Should private donors back-fill for cuts in official aid to the developing world? Should private actors be integrated into aid co-0rdination mechanisms so far dominated by governmental agencies? Do governments need to change how they work to partner with philanthropists? These questions, prompted by the rise of philanthrocapitalism, are in the spotlight at the moment. The Bellagio Initiative, a project of the Rockefeller Foundation, is bringing together a range of experts to probe these questions with the help of the Institute of Development Studies. Britain’s parliamentary committee on international development is running its own inquiry.
The attention to these issues is welcome. One of the reasons we wrote the book was because we believe that the rise of philanthrocapitalism raises important questions not just for philanthropists and CEOs but for public policy. Government needs to change the way they work to make the most of the potential of partnerships with private actors. In our evidence to the International Development Select Committee, below, we offer some suggestions about what this change should look like.
International Development Select Committee inquiry into private foundations: written evidence submitted by Matthew Bishop and Michael Green
1.1. This is a timely and important enquiry. Over the past forty years the fight against poverty has been dominated by governments acting through national aid agencies or multilateral organisations like the United Nations and World Bank. In the past decade this model has been challenged by the emergence of agenda-setting private actors, such as the Bill and Melinda Gates Foundation, and the rise of new donors from emerging countries. In the past three years this transformation has been accelerated by renewed pressure on the aid budgets of the traditional donor countries. The crisis has also led to greater public scepticism about aid, more political pressure on the aid budget and, as a result, growing demand for a clearer demonstration of results.
1.2. There is an urgent imperative for the UK Government and other official donors to work with these new private actors. Yet most foundations and other private actors still find the UK Government unreceptive to partnership and even impenetrable. A more strategic approach to working with foundations and business is urgently needed. In this submission we make recommendations on:
- How to promote more and better UK philanthropy to support international development.
- How to stimulate more and better business engagement in the fight against global poverty as part of wider Government efforts to reform UK capitalism.
- How to improve partnership working between DFID and private actors.
2. Who we are
2.1. Matthew Bishop and Michael Green are the co-authors of Philanthrocapitalism: how giving can save the world. Among other praise, this was described as the “definitive guide to a new generation of philanthropists” by Michael Bloomberg and as “important” by Bill Clinton, in his foreword to the paperback edition.
2.2. Matthew Bishop is the US Business Editor and New York Bureau Chief of The Economist. He was previously the magazine’s London-based Business Editor. Before joining The Economist, Matthew was on the faculty of London Business School, where he co-authored three books for the Oxford University Press. He has served as a member of the Sykes Commission on the investment system in the 21st century. Matthew was also on the Advisors Group of the United Nations International Year of Microcredit 2005. He has chaired the World Economic Forum’s Council on Philanthropy and Social Innovation.
2.3. Michael Green is an economist and writer. He worked at DFID for 12 years, serving as head of the Information and Civil Society Department, with responsibility for the Department’s external communication and funding to NGOs, from 2003 to 2007. He had previously managed the DFID aid programmes to Russia and Ukraine and served as an economic adviser. As well as writing, Michael consults around the themes of Philanthrocapitalism for governments, including DFID, multilateral agencies, foundations and firms.
3.1.1. Philanthropic giving has enjoyed a renaissance in recent years, starting with Ted Turner’s billion-dollar pledge to support the United Nations in 1997, and reaching a tipping point in 2006, when the second richest man in the world, Warren Buffett, announced that his entire fortune would go to support the work of the foundation of the richest man in the world, Bill Gates. Much of the Gates-Buffett money, which is likely to add up to more than $100 billion, will go to international development. The growth of philanthropy is not confined to the United States. In the UK, a new generation of donors has started to emerge that, while not on the scale of Gates, marks a significant new trend. Most notably, the Children’s Investment Fund Foundation has already received more than £1 billion from its founder Christopher Cooper-Hohn, to work exclusively on improving the lives of children in the developing world. Philanthropy is also growing in the developing world: Carlos Slim, the Mexican telecoms tycoon, has pledged $10 billion to fight poverty in Latin America; a number of Indian industrialists, such as IT magnate Azim Premji, have started substantial giving to local causes; the actor Jet Li has begun to popularise giving in China; and, Mo Ibrahim, who earned his fortune spreading mobile phone technology across Africa, has emerged as the leader of philanthropy on that continent. A growing number of multinational companies, especially those operating in developing economies, are explicitly embedding the creation of social value into their core business strategies.
3.1.2. We have described this movement as ‘philanthrocapitalism’ because of the way these new donors are applying business thinking and techniques to their giving. (We describe the diverse ways they are doing this in Philanthrocapitalism.) This movement is disruptive because these new actors are willing to work outside the conventional wisdoms and structures of official aid. In some cases they are taking on challenges that official donors cannot, such as the Ibrahim Prize for leadership in Africa. In others they are using their resources to leverage official donors to focus on particular causes, as the Gates Foundation has done with malaria.
3.1.3. Philanthrocapitalism also embraces new approaches to tackling development problems that go beyond traditional charitable giving. Inspired by the work of C.K. Prahalad, author of The Fortune At The Bottom of the Pyramid, organisations such as the Omidyar Network, created by e-Bay founder Pierre Omidyar, and the UK-based Jacana Ventures, are piloting investing in for-profit investments in developing countries in sectors that benefit the poor. This type of investing, which consciously targets social returns and is willing to trade off some financial return, is known as ‘impact investing’. According to research by JP Morgan, there is a potential $1 trillion market for impact investing. This would mark a significant shift in the way development is financed. There is a powerful case, though as yet not heard often enough, for the mainstream investment community to explore impact investing as a business opportunity (see, for example, the Lions on the Move report by McKinsey and Co.) if it is focused on long-term value creation rather than short-term financial returns. We discuss the way in which grant monies and investment capital need to work together in the article ‘A Capital Curve for a Better World’.
3.1.4. The win-win where businesses can ‘do well by doing good’ is an important theme in philanthrocapitalism. Corporate giving is the least important aspect of how business can contribute to the fight against poverty. Rather, it is in their core business activities, through their policies on employment, supply chains, branding and resource use that companies can have far the greatest impact on development. We welcome the growing pressure on businesses from consumer and shareholder activism to ensure that their operations are net positive to development. Pioneering companies such as Unilever, PepsiCo and Nike seem to understand this and we welcome recent innovations in disclosure in this area, such as Standard Chartered’s report on its social and economic impact on Ghana, to increase transparency and enhance the debate.
3.1.5. Finally, philanthrocapitalists are also trying to mobilise public opinion. This was evident in the support provided by the Gates Foundation and other donors to the Make Poverty History/One campaign around the G8 Gleneagles Summit in 2005 and subsequently. Such campaigns make extensive use of celebrities to raise awareness of issues either to promote giving by the general public or to win popular support for development. It is notable that a recent YouGov poll noting declining UK public support for development showed much stronger support for the UK contribution to the replenishment of GAVI. This suggests that philanthrocapitalists are better at identifying development interventions that resonate with the public and that their advocacy helps to win public support.
3.2.1. The aid architecture established by the Paris Declaration of 2005 is creaking and a shift from (western) government-led development assistance is already starting to happen. The Global Fund for AIDS, TB and Malaria has created a governance structure in which private donors have a seat on the board and a formal say in discussions. Unofficial convenors, like the Clinton Global Initiative, are bringing together developing country governments, official donors and private actors (philanthropies, celebrities and non-governmental organisations) to work and plan together. New financing mechanisms, like the Advance Market Commitments programme and the International Finance Facility for Immunisation, have started to lever private capital markets for development. Microfinance, which was tested and proven with aid money but did not reach its full potential due to limitations on the amount of grant funding, is now the most advanced form of impact investing and is scaling up rapidly as it evolves into a mainstream financial product for commercial investors (some recent problems in India notwithstanding). Other innovations, such as ‘incentive prizes’ like those run by the X-Prize Foundation, promise to transform research and innovation for development.
3.2.2. Rather than defending the status quo against these new actors, it is essential that official donors seize the opportunity presented by these changes. Multilateral organisations, like the United Nations, and bilateral aid agencies, like USAID, have already created ‘partnership offices’ to facilitate joint working with private actors. DFID has made some progress in adapting to these changes, for example, as a strong supporter of initiatives like GAVI and the Global Fund and through its partnership with the Nike Foundation’s ‘Girl Effect’ campaign, but could and should be doing much more.
3.2.3. There are a number of reasons why it makes sense to have greater collaboration between private actors and official donors:
- i. Private donors are freer to take controversial risks, since they do not face the same political constraints as official donors. This means that they are better placed to innovate. (They also do not face the same resource constraints on staff time, so may be better adapted to making up-front investments in piloting ideas that are expertise-heavy.)
- ii. Private actors have skills advantages (as well as better networks of contacts) in finance and campaigning.
- iii. In addition to significant legislative and diplomatic clout, official donors often have far greater resources than any philanthropic actor (with the possible exception of the Gates Foundation in some areas of global health) and can provide valuable capital to take solutions to scale.
3.2.4. The UK’s leadership role in the fight against poverty is drawing interest from private actors looking to exploit these opportunities. For example, the Gates Foundation and the Omidyar Network have established offices in London. Yet many foundations and businesses feel that the door to the UK government is closed and that partnership opportunities are being missed because of the continued focus of DFID on working primarily with other official donors. This needs to change. We welcome the creation of DFID’s Private Sector Department but feel that it should be doing much more to lever private capital for international development, a goal that will require much closer working with other Whitehall Departments.
3.3.1. Recommendation 1: Promote more and better philanthropic giving from the British public by:
- Refocusing the ‘ask’ on financing for development away from 0.7% of national income from government to the original target of 1% by the public and private sectors combined.
- Building an alliance with high-profile givers such as Bill Gates to host an international philanthropy conference in London. The aim would be to mobilise Britain’s wealthy to join the Gates-Buffett ‘Giving Pledge’, to raise the profile of giving by all members of society, and to make the case for investing in development.
iii. Introduce a 5% ‘payout rule’ for endowed foundations to ensure that these tax-subsidised vehicles deliver real public benefit rather than being ‘warehouses of wealth’. This is a requirement for U.S. foundations and should be extended to UK and European law.
iv. Change the form of more of DFID’s funding of NGOs into grants to match public donations, creating a greater incentive for the public to give, such as through platforms like globalgiving.org.
- Publish performance assessments of the NGOs funded by DFID to better inform private donor choices (perhaps in partnership with philanthropic research firms such as New Philanthropy Capital).
3.3.2. Recommendation 2: Stimulate greater business engagement with the global challenges of climate change and poverty as part of the efforts being led by the Department of Business, Innovation and Skills to promote long-termism in the UK economy. In particular:
- i. Improve national and international sustainability reporting standards, including the UN Principles on Responsible Investment, so that companies more clearly account for the contribution of their core business activities to sustainable development (rather than indulging mostly in PR-driven charitable giving).
- ii. Reform the definition of fiduciary duty for pension fund trustees to allow greater attention to long-term performance in investment decisions.
- iii. Use the 5% payout rule described above to incentivise foundations to allocate more of their endowment capital to impact investing.
- iv. DFID should lead the work to adapt the Social Impact Bond methodology as a way to mobilise private capital to fight global poverty through the creation of Development Impact Bonds.
- v. FCO and UKTI should also be tasked with mapping and supporting impact investment opportunities as part of their commercial work.
3.3.3. Recommendation 3: Improve DFID partnership working with private foundations to enhance the effectiveness of public and private aid capital:
- i. Establish a partnerships team to work with private foundations, to improve knowledge-sharing and to act as a “one stop” contact point within DFID.
- ii. Use partnership with non-UK foundations to inform and assist global influencing on development issues.
- iii. Allocate a proportion of DFID country programme budgets for scaling up proven innovations by private actors (foundations, NGOs, bottom of the pyramid businesses, etc).
- iv. Develop a programme of ‘incentive prizes’ with groups such as the X-Prize Foundation as a results-based way to promote innovation in development, particularly in research.
- v. Greater co-operation on measuring results through joint evaluation and by widening membership of the 3ie initiative. DFID should encourage private foundations to sign up with the International Aid Transparency Initiative, perhaps as part of co-financing initiatives.
- vi. DFID country teams should be tasked to map out and build contacts with major local and diaspora donors, particularly in countries such as India, Nigeria and Pakistan. These donors may be useful partners, not only as co-funders but also as political influencers in their own countries. (These partnerships would also be valuable in middle income countries where DFID does not have a bilateral programme and should be explored by FCO.)
 This regulatory change and other reforms to promote long-termism are discussed in our book The Road From Ruin: a new capitalism for a big society.