola and Botswana, for instance) have been attracting investors.

For the rural and urban poor, on the other hand, this is a different matter. The region appears to be unable to handle the sharp rise in out-migration from Zimbabwe. This factor, no doubt, has contributed to the mindless violent attacks on nationals from neighboring countries which have erupted mainly in South African slums.

Do you expect violence in Zimbabwe to worsen prior to the June 27 runoff?

The entire state machine is now deployed to terrorize Zimbabweans. And the post-election humanitarian crimes and brutality of the regime go far beyond imprisoning the 2 vociferous leaders of the MDC, Arthur Mutambara and Morgan Tsvangirai.

The worst scenario as the country heads towards the run-off poll on June 27 is a massive intensification of this campaign of violence. In the best scenario, the run-off will take place in a volatile climate of fear, intimidation and the threat of destabilization.

Are the people of South Africa satisfied with the response of their government to what is happening across the border?

South African reactions to the crisis in Zimbabwe can best be described as mixed. Elements within the governing ANC have been speaking out against ZANU-PF, asking it to accept its defeat in the March elections.

This runs counter to the official ‘quiet diplomacy’ approach of President Mbeki and leading state officials. In their view, Zimbabwe is an independent and sovereign state which needs to resolve its internal difficulties without external interference.

Civil society groups, including COSATU which is the trade union federation allied to the ANC, have been demonstrating against the human rights record of the Zimbabwean government. Aside from this ‘indirect lobbying’, poorer South Africans have not expressed or articulated any organized public dissatisfaction towards the way government has handled the Zimbabwean situation so far.

Minority opposition parties in South Africa, like the Democratic Alliance and Independent Democrats, however, want the Mbeki cabinet to shift from its ‘quiet diplomacy’ stance to active support for ‘regime change’.

What should an MDC or a unity government do to address the dire economic conditions inside Zimbabwe?

Let us assume that there is no rigging of the June 27 run-off and the MDC scores a landslide victory. What the MDC needs to tackle in this context, for a start, is to stop the economic meltdown of Zimbabwe, create a free space for civil society to engage in politics and implement a pro-poor redistributive project.

Large-scale capital investment is required to rebuild its physical and social (healthcare, education, etc) infrastructure. Private foreign capital inflows may not be enough to quickly address these needs, yet privatization is core to its economic platform.

To boost food security, it needs an integrated program to redistribute land and agricultural resources to poorer farmers. However, until now, the MDC appears to have woefully neglected drafting a clear proposal on how to resolve Zimbabwe’s complex land question.

photo by babasteve

Philanthrocapitalism: Just Another Emperor?

One of the topics we cover at Policy Innovations is trends in social organization, how they affect globalization, and vice versa. Based on his new book, Michael Edwards of the Ford Foundation wrote an interesting article for openDemocracy on the subject of philanthrocapitalism—the "movement to harness the power of business and the market to the goals of social change." He believes it's time to look past the hype and really debate whether this influx of market mojo is delivering what it claims. Are social goals compromised in favor of financial ones?

[ASIDE: We ran an article by Laura Raynolds of Colorado State University not too long ago discussing a similar moment in the evolution of Fair Trade. Raynolds argues that Fair Trade's new position in the marketplace—due to success in scaling up and expansion into new products—puts it in conflict with its social goals.]

Edwards believes that civil society's shift from community organizing to services provision represents an erosion of the sector's power to participate in social transformation: "The accumulated outcome is that civil society may be getting larger—but not stronger or more effective in leveraging fundamental changes in society."

What are the changes Edwards wants to see?

Systemic change has to address the question of how property is owned and controlled, and how resources and opportunities are distributed throughout society.

How do we get there?

[C]ollaboration among separate organizations may be better than blending or competition. It preserves the difference and independence required to lever real change in markets (not just extend their social reach), and to support the transition to more radical approaches that might deliver the deeper changes that we need, like new business models built around "the commons" such as open-source software and other forms of "non-proprietary production"; and community economics and worker-owned firms, which increase citizen control over the production and distribution of the economic surplus that businesses create.

How do we keep nonmarket civil society motivated?

What separates good and bad performers is not whether they come from business or civil society, but whether they have a clear focus to their work, strong learning and accountability mechanisms that keep them heading in the right direction, and the ability to motivate their staff or volunteers to reach the highest collective levels of performance.

I think the most important critique Edwards makes is that market-style projects shouldn't be the sole logic of civil society—social entrepreneurism has hit the scene with a fair amount of zeal. If civil society acts as a social immune system, as Paul Hawken puts it, then that system should have several curative options. Plus, people are more and more motivated to find meaning in their work—social entrepreneurs are filling a niche.

When critiquing the new unity of philanthrocapitalism, Edwards sets it in comparison to the diversity of actors that was required in successful social movements of the past. But right now there is no unified movement. The only thing comparable is the set of actors that are pushing the shift to an environment-friendly lifestyle—though goals may overlap, they are loosely bonded at best in their actions. And the problem they are trying to solve is so inherently tied to our existence as consumers, making it no surprise that fast-acting market forces have swooped into the new environmental gap in our political consciousness.

Has philanthrocapitalism only flourished because civil society becomes too calcified when it is based on institutions instead of a broad social struggle?

Network as Catalyst for Democracy

The Council of Europe Committee on Higher Education and Research and the International Consortium for Higher Education, Civic Responsibility and Democracy held a two-day "Symposium on Universities, Democratic Culture, and Human Rights" last week at the University of Pennsylvania. The group comprised university presidents, deans, department heads, professors, and civil society leaders.

I was the final speaker on a panel with David Maurrasse, Timothy Stanton, Josef Huber, and Radu Damian on creating a global network as a catalyst for democracy.

In response to what is seen as a "crisis in confidence" and an increased emphasis on the rhetoric rather than the practice of democracy, these higher education leaders met in Strasbourg last year. They adopted on June 23, 2006 a declaration titled, "The Responsibility of Higher Education for a Democratic Culture, Citizenship, Human Rights and Sustainability," which supports the principles in higher education of:

Democratic and accountable structures, processes, and practice;

Active democratic citizenship;

Human rights, mutual respect, and social justice;

Environmental and societal sustainability; and

Dialogue and the peaceful resolution of conflicts.

The declaration was also a call for action in local, national, and global communities to put these principles into practice.

My suggestion was that information technology can help democratic practice and leaders in higher education have a responsibility to use this tool. Given the theme of responsibility and scholarship at this symposium and the recent International Studies Association conference in Chicago, I detect a concern among academics about their duty to society--their duty to question policymakers.

A global online network can help deepen democratic practice. In my view, an effective network has global reach or potential and can therefore affect change when called upon. The advantage of a single hub is that the knowledge and networks that it aggregates can more easily find their way on a syllabus or policy paper.

The Internet is a democratic tool because there is little cost of using it and it doesn't discriminate according to language, class, culture, etc. Like good democratic citizenship, it is up to the individual to learn how to use the Internet. While the Internet is a communications or knowledge management technology, democracy can be seen as a governing technology.

Themes on networking civil society I can offer from my experience with Policy Innovations over the past year:

1. Multi-stakeholder approach - build your community and expand by finding overlapping communities;

2. It is a messy process - Some people will participate in networks, some people won't. But human networks are chaotic--as are neurological networks. Nevertheless the weight of successful networks creates a gravity that draws people in.

3. Try to share your knowledge and value with others and look for a place for every stakeholder. Often the people who come to you undergo a self-selecting process.

4. Treat every relationship ethically and with respect. This may need no explanation, but connecting networks requires that relationships are handled with respect.

5. Maintain your guiding ethos, but be prepared to expand, change, and reinvent your methods and delivery systems. The Internet and world are constantly changing; be prepared to rethink copyright and intellectual property.

Finally, the offline meeting and a shared ethos are crucial for online networking success.