June 12, 2008 | Read Time: 6 minutes
Michael Edwards is one of those increasingly rare foundation officials who does not hesitate to speak his mind, and he usually says something worth thinking about when he does. Following stints at humanitarian groups and the World Bank, he has been head of the Ford Foundation’s governance and civil-society grant-making program for close to a decade.
As he prepares to leave Ford this summer, he has written a short book for Demos, a New York think tank, and the Young Foundation, in London, that has attracted considerable attention. It criticizes what may be the hottest idea in grant making today: the notion that philanthropy has a lot to learn from capitalism and might be more successful if it operated more like business. Even the Ford Foundation’s own board seemed to have bought into this view when it selected Luis A. Ubiñas, a business consultant with little experience in the nonprofit world, as its new president.
In Just Another Emperor? The Myths and Realities of Philanthrocapitalism, Mr. Edwards seeks to dampen this enthusiasm, not just at Ford, but also more generally. (An essay adapted from the book, “Has ‘Philanthrocapitalism’ Met Its Promise?,” appeared in these pages on May 1.) And while he effectively shows that champions of “venture philanthropy,” “social businesses,” “creative capitalism,” and the like may have overstated their case, his own claims on behalf of the power of philanthropy (and government) are less convincing.
Mr. Edwards begins his critique by noting that recent efforts to make the philanthropic world more businesslike have been disappointing.
The evidence is slight, he writes, that microfinance and other kinds of “social businesses” are sustainable or can reach large numbers of needy people without continued philanthropic support. Moreover, as nonprofit groups develop new money-earning ventures, they tend to lose sight of their primary missions. Failure rates are high to boot, as might have been expected in light of the inexperience of many nonprofit leaders in the business world.
As Mr. Edwards sees it, these problems have their root in an unresolved tension in the thought of the 18th-century Scottish writer Adam Smith, generally regarded as the intellectual father of capitalism. In the book in which he developed that idea, The Wealth of Nations, Smith shows how the pursuit of self-interest under political conditions that foster competition, free choices, and efficiency is most likely to produce the best possible economic results for society as a whole, as if “led by an invisible hand.”
Yet Mr. Edwards contends that in Smith’s other great book, The Theory of Moral Sentiments (which was cited by Bill Gates in his Davos speech calling for “creative capitalism”), Smith himself recognized the limits of this kind of behavior.
Sometimes, Smith wrote, a person must put aside his own “private interest” to achieve “the public interest of his own particular order or society.” In other words, people need to have morals as well as desires, to act sympathetically as well as selfishly, to be led by their consciences, not just their interests.
That, in Mr. Edwards’s view, is where philanthropy plays a role. By giving expression to society’s values, including by fostering social movements and political action, philanthropy can provide a counterweight to the problems created by business, such as poor health and environmental conditions or social and economic disparities. It can even promote the kinds of systemic changes that might lead to a fairer distribution of capitalism’s benefits.
But if philanthropy were to become more businesslike, it would have a harder time doing so. It would be too preoccupied with efficiency and competition to be concerned about justice and collaboration. The values it expressed would be those of the well-to-do, not of the needy. Philanthropy and business, argues Mr. Edwards, embody fundamentally different ways of behaving, the one rooted in beliefs about right and wrong, the other in measures of profit and loss. Like oil and water, they do not — and should not — mix.
However, in an era in which the world’s major companies have come to regard being “socially responsible” as important for their reputations, if not their business strategies, much of Mr. Edwards’s description of capitalism as single-mindedly profit-seeking seems like a 19th-century caricature.
By the same token, with 70 percent of the income of American charities filing reports with the Internal Revenue Service coming from fees and other types of revenue from businesslike enterprises, the notion that philanthropic groups operate outside the market economy is just as quaint. However irreconcilable they may be in theory, the reality is that business and philanthropy have long been entangled, with government in the mix as well.
Over all, philanthropy has reaped several benefits from this relationship. The most obvious one: Without the wealth generated by capitalism, there would be much less money to give.
In addition, nonprofit organizations have gained from adopting a variety of business techniques. (Despite his misgivings about “philanthrocapitalism,” even Mr. Edwards agrees that the corporate world may be able to teach the nonprofit world ways to improve its financial management.)
Not least of all, the success of Adam Smith’s ideas in substantially increasing national wealth has made the challenges facing philanthropy simpler.
However troubling inequality, environmental threats, or any other social problems may be today, they would be — and are — much more worrisome and persistent in places where business is not flourishing.
On the other hand, Mr. Edwards’s view of philanthropy as society’s moral agent gives it more credit than it deserves. One reason, as Mr. Edwards himself notes, is that most of the nonprofit world is concerned with delivering services, not promoting social change. Moreover, other parts of society may have at least as great a claim to speaking for its values as philanthropy does. (Despite its role in giving rise to the civil-rights and other movements, religion is hardly mentioned in Mr. Edwards’s book.)
Finally, however much they may claim to know about right and wrong, philanthropists themselves — and their staffs — are merely expressing their particular views, which will ultimately succeed or fail in what Oliver Wendell Holmes Jr. long ago called “the marketplace of ideas.”
Competition, in other words, matters as much to nonprofit organizations, especially in their advocacy role, as it does to business. And while “philanthrocapitalism” may not be able to live up to the claims its proponents make for it, the fact that it reminds us of what capitalism has to teach philanthropy at least deserves two cheers.
Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.
