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Thursday, July 10, 2008

A Dialogue on Philanthrocapitalism: Working Passionately, but in the Wrong Direction?

By Nitin Rao

Road_SideThis is part 4 of our series reviewing Michael Edwards' Just Another Emperor and the concept of 'philanthrocapitalism', which will conclude next week with remarks from other members of the NextBillion.net team. Follow the links to read part 1, part 2 and part 3.

The close-knit community of development-through-enterprise professionals in Hyderabad woke up a couple of weeks ago to a series of e-mail forwards of an interesting article in the Financial Times. Michael Edwards, author of "Just Another Emperor", had raised a series of points that the development sector was driven by misguided calls for business thinking, leaving this community with hard questions: Were they working passionately, but in the wrong direction?The crux of Edwards' argument is that the development sector should follow a different logic from business thinking and be driven by its unique values of compassion and collaboration.

He writes:
The reason is that business and non-profits operate on different logics - competition and co-operation, individualism and collective action, market share and sacrifice or service. You wouldn't use a typewriter to plough a field or a tractor to write a book, so why use business thinking in areas where different instruments are needed.

It is certainly true that the development sector is unique in many ways, but this does not mean that its values are opposed to sustainable business or, as Edwards suggests, that it should be protected from measures of profit. Arguably, development can leverage tools of business to deliver on broader metrics of "profit".

Indeed, when organizations seek to connect over a billion individuals to life-enhancing and often fundamental products and services, they stand to gain from best practices across industries and geographies. By measuring efficiencies, they stand to track their success not just by their passion but through real measures of impact. Consider challenges such as educating millions of children in rural India. If there's one thing I've learnt, it is that the unique challenge of creating for-profit models that add value at scale drives us to innovate, rethink paradigms and create meaningful collaborations in ways that grants alone cannot achieve.

I tend to agree with Edwards that non-profits that earn income through the market face pressures to weed out clients who are more expensive to reach. However, as TIME magazine notes, that need not be a bad thing.

Segmenting the industry, though, might not be so bad if it allows more of the poor to get access to credit. Let multinational corporations take the top microfinance institutions to the next level, and leave the bottom of the pyramid to development groups and regional banks.

When this website tracks models aimed at the NextBillion as distinct from the bottom billion, it could come from a pragmatic realization of how a new pool of stakeholders can be motivated to make their biggest impact.

Edwards' article also takes a surprisingly one-piece view on development: clearly some challenges such as connectivity or access to finance might be better suited for business solutions, while others such as disability might not.

Philanthrocapitalism can work side-by-side with traditional philanthropy without necessarily replacing it. For the Bill Gates' of the world bringing wealth created in business to development, philanthrocapitalism is a familiar approach to solving problems, and this will drive new capital. Even for-profit businesses recognize the value of deep insights that a non-profit might have to offer. For Edwards, and other champions of collaboration, this could present a big opportunity.

As for the group I see in Hyderabad, many of them chose to work in development over many lucrative opportunities. These choices cannot be explained by traditional ideas of market-driven or "business thinking". Perhaps, they - and many readers of NextBillion - are attracted to development by a new, shared vision of a sector that is better placed to address development challenges at scale.

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