12.24.08

Recession-Proof Philanthropy 

Despite a weak economy, philanthropy is still going strong. But it needs to be re-invented.

“Rotten luck, publishing a book praising philanthropy just as everyone has had their wealth wiped out.” I have lost count of the number of times people have said something like that since Michael Green and I published Philanthrocapitalism: How the Rich Can Save the World, days after Lehman Brothers was allowed to fail and trillions of dollars of wealth disappeared. True, one venture capitalist did add that, “this is the perfect book to give my friends for Christmas, to tell them I think they are still rich,” but even he seemed to agree that philanthropy is a bull market phenomenon.

On the contrary, charitable giving appears to have remained strong in this grim holiday season. According to Philanthropy Journal, Americans are especially focused on giving this year, which may mean that charity does not track the decline in economic growth as much as some commentators appear to believe. Indeed, there has only been one year in the past four decades when giving has declined, although there have been several recessions during that period.

There has only been one year in the past four decades when giving has declined, although there have been several recessions during that period.

People seem more willing to give when the need is obvious and close to home. So, contrary to what the doom-mongers say, American philanthropy, which has become a more vigorous and innovative force worldwide in recent years, shows few signs of flagging.

For one thing, the multi-billionaire philanthropists who are changing the nature of the game – Bill Gates, Warren Buffett, George Soros, Michael Bloomberg and so on – may not be quite as stupendously wealthy as they were six months ago, but they still have more than enough money to continue with their ambitious giving plans. Even though the Bill & Melinda Gates Foundation has trimmed its budget for next year, it still intends to give away 10% more in 2009 than it did in 2008 – some $3 billion, which is more in both nominal and real terms than any philanthropy has ever given away before in a single year.

Moreover, although government spending will certainly be higher than ever next year, that does not necessarily mean there is less need for philanthropy. Quite likely, given that much of the increase in government spending will go on fixing problems such as the failed banking industry, the failed car industry and the stalled housing industry, there may be even less taxpayers’ money going to the sorts of things that the best philanthropists have supported in recent years. Gates, for instance, has given billions to tackle disease and poverty in the developing world. What was the one example Joe Biden gave in the vice-presidential debate, when asked where the new administration could scale back? Overseas aid.

Secondly, just as in the for-profit world, a downturn in the economy is often a time of great opportunity for business people with bright ideas. So this is a perfect time for what Green and I call philanthrocapitalism. As we report, many of the business people who have turned to philanthropy want to apply business principles to their giving because they have been shocked by the inefficiencies in the non-profit world.

Now, as non-profits wake up to the fact that they need to make every penny count, there is a new openness to learning from the best bits of business. This week, Gordon Campbell, who heads the New York chapter of United Way, told me he is raising a private-equity-like fund to encourage collaboration, joint-ventures and mergers between non-profits, so that they emerge from the downturn in far better shape than they entered it.

In the past few years, a new movement has taken hold in America and around the world: social entrepreneurship, which draws its inspiration from the start-ups of Silicon Valley to create new organizations with innovative solutions to society’s problems. Many of the most innovative social entrepreneurs have been funded by businesslike philanthropists. One of the best-known examples is Wendy Kopp’s Teach for America, which started with seed money from Echoing Green, a fund set up to support social entrepreneurs by partners of the private-equity firm General Atlantic.

To sidestep a laborious budget process and risk-averse bureaucracies, Mayor Bloomberg in New York has used philanthropists to fund innovative experiments – from training school principals in management to helping the poor open bank accounts – that, if they work, can more easily be incorporated in the budget. Already, Bloomberg’s approach has been copied by Cory Booker, one of America’s leading urban-reform mayors, in Newark, New Jersey.

Bill Gates and other donors understand that they have to leverage their money by persuading governments, big business, and others to partner with them in backing socially-entrepreneurial ideas, because even Gates’ huge donations are tiny compared with the money that governments spend. By 2007, Gates had given around $2 billion, spread over nearly a decade, to improve America’s failing public schools. The annual schools budget of New York City, one of the main beneficiaries of this philanthropy, was more than $15 billion that year.

So it is particularly heartening that President-elect Barack Obama appears to have embraced social entrepreneurship, and some of the philanthrocapitalists who support it. He has promised to establish a fund to support social innovation, and is rumored to be considering a special office for this in the executive branch. Several philanthropists, including the current head of Echoing Green, a grandson of Warren Buffett, and a director of Google.org, the philanthropy division of Google, have been recruited to the transition team.

So be of good cheer. For now, at least, it appears that the spirit of giving, and, better still, giving effectively, is surviving these tough times.

Matthew Bishop is New York Bureau Chief of The Economist and co-author of Philanthrocapitalism: How the Rich Can Save the World. More about the book: www.philanthrocapitalism.net