Philanthrocapitalism: can one maximize social returns by maximizing profit?

Matthew Bishop (NY Economist Bureau head and author of Philanthrocapitalism) moderated an inspired debate at tonight’s Social Capital Markets Conference closer. The core question: can one maximize social returns by maximizing profit?

Bishop started with an overview of Philanthrocapitalism, a new term for the sort of venture philanthropy practiced by Bill Gates, a leader among the emerging class of philanthropists who seek a social return on their charitable investments. One of the cases Bishop examines in his recent book on the subject is the global elders effort spearheaded by Richard Branson, who, just before the US invasion, famously offered to fly Nelson Mandela and a group of global peacemakers to Iraq to encourage Saddam Hussein to go into exile. This approach, which requires quick decision-making and mobilization of resources, does what institutions like the UN cannot (according to Bishop, the global elders concept “would be vetoed.”) While Branson’s approach poses some risks– we wouldn’t want to nurture the Virgin Elders, for example– there are some benefits to a for-profit approach to social change.

I’ve included some highlights from the debate below. Participants on the “for” side were Alvaro Rodrigues and Elizabeth Funk, of, respectively, ACCION International and UNITUS (both nonprofit microfinance institutions); on the “against” side were Steve Zuckerman (of Self-Help) and Shari Berenbach, CEO of the Calvert Foundation.

(Apologies to Mr. Zuckerman for missing his portion of the deabte)

Alvaro Rodrigues

  • We need “big guns” to fight the elephant of poverty, and these can come only from the capital markets – “you can’t kill an elephant with a BB gun.”
  • The demand for microfinance is enormous– 1bn clients need $500bn. The markets will only provide this kind of cash if it can generate reasonable returns.
  • A for-profit approach doesn’t take profit as an end in itself, but rather as a means to an end. It’s not the result of an equation, but rather a constraint.

Elizabeth Funk

  • Nonprofit dollars have a place, and that’s in markets where for-profits can’t flourish.
  • Nonprofits are not held to the same standards as for-profits; donors would rather make an investment than a donation because of the discipline that such investment encourages
  • Talent attraction: leading minds in business want to lend their expertise to for-profits, rather than nonprofits
  • Greed is one of the fundamental drivers of human nature; if we harness that, we can do the most good the most quickly
  • Harnessing human capital involves giving people access to the capitalist system; dignity is at the root of making change
  • Handouts are insulting and debilitating, and often create distortion that does more harm than good”Profitability in the microfinance world is the “sharpest tool” in the drawer; if I thought there was a better way—that you could eradicate poverty more quickly, more efficiently without having profit as a by-product, I’d go for that. But the consensus seems to be that to get the sort of capital you need to scale up poverty eradication, you need to provide people with capital returns. Donated capital is insufficient.”

Shari Berenbach

  • If we limit ourselves to focusing on only those initiatves that can maximize both social impact and financial impact, we are excluding a very large number of projects that need to be undertaken
  • There’s room for all of us to consider adopting a modest/softer return; there are great social challenges that do not generate robust yields
  • In microfinance, you see some success cases, but usually only strictly financial services (loans). Ancillary services, such as healthcare, are not profitable to tack on to these loans, but are needed by the communities served by microfinance
  • “softly” priced capital has a role to support microfinance and other strictly for-profit ventures – this kind of capital can energize/encourage movement of for-profit capital. If nonprofit capital didn’t lead the way with microfinance, for-profits would never have gotten into it.

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