The South Asian Philanthropy Project

We are delighted to have Michael Edwards as a guest at the South Asian Philanthropy Project.  Michael and I chatted recently about his new book, Small Change: Why Business Won’t Save the World, and the field of philanthropy in general.

Michael is an independent writer and activist who is affiliated with the New York-based think-tank Demos, the Wagner School of Public Service at New York University, and the Brooks World Poverty Institute at Manchester University in the UK. From 1999 to 2008, he was Director of the Ford Foundation’s Governance and Civil Society Program, and previously worked for the World Bank, OxFam, and Save the Children.

Welcome, Michael!  We’re honored to have you with us.

First off, can you tell us a little bit about your new book, Small Change: Why Business Won’t Save the World?

Thanks Archana, and thanks for hosting this Q and A on your excellent site. I’m looking forward to interacting with your readers.

“Small Change” was written out of my frustration that debates about the purpose and direction of philanthropy were becoming so one-sided – dominated by the idea that business has all the answers, that the super-rich are the new ‘super-heroes’, and that philanthropy is essentially a technical exercise of selecting the ‘best’ organizations to support based on quantifiable data and criteria for ‘investment.’

I come from a background in civil society and international development, so for me the most entrenched social problems like poverty and inequality, violence and discrimination, are always the most complicated and political to solve. And, while new ideas and methods are always welcome in philanthropy, they need to be questioned and carefully- evaluated to see if they really do work in these areas, and I didn’t think that was happening. Instead, questions of deep social transformation and of democracy versus plutocracy were being buried under an increasing wave of hype and adulation.

“Small Change” is a wake-up call, if you like – a deliberate provocation designed to foster more debate, bring in different perspectives, and ensure that older but still-valuable traditions of social movements, community organizing, and bottom-up philanthropy are not forgotten or discarded. I think we will all be better placed to make decisions about philanthropy from a platform like that.

Why do you think it’s so important to preserve a civil society space that is protected from business or market forces?

I can think of at least three reasons. First, the independence of civil society groups is what makes it possible for them to hold business (and government) accountable for their actions, and to push them to do things they really don’t want to do. If we erode that independence, we risk losing the counterweights that can protect the public good. It’s no accident that few of the newer, business-inspired philanthropists are funding work that aims to transform the economic system or change corporate governance and accountability structures.

Second, civil society works on a different but equally-valuable set of values and principles – sacrifice not self-interest, collective action not individualism, cooperation not competition, democracy not market forces, solidarity and sharing instead of short-term returns. These are the values that have built and sustained social movements that have changed the world, and on a smaller scale have animated successful efforts by communities to find a sense of social cohesion in the midst of the disruptions that capitalism creates. That doesn’t mean that civil society is ‘better’ than the market – just that you have to use the right set of instruments to tackle the appropriate kinds of problems. You wouldn’t use a typewriter to plough a field or a tractor to write a book, so why use business and the market for jobs they aren’t designed to do?

Third if you look back through history you’ll find that societies that prosper both socially and economically are the ones that keep a healthy balance between government, civil society and the market, because a successful market economy has to be held in check by other forces in order to maximize its social benefits. Over the past few years, this lesson has been discarded by those who see only hybrid institutions on the horizon, like social enterprises, venture philanthropy and businesses that are socially-responsible. Distinctions between ‘for-profit’ and ‘not-for-profit’ groups and functions are seen as outmoded, and the route to social value lies through internalizing non-economic criteria into decision-making in the ‘triple bottom line’ – what Bill Gates has described as the power of ‘reputation.’ Such thinking is correct to the extent that businesses can increase their positive impact on society by incorporating social and environmental costs into their accounting, but it is seriously deluded as a general philosophy of social progress. That’s because the profit motive, even when diluted, is by far the strongest source of incentives in the marketplace, and it normally wins out over these other criteria when ‘the rubber hits the road.’

Here at SAPP, we provide resources and education for donors.  Should donors look at the work of nonprofits through a lens of return-on-investment?  What do you think is the best way for donors to measure effectiveness?  In other words, how should a donor decide where to give if they want to have the biggest impact?

I think it’s very important not to confuse a concern for impact with the use of measurable rates of return when making decisions in philanthropy. The former is something I think we all share, while the latter is a particular way of evaluating results that may or may not be appropriate depending on the circumstances. After all, you would be hard-placed to measure ’returns on your investment’ in courage or compassion. So formal financial accounting is really only useful when you invest in social enterprises that sell goods and services in the marketplace. That’s a small part of the civil society picture overall.

Elsewhere measuring effectiveness this way can be quite dangerous, because, there are no reliable measures of the ‘social return on investment’, only estimates of the financial value of those aspects of social change that can be quantified, which are relatively few. Even if there were, applying them across different issues and strategies is like comparing apples, oranges and pears. What is counted as a cost may actually be a benefit — such as the time invested in messy and democratic decision-making processes and accountability, and results at the deepest level are never driven by one project or organization acting on its own. So the overall result might be to reward organizations for superficial results and penalize those whose work is most important to long-term social change.

In my view, relationships in philanthropy should be ‘warm’ not ‘cold’ – not, in other words, just a technocratic enterprise with a calculator and a slide-rule. When philanthropy is seen as a transaction defined by money (usually with strings attached by the donor), calculating rates of return sounds natural, I guess. But from a civil society perspective, philanthropy is an exercise in human solidarity, in which financial resources happen to play some role. I think ‘citizen philanthropy’ as I describe it in “Small Change” is a much healthier and more democratic model for the future – broad-based, deep-rooted, bottom-up, passionate and uncontrolled.

That doesn’t mean abandoning impact-assessment and evaluation, it just means negotiating those things with the people who are actually doing the work to make sure they are genuinely accurate and useful. Since you can’t ‘prove’ that one group will always achieve the best ‘rate of return’ my advice is not to worry about it so much! The fact that they are doing their best to address really important problems in an authentic and thoughtful way is good enough for me.

As you probably know, South Asians are the wealthiest ethnic group in the United States and the most economically stable in Canada.  What do you think South Asian philanthropists in North America – and other communities of color for that matter – can contribute philanthropically?  Do they have a role in the debate about business and civil society?

Well, it’s certainly true that South Asians are becoming more and more active in philanthropy, and some are already seen as role models inside and outside those communities, but I’m not so sure they are seen as intellectual leaders in the broader debate, so I think that’s something that needs to be addressed. One can give too much attention to the ‘blogosphere’ that tends to dominate conversations about philanthropy on the web, and to the industry of consultants and advisers that has sprung up in recent years to accompany the rise in private giving, but I’d like to hear more from the South Asian community who undoubtedly have much to offer.

I think it’s particularly important that you weigh in on the bigger questions of philanthropy and social change, because that isn’t an area, by and large, where leading South Asian donors have been very vocal, perhaps because many do come from a successful  business background. One interesting exception is Rohini Nilekani, chairperson of  Arghyam and other foundations in India, who wrote a great op-ed piece in the Hindu at the end of 2008 challenging the assumption that “just societies can be built on the redistribution of surplus wealth.”

I think, because of her position and profile in the region and beyond, that piece had a significant impact in pushing business-oriented philanthropists in India to think more deeply about their giving, and to channel some of it to addressing the causes of social problems, not just the symptoms. So I’d like to see more South Asians follow her lead.

Venu wrote a little on the Philanthrocapitalism debate here and I reviewed your essay “Just Another Emperor” here.   One of the questions we raise is how capitalism sometimes runs counter to some of the good works tackled by nonprofits – specifically around social justice issues and societal transformation.  What do you make of the tension between the consequences of the market and the popularity of philanthrocapitalism as an idea?

Well, I’m glad you raised that question, since the conflicts and trade-offs between capitalism and social transformation are often ignored or downgraded in conversations about philanthropy, especially ‘philanthrocapitalism.’ I wrote a column about that problem here. Of course we can and should argue about those conflicts and trade-offs and find better ways to manage them in practice, but we can’t pretend they don’t exist. That’s disingenuous at best and dishonest at worst.

Capitalism is a very successful wealth-producing machine, but we know it also has tremendous social and environmental costs and dislocations. That’s why the famous economist Joseph Schumpeter called it a process of “creative destruction.” Most societies in the world have experienced rising rates of inequality over the last 25 years during a period of unprecedented economic growth (especially the USA), and we know from research that unequal societies always do worse in terms of their quality of life and other social indicators.

The key question is whether philanthropy should care for the casualties of capitalism and be used to address the symptoms of social problems more efficiently, or whether it can be used to transform the economic system itself in order to reduce its costs and spread its benefits over a much broader cross-section of the population. Can philanthropy address the problems that make it necessary in the first place? Can we use the wealth of the world to transform it? That’s where I want to put my energies, and it leads directly to your final question.

You are chatting with a lawyer, so I have to ask a question related to my own research!  What do you think of the new corporate forms for social enterprise cropping up – like B-corps and L3C’s, for example?  Are they good vehicles for philanthropic activity, or adding confusion to the social sector?

I think these experiments are great, and offer huge promise for transforming capitalism in the future. Whether they constitute ‘philanthropy’ is another question, since they are, as you point out, new organizational forms rather than new modes of giving. They do blur the boundaries between civil society and the market in important and useful ways, but I don’t think social enterprise will replace social activism in the future. They are different things, and should be seen as complementary. I think you’ll see an expanding ‘social economy’ take shape in the next 50 years as part of broader changes in the market, but it will still sit within an active and dynamic civil society that continues to operate on a different set of principles.

Beyond the issue of definitions, which I think is a bit of a blind alley if you become too focused on who is ‘in’ and who is ‘out’, the most important question is what kind of social impact can these new models achieve? They interest me, not just because they use the power of the market to get useful goods and services to larger numbers of low-income and other disadvantaged people, but because they simultaneously try to alter patterns of ownership, production and accountability, and that’s what differentiates them from most efforts at ‘corporate social responsibility.’ They adopt some of the tools that business has to offer, but not the underlying ideology of the market. And they show that real change comes when business acts more like civil society, not the other way around.

I think that’s a good message to leave you with as a guide to philanthropy in the future.