Michael Edwards, Author, 'Small Change: Why Business Won't Save the World'

December 22, 2011
Michael Edwards, Why Business Wont Save the World

Over the past decade, philanthropy has been invigorated by the arrival on the scene of some very large and innovative foundations, many of them established by hugely successful individuals from the worlds of business and technology. In 2009, Matthew Bishop and Michael Green brilliantly captured the spirit of the decade in their book Philanthrocapitalism: How Giving Can Save the World. But while the book was well received within the sector, not everyone was ready to jump on the bandwagon.

Last month, Philanthropy News Digest spoke with Michael Edwards, author of the 2010 book Small Change: Why Business Won't Save the World, which offered a sharp critique of the philanthrocapitalist worldview. During our conversation, Edwards criticized the growing tendency to adopt a "one size fits all" approach to philanthropy and suggested that, in order to solve complex problems, we need a large dose of humility and a wide range of tools and techniques. Edwards also spoke about the impact of the Occupy Wall Street movement and shared his take on the recently established Bellagio Initiative, which seeks to establish "a new framework for philanthropic and international development collaboration in pursuit of human well-being in the twenty-first century."

A leading expert on civil society, philanthropy, and democracy, Edwards has worked for the World Bank, Oxfam, Save the Children, and other NGOs in Washington, D.C., London, Colombia, Zambia, Malawi, and India. From 1999 to 2008 he was the director of the Ford Foundation's Governance and Civil Society Program, and he currently serves as a distinguished senior fellow at Demos, a progressive think tank in New York City, and as a senior visiting fellow at the Brooks World Poverty Institute at the University of Manchester.

Philanthropy News Digest: You've been a vocal critic of the philanthrocapitalism approach popularized by Matthew Bishop and Michael Green in their book of the same name. Given that philanthrocapitalism is a somewhat nebulous set of ideas with no universally accepted definition, is there any aspect of the concept you find value in or agree with?

Michael Edwards: Sure. Let's go back three years in time when I wrote that little pamphlet, Just Another Emperor?, which was the first shot across the philanthrocapitalists' bow. Back then, philanthrocapitalism was all the rage: "Oh yeah, you know, I'm a philanthrocapitalist and I'm going to save the world." The aim of the pamphlet was simply to start a debate about what philanthrocapitalism was, to cause people to stop and think, because people were believing in something without actually knowing what it was. And to do that, it had to be fairly polemical or oppositional, which it was, as was my book Small Change: Why Business Won't Save the World, which is based on the pamphlet. In both, I was saying, "Don't buy this stuff, it often doesn't work, and here are the reasons." It was a tactic. But what really matters is delving into the details of who is doing what on the ground, regardless of the labels they use to describe it. So to answer your question, there are lots of ways in which people can use the market to drive change, ways that are socially and environmentally beneficial; but I wouldn't confuse them with what I would call philanthropy.

"...You wouldn't use a hammer to write a book. You wouldn't use a typewriter to plough a field. You have to select your tools carefully and systematically if you hope to achieve the results you want...."

In fact, for me there's a major conceptual and practical difference between philanthropy, which I see as funding for activities that do not generate short-term returns and results, and social investment, which does. It's simply a case of helping people figure out which tool to use. You wouldn't use a hammer to write a book. You wouldn't use a typewriter to plough a field. You have to select your tools carefully and systematically if you hope to achieve the results you want. And what pleases me now is that we seem to be moving into a different phase of the debate: instead of arguing about who is or isn't a philanthrocapitalist, we're talking about how we can use the different tools in the tool kit to make progress. In some areas, venture philanthropy, business techniques, and technology can be very useful in pursuing social change. In other areas, they're not and can actually be damaging. As long as people get that, they can describe it any way they want and I won't care because they'll be using the right tool for the right purpose.

PND: Matthew Bishop, Michael Green, and other proponents of the philanthrocapitalist approach would argue that more competition in the nonprofit sector is bound to help reduce and eliminate inefficiencies, which would mean more resources being allocated to the problems we all want to see solved. Do you agree with that perspective?

ME: No, that's nonsense. It's nonsense because we are talking about completely different worlds that operate on very different principles. Philosophers would say the philanthrocapitalists are committing a category error, which is when you take one set of ideas and principles that works in a particular setting and you transport those ideas and principles into a very different setting while expecting the same results. That's the definition of insanity. None of the great social movements of the past have been based on competition. They've been built on solidarity, cooperation, bridge building, and networking.

That's not to say there isn't room for some competition in the nonprofit sector; of course there is, because there are never enough resources to go around. But there's a difference a huge difference between recognizing that people need resources to do their work and believing that classical market principles like competition apply in the world of social change. What happens when you apply formal market principles to civil society — and we see this already — is that lots of very important organizations will be eliminated. Big ones will tend to get bigger, and small ones will tend to get smaller. A lot of organizations doing easier work will attract more resources, while many doing the more difficult work will lose out. Sometimes, though, they're the most important of all. No one would suggest, for example, that we force local volunteer fire departments to compete with each other in the interest of making them more efficient, because they play a role in their communities which can't be analyzed in terms of profit and loss. It's a rather ridiculous application of something that works in economic theory but not in social practice, and it can actually be very damaging when applied inappropriately.

PND: Do you think foundations, individual donors, and nonprofits, working together, can solve huge, seemingly intractable problems such as poverty, our broken public education system, and climate change? Is that where nonprofits and philanthropy should be focusing their efforts and energies?

ME: Well, they should be playing a part in focusing everyone's efforts and energies on those problems. But the idea that philanthropies and nonprofits by themselves could address any of them successfully is, again, nonsensical. They are far too small, and the levers they have over change are far too weak to be able to effect that kind of change. What you need to effect that kind of change is, obviously, strong government intervention. You also need a thriving market economy that creates wealth which can be used for socially useful purposes. Instead of holding themselves responsible for solving climate change or poverty, philanthropy and the nonprofit sector should be constantly nudging, pressuring, and filling in gaps so that other, larger institutions do their jobs properly.

"...We need to remain focused on the fundamental transformation of society and not get locked into simply being social businesses, which are important but not particularly consequential in the deeper areas of social change...."

I think that's where my critique of venture philanthropy — my fear that we will use scarce philanthropic dollars to tackle problems that are important but which should be dealt with by other parts of society — is particularly relevant. There's an issue here of how we make sure we remain focused on the fundamental transformation of society and don't get locked into simply being social businesses, which are important but not particularly consequential in the deeper areas of social change.

PND: Impact assessment and performance measurement have become hot-button issues in philanthropy. Are the people promoting those disciplines missing something? Is there a better way to promote effectiveness in philanthropic work?

ME: It depends entirely on what you mean by effectiveness and how rigid you want to be in terms of using only certain techniques and methodologies of impact assessment, like randomized control trials, as opposed to qualitative research. We often see a stereotyping of traditional nonprofits and philanthropy as being backward in the way they look at impact assessment, but I've never found that to be the case. It's simply that we use a different set of quite defensible measures and methodologies. I would put far more trust in mixed methodologies which involve ethnography, qualitative assessment, quantitative research, and traditional social science than I would in a methodology that solely focused on randomized controlled trials or things of that ilk.

Look, I welcome a focus on impact. Everyone does. But it's a complete falsehood to say we've never been interested in impact, that we're not interested in impact, and that being interested in impact is somehow the exclusive property or characteristic of the so-called new philanthropy. The real issue is how we view impact. What kinds of change do we value? What measures do we use? How do we configure an impact assessment tool kit that will produce the most useful and accurate results without submerging the people who are doing the work in so much data they don't have time to do what they should be doing in the first place? One has to think about impact assessment in the context of the work that people do, what their objectives are, and over what time period, and then see how it can help them do their work more effectively. That requires us to be really imaginative about what we're doing and why we're doing it, rather than simply saying: "I have a magic methodology — all you need to do is follow it."

PND: How is the new generation of tech philanthropists — people like Bill Gates, Steve Case, and Pierre Omidyar — changing philanthropy? And what, if anything, can they learn from old-line foundations such as Ford, Rockefeller, and Carnegie?

ME: Well, they are definitely a force for change. They have high profiles, they're ambitious, and they're aggressive, at least in some ways. Many of them want to spend down, either in their lifetimes or in a relatively short period of time after they die, and they are not shy about taking on very large problems. There is an attractiveness about that energy and about the grasp of new opportunities they have which I quite like. It's definitely not the stodgy, bureaucratic world that perhaps those more traditional foundations are accused of inhabiting. But at the same time, one has to recognize that social change is complicated, messy, politicized, and a long-term phenomenon. There are no simple answers. Just because you have wealth and technology doesn't grant you a special wisdom. And I think what some of the new philanthropists can learn from people who have been doing this kind of work for a long time — and I actually hear new philanthropists say this quite a lot — is that things are more difficult and more complicated than they thought they were when they started down this path, and that maybe if they had talked to more people who'd been doing this work for decades, they might have learned some things early on that they could use.

I'm a big fan of people who borrow elements from the old and the new, who don't get trapped just working with traditional methods, or just seizing opportunities in technology or the marketplace. That's where the real impact is going to come, from people who have the humility and the flexibility to say, "I have to be in learning mode constantly, and I can and should borrow from all over the place to do my work most effectively." You can learn as much from the civil rights movement of the 1960s as from new tech-based networking organizations like Avaaz. To me, there's still too much hype around the new and not enough respect for the old, and that means we're not learning as much as we could be. So, yes, I welcome the energy and forcefulness of the new philanthropists, but I want that energy and forcefulness to be balanced by a greater respect for tradition and the idea that we can learn from the past.

PND: Do you share the concerns of some that the Gates Foundation, because of its enormous size, has too much influence over agendas and policy in areas where it is active? And what can the Gates Foundation do to allay those fears?

"...The problems come when significant private resources controlled by organizations with weak accountability mechanisms are aligned with a targeted, rigid approach to a controversial issue such as school reform...."

ME: I don't think it's a question of size per se. We've had very large foundations in the past. Rockefeller, Ford, and Carnegie — all of them, when they were first established, were large. It's more a question of how we use private resources in a way that serves the public interest, as opposed to private interest or a single individual's own interpretation of what they think the public interest is. Education reform is a classic example. The problems come when significant private resources controlled by organizations with weak accountability mechanisms are aligned with a targeted, rigid approach to a controversial issue such as school reform. It's a recipe for problems, not least because the impression is that here is this hundred-pound gorilla with no discernable democratic accountability structure barreling into something that belongs to all of us, and that's not acceptable. I don't want my kids' education to be decided by Bill and Melinda Gates, thank you very much. Not because I don't like them. It's just not the way we do things in a democracy.

Instead, why don't we ask Bill and Melinda to put half their funding for education into a national education innovation fund which is governed by a cross section of society — teachers, teachers' union officials, principals, parents' representatives, and academics who've studied the field? That's one way of mitigating the dangers that come with highly concentrated funding. Another way, obviously, would be to change the composition of the Gates Foundation's board so that it's more diverse. But that doesn't seem to be an option which has any resonance with Bill and Melinda.

Let's talk about another example. Look at what's happening in Newark at the moment with the hundred million dollars that Facebook founder Mark Zuckerberg pledged to the city for school reform. Originally it was promised that there would be democratic structures attached to the gift so that residents of the community, people who send their kids to Newark schools, felt they had a stake in how the money was spent. But as we see so often, that's exactly what's not happening; instead, most of the decisions are being left to a small group of powerful rich people. Of course, residents of the community are pushing back against that, as common sense suggests they would. I think it's an important test case, actually, for philanthropy in America, and it's important we get it right. We need to find a way to use the huge private resources of a Bill Gates or a Mark Zuckerberg for the benefit of society, but to do so in a way that the rest of us can share in and feel a part of. If we don't do that, there could be trouble down the road.

PND: Are you surprised the Occupy Wall Street movement has gained as much traction as it has? And do you think it will continue to have an impact on the income inequality debate in the United States, or in other countries, for that matter?

ME: I'm not surprised that Occupy Wall Street has had an impact, especially when you consider that inequality in this country is at its highest level since records began to be kept. Something like one in four American children today live below the poverty line, and people across a very broad swath of the American population are feeling economically stressed, fed up, and want some change. Historically, that's precisely the kind of environment that spawns social movements. It just happened to be Occupy Wall Street, but it could have been something else. That said, the movement already has had an impact on the public debate, across party and ideological lines, and people are now talking about inequality in a way that they weren't even six months ago.

That's what social movements do. They may not have a direct impact on policy in the short term, but they give large numbers of people permission to talk about critical issues in a way they weren't able to before, and they tend to change the cultural conversation in ways which are important over the long term. In a sense, Occupy Wall Street is just a convenient platform for people, many of whom are somewhat suspicious of it, but who feel that something has gone terribly wrong. Whether it will continue to play that role in the future is the big question, and no one knows the answer. But I don't think that matters much right now, because, to give the movement its due, it has done something pretty remarkable in terms of changing the national, and in some ways international, debate about inequality. Will it be able to transform itself into something more formal, politically speaking? Will it develop a policy platform? Will it align itself with other existing movements for change? I don't know. But even if it disappeared tomorrow, its impact would continue to be felt.

PND: What is the appropriate role for foundations with respect to social movements? Should they be doing more to support a movement like OWS in its initial phase?

"...Foundations have never been very important in supporting social movements in the United States or anywhere else, because that's not how social movements develop...."

ME: Foundations have never been very important in supporting social movements in the United States — or anywhere else, because that's not how social movements develop. Social movements are self-organized, self-created entities which largely run on their own firepower, including financial firepower raised through small donations, membership dues, labor contributions, and so on. Sure, if you look at the civil rights movement or the women's movement there were foundation dollars involved at various stages, but they were never particularly determinate, and the same holds true today, though maybe the Tea Party is an exception. Part of the reason I think — and it's a good reason — is that foundation funding comes with certain strings and accountability requirements attached. And that has an impact on the movement itself in terms of who makes decisions and how they're made. It implies a level of formality that people may not be comfortable with, and it can sometimes de-radicalize a movement in ways that are quite damaging.

It reminds me of the old battle cry "The revolution will not be funded." It might seem silly now, but it's based on something quite important, which is that you have to be sensitive when you introduce foundation funding into a spontaneous, democratic, disorganized movement space. That doesn't mean there isn't a role for foundations and foundation funding. But, generally speaking, what you typically find is that foundations are most effective in these situations when they take a back seat in the process of movement-building and focus on something very concrete where their funding can really make a difference. In the civil rights era, for example, foundations concentrated on supporting voting rights and voter registration, and I think there are parallels to that today.

PND: You've recently written a paper for the Bellagio Initiative, a collaborative project led by the Institute of Development Studies, the Resource Alliance, and the Rockefeller Foundation that aims to establish "a new framework for philanthropic and international development collaboration in pursuit of human well-being in the twenty-first century." How does the concept of human well-being differ from other measures of human development? And why is it the right measure to focus on at this particular moment?

ME: Well, the first thing I'd say is that it is a controversial thing and not everyone agrees it's the right way to go. Some people think well-being is too vague and abstract and un-measurable to be an effective guide to grant-making. The reason I believe it's potentially useful is that it forces us to focus on the bigger picture, on quality of life, on happiness, on empowerment — the less material dimensions of how and why people feel fulfilled in their lives, which are equally important as having a job or house, receiving a microcredit loan, or any of the other more conventional things we measure. You know, the GDP data we use to measure economic progress in this country are virtually meaningless, for all sorts of reasons, so GDP is a fairly hopeless measure of welfare. And the well-being movement is saying, we can do better than that, we can measure all these different dimensions of how people are faring, and it will be a more effective and accurate guide to our decision making than relying on these outdated measures.

The problem is, how do you measure happiness? How do you measure fulfillment? How do you measure equality in social terms? It's very difficult. So the pushback is coming from people who want more solid, short-term metrics, which is where they feel most comfortable. The Bellagio Initiative was mounted against the backdrop of a debate in the international development community between people who are happy to support the infrastructure of problem solving and those who want to fix problems in a specified time frame — a debate that's happening in philanthropy domestically as well. Traditionally, foundations followed the first approach; their focus was on creating strong institutions, governance processes, links between civil society and the private and public sectors, and so on, and not so much on "fixing" problems like endemic poverty or inadequate health care in the short term. The new generation of philanthropists, in contrast, is more impatient and very much wants to fix those problems in the short term. Bellagio is designed to advance that debate, to enable people to talk about the issues involved and see where they lead. A lot of different views are being expressed, and that's a good thing. The more diversity you have in the room, the more honesty in the room, the more likely you'll be able to generate a sense of direction that leads somewhere.

PND: Are you a fan of the type of globalization that has characterized the last few decades, with ever-tighter economic integration and new communications technologies shrinking the planet to the size of a village?

ME: Well, there are elements of globalization which are irreversible because of the way capitalism works and the way technology drives things. But the tacit understanding should be to try and make sure that globalization generates as many benefits — and as few costs — as possible. And that's a huge task. Market integration, technological innovation, and the accelerating speed of information flows don't by themselves solve the great questions that have always exercised human beings. They don't teach us how to live well together. They don't teach us how to cope with violence and division, discrimination and prejudice. They don't tell us how we can create some sort of common ground out of this huge diversity we are all experiencing.

"...I see my role as constantly reminding people of those deeper philosophical questions, of asking, who are you, who are we, and how do we live well together?...."

Underlying all the razzmatazz of our high-speed, high-tech, globalized world are bigger philosophical questions. What grand purpose do we want technology to serve? What, in a social sense, is the purpose of markets — simply to match buyers with sellers and feed a never ending spiral of consumption? I'm more interested in people who are talking about how we can use all this "stuff" to address those kinds of questions than I am in people who embrace technology and globalization enthusiastically and argue that if everyone has a cell phone, we'll solve the problems of poverty. That's daft and has never worked. And I see my role as constantly reminding people of those deeper philosophical questions, of asking, who are you, who are we, and how do we live well together? It's not a particularly popular conversation, because it slows things down and forces people to analyze their own role in the world, but it's a necessary one.

PND: A final question: Are you an optimist or a pessimist?

ME: Definitely an optimist. Given the current state of the world, I wouldn't be able to get out of bed in the morning if I wasn't. All my writings, even the critical ones, are trying to push people to create more change, to be more successful, to go much deeper. That's why I'm critical of some of the hype around social innovation and venture philanthropy and philanthrocapitalism. It's one thing to say we have lots of new opportunities; it's another thing to analyze them rigorously for their costs as well as their benefits. We can easily get lost in the hype and lose sight of the fact we face enormous challenges which will require every ounce of our critical imagination in order to address them. But you have to think, in a critically optimistic way, that we will rise to the challenge.

PND: Well, thanks for your time, Michael.

ME: Thank you.

Nick Scott spoke with Edwards in November. For more information on the Newsmakers series, contact Mitch Nauffts at mfn@foundationcenter.org.