6/30/15

Philanthropy is not only to do better, but to do differently

Jack Ma, in an interview with Charlie Rose, delivered an insightful perspective on philanthropy. In response to a question regarding his thoughts on the Giving Pledge and philanthropy in China, he responded (start watching around 16:10):

"...I never thought that the money I have belongs to me. It belongs to society. When you have a couple of million, you’re a rich guy. When you have 10-20 million, that’s capital. When you have over 100 million, that’s the social resources. Society gave it to you [...] it’s not my money..."
It’s that last sentence that I think is the most interesting, and worth abstracting.

Consider the US scenario. Philanthropy is given special treatment by the IRS. Mainly, contributions to charities and foundations are tax-exempt under Section 501(c)(3) of the tax code. Framing the notion of tax exemption another way, philanthropy can be seen as an "opportunity cost" to government spending on social resources. This means that the US government, and by extension US citizens, are trusting non-profit organizations with these resources to do better, and/or do differently than the government.

To do better, means to deliver more of a desired social outcome using the same resources. This concept has been around for a while, and has been widely debated. I’m not here to revisit that debate. I accept the premise that non-profits can do better than government in certain areas, and vice-versa. However, I do think there's room for improvement when it comes to having a robust evidence-base to show the differential between government and philanthropic-led social interventions/services.

To do differently, is where I think there's more headroom for growth and innovation. The biggest comparative advantage that philanthropic capital has over government capital is the loosening of constraints on dimensions like: return timeframes, deployment time, and politics—among other things. 

Philanthropic foundations answer to their own Board of Directors, their program staff, and to their stakeholders who don’t usually think along election cycle timelines.

The implication is that philanthropic capital boasts one of the most exciting features that very few other capital sources have—a potential for very high risk-tolerance. Its deployment can have a similar dynamic that venture capital has in the investment ecosystem. I think more non-profits and foundations need to recognize this and more critically evaluate their appetite for risk. This should start from the bottom (from how funding is deployed via grants), through to high-level strategy, culture, and spend-down timeframes.

To bring it full circle, philanthropy is one of the biggest tools we have in our toolbox for increasing system-wide social impact. It only logically exists if its: 1) helping to do better (e.g. increasing efficiency) and/or 2) helping to do differently (e.g. raising the bar and/or changing the paradigm). A risk-seeking culture has to be at the center of philanthropy that complements other "social resources". As with any basic principle of risk—only through taking big enough risks, will we ever have the opportunity at the bigger rewards.