Market and Hybrid Approaches to Social Change

A Dynamic TPI Breakfast Discussion

Leaders from the business and philanthropic communities recently gathered at TPI for a conversation on how philanthropy and the market economy can intersect to create social change.  The event, part of the continued discussions surrounding Peter Karoff’s book, The World We Want: New Dimensions in Philanthropy and Social Change, included a panel discussion moderated by Peter, and featuring Ben Binswanger, COO of the Case Foundation, and Elyse Cherry, CEO of Boston Community Capital.   The conversation that followed raised a variety of provocative ideas and questions for all of us who are serious about making change.  We highlight some of the questions and comments here.  (Quotations come directly from audience comments.)

Is today’s focus on Creative Capitalism truly a paradigm shift - or not - and what will influence that outcome?
- Bill Gates and Warren Buffet are outspoken leaders on harnessing the power of the market economy to do good in the world.  Gates' recent speech on “Creative Capitalism” focused on how corporations can and must do more to take advantage of their intellectual and management capacity.
- Take advantage of the shift in the attitudes of younger generations. “One of the opportunities we have is to be more aggressive, more creative, and more systematic about reinforcing the new consciousness and the practical idealism of future generations who embrace the identity of being social entrepreneurs”
- Great philanthropists “realize the change they want to see in the world is not going to be about what they do; it’s going to be about what they can catalyze and activate other people to do.  How can we empower individuals to think about how they’re going to make a difference?  What’s needed is a democratization of philanthropy.”

Are the distinctions between for-profit and non-profit entities archaic?  Do we need new models?  Is it so that “We’re never going to get there with nonprofit resources and government alone"?
- When Peter Karoff left the business world to found TPI 20 years ago, he was struck by the “culture of antagonism” between philanthropy and the for-profit world.  “Fast-forward to today when we have this veritable explosion of interest in the market economy taking a role in addressing social dilemmas.  But that cultural differential is still there.”
-  “Why are we dividing things by their tax status?  A more helpful distinction is between social goals and business goals.”
- The nonprofit sector is an “incubator for new ideas.”  There has to be a way to combine the great ideas and knowledge of the sector with the capital they need to take off.  For example, microfinance is currently only addressing 10% of the market’s microfinance needs. “We’re never going to get there with nonprofit resources alone.  We’re going to need to figure out how market forces can help.”

How does a philanthropist find the deal flow, and how do criteria for investing in market or hybrid based projects differ from conventional grantmaking?
- Organizations like Good Capital are creating a deal flow by finding and funding the “middle ground” between traditional investment and grantmaking. Good Capital invests in revenue-generating organizations that have a “cost of doing good.” 
- Another interesting place to seek investment opportunities is B Corporations (Benefit Corporations). B Corps are certified companies which meet high standards of environmental and social performance.  The notion is that these companies will be part of ”an emerging sector of the economy that sits in between the traditional for-profit and nonprofit sectors.”
- Foundation initiatives to move nonprofits toward sustainable business models sometimes fail because the nonprofits do not have the resources to recruit or retain the right personnel to execute the plan.  Investing in for-profits to achieve social good offers different, but exciting, challenges than conventional grantmaking.

“Nobody gives up power voluntarily” –  What incentives do market-economy investors, including corporations, have to invest in social good?
- The challenge is dealing with short-term investors, who typically want to make a quick profit and aren’t concerned with business sustainability over time.  Long-term investors care about a company’s reputation, and are more likely to consider a company’s social policies.
- Innocentives and the X-Prize are models that turn philanthropy “on its head” by providing monetary compensation for entrepreneurs who most successfully solve social “challenges”. 
- As Walmart has discovered in recent years, shifting toward more socially responsible behavior is good for business.  And when Walmart makes a decision to “go green” markets are transformed quickly.

Is this about broadening the market's role, or about redefining philanthropy’s role?
- Stakeholders could be redefined to include not just investors but also employees, community members, and the general public.  Do all these groups deserve a voice in the company’s decision-making?
- Can/should a corporation’s mission expand to include both generating profit and improving society?  Is it fair?  “Corporations can’t solve everything.”
- Does the need to generate a profit cause a drift away from the social mission? 
- There are many social investment organizations that for-profits cannot take over because there is no ability to generate profit.  On the other hand, when it is possible to create a financial return on investment for a mission-driven organization (e.g. microfinance), “we arguably have a responsibility to do so.” 

Is there a limit? Is it morally wrong to make a lot of money off social change?
- Was it right that individuals and mission-driven organizations made millions of dollars off the public offering of Compartamos, a Mexican microfinance organization?  (Read the recent New York Times article)
- Why shouldn’t poor people have the right to the benefits of market competition that drive prices down to a sustainable level? 
- “Generating profit while achieving social goals is an exceptionally good thing.” 

Can these approaches go beyond “deal-making” to promote systemic social change?
-  We need more discussion about the potential intersections between the for-profit, non-profit and government sectors.
-  “Philanthrocapitalism” is generally focused on how to deliver services and products and may not fundamentally alter systems.  There is no substitute for civic engagement, organizing and advocacy as a way to get to systemic change.