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Philanthrocapitalism: The Market is the Problem not the Solution
Should advocates of progressive transformation adopt market values and business know-how? A review of Small Change: Why Business Won’t Save the World by Michael Edwards.
By Mark Engler
Ben & Jerry’s Homemade, Inc., the maker of “Vermont’s Finest” super-premium ice cream, was one of the feel-good business success stories of the 1990s. In addition to introducing frozen dessert lovers to now-famous flavors such as Cherry Garcia and Chunky Monkey, the company trumpeted its ability to make money and do good in the world at the same time. It publicized its decisions to buy ingredients from local farms, its refusal to use milk produced with bovine growth hormone, and its commitment to contributing 7.5 percent of all pre-tax profits to an employee-led charitable foundation. As the founders wrote, “We wanted to create a company we could be proud of.”
However, even one of the poster children of corporate social responsibility could not remain unblemished for long. In 2000, shareholders saw a chance to cash in when multinational food giant Unilever sought to buy out the quirky ice cream vendors. The founders, who had taken the company public to fund previous expansion, were powerless to stop the sale. Unilever’s subsequent management quickly called into question whether market prerogatives and positive social transformation could indeed go hand-in-hand. Despite its vows to bolster Ben & Jerry’s social mission and preserve local jobs, the corporation soon turned in the other direction. By 2004, it had closed factories in Vermont, laid off hundreds of employees, and scrapped a touted program to help minority-owned businesses. The British Guardian reported that, according to the company’s 2004 social audit, fewer than half of employees “expressed confidence that Ben & Jerry’s [would] continue to uphold its commitment to values.” Ethical Consumer magazine lowered the company’s “ethiscore” rating from 13 out of 20 down to 1.5. While the company still gives money to charity, it would seem that founder Ben Cohen was prescient when he expressed his fear shortly after the takeover that his company might “become just another brand like any other soulless, heartless, spiritless brand out there.”
The Ben & Jerry’s story is but a small cautionary tale about the still-growing and already far-reaching field of “philanthrocapitalism.” This is the term that author Michael Edwards uses in his new book, Small Change: Why Business Won’t Save the World, to describe a wide range of activities. It includes Silicon Valley CEOs using “venture philanthropy” to fund new, business-minded nonprofits; stock market traders developing socially weighted investment funds; bankers extending microcredit loans to the poor; and “social entrepreneurs” aiming to simultaneously serve a “double bottom line” of positive public impact and shareholder return.
The activities covered under the umbrella of philanthrocapitalism are diverse enough to offer exceptions to any generalization about the category. But its practitioners would almost uniformly describe themselves as “results-oriented,” implicitly critiquing the ineffectiveness of existing nonprofits and voluntary organizations. Their unifying idea is that business is more efficient and outcome-driven than government and civil society, and that unleashing market forces is the best means of addressing entrenched problems such as poverty, malnutrition, preventable disease, and poor education.
In Edwards’ words, “the basic message of this movement is pretty clear: Traditional ways of solving social problems do not work, so business thinking and market forces should be added to the mix.” During his nine-year tenure as a director at the Ford Foundation, Edwards saw the popularity of this argument skyrocket. He writes, “if I had dollar for every time someone has lectured me on the virtues of business thinking for foundations and nonprofits, I’d be a philanthropist myself.”
Small Change devotes itself to debunking the idea that more business thinking is helpful, and it points to many instances where markets are in fact a big part of the problem. As far as corporations making a difference, “That will require more government and civil society influence over business, and not the other way around: more cooperation, not competition; more collective action, not individualism.”
Arrogance to Boot
There are several reasons why bringing business values to the realm of social change regularly fails to produce the brilliant results it promises. A first is that business leaders often enter the nonprofit world with a troubling arrogance. Not only do they believe that they understand the complexities of poverty and oppression, but they also assume that applying strategies successful in the private sector will necessarily be beneficial to the public. Consultants from firms like McKinsey and Company may be very deft at restructuring corporations and trimming “redundant” employees. Yet that hardly qualifies them to run organizations charged with combating destitution or fighting inequality.
Ironically, in the wake of the recent economic collapse, an increasing number of such consultants are now offering their “services” to civil society. Edwards quotes a leading Indian social activist, who spoke to him anonymously out of fear of retribution from funders, who argues, “In a world falling apart with the financial crisis, the nonprofit sector is a good haven for management consultants. Lots of money to pontificate about obvious things, very little questioning of the fact that you can cover your ignorance of fields and issues through management jargon, no accountability to anyone for mistakes arising from your lack of experience or plain ignorance, and plenty of arrogance to boot.”
A second problem is that, even if philanthrocapitalists could demonstrate that they were better than social movement activists at getting short-term results, it is unclear that these “results” correspond with lasting change. Those pushing business thinking judge their success according to “the most lives saved for the least money.” Even more so than traditional foundations, they are obsessed with using “metrics” to quantify their outcomes. With a limited range of activities, such as providing health care for the very poor, there may be some sense to this. But more often it gives program officers incentive to report inflated numbers of people “served” rather than to examine the root causes of problems. Edwards writes, business “measures of success privilege size, growth, and market share, as opposed to the quality of interactions between people in civil society... These are measures of linear change—getting more results within the system that exists—not measures of transformation…. There are no standard metrics for caring, solidarity, compassion, tolerance, and mutual support.”
Critic Alix Rule, writing in Dissent magazine, has compellingly described the type of perverse thinking that elides business and social pursuits, but that conveniently hides the questions of power and conflict central to political life. She writes:
“Governments and foundations are now ‘social investors.’ Their unit of analysis is the ‘social problem.’ The appropriate response is a ‘solution,’ and the best solution is the ‘smartest’—judged in terms of ‘efficacy and effectiveness.’ Politics, if not totally absent, enters the picture only incidentally, as an obstacle to ‘social innovation.’ And the desideratum of all parties—governments, foundations, billionaires, African farmers, and concerned readers alike—is taken to be identical. All are simply seeking ‘significant impact.’ Dilemmas of social justice have vanished. It is a picture of progress that features precisely one value: an unproblematic Good.… Good—social good, that is—has become more fungible, in the parlance of economists. It has become more like money.”More Capitalism To Solve Capitalism’s Problems?
Of course, the whole project of the uncontroversial “Good” dodges a deeper problem: whether, in Edwards’ words, “more capitalism [can be] the answer to the problems that capitalism has already created.” As he notes in Small Change, there is something uniquely warped about Coca-Cola touting its corporate social responsibility while polluting water in India and Walmart portraying itself as a “green” leader while quashing unionization drives and forcing many of its poverty-stricken employees onto Medicaid. Edwards sharply states, “if business wants to save the world, there are plenty of opportunities to do so at the heart of their operations: pay your taxes as a good corporate citizen; don’t produce goods that kill, exploit, or maim people; pay decent wages and provide benefits to your workers; …and stop creating monopolies.”
The reason businesses often neglect such duties is simple: profit. Socially minded activity is all well and good from a corporate perspective, so long as it does not interfere with the market’s demand to produce financial gains for investors. But there is an inherent conflict of interest here. As Edwards remarks, “only the most visionary of philanthrocapitalists have much incentive to transform a system from which they have benefited hugely.” The repeated experience of social enterprise is that, the larger the share of the market a venture captures, the more it sheds its social values. Today Ben & Jerry’s pledges that it contributes at least $1.1 million each year to charity; meanwhile, Unilever’s profits in 2008 totaled some 7000 times that amount.
The rise of philanthrocapitalism reflects a changing political economy of charitable giving. When late-nineteenth-century robber barons such as Rockefeller and Carnegie donated generously from their vast estates, they might not have accepted that the industries that had made them rich were a cause of social harms, but they at least acknowledged that there were aspects of the common good that needed to be supported by non-market activity. Today’s “knowledge economy” philanthrocapitalists have distanced themselves from any such messy social apologetics for their wealth. They demand greater control of, and attach a more explicit ideology to, their giving. The ideology of corporate efficiency and business know-how at once validates their accomplishments and prescribes a further extension of the market into public life.
These donors are not interested in remediating the market’s damage or covering over its blind spots. Instead, they see business values as the solution to all problems, and they see nothing hypocritical about impatiently demanding results.
Michael Edwards originally conceived his case against philanthrocapitalism as a pamphlet, and although Small Change is somewhat fleshed out, it remains essentially that. It is an argument that rarely breaks form to give the reader much in the way of historical narrative, original interviews, or sustained stories. One soon gets the sense that the author is reiterating the same point many times over with only slight variation. His point is admittedly a good one. But it is saying something that, with just 106 pages in its main text, the book feels like it could have been shortened.
Alternately, Edwards might have added to his work by turning his critical eye on the world of more traditional foundations. Even before the most recent wave of Silicon Valley hotshots started refashioning noblesse oblige as an extension of their business savvy, there were plenty of problems with established traditions of organized philanthropy.
Foundation grant-makers, even in their more benign forms, give wealthy donors inordinate control over social movements. Outside of member-funded groups like labor unions, it is rare today to find a progressive organization that does not routinely suffer the indignity of begging foundation patrons for cash, repackaging its work to fit in with the latest crazes and buzz-words in the philanthropic community, and fearing that its boldest activism may cost it needed grants.
Interestingly, Edwards saves some of his most provocative proposals for just a few pages at the end of his book. There he goes beyond critiquing philanthrocapitalism and instead suggests ways to renovate foundations in general. He notes that only eight percent of philanthropy goes to anything like human rights work, poverty reduction, or grassroots organizing; the lion’s share instead goes to the arts and religion. He argues not only that foundations should fund social change groups working outside the mainstream, but also that they should include grassroots representatives in their decision-making processes. Moreover, grants should come with fewer strings attached, so that social movement groups are not burdened with constant reporting and renewal applications. Edwards writes, “Philanthropy should be a support system, not a control system, for broad-based social change.” Here’s hoping that those who have succeeded him at the Ford Foundation agree.
In changing their operations for the better, foundations have no reason to look to the corporate world as a model of virtue. Edwards quotes James Gustave Speth of Yale University, who says, “In the end, a responsible company is one that is required to be responsible by law.” In an economic system based on the imperative to produce shareholder returns, corporations have developed a set of skills and values that allows them to be very efficient at doing just that—even when it conflicts with the social good. Expecting these same skills and values to serve a different master, one that is in many ways antithetical to the limitless pursuit of profit, is at least naïve and possibly dangerous.
No amount of wishful thinking, however “results-oriented,” is likely to change that.
Mark Engler is a senior analyst with Foreign Policy In Focus and author of How to Rule the World: The Coming Battle Over the Global Economy (Nation Books, 2008). Arthur Phillips who co-wrote this article is a writer and researcher based in New York City. They can be reached via the Web site http://www.DemocracyUprising.com.>
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