Maximum Impact: How Top Philanthropists Would Spend $10 Billion

Monday, March 1, 2010

At this year’s World Economic Forum in Davos, Bill Gates, the chairman of Microsoft Corp., committed $10 billion over the next decade to help develop vaccines and distribute them to children in the developing world. By anyone’s estimation, this is a lot of money and a worthy cause.

But could it be spent even more wisely?

It is now easier than ever before to try and answer this kind of question. A new breed of philanthropists-of whom Mr. Gates is one-have emerged from the worlds of business and finance looking to apply the same zeal to donating money as to making it. They have brought with them concepts like due diligence, transparency and accountability-ideas that thrive on quantifiable data.

At the very forefront of this movement are those-variously called philanthrocapitalists, impact investors or social entrepreneurs-who argue the best way to solve the enormous problems the world faces is to harness not just business practices but also market forces. Traditional charities balk at the inferred superiority of market economics over human generosity and worry that profit-seeking might obscure the primary aims of philanthropy.

But even the traditionalists concede that more giving does not necessarily equate to better giving. Greater analysis than ever goes into assessing and tackling not just problems but, more importantly, their root causes. A dollar spent addressing these can be worth ten, a hundred or even a thousand times as much as when spent on dealing with the resulting humanitarian crisis.

This understanding has sparked tremendous innovation and creativity in the social sector. The Wall Street Journal Europe asked prominent philanthropists and charity executives how they would spend $10 billion to achieve the biggest and longest-lasting impact on the world’s problems.

Percy Barnevik, former chief executive of ABB and chairman of Hand in Hand International.

Stimulate job-creation in developing countries.

One billion people in the world survive on less than a dollar a day. They are the so-called “bottom billion.” Many are so poor because they don’t have jobs. The only way to eliminate extreme poverty at reasonable cost and within a reasonable timeframe is by giving this “bottom billion” the means to unleash their entrepreneurship.

Such a huge impact can be achieved with so little money because of the leverage of help to self-help. Give a poor person $200 and he can spend that $200 on food or clothes. Spend that $200 training and coaching them and they might be able to earn $2,000 a year, year after year.Research suggests that, at a conservative global average, it costs $200 to create a single job in a developing nation. To eradicate extreme poverty among the “bottom billion” requires 250 million productive new jobs, which would cost $50 billion in total or $5 billion a year over 10 years. This is less than 5% of the $110 billion that is currently spent each year on aid.

Do developing countries need better infrastructure like roads, water, electricity, schools, hospitals? Absolutely. But it took the Western world 100 years to build modern infrastructure and it will not happen any faster in the developing world.

Source: Wall Street Journal (link opens in a new window)