We Should Take Advantage of All Kinds of Ways to Pay for Social Change

In February, an American jousting enthusiast named Michael Boatwright woke up in his motel room thinking his name was Johan Ek, speaking only Swedish, and apparently oblivious to his previous identity.

“He was nice, sympathetic, and talented at fighting in full-plate armor,” recalled a friend a few weeks later.

Mr. Boatright had suffered from an ailment that caused him to forget his past and adopt a foreign language. Philanthropy is experiencing something similar. In the push to make philanthropy operate more like business, we seem to be forgetting the straightforward usefulness of awarding grants to those who need them in favor of ever-more elaborate mechanisms that rely on the market. Perhaps, like Johan Ek, I will wake up one day speaking an alien language like “philanthrocapitalism” instead of civil society, but somehow I doubt it.

But that’s not because I have anything against using a commercial approach; it’s just that we need lots of ways to pay for social change.

After all, whether you speak English, Swedish, or Esperanto depends on the circumstances of the conversation, not on whether one language is “better” than another.

As Mr. Ek found out, there’s no point speaking Swedish to a motel clerk in California, just as using social-impact bonds to finance citizens’ movements is unlikely to succeed. So perhaps it’s time we learned to appreciate the beauty of many “languages” of financial support, even if we don’t speak or use them all the time. In that way, we could develop an ecosystem of complementary financing options instead of a monoculture of the market.

In a recent report for Hivos, a social-change group in the Netherlands, I’ve explored how these ecosystems might actually work in practice.

The starting point is to recognize that social and economic change is composed of many elements, each with its own distinctive requirements when it comes to financing. If, for example, the goal is to promote a more equitable and sustainable economy, then one obvious need is for new kinds of enterprises like “B corporations” and cooperatives that can be supported commercially because they make money for their investors. Other elements would be just as important but much less likely to attract commercial support. They might include projects that encourage greater advocacy for new market regulations, and community organizing to push for more grass-roots economic benefits or to encourage consumers to begin sharing resources with one another so they can reduce their carbon footprint.

It makes no sense to claim that one approach to providing support is appropriate across so many circumstances. Would you build a social movement in the same way you manage a NASA space mission, using standardized parts and centralized controls? Of course not; you would lose all the energy that comes from self-direction and diversity. That’s why we don’t use commercial investments to foster organizations that must be democratically owned and directed by their members.

On the other hand, I wouldn’t fancy flying to the moon in a spaceship commanded by social-activist movements, given the need to reach consensus on whether to push the red emergency button or the green. By that time, we’d all be dead. Different approaches to philanthropy are no more in competition with each other than hammers and screwdrivers in a tool kit, but if you only have a hammer, as the saying goes, then every problem becomes a nail.

By contrast, a healthy ecosystem for supporting social-change groups would have at least three components:

Democratic mechanisms created by groups of people to serve their own needs and preferences, under their control. Think of giving circles, for example, checkbook donations, member dues, community banks, and credit unions. These mechanisms are especially useful in financing the independent infrastructure of citizen action that is required to engage people in organizing and debate. Placing more resources under democratic control is the best way to fend off a key challenge social-change groups face: becoming so dependent on donors that they won’t push for ideas that might offend them.

Institutional mechanisms like governments, foundations, and other pooled arrangements. These standing reserves of money can channel resources to activities that are too risky for market-based investors and too large to be properly supported through democratic mechanisms. There is obviously a lively debate about how best to use this kind of support, especially among foundations, with the most interesting experiments emerging along the boundaries of all three sets of mechanisms—like democratically controlled foundations, for example, or commercial activities that dedicate some of their resources to advocacy.

Commercial approaches that use the market to generate social and financial returns through social enterprises, impact investing, and other tools. They are especially important in financing new economic institutions that create more social value, but they require a high degree of control and predictability for investors and must guarantee at least some level of monetary return. If there is no money to be made without eroding the values, priorities, and mission of the group or activity in question, then it’s best to accept that reality rather than trying to invent new ways to provide incentives for market-based investment. There are plenty of other, safer routes to generate financial sustainability.

The most important point to note is that these three sets of mechanisms are not in competition with one another because they are designed for different things.

But rather than celebrating this fact, we tend to neglect those that are democratic and idolize those that are commercial, thereby eroding the diverse ecosystems that social change requires. And as any biologist will tell you, greater homogeneity and domination spell the death of any ecosystem.

The definition of “smart” or “strategic” philanthropy is surely that financial needs and mechanisms are appropriately matched, not that every approach conforms to a narrow view of what is most effective across so many circumstances.

That’s why the battle for the heart and soul of the nonprofit world between technocrats and democrats is so important. In this battle, we can all take our places on the barricades of our choice, protected by the ideological equivalent of Michael Boatwright’s full-plate armor.

But let me propose a different scenario—not a truce among the parties, since argument and debate are always instructive, but something even more creative: a collective exploration of all the avenues for support that exist in the ecosystems of social change.

That’s an approach that won’t require anyone to surrender enthusiasm for favorite financing strategies, only to draw back from the desire to dominate the conversation.

Remember the old joke about English people traveling abroad? “Just shout louder and the foreigners will understand.” Why bother to learn someone else’s language?

For many people at the receiving end of philanthropy’s newfound obsession with the market, that’s how the current situation feels, but it’s both unnecessary and unhelpful. Johan Ek and Michael Boatwright are two equally valuable sides of the same persona. It’s just that they speak a different language.

Michael Edwards is a fellow at Demos in New York and the editor of Transformation.