Tuesday, January 30, 2007

Disruptive philanthropy: the good and the bad

Not many people took note of this post from a month or so ago on the "myths of philanthropy" but it did get this response over at the nonprofiteer.

In the spirit of the Ralph Waldo Emerson's observation that "Great geniuses have the shortest biographies," maybe I should file this under "The ideas that get the least response may matter the most."

In just a few years the the belief that philanthropy and the independent sector are farm teams for market-based solutions has become standard operating procedure. In the last half-decade entrepreneurial activities have become required components of any pro-social idea, commercial revenue is seen as a 'must-have' in any project or organizational budget, corporate social responsibility has gone mainstream, and approaches that either screen the financial markets for their social impact or require market-based strategies for social benefit activities have become standard procedures (to say nothing of media darlings).

Why do I care about this conviction? It has already had many positive disruptive effects including new respect for social entrepreneurship and hybrid organizations, increased innovation in the capital markets for social good, and a more nuanced understanding of the operating costs consistent with delivering high quality services. These are just a few examples of the positive ways this conviction has disrupted the staid world of philanthropy and nonprofits.

On the other hand, the conviction has been fueled by and in turn accelerated demands by foundations that nonprofits need 'sustainable' strategies and that they, the foundations, need exit strategies. It has contributed to the growing role that earned income plays in the revenue models of nonprofits, without concurrent analysis of who gets left out by those fee structures.

Let me make one thing perfectly clear. No one of these strategies, structures or market tools is inherently bad. A lot of good has come (and will come) from each of them - from ApproTek to microfinance to double bottom line investment instruments. I am a proponent of many of them.

Taken together, however, we are in danger of losing sight of the limitations of markets, the failures of markets, and the need for tri-sectoral solutions to tri-sectoral problems. No single sector created things like environmental damage, poverty, or racism and no single sector (or single type of solution) will fix them.

Here are the questions we must ask ourselves when we create, support, and laud these philanthropic/market solutions:
  • When philanthropic ideas become the basis for market solutions, what gets lost?
  • Who no longer gets served?
  • What metrics start to matter and which ones no longer count?
  • How do these approaches exempt the public sector from playing a role?
  • What is the role for the public sector vis-a-vis such blended solutions?
  • What role did each sector play in creating the problem and how might that help us think about creating solutions?
The irrational exuberance about bringing together commercial markets and social benefit puts us in the position of possibly conflating two related, but absolutely distinct, sets of priorities. . The first priority is to drive more financial capital to social benefit activities - through product creation, innovative structural practices, and market or regulatory incentives. This is positive disruptive change.

The second priority is the interest of commercial financial firms to drive ever-larger segments of philanthropic assets into their coffers. To the extent that these firms and their products help grow the overall resources for social benefit, I support their contributions. To the extent that this set of priorities actually diverts resources from social benefit work or further reduces resources available to issues where no profit can be made they are powerful, negative disruptions.

To prevent the conflation of these two priorities (by the public, the media, policymakers, philanthropists, and others) we must mind the cumulative direction of these developments, not simply assess the benefits or failures of individual actions.

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1 comment:

Dennis Whittle said...

Thanks for this wise injection of sanity into the debate on this topic.

Fads and enthusiasms come and go - and many leave behind some powerful building blocks. But the fact is that there is no single silver bullet that is going to solve the world's - or philanthropy's - problems.

Generating sustainable and equitable prosperity requires a multitude of approaches - large and small, public and private. The key is to ensure easy entry and exit for new mechansims.

So one meta-challenge is to ensure that promising ideas can be piloted and scaled up if successful. And unsuccessful programs must be stopped so that the resources associated with them can be directed to initiatives with higher returns.

An interesting question is how can we improve the functioning of this "meta-market" that allocates funds to all types of social and enviromental initiatives, both public and private.

Dennis Whittle